I – INTRODUCTION
There are significant structural changes that have taken effect to the previous insurance scheme. Prior to these amendments, the Previous Act had remained largely unchanged in British Columbia since its inception in the 1920s when, needless to say, the insurance industry had different practices.
The legislative framework provides a new structure for insurance policies to reflect modern practices where all-risk or multi-peril policies have become the norm. The general application provision of the New Act has been replaced with the following:
2 (1) This Act, except as provided under an enactment, applies to every contract of insurance made or deemed made in British Columbia.
(2) This Act does not apply to or in respect of
- a contract of marine insurance within the meaning of the Marine Insurance Act (Canada), or
- vehicle insurance as defined in the Insurance (Vehicle) Act.1
One of the more significant changes introduced under the New Act is the removal of Part 5, which previously applied only to coverage for loss or damage by fire. Many of these provisions have now been merged into the "General Insurance Provisions" under Part 2 of the New Act.
As a result, Part 2 of the New Act now applies to almost every type of property and liability policy including multi-peril policies, commercial general liability insurance, directors and officers insurance, professional errors and omissions insurance, excess insurance, umbrella policies, and so on. This widespread application of Part 2 has been legislated in s. 8 of the New Act, which holds that Part 2 will apply to "every contract", with several exceptions:
8 This Part applies to every contract except
- subject to section 38, a contract of life insurance,
- subject to section 93, a contract of accident and sickness insurance,
- a contract of reinsurance, and
- subject to regulations under section 140, a contract to which Part 5 applies.2
Finally, the new Classes of Insurance Regulation of the New Act has been introduced. This reduces the defined classes of insurance from 50 to 20, in order to align with the federal insurance scheme.
II – POLICY LANGUAGE
There are several provisions that require insurers to amend their policy language to conform with the New Act. Several key areas where such amendments will be required are identified and analyzed below. Pursuant to s. 3(1), insurers are required to amend their policies to comply with the New Act, subject to the transitional provisions (discussed below):
3 (1) An insurer must not make a contract that is inconsistent with this Act.
(2) A contract is not rendered void or voidable as against an insured, or a beneficiary or other person to whom insurance money is payable under the contract, by reason of a failure of the insurer to comply with a provision of this Act. 3
The transitional provisions discussed in Section IV of this memorandum outline when the various amendments will become applicable.
Statutory Conditions
One of the most significant changes to policy language is with respect to the statutory conditions. The statutory conditions have been largely imported from Part 5 of the Previous Act, with some modifications. Section 29 governs the inclusion of these conditions in policies falling within Part 2 of the New Act:
29 (1) Subject to subsections (2) and (3), the conditions set out in this section are deemed to be part of every contract, and must be printed on every policy under the heading "Statutory Conditions", and no variation or omission of or addition to a statutory condition is binding on the insured.
(2) This section does not apply to contracts of surety insurance or a class of insurance prescribed by regulation.
(3) Statutory Conditions 1 and 6 to 13 apply only to, and need only be printed on, contracts that include insurance against loss or damage to property.
(4) In this section, "policy" does not include an interim receipt or binder.4
The new statutory conditions can be found directly in the New Act. As a result of this amendment, the statutory conditions must now be reproduced in almost all property and liability policies governed by Part 2 of the New Act, subject to certain exceptions.
Statutory conditions 2 - 5 are deemed to be a part of every contract of insurance (where applicable) and must be reproduced word-for-word under the heading "Statutory Conditions".
Furthermore, statutory conditions 1, and 6 to 13 must also be included on policies covering loss or damage to property.
No additions or variations can be made to the statutory language.
The notable exceptions to the statutory conditions are prescribed under s. 5 of the new Insurance Regulation which states that the statutory conditions do not apply to the following classes of insurance: aircraft insurance, boiler and machinery insurance, credit insurance, credit protection insurance, hail insurance, mortgage insurance, product warranty insurance, title insurance, travel insurance, and vehicle warranty insurance.
Exclusions for Fire Loss
The legislature has acknowledged that loss by fire constitutes a significant financial loss for individuals and businesses and took an approach to avoid further limiting coverage. As such, the legislation has been strengthened to clarify that fire coverage in policies governed by Part 2 of the New Act includes fires resulting from any cause whatsoever, except those that are specifically excluded by the act or under the regulations:
33 (1) An insurer must not provide in a contract that includes coverage for loss or damage by fire, or another peril prescribed by regulation, an exclusion relating to the cause of the fire or peril other than an exclusion prescribed by regulation or established by section 34 (2) or (3).
(2) An insurer must not provide in a contract that includes coverage for loss or damage by fire, or another peril prescribed by regulation, an exclusion relating to the circumstances of the fire or peril if those circumstances are prescribed by regulation.
(3) An exclusion contrary to subsection (1) or (2) is invalid.
(4) For greater certainty, subsections (1) and (2) apply in relation to loss or damage by fire, however the fire is caused and in whatever circumstances and whether the coverage is under a part of the contract specifically covering loss or damage by fire or under another part. 5
There continues to remain certain permissible exclusions with respect to fire loss. Under the New Act, policies can only contain exclusions for loss or damage caused by fire that have been either legislated under s. 34 of the New Act, or prescribed by regulation. Section 34 of the New Act effectively reproduces the previous exclusions with respect to fire loss resulting from lightning and radioactive contamination that were found under Part 5, s. 122 of the Previous Act, therefore will not be covered herein.
Section 6 of the new Insurance Regulation, prescribes the following further permissible exclusions from coverage for loss or damage by fire:
6 (1) For the purposes of section 28.4(1) [33(1)] of the Act, an insurer may provide in a contract that includes coverage for loss or damage by fire an exclusion for fire or explosion caused by
- subject to section 28.6 [35] of the Act, a criminal act or omission, or an act or omission of the insured or a person having an insurable interest in the subject of the insurance, which act or omission was intended to bring about the loss or damage, or
- riot, civil commotion, war invasion, act of a foreign enemy, hostilities, whether war is declared or not, civil war, rebellion, revolution, insurrection, or military power.
(2) For the purposes of section 28.4(1) [33(1)] of the Act, an insurer may provide in a contract that includes coverage for loss or damage by fire an exclusion for fire or explosion caused by terrorism but only as the contract applies to property that is not used for residential purposes.
(3) For the purposes of section 28.4 (2) [33(2)] of the Act, except as authorized under subsections (1) and (2) of this section, an insurer may not provide in a contract that provides coverage for loss or damage by fire an exclusion for loss or damage by fire that occurs when the insured property is vacant for a period not longer than 30 days.6
No other exclusions for fire loss are permissible.
These exclusions largely reflect the old exclusions under Part 5 of the Previous Act, except for those found under ss. 6(2) and (3).
Pursuant to s. 6(2), exclusions can only be made for fire arising from terrorism if the insured property is non-residential (i.e. commercial property). Therefore, residential property is covered for fire loss arising from terrorism.
Furthermore, pursuant to s. 6(3) no exclusion can be made with respect to vacant properties unless the property has been vacant for over 30 days; subject of course to loss arising from the permissible exclusions.
There was also debate when the legislation was proposed to allow exclusions for fires arising as a result of earthquakes, as many insurers included such exclusions in their policies. However, the legislature specifically did not permit this exclusion for policy reasons. Therefore, insurance policies covering loss or damage by fire may not exclude coverage for fires arising as a result of earthquakes.
Relief from Forfeiture
The New Act expands the discretion of the court to provide relief from forfeiture. Under s. 10 of the Previous Act the court could only provide relief from forfeiture in limited circumstances where there was imperfect compliance with a statutory condition. Under the New Act, s. 13 has been expanded to apply s. 24 of the Law and Equity Act, R.S.B.C. 1996 c. 253 ("LEA") to insurance policies:
13 Without limiting section 24 of the Law and Equity Act, if
- there has been
- imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or another matter or thing required to be done or omitted by the insured with respect to the loss, and
- a consequent forfeiture or avoidance of the insurance in
whole or in part, or
- there has been a termination of the policy by a notice that
was not received by the insured because of the insured's
absence from the address to which the notice was
addressed,
and the court considers it inequitable that the insurance should be forfeited or avoided on that ground or terminated, the court, on terms it considers just, may - relieve against the forfeiture or avoidance, or
- if the application for relief is made within 90 days of the date of the mailing of the notice of termination, relieve against the termination. 7
Section 24 of the LEA is a general equitable provision that will provide the court with a broad discretion to relieve against all penalties and forfeitures.
Unjust or Unreasonable Conditions
On a similar note, s. 129 of the Previous Act has also been imported into Part 2 of the New Act, as s. 32, which allows the court to relieve against unjust or unreasonable conditions. This was already in effect with respect to claims for loss or damage as a result of fire, but it now has general application to both liability and property policies falling within the scope of Part 2. As did its predecessor, s. 32 allows the insured to challenge a denial of coverage on grounds that the exclusion or provisions under which coverage has been denied are unreasonable or unjust:
32 If a contract contains any term or condition, other than an exclusion prescribed by regulation for the purposes of section 33 (1) or established by section 34 (2) or (3), that is or may be material to the risk, including, but not restricted to, a provision in respect of the use, condition, location or maintenance of the insured property, the term or condition is not binding on the insured if it is held to be unjust or unreasonable by the court before which a question relating to it is tried.8
There is no guidance as to how the courts will apply these provisions, which may lead to increased litigation in the future.
Other
Some other notable provisions under the New Act that may affect policy language are as follows:
- s. 11 requires a statement advising of the limitation period, and
- s. 31 requires a limitation of liability statement if applicable.
III – CLAIMS HANDLING
There have also been several amendments that affect how claims are handled in the future. This section will identify some of those amendments that may require some changes in current claims handling procedures for insurers.
Electronic Communication
The New Act allows for the electronic transmission of insurance documents by applying the Electronic Transactions Act, S.B.C. 2001, c. 10 ("ETA") to all insurance contracts governed by the New Act:
7 (1) If under this Act a record is required or permitted to be provided to a person personally, by mail or by any other means, unless regulations referred to in subsection (4) of this section or under section 149(2)(f) provide otherwise, the record may be provided to the person in electronic form in accordance with the Electronic Transactions Act...9
Effectively, pursuant to s. 7 of the New Act, subject to what is set out below, email and scanned documents will satisfy any delivery requirements under the act. This also allows insurance policies to be enforceable when transmitted electronically.
Pursuant to s. 18 of the ETA, time periods start to run from the date the email enters the insured's email account (for example, a proof of loss form).
One important condition to note, is that pursuant to s. 4 of the ETA, documents may not be transmitted electronically without the recipient's consent. The ETA further provides that consent may be inferred from the person's conduct. Therefore providing an email address should be sufficient to infer consent, but it is advisable to obtain explicit consent where possible, and request "read receipts" on all emails sent.
There is one notable exception to the application of the ETA, provided in s. 2 of the new Insurance Regulation. Pursuant to this section, an insurer may not electronically transmit a notice to terminate a policy under a statutory condition or for non-payment of premiums:
2 The Electronic Transactions Act and section 2.5(1) [7(1)] of the Act do not apply to or in respect of an insurer's notice terminating a contract ... 10
In such circumstances, the insurer must serve the relevant documents either personally or by registered mail. The legislature indicated that the use of electronic transmissions in this context raises concerns about actual receipt by the insured, therefore notifications terminating coverage must still be physically delivered.
Limitation Period
Pursuant to s. 23(1) of Part 2 of the New Act, the limitation period is two years for the commencement of all property and liability proceedings arising from policies governed by Part 2:
23 (1) An action or proceeding against an insurer in relation to a contract must be commenced,
- in the case of loss or damage to insured property, not later than 2 years after the date the insured knew or ought to have known the loss or damage occurred, and
- in any other case, not later than 2 years after the date the cause of action against the insurer arose. 11
Pursuant to s. 23(1)(a) of the New Act an action against an insurer in relation to loss or damage to property must be commenced "not later than 2 years after the date the insured knew or ought to have known the loss or damage occurred".
Pursuant to s. 23(1)(b) of the New Act any other action against an insurer must be commenced "not later than 2 years after the date the cause of action against the insurer arose." This includes coverage disputes.
Simply put, for liability claims, or coverage disputes, the limitation period will be 2 years from when the cause of action arose, and for property claims, it will be 2 years from when the insured knew or ought to have known the loss or damage occurred.
Section 6 of the New Act also applies s. 7 of the Limitation Act, R.S.B.C. 1996 c. 266 ("Limitation Act") to all limitation periods established under the New Act, as follows:
6 (1) Section 7 of the Limitation Act applies to a limitation period established under this Act in respect of an action or proceeding on a contract as if the limitation period were established under the Limitation Act.
(2) A limitation period established under this Act in respect of an action or proceeding on a contract may be varied by a contract to provide a longer period.12
Recovery by Innocent Persons
Under Part 2 of the New Act, where there are multiple insureds and coverage is denied because of the actions of one insured, the innocent insured will not be barred from recovery:
35 (1) Despite section 5, if a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person
- whose act or omission caused the loss or damage,
- who abetted or colluded in the act or omission,
- (c) who
- consented to the act or omission, and
- knew or ought to have known that the act or omission would
cause the loss or damage, or
- who is in a class prescribed by regulation.
(2) Nothing in subsection (1) allows a person whose property is insured under the contract to recover more than their proportionate interest in the lost or damaged property.
(3) A person whose coverage under a contract would be excluded but for subsection (1) must comply with any requirements prescribed by regulation. 13
This amendment replicates a previous amendment that was introduced as of June, 2011, by B.C. Reg. 115/2011.
Pursuant to s. 35, coverage cannot be denied to an innocent insured, even if the fire was caused by a criminal or intentional act or omission of a co-insured. The exclusion will apply only with respect to the insured involved in the criminal or intentional act or omission. The innocent party will be entitled to recover the entirety of his or her interest in the property.
In handling claims, it will be important to note that where such an exclusion is triggered, it may not affect all insureds under the policy.
This often arises in the context of a married couple, where one spouse intentionally damages the marital home. In such a case, the innocent spouse will be entitled to recover the entirety of his or her interest in the property. Another such example is in the case of child intentionally damaging the home of his or her parents. In that instance, the loss will likely be recoverable by the parents.
The new Insurance Regulation, s. 7, limits the benefit of this provision to "natural persons" (i.e. humans) and requires the cooperation of the insured in order to benefit from this provision:
7 (1) For the purposes of section 28.6(1)(d) [35(1)(d)] of the Act, all classes of persons other than natural persons are prescribed.
(2) For the purposes of section 28.6(3) [35(3)] of the Act, a person described by that provision must co-operate with the insurer in respect of the investigation of the loss, including, without limitation,
- by submitting to an examination under oath, if requested by the insurer, and
- by producing for examination at a reasonable time and place designated by the insurer, documents specified by the insurer that relate to the loss. 14
Other
Some other notable provisions under the New Act that may affect claims handling procedures are as follows:
- s. 12 of the New Act outlines the mandatory dispute resolution process, and
- s. 3 and s. 4 of the Insurance Regulation outlines notification requirements.
IV – TRANSITION
The Previous Act continued to apply until July 1, 2012, upon which time the New Act came into force. However, certain provisions have a delayed effective date to allow insurers to adjust insurance policies to comply with the new statutory framework.
Section 150 of the New Act contemplates regulations identifying the dates that specific provisions of the New Act will come into force. Accordingly, s. 13 of the new Insurance Regulation addresses the transition of all Part 2 provisions. The following provisions of the New Act will only become effective once a policy is renewed or replaced:
- Section 11(1)(j) which requires mandatory language to bring the insured's attention to the applicable limitation periods,
- Section 29 regarding the statutory conditions,
- Section 31 which requires a mandatory limitation of liability clause,
- Section 33 which relates to mandatory fire coverage subject to prescribed exclusions, and
- Section 34 which lists certain exclusions for fire loss.
Furthermore, ss. 19 and 21 of the Previous Act will remain in force (these are repealed under the New Act) until a policy has been renewed or replaced.
Effectively, insurance policies already in effect July 1, 2012 do not have to be amended to include the mandatory changes to the policy language until those policies are renewed or replaced.
Furthermore, the dispute resolution provision (s. 12 of the New Act) is not applicable if the insurer has provided notice to the insured of the appraisal process under s. 9 of the Previous Act prior to July 1, 2012. Essentially, if the appraisal process has already been initiated when the New Act comes into force, the process will be governed by s. 9 of the Previous Act. If notice of dispute has been provided, then the new dispute resolution process under s. 12 of the New Act will apply.
Finally, the following provisions will not be applicable to any claims where the loss or damage occurred prior to July 1, 2012:
- Section 6(1) which applies s. 7 of the Limitation Act to all limitation periods established under the New Act,
- Section 23(1) which is the new 2 year limitation period applicable to property and liability policies, and
- Section 35 which allows recovery by innocent co-insureds.
In other words, the above provisions only apply to claims where the loss or damage occurs after the New Act came into force.
All other provisions came into force on July 1, 2012.
Footnotes
1. The New Act, supra at s. 2.
2. New Act, supra at s. 8.
3. New Act, supra at s. 3.
4. New Act, supra at s. 33.
5. New Act, supra at s. 33.
6. Insurance Regulation to the New Act, supra, enacted by Order in Council no. 589 on December 1, 2011 ("Insurance Regulation") at s. 6.
7. New Act, supra at s. 13.
8. New Act, supra at s. 32.
9. New Act, supra at s. 7.
10. Insurance Regulation , supra at s. 2.
11. New Act , supra ats. 23.
12. New Act , supra at s. 6.
13. New Act, supra at s. 35.
14. Insurance Regulation, supra at s. 7
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.
