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Cut & Paste Policy Provisions At Your Peril

Published:

September 5, 2024

Author(s):

• Jennifer Reid

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The 2024 decision of the Supreme Court of Newfoundland and Labrador – General Division in Interprint Systems Limited et al. v. Co-operators General Insurance Company et al. serves as a warning to insurance companies underwriting policies in multiple provinces: there is no cut and paste option for the policy wordings – including appraisal process provisions. Insurers must ensure that their policies are accurate with respect to the applicable law and legislation for each jurisdiction to ensure the wording of those policies matches the applicable legislation of the relevant province. It’s also a reminder: courts will typically construe ambiguities in an insurance policy against the insurer.

Newfoundland & Labrador. The decision makes it clear that in Newfoundland and Labrador, in the case of multi-peril or “all-risks” policies, the appraisal process outlined in section 9 of the Insurance Contracts Act, is not statutorily mandatory. That’s not to say an insurer and insured could not agree among themselves to participate in an appraisal process – but one party cannot force the process on another. If an insurer wants a mandatory appraisal process to apply in Newfoundland and Labrador for an “all-risks” or “multi-peril” policy, it must ensure such a condition is fully contained within the policy documents and the insured has received a copy of any such policy wording.

Maritime Provinces. Like Newfoundland and Labrador, each of Nova Scotia (section 32, Nova Scotia Insurance Act), Prince Edward Island (section 91, Prince Edward Island Insurance Act) and New Brunswick (section 107, New Brunswick Insurance Act) have sections worded similarly to section 9 in their respective insurance legislation. Unlike Newfoundland and Labrador, each of Nova Scotia, P.E.I. and New Brunswick have combined their legislation governing each type of policy under a single statute. However, the statutory conditions regarding mandatory appraisal processes still fall under the fire and automobile insurance sections within these single statutes. Given the Supreme Court of Canada’s views in its 2003 decision in KP Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada et al., that obligations found under the fire policy specific sections likely don’t apply to “multi-peril” or “all-risks” policies, it’s anticipated courts in these jurisdictions would also find no statutory obligatory appraisal processes applicable to these types of policies. In a slight twist, had the Interprint case been decided in N.S., P.E.I. or N.B. and the insurer been able to prove the insured had received the Form No. AB, it’s likely the court would have found a contractually obligatory appraisal process because the name of the legislation in those provinces is the Insurance Act – so there would be no ambiguity about the governing legislation.

The Case 

The insured operated a retail print shop in St. John’s, Newfoundland and Labrador. The insurer insured the insured under an all-risks, multi-peril policy. In December 2016, the insured discovered a fuel leak. The insurer confirmed coverage for the loss but the parties disagreed on the quantum payable. The insured issued a Statement of Claim against the insurer in December 2018 claiming both contractual and extra-contractual damages. Four years later, and after the matter had been set-down for trial, the insurer brought an Interlocutory Application asking for an order compelling the insured submit to an appraisal process under section 9 of the N.L. Insurance Contracts Act. The insured opposed the appraisal process, arguing that neither the policy nor the Insurance Contracts Act allowed for a mandatory appraisal process. The insurer argued the appraisal process was mandatory by statute and in contract.

The Decision 

The Court outlined the two issues to be decided as:

• Was the appraisal process available to the insurer either statutorily or contractually?
• If so, should the Court order the insured to participate in it?

The Court dismissed the insurer’s application, finding the insured was “neither statutorily nor contractually bound to participate in the appraisal process”.

Policy Ambiguity. The Court found section 9 of the Insurance Contracts Act did not create a mandatory appraisal process unless, as outlined in section 9(1), appraisal was “a condition, statutory or otherwise” in the insurance contract in the face of a disagreement between the insured and insurer. The insurer argued the appraisal requirement was a condition of the insurance policy based on wording contained in a document called “Form No. AB” that outlined provisions applicable to the property and business interruption coverages. The insurer said it had provided the form to the insured when it renewed the policy. The Court described the relevant document as incorporating Statutory Condition 11 which outlines the same appraisal process as in the Ontario Insurance Act. The condition read,

In the event of disagreement as to the value of the insured property or the value of the property saved, the nature and extent of the repairs or replacements or if made their adequacy, or the amount of the loss or damage, those questions must be determined by appraisal or the applicable dispute resolution process* as provided under the Insurance Act before there can be any recovery under this contract, whether the right to recover on the contract is disputed or not, and independently of all other questions. There shall be no right to an appraisal or dispute resolution process until a specific demand for one is made in writing and until proof of loss has been delivered. 

*Dispute Resolution process applies in Alberta and British Columbia only. Appraisal process applies in all other jurisdictions.

The Court found the insurer was offering a “circuitous route” to the “mandatory” appraisal process:

1. Subsection 9(1) of the Insurance Contracts Act makes the appraisal process applicable to a “…contract containing a condition…providing, in the event of difference or disagreement between the insured and insurer, for appraisal to determine the matters specified in the condition”. 

2. The contract between Co-operators and Interprint refers to Form No. AB, as an “endorsement” to it. 

3. Condition 11 of Form No. AB directs the insured and insurer to settle their differences or disagreements “by appraisal or the applicable dispute resolution process as provided under the Insurance Act”. (emphasis added) 

4. Section 9 of the Insurance Contracts Act enacts the appraisal process. 

5. Subsections 9(2)-9(5) of the Insurance Contracts Act delineate it.

Leaving aside whether the insurer could prove the insured actually received Form No. AB (which the Court later found it could not), the Court found a plain reading of Condition 11 would refer an insured to the Insurance Act – a statute that doesn’t exist in Newfoundland and Labrador. This ambiguity was to be construed as against the drafter of the policy (the insurer) and thus the Court concluded the obligatory appraisal process condition couldn’t stand.

Statutory Conditions Not Policy Conditions. Further, the Court found that “all-risks” or “multi-peril” policies are not subject to the appraisal process under section 9 unless it’s a condition within the policy because there’s no statutory requirement under these policies for such a process. The legislation governing policies for fire insurance (Fire Insurance Act) and automobile insurance (Automobile Insurance Act) do require that the statutory conditions, including one outlining an obligatory appraisal process, be considered part of those policies. But “all-risk” policies, even ones that have coverage for fire losses, don’t fall under either of these categories and thus the statutory conditions don’t automatically form part of the insurance contract.

Timing. The Court also found to order an appraisal process at this late stage would only serve to delay the matter given the parties’ positions and the fact that the insured’s extra-contractual damage claim would still need to proceed through the courts because it couldn’t be decided by way of appraisal.

Please contact your McInnes Cooper lawyer or any member of our Insurance Defence Team @ McInnes Cooper to discuss appraisal process or any policy wording compliance.

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