- in Canada
- with readers working within the Advertising & Public Relations, Automotive and Banking & Credit industries
- within Tax and Criminal Law topic(s)
- with Senior Company Executives, HR and Finance and Tax Executives
Priority disputes between secured creditors are typically resolved under the applicable Personal Property Security Act ("PPSA"). But what happens when interests fall outside the PPSA's scope?
The British Columbia Supreme Court (the "Court") recently confirmed in Waygar Capital Inc. v. The Very Good Food Company Inc., that where excluded interests are subject to a different priority regime, the PPSA does not apply (even where a secured creditor has registered a general security agreement covering "all present and after-acquired personal property").1
Background
The Very Good Food Company ("VGFC") obtained financing from Waygar Capital Inc. ("Waygar") under a loan agreement and granted Waygar a security interest in all its collateral, including all unearned insurance premiums. Pursuant to a general security agreement, VGFC was required to maintain various commercial insurance policies. Waygar registered such security interest pursuant to the PPSA but did not provide notice to any insurers.
VGFC separately financed the commercial insurance policies through CAFO Inc. ("CAFO"), a premium finance company, and assigned all unearned insurance premiums to CAFO. CAFO provided written notice to each insurer but did not register the assignment pursuant to the PPSA.
When VGFC defaulted on its payments to CAFO, CAFO cancelled the Financed Policies. This triggered a refund of US$180,000 in unearned premiums from the applicable insurer. Since VGFC also defaulted on its obligations to Waygar, Waygar obtained a receivership order over VGFC's assets.
The Issue
The Court had to determine who had priority over the refunded premium:
- Waygar, with a general security agreement and PPSA registration; or
- CAFO, with an assignment and notice to the insurer?
The Court's Decision
The Court held that CAFO had first-ranking priority and was entitled to the refunded premium.
Section 4(c) of the British Columbia ("BC") PPSA specifically excludes from its application "the creation or transfer of an interest or claim in or under a policy of insurance ..." The Court found that unearned insurance premiums fall within this exclusion and are therefore governed exclusively by the BC Insurance Act.
Section 19(1) of the BC Insurance Act provides:
"If an insured assigns the right to refund of premium that may accrue by reason of the cancellation or termination of a contract of insurance under the terms of it and notice of the assignment is given by the assignee to the insurer, the insurer must pay any refund to the assignee."
To perfect an interest in unearned premiums under section 19(1), two requirements must be satisfied: (i) an assignment, and (ii) notice to the insurer.
CAFO satisfied both requirements. Although Waygar's general security agreement created a security interest in unearned premiums, it did not contain an assignment as required by section 19(1) of the BC Insurance Act.2 Moreover, Waygar never provided notice to the insurer. As a result, Waygar's interest in the unearned premiums was unperfected.
Applying the "first-in-time" principle, CAFO, as the first party to perfect its interest by complying with section 19(1), had priority over Waygar.
Alignment with Other Jurisprudence and Legislation
The Court followed Stelco Inc. (Bankruptcy), Re, where the Ontario Court of Appeal established that unearned insurance premiums fall outside the PPSA and are governed by the statutory insurance regime.3 Section 4(1)(c) of Ontario's PPSA and section 138 of the Ontario Insurance Act mirror those provisions in BC. Similarly, Alberta, has analogous legislation under section 4(c) of the PPSA and subsection 535(1) of the Alberta Insurance Act.
Notably, in Stelco, the Ontario Court of Appeal expressly left open the question of priority as between a PPSA-registered creditor and a premium finance lender. Waygar resolves that issue decisively in favor of the party that complies with the Insurance Act.
Practical Implications and Key Takeaways for Lenders
- Unearned insurance premiums are excluded from the PPSA. To perfect an interest in unearned premiums, creditors must satisfy two requirements under the Insurance Act: (1) obtain an assignment of the right to refund of premium, and (2) provide notice of the assignment to the relevant insurer.
- Excluded interests require extra diligence. Where interests are excluded from the PPSA, creditors must consult the statutory regime that governs those interests to ensure compliance with perfection requirements and to properly protect their interests. PPSA priority rules continue to apply to collateral within the PPSA's scope.
Footnotes
1 Waygar Capital Inc. v The Very Good Food Company Inc., 2025 BCSC 2077.
2 Ibid at para 71.
3 Stelco Inc. (Bankruptcy), Re, 2005 CanLII 13192 (O.N.C.A.).
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
