The Ontario Court of Appeal has affirmed that a contractual
condition within an insurance contract imposing a limitation period
of 1 year will override the statutory two-year limitation period
found within the Limitations Act, 2002.
In Daverne v. John Switzer Fuels Ltd. et al., (2015
ONCA 919), a fuel oil leak from a fuel tank caused damage to the
Davernes' property. One of the co-defendants, McKeown &
Wood, sold the tank to the Davernes. Federated, the insurers for
McKeown & Wood, took an off-coverage position, stating that the
policy was not in force at the date of loss. McKeown & Wood
commenced a third party claim against Federated.
Federated argued that a contractual limitation period included
in the insurance policy was applicable and that the third party
action was therefore not commenced in time.
Section 148 of the Insurance Act lists certain
statutory conditions which are to be part of every fire insurance
contract in Ontario. Federated included statutory condition 14 in
its policy as clause 14 of the Basic Policy Statutory Conditions
form. Clause 14 provided:
14. Action: Every action or proceeding against the insurer for
the recovery of any claim under or by virtue of this contract
is absolutely barred unless commenced within one year next after
the loss or damage occurs.
Clause 8 of the "Additional Conditions" of the Basic
Policy form stated:
8. Applicability of Statutory Conditions and Additional
Conditions: The Statutory Conditions and Additional Conditions
apply with respect to all the perils insured by this policy and to
the liability coverage, where provided, except where these
conditions may be modified or supplemented by riders or
The motion judge found that the contractual limitation period
was unenforceable. The motion judge concluded that "loss or
damage" in clause 14 did not include loss or damage suffered
by a third party, such as the Davernes who bring an action against
However, the Ontario Court of Appeal overturned this decision.
The court noted that section 22(1) of the Limitations Act,
2002 prohibited contracting out of a limitation period except
in the case of "business agreements".
A business agreement was defined as "an agreement made by
parties none of whom is a consumer as defined in the Consumer
Protection Act, 2002."
The court held that none of the parties to Federated's
insurance policy were a "consumer", which is defined in
the Consumer Protection Act, 2002 to mean "an
individual acting for personal, family or household purposes and
does not include a person who is acting for business
purposes." The court held that the parties were business
entities. The court referred to its own decision in Boyce v
Co-operators General Insurance Co., 2013 ONCA 298 in which it
was held that an insurance policy covering various risks related to
the operation of an insured's business fell within the
definition of "business agreement".
The Court of Appeal ruled that clause 14 of the Basic Policy
Statutory Conditions combined with clause 8 of the Additional
Conditions varied the two-year limitation period provided for in
the Limitations Act, 2002.
The Court of Appeal stated that the wording of the policy was
clear and unambiguous in that the statutory conditions apply to the
liability coverage under the policy. The one-year limitation period
in the policy was therefore enforceable and it began to run when
Federated refused to provide McKeown & Wood with a defence. As
the claim against Federated was commenced almost two years after
Federated's denial letter, McKeown & Wood's claim was
barred by the one-year contractual limitation period.
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