Pursuant to Statutory Condition 11, certain questions related to valuation in a first party claim may be addressed through “dispute resolution” (formerly known as “appraisal”). This article examines a number of recent Manitoba decisions which may be of interest, including a decision which considers the interplay between dispute resolution and limitation periods and decisions which appear to come to conflicting conclusions concerning the types of disagreements which can be resolved through the process.
We begin with a brief overview of the statutory framework for dispute resolution, followed by a discussion of the recent caselaw.
Statutory Framework
With some variation as to process and terminology, the various provincial Insurance Acts provide for either “dispute resolution” or “appraisal” to address disagreements over matters set out in Statutory Condition 11. In Manitoba, this is provided in Insurance Act section 121(2), as follows:
121(2) This section applies to disputes between an insurer and an insured about a matter that under Statutory Condition 11 … or another condition of the contract must be determined using the dispute resolution process set out in this section.
Manitoba Statutory Condition 11 describes 5 areas of disagreement which may be resolved by dispute resolution, and provides two preconditions to the process: a demand in writing and delivery of the proof of loss:
11(1) In the event of disagreement as to the value of the insured property, the value of the property saved, the nature and extent of the repairs or replacements required or, if made, their adequacy, or the amount of the loss or damage, those questions must be determined using the applicable dispute resolution process set out in the Insurance Act whether or not the insured’s right to recover under the contract is disputed, and independently of all other questions.
11(2) There is no right to a dispute resolution process under this condition until
(a) a specific demand is made for it in writing, and
(b) the proof of loss has been delivered to the insurer.
As is evident, the dispute resolution process can be invoked in a claim which has additional issues (e.g., coverage) that are being dealt with through the normal litigation process. Dispute resolution can therefore run as a concurrent parallel process to litigation. Some of the cases we discuss consider the interplay between the two parallel processes.
Recent Decisions
We begin with a case that considers whether the failure to commence an action for indemnity within the applicable limitation period affects the dispute resolution process.
In Vincent v. Red River Mutual, 2020 MBQB 153, aff’d 2021 MBCA 53, the court held that where the limitation period to commence an action expires with no claim filed, the insured cannot engage the dispute resolution process. The right to the process lapses when the time in which to bring an action for indemnity expires.
Vincent, involved a fire loss under a homeowner’s policy in which the insurer made substantial payments but the amount of compensation for certain items remained in dispute. On the final day of the limitation period, the insureds delivered written notice that they wished to use the dispute resolution process to address those final issues; however, they did not commence an action for indemnity. Thereafter the insurer refused to appoint a dispute resolution representative as the limitation period for the claim had expired.
Citing a 2007 decision of the Alberta Court of Appeal[1], Suche J. found that the general limitation period under the Insurance Act applies to all claims, even where the dispute resolution process has been engaged. Her decision was upheld on appeal. As such, the correct procedure in Manitoba, even where the only issue in dispute is being addressed through dispute resolution, is for the insured to commence an action for indemnity within the limitation period (unless there is prior agreement that the limitation period be tolled).
The next three decisions appear to give conflicting answers as to the type of disagreements which the dispute resolution process can determine, and suggest multiple avenues to attack the decision of an Umpire.
The first two decisions, SGI v. Marostica, 2022 MBQB 35 and 204-218 Princess Street Inc. v. Victor Insurance Managers, 2022 MBQB 136, rejected the argument that the dispute resolution process is limited to determining the values of the various losses, and held that the process can also be used to determine whether repair is viable or replacement is required.
Many of the facts in Marostica are not apparent from the decision, which was an application for judicial review of an Umpire’s decision brought by the insurer. What is clear is that a partial loss occurred, the insurer paid for repairs/remediation (or at least attempted repair/remediation), there was a question as to the success of the remediation, and the insureds asserted that the condition of the home post remediation/repair was not acceptable as they experienced ongoing health problems due to chemicals/residues in the home which they had not experienced prior to the loss event. The Umpire accepted the insureds position that the home should be entirely replaced given the ongoing environmental sensitivity issues they were experiencing, and determined valuation questions.
The question raised by the insurer in the Application for judicial review, was whether the Umpire exceeded his jurisdiction by determining that the home be replaced. The insurer relied on a 1990 decision of the Saskatchewan Court of Appeal[2] for the proposition that an Umpire under the Insurance Act has jurisdiction only to determine the values of the various losses.
Ruling against the insurer, McCarthy J. relied on wording in Manitoba’s Statutory Condition 11 apparently not present in Condition 11 at the time of the Shinkaruk decision, which authorized the Umpire to address “the nature and extent of the repairs or replacements required to the insured property, or if made, their adequacy”. In deciding that repairs could not adequately return the insureds to their pre-loss position and that only replacement could, the Umpire did not exceed his jurisdiction.
Harris J. arrived at the same conclusion in 204-218 Princess. His decision arose from an application by the insured to compel the insurers to appoint a dispute resolution representative following a loss. The insurers opposed the application on the basis that the issues which the applicant sought to address through the dispute resolution process were questions of law not within the scope of dispute resolution under the Act, namely whether the damaged building was capable of being repaired or had to be replaced.
Like in Marostica, the insurers relied on Shinkaruk for the proposition that the process could only determine values themselves and their argument was rejected by Harris J. for the same reasons given by McCarthy J. Harris J. also rejected the insurers argument that the question of repair vs. rebuild should not be addressed in the dispute resolution process because it was a live question in the indemnity action, saying, “where there are issues that can be determined by dispute resolution, they ought to be regardless as to whether a claim has been filed … unless a party demonstrates good reasons not to do so.”
The final and most recent decision we will discuss is the decision of Lanchbery J. in Linde v. Max Insurance Company, 2023 MBKB 74. In this case, among other things the court appears to have used s. 123(3) of the Insurance Act to get around an Umpire’s finding that rebuilding was necessary, and rejected the allegation that the insurer’s resort to s. 123(3) was an element of bad faith. Lanchbery J. also stated that dispute resolution was to address questions of value. As such, Linde v. Max appears to conflict with Marostica and 204-218 Princess.
The matter came before Lanchbery J. both a trial and an application for judicial review of the Umpire’s decision set for the first day of trial, but the application for judicial review was abandoned on the first day and the trial proceeded. A primary issue in the trial was allegations of bad faith, all of which were resoundingly rejected: “My decision was not even a close call”; however, the trial also engaged with the Umpire’s decision and the dispute resolution process.
Section 123(3) allows the court to determine issues under a policy, including value-related issues even if appraisal has been made, as follows:
123(3) Despite any provision of this Act and any provision or statutory or other condition of a contract, the failure to have an appraisal made, or the fact that an appraisal is being made or has been made, does not preclude a court from determining, in an action brought for that purpose, an issue arising under a contract, including the determination of the value of the property insured or the value of any loss or damage to such property.
The dispute between the parties included whether the insured was entitled to ACV or the actual cost to repair the home (which had been damaged in a fire). From the decision, it appears that the insurer’s main (perhaps only) position on this point was that the fire damage was repairable and that ACV alone was payable unless and until the insured effected repair, which she had not done. It appears that the insured declined to effect repairs at least in part because she believed that repairs would not fully resolve impacts to the home from smoke and moisture exposure.
Prior to the trial, dispute resolution was invoked and an Umpire appointed. The Umpire issued a report (decision) in which he concluded that the home could only be rebuilt. At the trial, the insured argued that the Umpire’s decision was binding on the court for all purposes, citing Marostica and 204-218 Princess.
However, Lanchbery J. disagreed, pointing to s. 123(3) and said that the Umpire’s role “is to determine value … not … to rewrite the terms of the policy or to extend coverage…The opinion is limited to value”. As such, the Umpire, in concluding that the home could only be rebuilt “exceeded his authority”. As the evidence before Lanchbery J. in the trial led him to find that the home could be repaired, “the decision of the Umpire on rebuilding is not applicable to these facts”.
In short, Linde appears to allow a party not content with an Umpire’s decision to bring the action to trial and seek a different outcome without directly challenging the Umpire’s decision through judicial review. Linde also appears to raise a conflict in authority concerning the nature of the questions which can be addressed through the dispute resolution process (i.e., whether the process can be used to determine whether a property can be repaired or must be rebuilt). As a result, uncertainty is likely to exist in this area unless/until a similar case is taken up by the Manitoba Court of Appeal.
[1] Terraco Industries
[2] Shinkaruk Enterprises