Overview

In May, 2013, the Ontario Court of Appeal upheld a contractual one year limitation period in a commercial property policy. The Co-Operators denied the claim and when the plaintiffs brought an action against The Co-operators, it was struck out because it was commenced beyond the one year mark as specified in their policy but before the two year limitation period as set out in the Limitations Act, 2002. In October 2013 the Supreme Court of Canada denied leave to appeal.  This decision has important ramifications for insurers writing commercial insurance policies. While the Ontario limitations act provides 2 years from the date of the loss for actions to be commenced, this ruling allows insurers to rely on an exception in the act which permits businesses to contract out of the statutory limitation period.

Background

Most of you know that the Insurance Act¹ of Ontario has, for a very long time, contained within it a one year limitation period for an insured to commence an action against their insurer for a claim on the policy.  It can be found in s. 148 of the Act which contains the statutory conditions in the Fire Insurance (also known as Part IV) section of the Act.  Keep in mind, the original Act was drafted at a time when one would buy separate policies for different perils such as a fire.  Today, most insureds purchase multi-peril policies.  The Insurance Act² states that all policies in Ontario are deemed to include these statutory conditions.

In a case known as International Movie Conversions Ltd. v. ITT Hartford Canada³, the Ontario Court of Appeal affirmed in 2002 that the statutory conditions could be included in a multi-peril policy.  In order to do so, the policy must have some contractual language stating that the statutory conditions apply to all of the perils in the policy.  The appeal court noted that while the statutory conditions are said in the Act to apply to fire insurance, it did not preclude the insurer from including them in policies for other perils.

In an unrelated 2003 case from British Columbia, known as KP Pacific Holdings v. Guardian Insurance Co of Canada⁴, the Supreme Court of Canada found that the statutory condition limitation only applied to fire policies, not multi-peril policies.  However, it did not comment on contracting out of any other limitation period as that question was not put before the court.

Limitations Act, 2002

On January 1, 2004, the Limitations Act, 2002⁵ of Ontario came into force which, but for some scheduled exceptions, made the general limitation period for commencing most actions 2 years from the date of the loss.  The statutory condition in the Insurance Act was one of the scheduled exceptions, however due to the KP Holdings decision, it only related to fire policies.  As a result, some insurers changed their commercial property policies to reflect a two year limitation period and others left their policy as it was, but simply treated the policy as though it contained a two year limitation period.

Then, in 2006, the Ontario Legislature amended the Limitations Act, 2002⁶ to allow businesses to contract out of the limitation period by adding section 22(5) and (6):

22.  (1)  A limitation period under this Act applies despite any agreement to vary or exclude it, subject only to the exceptions in subsections (2) to (6).

…

(5)  The following exceptions apply only in respect of business agreements:

A limitation period under this Act, … may be varied or excluded by an agreement made on or after October 19, 2006.

…

(6)  In this section,
“business agreement” means an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002;

“vary” includes extend, shorten and suspend.

The Consumer Protection Act, 2002⁷ defines a consumer as “an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes.”

To put it simply, as of October 19, 2006, businesses could contractually alter the length of the limitation period.  However, this had not yet been applied by the courts to commercial multi-peril policies until the case of Boyce v. The Co-Operators⁸.

Boyce v The Co-Operators

The Boyces owned a clothing store business known as Portside Boutique which was insured with a multi-peril property policy with The Co-operators.  The policy was renewed on a yearly basis.  On October 30, 2010, Marilyn Boyce arrived at the store in the morning and discovered a strong odour.  The Boyces contacted The Co-Operators to complain that a skunk like smell had destroyed their inventory.  They alleged that the smell may have been caused by a vandal as it was the day before Hallowe’en.

The Co-Operators advised the plaintiffs that there may not be coverage for the loss.  It wrote to Ms. Boyce to let her know that there was no coverage and that should she wish to commence a claim that it must be commenced within one year of the date of the loss. The Boyces then commenced their action on February 17, 2012; more than one year but less than two years after the date of the loss.

The Motion for Summary Judgment

The Co-Operators brought a summary judgment motion⁹ before Superior Court Justice Quigley to dismiss the action as the limitation period had expired.  It argued that the business agreement exception to the Limitation Act, 2002¹⁰ applied as the parties had contracted out of the two year limitation period.

Justice Quigley dismissed the motion by relying on the case of Bell Canada v. Plan Group Inc.¹¹ and finding that in order to rely on s. 22 of the Limitation Act, 2002¹² a business agreement must contain four things:

1. A specific reference to the statutory limitation period;
2. Clear and unequivocal language that the parties are intending to vary the application of the statutory protection contained in the applicable limitation period;
3. Provision which clearly alert the prospective claimant that they are foregoing a statutory right to a longer limitation period within which to make a claim; and
4. Any variation of the limitation period should be accompanied by a signed acknowledgment by the insured of the waiving of such an important right.

The Honourable Justice also found that the term “Statutory Condition” could be misleading because an insured could be led to believe that the conditions were actually mandated by statute when they were simply a term of the contract.  He concluded that it cannot be said that the insured actually agreed to that term but acquiesced because it thought that the Insurance Act¹³ demanded that they be included in the policy.

Finally, he disagreed that the policy was a business agreement as defined by s. 22(6) of the Limitations Act, 2002¹⁴ on two bases.  The first was because the insurance policy was a “Peace of Mind” contract and the second was because the Consumer Protection Act, 2002¹⁵ does not deal with contracts of insurance and instead defers to the Insurance Act¹⁶.

The Ontario Court of Appeal

The motion decision was appealed to the Ontario Court of Appeal. The appeal court first dispensed with the suggestion by Justice Quigley that the term Statutory Conditions was misleading by referring to International Movie Conversions Ltd.¹⁷ in which the Court of Appeal had found that the heading “Statutory Conditions” was not misleading and that the limitation period in the policy was clear and unambiguous.

As for the contractual limitation period, the appeal court found that s. 22 of the Limitation Act, 2002¹⁸ did not require the four indicia of the variance of a limitation period as set out by the Hon. Quigley, J. in the motion decision.  It found that:

A court faced with a contractual term that purports to shorten a statutory limitation period must consider whether that provision in “clear language” describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods.  A term in a contract which meets those requirements will be sufficient for s. 22 purposes, assuming, of course, it meets any of the other requirements specifically identified in s. 22.19

Finally, the Court of Appeal found that while insurance contracts may be “Peace of Mind” contracts, this does not mean that they cannot also be business agreements.  It also wrote that the scope of the Consumer Protection Act, 2002²⁰ was irrelevant and that the legislature used the definition of “consumer” in the act in order to draw a bright line between activities performed on behalf of individuals, families or households as opposed to businesses.

The Court of Appeal allowed the appeal and reversed the motion decision, thereby dismissing the claims made on the policy.  The plaintiffs sought leave to appeal to the Supreme Court of Canada and this too was dismissed21.

Currently in Ontario, if a commercial property policy has contractual language which makes it clear that the statutory conditions apply to all of the perils outlined in the policy, the limitation period is one year.