The Court of Appeal of Alberta recently issued a decision likely to have an effect on any businesses or individuals entering into contracts that include special limitation periods. The case considered a suit by a plaintiff against his own insurer in respect of an underinsured motorist and the appropriate limitation period that applied to the plaintiff bringing that claim, but has much broader application.
The Limitations Act
In Shaver v. Co-operators General Insurance Company (Shaver), the Court considered section 7 of the Alberta Limitations Act, R.S.A. 2000 c. L-12 (the Act) which provides:
"7(1) Subject to section 9, if an agreement expressly provides for the extension of a limitation period provided by this Act, the limitation period is altered in accordance with the agreement.
(2) An agreement that purports to provide for the reduction of a limitation period provided by this Act is not valid."
Section 7 of the Act bars parties from creating contractual limitation periods that are shorter than those in the Act, and allows parties to contract for limitations periods that are longer than those in the Act.
The Act provides for two limitation periods in ordinary circumstances, a two-year limitation period based on the discoverability principle, and an ultimate 10-year limitation period, as set out at subsections 3(1)(a) and 3(1)(b):
"3(1) Subject to section 11, if a claimant does not seek a remedial order within
(a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known,
(i) that the injury for which the claimant seeks a remedial order had occurred,
(ii) that the injury was attributable to conduct of the defendant, and
(iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding,
or
(b) 10 years after the claim arose,
whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim."
The Contract
The Endorsement contained a contractual limitation period at clause 6(c), which provided that a claim must be started within one year from discovery – specifically, time starts to run under clause 6(c):
"from the date upon which the eligible claimant or his legal representatives knew or ought to have known that the quantum of the claims with respect to an insured person exceeded the minimum limits for motor vehicle liability insurance in the jurisdiction in which the accident occurred."
Background
Years before this action was started, the plaintiff was injured in a three-car collision. At the time of the accident, the plaintiff had his own insurance coverage for underinsured or uninsured motorists by way of an SEF 44 endorsement (the Endorsement).
The plaintiff commenced this suit against his own insurer a little over six months after the Motor Vehicle Accident Claims Act fund (the Fund) finally decided on how to apportion its limits, as the Fund puts a legislated ceiling on the total claims arising out of one accident that it can pay. It was not clear until this time that the compensation coming from the Fund was not adequate, and that the insured would have to make a claim against his own insurer under the Endorsement.
The claim was brought within six months of the Fund's payout, but by this time just over 10 years had elapsed since the time of the accident. The defendant insurer argued that the 10-year ultimate limitation period had been exceeded and moved to dismiss the suit summarily.
The defendant argued that this contractual limitation period is barred by section 7(2) of the Act as the limitation period is for one year, which is shorter than the ordinary two- and 10-year periods in the Act.
Conclusion
In his Reasons for Judgment, Mr. Justice Côté stated that such a narrow reading restricting the words "limitation period" in section 7 to the interval (number of months or years) between commencement and expiry, would have odd and unpredictable results and provided the following examples:
"For one thing, an agreement which merely chose a later date as a deadline would have no 'limitation period' on that strict view, and so would fit within neither subsection of s 7.
. . . .
Worst of all, a standing pre-accident contract or insurance policy could then evade s 7(2)'s prohibition on shorter limitation periods, by manipulating the start dates. As noted, the ordinary period ... runs two years from discoverability. Businesses could slip into their contracts contractual limitation periods running two years and one day from the accident or occurrence. In a very large number of cases, that would expire before the ordinary two-year discoverability period did. But two years plus a day is longer than the ordinary limitation period of two years.
Justice Côté stated that "The only way that I can see to reconcile all this is to interpret s 7(1)(2) the way that a plaintiff or a practising lawyer would." It must first be determined what the last day is that the Act would allow the plaintiff to sue, and then determined if the contract chooses a date that is earlier or later than that date. If the date is earlier, then the contract is invalid; if the date is later, then the contract is valid.
Shaver involved a contractual clause which expressly provided for a special limitation period, as required by section 7, and although shorter numerically than the limitation periods provided for in the Act, as held by Justice Côté, it quite often will allow the injured person to sue later than the ultimate 10-year statutory limitation period. Therefore, section 7(1) expressly allows this, and section 7(2) does not forbid it, or at least not in these circumstances.
In summary, this decision means that the Alberta courts are not to read section 7 of the Act narrowly, restricting the meaning to the number of months or years. Rather, the courts are to look at when the contractual limitation period actually starts running and determine from this whether it is shorter than the ordinary limitation periods in the Act. Therefore, it may not be clear from the outset of a contract as to whether a contractual limitation period will be barred by the Act, and this will have to be decided on a case-to-case basis.
All companies should be aware of this decision as it makes it clear that regardless of when the injury to the insured occurs, they cannot necessarily rely on the two-year or ultimate 10-year limitation periods in the Act. If there is ambiguity, the courts will read the language of the contract generously to find an extension of time of the limitation period. This decision, practically, is likely to have an effect on any businesses or individuals entering into contracts that include special limitation periods, particularly those with discoverability principles.
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.
