It is not uncommon for insurance policies to contain a deductible clause. A deductible clause typically states the amount that an insured is required to pay to the insurer before the insurer will be required to indemnify the insured for a loss. When the deductible is a significant amount, it is often referred to as the insured's self-insured retention.

In the recent BC Supreme Court decision PCL Constructors Westcoast Inc. v Royal & Sun Alliance Insurance Company of Canada, 2019 BCSC 822, our BC Supreme court considered the issue of whether the Course of Construction policy issued to the City of Victoria contained an enforceable deductible clause.

The plaintiff, PCL Constructors Westcoast Inc. ("PCL") is an insured under the policy as a contractor in a bridge replacement project. The policy contained a deductible clause which states the following:

17.5  Deductibles: The contractor will be responsible for the payment of all deductibles for the insurance policies described in GC. 17, including for the payment of all deductibles for the insurance policies described in GC. 17.7.

....

17.7  City provided Insurance Coverage: This policy will have the following deductibles: (A) $250,000 for water damage... and (C) $250,000 for all other losses.

PCL suffered damage to insured property and claimed for coverage under the policy. PCL argued that the deductible clause is not enforceable, as the policy does not comply with s. 31 of the Insurance Act, RSBC 2012, c 1. This provision sets out the required form in constructing a limitation of liability clause in an insurance policy. It states the following with respect to a deductible clause:

31.  A contract containing

(a) a deductible clause,

....

must have printed or stamped on its first page in conspicuous bold type the words "This policy contains a clause which may limit the amount payable" and, unless these words are so printed or stamped, the clause is not binding on the insured.

There is no such statement printed or stamped on the front page or any other location in the policy.

The first question the court looked at was the impact of non-compliance with s. 31 of the Insurance Act. The court adopted a strict application of s. 31 against the insurer and held that the case law is clear in determining that "if the words mandated by s. 31 do not appear on the front page of the policy, the deductible is not in effect."

The insurer argued that equitable doctrines of rectification and promissory estoppel, or the duty of honest performance should override s. 31 of the Insurance Act. The insurer claimed that PCL was aware of the deductible clause at all material times, and therefore, it would be inequitable for PCL not to meet this obligation. Unpersuaded by the insurer's argument, the court held that the law in BC is clear: "s. 31 of the Insurance Act is to be strictly construed even when the insured knew of the deductible and agreed to it." The court further held that equitable remedies are not available against statutory duties. As such, the court concluded that PCL is not obligated to pay the deductible arising from the claim, as the insurer failed to comply with s. 31 of the Insurance Act.

This decision is a good reminder to insurers that the policy must strictly comply with insurance statutory requirements, and any issues arising from lack of such strict compliance will generally be held against the insurer.

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.