In the 2003 decisions of KP Pacific Holdings Ltd. V. Guardian Insurance Co. of Canada, [2003] S.C.J. No. 24 and Churchland. Gore Mutual Insurance Co., [2003] S.C.J. No. 25, the Supreme Court of Canada called for legislative changes to the existing insurance scheme that would address the outdated insurance contract classification system imposed by provincial insurance statutes. In particular, the Supreme Court called on legislators to reclassify insurance contracts to recognize comprehensive or multi-peril policies.
Alberta and British Columbia were the first provinces to respond to the Supreme Court’s request, arguably going beyond their recommendations to provide a much needed overhaul to insurance legislation. Many provinces across Canada have plans to implement similar legislation in order to create a more consistent approach to insurance law and claims handling across the country.
The provisions of Alberta’s Insurance Amendment Act, 2008 (the “New Act”) and associated regulations that specifically address insurance contract classification and make other key revisions to Part 5 of the Insurance Act have only recently been proclaimed and are set to take effect on July 1, 2012. This paper reviews some of the more significant changes to be implemented by these amendments.1
Classification of Insurance Contracts
Under the current Insurance Act, R.S.A. 2000, c. I-3 (the “Current Act”), Part 5 includes ten subpart classifications of insurance. The New Act reduces the subpart classifications to six, which include general provisions, as well as specific provisions related to automobile, fraternal societies, hail, life, and accident and sickness insurance. The amendments remove specific provisions regarding fire, livestock, weather and mutual insurance, ensuring that legislative requirements of a general nature are sensibly grouped together under the general provisions subpart.
Subpart 1 of the New Act sets out the general provisions that will apply to all contracts of insurance, excluding only life insurance, accident and sickness insurance and reinsurance. This reclassification allows the statutory conditions which formerly applied to only fire insurance contracts to now apply to most insurance contracts, including comprehensive and multi-peril policies and non-automobile liability insurance policies. This provides greater consumer protection to all policies of insurance other than those specifically excepted.
Limitation Periods
The Current Act has no general provision setting out a limitation period to apply to all insurance contracts. Rather, the Current Act allows for different limitation periods based on discrete categories of insurance. For example, under the subpart for fire insurance, Statutory Condition 14 provides that:
Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract shall be absolutely barred unless commenced within one year after the loss or damage occurs.
Where no specific limitation period has been identified, the default period would be that set out in the Limitations Act, R.S.A. 2000, c. L-12. However, as there is no general limitation period imposed on insurance contracts in the Current Act, insurers are entitled to contract out of the Limitations Act period and impose a contractual limitation period.
The New Act has introduced uniform limitation periods to create consistency with the Limitations Act. These limitation periods are set out in s. 526 of the general provisions of Subpart 1 and will therefore apply to all insurance contracts, other than those specifically excepted. As a result of the amendments under the New Act, the timeframe to initiate an action on a property policy will now be 2 years from the date the insured knew or ought to have known the loss or damage occurred. For all other insurance policies, including liability policies, the timeframe to initiate an action will now be 2 years from the date the cause of action against the insurer arose. Notably, the discoverability principle has been imported into the property limitation period, which will likely attract future litigation.
Of further note is the specific application of section 5 of the Limitations Act to those insurance contracts governed by s. 527 of the general provisions in Subpart 1. This allows for postponement of the limitation period for minors, or persons with disabilities who are unable to make reasonable judgments with respect to matters relating to a claim. In effect, the limitation period will be postponed until the minor reaches age of majority or the person is no longer under a disability.
General Statutory Provisions Providing Consumer Protection
Under the New Act, the Statutory Conditions that previously applied only to fire insurance policies have been moved to the general provisions under Subpart 1, and other than a few exceptions, will form part of, and must be printed in, every insurance policy. Much of the wording of the statutory conditions has remained intact. However, there are several changes worth noting.
Statutory Condition #2 that deals with the property of others has been expanded to include coverage for not only the property owned by the person insured, but also property that may specifically be stated in the contract, regardless of who owns it. This is meant to reflect that insurers are insuring a wider range of commercial interests than previously. However, it is clear from the new wording that a property policy will only protect the interest of another person that is fully disclosed to the insurer.
With respect to the Statutory Condition governing termination of insurance, there are several changes from the current version. In the current version, a refund of premium by money, money order or cheque is specifically contemplated. The new version removes this requirement to recognize the increasing number of methods by which money can be transferred. Further, the current version adjusts the time period which the insurer must wait prior to terminating the policy, so that the specified 15 day time period prior to termination does not start to run until notification has been delivered to the insured’s address by registered letter. This prevents termination of a policy while the insured is away from home.
Statutory Condition #9 addressing salvage has been broadened under the New Act by requiring the insured to prevent loss or damage not only to his own property, but also to other property under the contract. This is consistent with the broadening of Statutory Condition #2 by imposing a wider and continuing duty on an insured to protect all property under the policy after the initial loss or damage has occurred.
From a claims handling perspective, and from a legal perspective, an important change has been made to Statutory Condition 10. The new version allows the insurer to seek the insured’s express consent to take control and possession of property after a loss or damage has occurred. This allows the insurer to preserve evidence without having to rely on the common law right of salvage.
Statutory Condition #13 has been amended such that if the insurer elects to repair, rebuild or replace the property, it must do so within a “reasonable time”, rather than just proceeding “with all due diligence” as is the requirement under the Current Act. Further, the insurer may not elect to repair, rebuild or replace the property if the dispute resolution process has been initiated pursuant to Statutory Condition #11 (discussed below).
Subrogation Rights
Under common law, the right of the insurer to subrogation arises when the insurer fully indemnifies the insured under a policy of insurance. In such circumstances, the insurer is entitled to commence an action in the insured’s name to recover the loss. However, where the insurer does not fully indemnify the insured for its loss, it is the insured who is entitled to control any litigation arising from that loss. The right of subrogation is reflected in the Current Act under the fire insurance provisions.
Under the New Act, the right of subrogation is set out in the general provisions of Subpart 1 and will apply to all insurance policies other than those specifically excepted. Further, these subrogation sections have been modeled after the subrogation rights in the automobile insurance subpart to address the issues of control of the litigation process, decision making process and the costs of the litigation where the insurer has not fully indemnified the insured for a loss.
Dispute Resolution Process
The Current Act has an established appraisal procedure as part of Statutory Condition 11 where the value of damaged property is disputed under the fire insurance subpart. Essentially, each of the insured and insurer are entitled to appoint an appraiser, who then have to agree on an umpire who will resolve any disagreement between the two appraisers. The process is only meant to address disputes pertaining to the valuation of claims in certain circumstances, such as contracts of fire insurance. This process of dispute resolution is often overlooked as it is of limited application.
Under the general provisions of the New Act, the appraisal process is substituted with a dispute resolution process that strengthens consumer protections in a claims dispute and broadens the application and use of alternative resolutions. The new dispute resolution provisions are set out in s. 519 of the general provisions in Subpart 1 and in Statutory Condition #11 under s. 540. As a result, the dispute resolution process will apply to all types of policies.
One significant difference between the former Appraisal Process and the new Dispute Resolution process is that the latter has been expanded to address disputes with respect to the nature and extent of repairs to, or replacement of, property. This provides a further cost effective and efficient means of resolving disputes outside of the Courts.
Fair Practices
The imbalance of power between an insurer and an insured required certain legislative protections for consumers to be included in the Current Act. The New Act, however, introduces more expansive consumer protection provisions.
One such protection is apparent in those sections of the New Act that clarify the power of the Courts to declare that a term, condition or exclusion is “unjust or unreasonable” and is therefore non-binding on the insured. Section 545 of the New Act sets out this clarification, allowing the Court to find a term non-binding where it “contains a stipulation, condition, term, proviso, or warranty… that is or may be material to the risk, including but not restricted to, a provision in respect to the use, condition, location or maintenance of the insured property”. Further, as the provisions providing this protection are within the general provisions of Subpart 1, they apply to all policies, including multi-peril policies, whereas before they only applied to fire policies. This amendment in particular is a response to the Supreme Court’s reasoning in KP Pacific Holdings, supra.
Further, the New Act precludes the insurer from specific types of inclusions. For example, s. 545(3) states that the insurer cannot exclude coverage for damage by a fire or other prescribed peril on the basis of a specific cause of the fire or named peril. The only exception is where a specific cause is excluded pursuant to the regulations (such prescribed exclusions being set out in the Fair Practices Amendment Regulation, Alta. Reg. 327/2011). The New Act therefore clearly states that an exclusion that applies on the basis of the cause of a fire is invalid with respect to coverage for the damage.
Another consumer protection bolstered by the New Act is with respect to an innocent co-insured. There are compelling reasons why an insured should not be indemnified for the intentional acts of a co-insured, the most obvious being that an intentional act is not a fortuitous peril. However, this tends to produce harsh and unfair results to the innocent insured. Despite this, case law, including the Supreme Court decision in Scott v. Wawanesa Mutual Insurance Co., [1989] 1 S.C.R. 1445, accepted that insurers could exclude coverage to an innocent co-insured based on properly worded exclusions. Section 541(1) of the New Act significantly changes the law as it relates to innocent co-insureds as it essentially reverses the Supreme Court’s ruling in Scott, supra. Under the New Act, an exclusion based on an intentional or criminal act is effective only as against the person who caused the loss, or abetted or consented to the act that caused the loss knowing that damage would result. Notably, the right of indemnity of the innocent co-insured is limited to their proportionate interest in the damaged property.
Other increased consumer protection provisions in the New Act relate to disclosure. Amendments to the Fair Practices Amendment Regulation that are to come into effect along with the Part 5 amendments to the Insurance Act set out increased disclosure obligations on the insurer. For example, the insurer must give written notice to an insured of the dispute resolution processes after an insurer determines that a dispute has arisen or within 70 days after the insured has submitted a proof of loss if the insurer has not yet made a decision as to the validity of the claim. The insurer must also give written notice to an insured or other claimant under a policy of the applicable limitation period. A failure to do so may result in an extension of the limitation period upon application to the Court.