Canada: Three Ontario Court Of Appeal Decisions Hold Standard Form Insurance Contracts Are To Be Reviewed On Correctness Standard

Contract law was forever changed in Canada as a result of the Supreme Court's 2014 decision in Sattva Capital Corp. v. Creston Moly Corp. As we have previously discussed, the Court held that contractual interpretation is a question of mixed fact and law, and a trial judge's interpretation of a contract is therefore to be given deference on appeal. But should this apply for standard form contracts, such as insurance contracts, where multiple pieces of litigation regarding the interpretation of the same contract may emerge?

The Supreme Court of Canada has granted leave to appeal an Alberta Court of Appeal decision, Ledcor Construction Limited, et al. v. Northbridge Indemnity Insurance Company, et al., that wrestles with this issue. This should hopefully result in important clarification in the law given that the Ontario Court of Appeal has found itself divided on this issue. We have already discussed how, in October 2015, the Ontario Court of Appeal decided that deference was due to a trial judge's interpretation of a standard form insurance contract. But since then, three different judges of the Ontario Court of Appeal have strongly disagreed:

The three cases, principally MacDonald, make a compelling case for why a trial judge's interpretation of a standard form insurance contract should be reviewed on a correctness standard.


MacDonald was an action brought against an insurance company for coverage and indemnification. The motion judge concluded that the plaintiffs were entitled to neither. Justice Hourigan concluded that deference was not owed to his interpretation of the insurance policy. He noted that many appellate judges and academic commentators across Canada have criticized Sattva, suggesting it must be understood in its own unique factual context (which was very much tied to the British Columbia Arbitration Act). However, Justice Hourigan nonetheless decided that significant guidance must be taken from Sattva such that appellate courts will generally be deferential to trial judges' interpretations of a contract.

Justice Hourigan concentrated on the rationales the Supreme Court gave in Sattva for a deferential standard of review with respect to contractual interpretation:

  1. "Canadian courts now recognize that the meaning of contractual terms is often derived from contextual factors, including the purpose of the agreement, the commercial background of the agreement, and the nature of the relationship created by the agreement" (para. 20).
  2. "the purpose of the distinction drawn in the jurisprudence between questions of mixed fact and law and questions of law supports, as a matter of judicial economy, a limit on the ability of an appellate court to interfere with the fact-finder's interpretation of a contract, given that in most cases the interpretation will have no impact beyond the interests of the parties to the particular dispute" (para. 21)

These rationales did not provide a justification for deference on the facts of this case in Justice Hourigan's view. First, the need to consider the "unique factual circumstances" of a case is of little importance when interpreting standard form contracts:

[32] [...] the relative importance of the surrounding circumstances is largely dependent on the nature of the contract. The circumstances surrounding the formation of a contract negotiated by arms-length parties may be very important in understanding the parties' objective intent. Similarly, the determination whether the parties are in a special relationship, such as a fiduciary relationship, may also be an important factor in determining the parties' objectively intended obligations under a contract.

[33] The importance of the factual matrix is far less significant, if at all, in the context of a standard form contract or contract of adhesion where the parties do not negotiate terms and the contract is put to the receiving party as a take-it-or-leave-it proposition. Any search for the intention of the parties in the surrounding circumstances of these contracts "is merely a legal fiction" [citation omitted]

Second, unlike the interpretation of most contracts, the interpretation of a standard form contract is of great significance beyond the parties to a case. As such, not only is deference unwarranted, but intervention can be particularly warranted:

[37] The distinguishing factor between questions of law and mixed fact and law on appeal is the precedential value of the appellate court's intervention. It is inarguable that the interpretation of many contracts would likely have very limited precedential value. However, standard form contracts are often highly specialized contracts that are sold widely to customers without negotiation of terms. The interpretation of the Title Policy applies equally to the appellants and to all of Chicago Title's other customers who purchased the same policy, and therefore is of general importance and has precedential value in a way that the interpretation of other contracts may not.

[38] In addition to the incompatibility of the reasoning in Sattva with the contract at issue in the current case, there is an important public policy argument that supports the adoption of a correctness standard for appeals involving the interpretation of standard form contracts such as the Title Policy. As Rothstein J. recognized in Sattva, at para. 51, provincial appellate courts play an important role in ensuring consistency in the law. They must be vigorous in fulfilling that mandate and must always be mindful of the line between deference to the trial court and the abdication of their statutorily-imposed duties.

[39] Correction of legal errors lies at the heart of the responsibilities and the capabilities of provincial appellate courts. The standard of review analysis must respect the roles of both the trial and appellate courts in order for the civil justice system to function effectively. [...]

[40] It is untenable for standard form insurance policy wording to be given one meaning by one trial judge and another by a different trial judge [...] Unpredictable outcomes in litigation only serve to encourage litigation because the more a given result depends on the particular trial judge, the greater the chance that litigants will risk going to trial. Appellate courts have a valuable role to play in ensuring consistency in the law and greater predictability in litigation outcomes: [...]

[41] In summary, the standard of review that applies to a standard form insurance contract like the Title Policy is correctness. The rationales in Sattva that support adopting a deferential standard of review do not apply to contracts of this type, as the factual matrix does not meaningfully assist in interpreting them and their construction has broad application. For these reasons, adopting the correctness standard of review for these contracts best ensures that provincial appellate courts are able to fulfill their responsibility of ensuring consistency in the law.


Monk addressed the interplay of various provisions in an insurance contract that would determine whether insurance coverage applied to damage caused by a contractor in the course of, or as a result of, restoration work performed on the exterior of the plaintiff's home. The motion judge concluded that there was no coverage in these circumstances. Justice Huscroft's concise standard of review analysis built on MacDonald:

[21] Following the hearing of the appeal, the panel invited the parties to make submissions concerning the standard of appellate review and, in particular, the applicability of the Supreme Court of Canada's decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. We have received and reviewed those submissions.

[22] This court has determined that the correctness standard of review applies to decisions interpreting standard form insurance contracts: MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, at para. 41.

[23] In this case, as in MacDonald, we are concerned with the interpretation of a standard form insurance contract. This is not a case in which the circumstances surrounding the contract are important to its interpretation, nor is it a case in which the interpretation of a contract has no impact beyond the parties to it. The respondents' submission that the "faulty workmanship" provision in this contract is not standard across the insurance industry misses the point: it is standard to the many customers of the respondent Farmers who purchased the same policy and it should be interpreted consistently.

[24] Accordingly, the standard of review is correctness.


The Daverne appeal arose from a third party claim which was brought after a party defended itself in a main action for which an insurer denied coverage. With respect to the standard of review of the motion judge's interpretation of the relevant insurance contract, Justice Lauwers adopted Justice Hourigan's analysis:

[11] In response to a question from the bench, the appellant took the position that the interpretation and application of the insurance policy falls into the deferential standard of appellate review demanded by Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633. Counsel for the appellant submitted that he had nevertheless shown reversible error, even on a deferential standard.

[12] Since this appeal was heard, this court has determined that the correctness standard of review applies on standard form insurance contracts: MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842 at para. 41. As Hourigan J.A. observed [... :] "It is untenable for standard form insurance policy wording to be given one meaning by one trial judge and another by a different trial judge." This followed his comment, at para. 38, that: "there is an important public policy argument that supports the adoption of a correctness standard for appeals involving the interpretation of standard form contracts."

[13] In the case of insurance policies, which involve the interpretation of similar if not common language and the application of general principles of insurance law, the high degree of generality and precedential value justifies a departure from the deferential standard of appellate review.

[14] Accordingly, correctness is the standard of review applicable to the motion judge's interpretation of the insurance policy. [...]


Macdonald, Munk and Daverne make a compelling case for why a trial judge's interpretation of an insurance contract should be reviewed on a correctness standard. It will be interesting to see how the Supreme Court resolves this issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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