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INSURANCE
A. HISTORY AND BASIC THEORY OF INSURANCE
1.

Historical Development

followed development of modern industrial society

insurance is associated with complex societies; they are basically the societies in which risk
is an important feature
provides a system for predicting risk and being prepared for them when they do occur
2 factors at work in the growth of industry
i. Consumer demand - demand from those with economic interests to protect
ii. Ingenuity of insurance companies - create new types of insurance and persuade
people that they need it
orginally insurance was a device of privater ordering but has been increasingly taken over by
govt; eg) auto insurance; eg) development of notion of social insurance - UI, WC, Medicare
2.

species of contract (K) law but it is different b/c the law is a reflection of the peculiar
relationship involved. Peculiar concepts have developed to take care of this relationship
issue - eg) insurable interest (ii), subrogation, contribution and salvage which are concepts
that doesnt exist outside of insurance law. In addition familiar K law concepts may be given
different twists - eg) misrepresentation, non-disclosure, assignment.

3.

Sources of Insurance Law

(a)

Common Law

in some instances it was effected by equity

largely part of 18th C judicial law-making lead by Lord Mansfield. Was able to open up the CoL
K to be effective to govern relship. Drew upon the law of merchant, roman law, and
international law.
In Eng the CoL is the largest part of the law but in NA there has been legislative intervention.
Some areas are totally CoL: theft; financial contingencies - fidelity
(b)

Peculiar Legal Characteristics of Insurance

Legislation

until recently in Eng they assumed that there was some sort of public ordering through
Lloyds of London. There is no such institution in NA
2 problems prompted govt intervention:

(c)

i. activities of foreing insurance companies who had no commitment to the economic

welfare of the country in which they were operating - these people had to be
controlled.
ii. lack of financial stability of insurers - corporations were going bankrupt and leaving
insureds (insd) out to dry.
insurance industry was likely the first regulated industry in Canada
Superintendent of Insurance for the Provinces - role is to regulate the industry - moral and
fiscal requirements
insurance K - concern in the last 3 decades of the 19th C about whether insurance was
meeting the expectations of the insd; whether insr were being fair. As a result of a number
of unfortunate dealings by insrs the legislature intervened to dictate some of the terms flagship in this regard was fire insurance. Statutory conditions are a big part of this. These
are things incorporated into insurance contract; legislation dictates certain provisions which
must be part of the K.
regulators and regulated have moved very close together (tradegy in McLarens mind)
Reforms have been very favourable to insrs. Exception is automobile insurance which is
seen as quintessential consumer insurance. There is an absence of consumer groups in the
discussion of insurance law reform
legislation is only important to certain types of insurance contracts. Most legislation is not
applicable to all insurance. Only specific types of insurance are dealt with - life, accident &
sickness, fire, automobile (cases not covered by autoplan). Beyond these specifc areas we
are still required to deal with the CoL. Some areas are totally CoL: theft; financial
contingencies - fidelity
Industry Practice

this is an important source but it is much more significant in Eng b/c of Lloyds.
over time insurance companies in NA have come together to standardize some things particularly
re: claims. One such body is the Insurance Bureau of Canada.
4.

Basic Insurance Theory

(a)

Probability

at the heart of actuarial concepts relating to insurance are probability theory and the law of
large numbers.
probability - the arithmetic fraction which states the chance of a particular event occurring.
probability theory can estimate the risk that a particular event may happen [eg) house fire]
but it cant tell you which house will burn.
the fundamental principle of insurance is pooling risks. This requires that each of the
people who are susceptible to a particular risk to contribute a share to a common pool. The
amount in this common pool will provide enough money to compensate those who
experience the actual risk. However, in addition to contributing the amount of pure
insurance cost [the amount in $ which represents the probability of the risk occurring - eg)
experience shows that 30 out of 10,000 houses are destroyed by fire each year. So the

(b)

probability of fire is 30/10,000. Say A has a house worth 50,000 his pure insurance cost
would be 30/10,000 X 50,000 or $150] each contributor must add an additional amount to
defray the administrative costs of the fund.
the essence of insurance is risk spreading through pooling - the risk of loss to which each
property owner is exposed becomes spread over a large group.
the essence of insurance as a 20th C business phenomenon is risk shifting. In return of a
premium, carefully calculated by reference to amount of risk and degree of risk the insd
shifts his risk to the insurance company. From the insrs point of view, it is still pooling
which makes the scheme work.
another important feature is that large numbers make the probabilty fraction more reliable. A
large insurance company should be able to safely provide cover at a lower rate than a much
smaller organization could.
The Law of Large Numbers

large numbers are needed to provide the basis of prediction or probability of loss.
an insurer requires a very large number of exposures to guarantee an average exerience
(c)

Difficulties of Assessing Risk

(i) Degree of risk

if an insr hopes to achieve the average experience which its probability data would
predict, its risks must match the average which formed the data base for prediction
need to know the physical hazard - use of building, type of structure, proximity of fire
fighting services
need to know the moral hazard - financial solvency of the applicant, past record of
fire claims; whether he has ever been convicted of fraud or arson
usual premium is based on average risk; if risk is too high insurance will be refused;
if high the insd may be rated up, that is, charged a higher than normal premium
(ii) Amount at risk
insr must not accept any single risk which is too large relative to its total under
writing
2 techniques to deal with risks that are too large for a single insr
reinsurance - insd X approaches A for insurance. A issues the 1 mill policy
and then lays off most of the risk, retaining for itself a smaller amount that
they have determined apporpriate having regard to the total size of their
business. Many life insrs reciprocate in placing or accepting part of the cover
on a reinsurance basis; some companies specialize in reinsurance and do not
write any policies on their own. Note that Xs policy is issued by A and X is
likely oblivious to the reinsurance arrangement, and he stands in no relship to
the reinsurers whose contract is exclusively with A.
subscription - property and liability insurance are frequently written on a
subscription basis. Generally cover will be placed with a group of insrs
which each agree to underwrite a portion of the cover. There is issued a

subscription policy to which each insr is a party, and the insd thus stands in a
kl relship with each insr. When loss occurs a claim will be negotiated with
each of the carriers.
these arrangements create potential difficulty for the insd during the claims process

Re Northern Union Ins. Co. 1985 MBQB

Facts: BC Hydro was insd by Northern which reinsured with other companies. BC suffered a
loss of 3 mill. Northern paid 1 mill and recovered that from one group of reinsurers.
Another group of reinsurers was responsible for loss above 1 mill. They set that amount
asside. Northern declared insolvent and ordered wound up. BC claimed to have prior
right to the 2 mill held by the three reinsurers for payment to Northern.
Decision: Though the amount was payable only b/c of BC claim, it was held to be part of
Northern general estate to be distributed to all of that companys loss claimants and
creditors.
Kroft J.: the reinsurance contract operated solely b/w the insr and the reinsurer and created no
privity as b/w the insd and the reinsurer.
Comment: the subscription policy does not raise doctrinal problems, but does involve the
potential for serious inconvenience for the insurance claimants advisers who, if they are
not alert, may create a legal problem for themselves. See Webb.
Webb Real Estate v. Can Surety Co. 1975 NSTD

Facts: Webb owned a building occupied by Anitgonish Home Furnishing. The building burned.
Webb was insured by a policy to which 3 insr subscribed. Antigonish held a policy to
which 10 insr subscribed. One insr subscribed to both. The solicitor representing the
insd became involved in a blizzard of paper. He overlooked the one year limitation on
the commencement of action. Action commenced 13 months after the loss.
Decision: Action dismissed by reason of failure to commence it within the limitation period.
(iii) Unrelated risks
in order that estimates of probability of loss work correctly, each risk must be
independent of all other risks being considered
a number of insurance companies were bankrupted through failure to appreciate this
proposition.
(iv) Effect of insurance on risk
it is important to note that the loss data used in probability calculations are based on
uninsured occurences (in most cases) and to consider what effect the introduction of
insurance may have. Idea is that insurance may cause people to be less careful.
private medical insurance plans in Canada require the insured to bear a proportion of
his medical expenses - usually 10 or 20%. It is thought that the insd will thus be
dissuaded from incurring frivolous medical costs.

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(v) Adverse selection
idea that bad insurance risks are less likely to terminate their cover than good risks
particularly impt for life insurance where the insr has opportunity to assess the risk
and decide whether to cover it or not. Once the policy is on foot, the insr is stuck
with its policyholder. If his health seriously deteriorates he may nevertheless retain
his cover at standard rates by keeping up his premium payments. Conversely, he may,
if he wishes, surrender his policy or allow it to lapse. As claims increase and
assessments go up the healthy insd may reassess and decide to drop their insurance
but the unhealthy will keep it.
early response to this was the introduction of level premium insurance plans under
which a premium was fixed which exceeded the charge necessary in the early years of
the cover, but would, in the later years, be lower than the appropriate charge for a
person of such older age. B/c the premium remained level throughout the term of the
policy, the incentive for adverse selection was removed.
(vi) Epic Phenomena
data used to develop probability of loss figures normally reflected reasonably stable
conditions in society and could be seriously inaccurate in times of plague, famine or
war.
(vii) Actuarial inexactitude
actuarial data only provides very crude categories, and in selecting from within these
categories the risks to insure, underwriters are influenced by the same irrational
prejudices which influence the community.
some of the factors used by underwriters could invite a challenge on the basis of
discrimination
Heerspink v. ICBC 1982 SCC

Facts: Hs fire insurance policy was cancelled when the insurer saw a newspaper account that he
had been charged with trafficking in marijuana.
Decision: Board on Inquiry found that the cancellation represented discrimination w/o
reasonable cause within s.3 of the HRC
Re Bates and Zurich Ins. Co. 1987 ON Div Crt. (appeal to OnCA and SCC dismissed)

Facts: Challenge to the practice of insrs charging a higher premium to young drivers, especially
to young unmarried men. Supposedly stats show that they are a very high risk group
Bd of Inquiry: found to be contrary in OnHRC
OnDiv Crt: overturned on grounds that the current classification system, althougth subject to
future revision and current doubt, did embody disctintions supportable by reasonable,
actuarially verified statistics.
Gibbs v. Battlefords & District Co-operative Ltd. 1994 Sk Ca

Facts: Disability insurance would cover physically disabled to 65 or retirement on pension.

Benefits for disability by reason of nervous, mental or emotional disease or disorder
would terminate after 24 months unless institutionalized
Decision: Ms. Gibbs sucessfully challenged the discrimination b/w persons physically disabled
and those, like herself, disabled by a mental disorder.
Comment: Baer suggests that this case demonstrates that underwriting decisions are often based,
not on any hard data concerning the risk of a particular occurrence, but rather on a concern
about proof of the occurrence.
(d)

the lower the risk and the less reason an average person would have for buying insurance, the
larger the group of insureds needed in order to be able to sell the cover at a premium which
fairly reflects the risk.

5.

The Nature of Insurance

(a)

Definitions

Insurance and Uncertainty

insurance s. 1 of the BCIA:

insurance means the undertaking by one person to indemnify another person against
loss or liablility for loss in respect of a certain risk or peril to which the object of the
insurance may be exposed, or to pay a sum of money or other thing of value on the
happening of a certain event.
this defn has two parts:
last clause deals with life insurance - it is non-indemnity insurance, refers to certain
events like death; payment on the happening of a certain event - only uncertainty is
when it will occur
first clause deals with risk insurance - indemnity insurance eg) property, 3rd party
liability insurance. Insurance here is against the contingeny of loss - if it happens.
defn is inadequate b/c it does only addresses the loss shifting not the loss distribution
function of insurance. Impt in insurance that loss is not just shifted to one person but to a
multiplicity of people exposed to similar risks and who are willing to enter into the same type
of agreement. Lossing shifting along can be addressed by other devices - eg tort.
true identity of insurance is captured by the following:
insd possess an interest susceptible of pecuniary estimation;
the insd is subject to the risk of loss through destruction or impairment of that
interest by the happening of designated perils;
the insr is willing to assume risk of that risk of loss;
the assumption of risk by the insr is part of a general scheme to distribute actual
losses among a large group of persons bearing similar risks;

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as consideration for the insrs undertaking to assume the loss the insd makes a
rateable contribution (a premium) to a general insurance fund to provide a pool out of
which losses can be paid and the fund administered.
(b)

Wagering and Insurance

historically a social and legal issue in Eng; gambling was endemic in Eng. from the 17th C
on. Certain forms were subject to criminal penalties in the 17th C, the general attitude of the
law seems to have been relaxed.
even in the late 18th C crts saw no problem enforcing wagering K in which, for instance, the
parties bet on the longevity of others.

Earl of March v. Pigot 1771 KB

Facts: Bet on the lives of their fathers - who would live longer. The parties were unaware that
Ds father was already dead
Arg: Def said no consideration as there was no possibility of D winning (father already dead);
contract related to future contingencies. Pff said that the death made no difference, there
was a contract which related to events which had alread occurred as well as to future
events
Decision: Jury found for winner of the bet. Appeal heard by the full court. Held that the K was
good, engagement seriously entered into by both sides, no specific conditions put on at
time K made so being a live at time of K was irrelevant.
Comment: Impt of this case is that the judges happily enforced a wagering K with no regard to
the social utility of the K

strong moral reform movement results in the the Gaming Act of the 1840s
legislatures intervened much earlier in the area of insurance. Concern that insurance was
being used as a form of wagering. Thought that insurance was being taken out by people
who had no interest in the thing insured - thereby creating an incentive for skullduggery;
helping the risk along in some form
1745 intervention to deal with maritime insurance - created the need for an insurable interest
1774 Life Insurance Act - directed at the use of life insurance as wagering; this Act was
subsequently interpreted to include some form of property ins.
1840s Gaming Act - outlawed gaming.

Part 2 (General Part)

BCIA s. 8 (1) A contract by way of gaming or wagering void.
(2) A contract is deemed to be wagering or gaming where there is no interest in the
subject matter of the contract
how do you distinguish wagering from insurance?
the defn in s.1 of the BCIA is of no use as it is broad enough to capture a wager in
the meaning of insurance
standard explanation is that insurance reduces existing risks through the spreading
techinque whereas wagering creates risk where none previously existed. The kernel of
the distinction (can you tell I am copying this????) is insurable interest; the person
who is so circumstanced with respect to [the subject matter of the insurance] as to
have benefit from its existence, prejudice from its destruction. [per Lawrence J. in
Craufurd]
the distinction really turns on the difference b/w the applicant for insurance, who
seeks protection against anterior risk, and the bettor who, by wagering on an event
with respect to which he had no prior connection, risks the loss of his money in return
for the prospect of a windfall gain. Wager creates a specific new risk for the parties
where there was none before.
the concern to outlaw gaming and wagering k and to distinguish them from genuine
insurance k stems from the following considerations:
gaming and wagering are anti-social activities
parties shouldnt be able to shroud these enterprises in insurance k
if parties are allowed to make insurance k on lives or events in which they have no
interest, then there may be an incentive to help the risk along or create a risk where
there was none before
not an issue that comes up often but occassionally insurers will raise it - see Kosmopoulos

B. STRUCTURE OF THE INSURANCE INDUSTRY

1.

Types of Insurance

distinction b/w 1st party and 3rd party insurance:

1st party - insuring against onws own loss
3rd party - covering risk of being liable to third parties for injury, damage, etc one may
have caused (liability insurance)
no fault auto insurance: hybrid of 1st and 3rd; provides coverage to the driver, passengers
and third parties
auto insurance
soon after its inception is attracted attention of the legislature - it is an activity which
is inherently risky
leg got involved b/c the CoL had prob recognizing that insd should include owner
and people driving with consent of the owner. PC had said that people driving with

consent were not privy to the contract and as result not covered by the insurance. Leg
corrected this by giving extensive interp of insd
second problem was that coverage was provided to the ownder unless they were in
breach of the policy - this created problems in liability ins - it was cold comfort for
the injured. Leg intervened and said that regardless of breach if insd is neg then 3rd
may execute the judgement against the insr
third problem - what about the uninsured individual or where you cant find the
injurer (eg. Hit and run driver). There are provisions which make it an offence to not
have insurance
4th problem - time it takes to litigate these issues. No fault provisions had to be
written in - benefits which kick in regardless of cause. See Part 7 of Reg in BC.
recent amendment - Uninsured Motorist Protection (UMP) was made mandatory.
There is a minimal level for public liability. UMP means that if you are hit by
someone with a lower limit you can seek the protection of your limits (if you are
covered for a million or more - not sure if this is a requirement or just an example, it
was in your notes)
thus there have been a series for leg interventions to make auto insurance more
expansive and provide better coverage.
No Fault Debate - should we extend no fault in our system to perhaps even exclude tort
actions?
Trial Lawyers Arg - NO
everyone should have their day in court
ICBC is large and insenstive bureaucracy which stands in way of people getting
no fault benefits efficiently; could prevent fair compensation
claimant likely to get more - they question this assumption
not clear that govt will save any $
they pt to Quebec where there has been a rise in the # of accidents after exclusive
no fault brought in = deterrent aspect removed
Other Side - Advantages
tort law is selective about who gets compensated - must prove fault. There are
situations where there truly is no fault and under tort you would get limited
compensation
some ev to suggest that in vast # of cases under which no fault is sought they are
received expeditiously and fairly
present system is very expensive - need economic analysis of how much we
spend.
can classify in a number of ways: subject, activity - eg) home owners, marine - but the most
important for legal purposes is indemnity vs. non-indemnity. This is impt b/c on it hangs the
rights of the insd party to claim.
social and private insurance
differences:
i. social insurance schemes tend to be universal in application as opposed to risk
selecting. Application procedure is less critical for universal, few problems with
form and formation similar to those involved with a private insurance contract;

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ii. the long standing preoccupation in private insurance of protecting the public from
the social evil of gaming is of little significance in social insurance;
iii. since the state is the carrier there is no need for elaborate rules and machinery to
guarantee the carriers solvency;
iv. since all intermediaries are civil servants, there is usually a different kind of
administrative or judicial supervision of them.
similarities:
i. similar concepts and rules to protect the integrity of the insurance fund and to
prevent double recovery;
ii. a common problem of defining what events are covered and the related issue of
whether a particular loss has been caused by an insured event;
iii. the common difficulty of establishing a fair and efficient claims process and an
appropriate system for valuing loss.
(a)

Indemnity and Non-Indemnity

Glynn v. Scottish Union and National Insurance Co. Ltd (1963) OnCa

Facts: Motor vehicle insurance. The issue was related to medical expenses; no fault benefits
which include reasonable medical expenses incurred as a result of injury sustained.
Injured owner and spouse brought action against the tortfeasor - this was settled and the
medical expenses were recovered in full. Insd then turned to insr and sued for medical
expenses.
Arg: Insr said that they were paid already and to pay out would offend the priniple of indemnity
- it would allow for double recovery. Pff argd that this wasnt indemnity clause accident insurance is non-indemnity
TJ: Found for the pff, this was non-indemnity and you were entitled to accumulate benefits from
where ever you can get it.
CA per Kelly J.: issue is whether it is indemnity or not - is there subrogation. Said subrogation
was corollary - although no mention of subrogation in clause nor in legislation covering it
he said it was part of insurance law and even if not stated it was operable - product of the
CoL
how do you distinguish indemnity from non-indemnity?
dont look to text books b/c they make hard and fast rules - you cant classify in
the abstract
policy is to assume indemnity unless is type which could not possibly be
indemnity or some statement that non-indemnity was what was contracted
for. Have to look at the contract
concedes that life insurance is non-indemnity - promise is to pay on the happening of
a certain event (death) - no need to show loss, only need to show they are beneficiary
on K. Inferences is that you can accumulate

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i.
ii.
iii.

What is indemnity insurance?

have to have int in prop or event;
have to have loss following from event;
are compensated for loss subject to policy limit, so have to show value of loss
this provision was characterized by the TJ as an accident provision - Kelly says
outside of life insurance you must assume indmenity unless other reasons appear to
make it non-indemnity. Cites rainfall insurance as an example of non-indemnity says that as long as rainfall occurs you can recover - no question of loss suffered or
what it was
certain features of accident policies are non-indemnity - eg) dismemberment
insurance - eye 2000; finger 1000 etc - you get money no question asked, the event
has happened and they pay. Kelly also says that weekly benefits paid on accident are
non-indemnity - McLaren says this is more problematic, see Comment
outside of these examples, others are indemnity - show loss occurred and that loss
flowed from the risk.
valued insurance is a type of indemnity that needs to be explained. Often where you
have something of uncertain value the parties will determine the value before the
event takes place. Kelly says that this is still indemnity, you have just made the
valuation before the loss not after.
the provision in issue here is clearly indemnity - you have to prove injury and level of
expense incurred b/c of those injuries. TJ was wrong and pff cannot succeed for
value of the benefit from the insr b/c they have already recovered from the tortfeasor
Comment: weekly benefits - if only apply to people employed before the accident and relate to
pre-accident wages they are clearly indemnity b/c they are recompense for income lost.
If they are death benefits to survivor they are non-indemnity.
Under the BC Regs ss. 81-83 disability payments under the no fault regime are only
payable to the extent that the income loss contemplated is not paid from other
sources, i.e. other auto accident benefit plans, accident, sickness or life insurance,
employers contributions, WC and UI. They are considered to be indemnity. This is
the case with UI and WC even if the injured party, survivors or representative have
opted no to or failed to claim these benefits (ss.82-83)

Gibson and Tucker both deal with disability insurance and they show a difference in opinion
on indemnity or non-indmenity. McLaren says that Gibson line will win out - it is rare for a
crt to tell insr that they can only offset if K says so - more likely to allow it as indemnity K.
Indemnity is the cardinal principle - dont want person to get more than their loss

Gibson v. Sun Life Assurance of Canada 1985 (Ont. HC)

Reasons: follows on from Glynn and the line of cases which held that disability K related to
previous employment and what the person was earning pre-disability are indemnity

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Mutual Life Assurance Co. v. Tucker 1993 NS CA

Reasons: similar group life insurance policy as in Gibson but the crt held it wasnt indemnity b/c
it didnt say it was indemnity. Should have included indemnity idea in the K, they could
have and didnt so too bad for the insurer

(b)

types of indemnity insurance - property; financial risk; liability; accident and sickness - as
relates to out-of-pocket expenses and income loss; disability in so far as it relates to pymts on
weekly basis as long as pymt is related to loss of income and is based on pre-accident income
(per Kelly J. in Glynn but recall Tucker); provisions with stat basis
non-indemnity - life insurance; the life insurance part of accident and sickness insurance;
dismemberment insurance; insurance on events - rainfall insurance
Classification of Insurance Contracts

legislation is selective in how it classifys insurance k that it wants to govern

anachronistic - fire insurance - policies now are mostly multirisk - how do you classify these?
this issue is relevant b/c the Fire Part of the Act (Part 6) has provisions which differ from those in
the general part (Part2). Eg. limitation periods, subrogation provisions which depart from the
CoL; misrep and non disclosure deviates from CoL
how do you determine if something is fire insurance or not? Eg. Homeowner policy that covers
theft - loss through theft - which limitation period applies? 12 months from date of loss or proof
of loss?
Look to statute to see if it helps you define what a fire insurance contract is. S.216 - fire
insurance insures you against fire, lightning and explosion. So it really doesnt tell you much
starting point is actually s. 213 - just b/c it covers other risks it is not robbed of the quality of a
fire policy. Except:
s. 213(a) - certain Ks are genuine ks for protection against certain risks - fact that
fire is a specified risk doesnt make it a fire policy. This was what was going on in
Regal - they tried to say that it was in land marine policy which covered commercial
issues; the judge said that you can call it what you like but it is a commercial
premises and this is a fire policy not inland marine policy.
s.213(c) says that where fire is an incidental part it is not a fire policy.
Therefore under s.213 there is no problem when fire is the exclusive risk covered and the
claim relates to a fire loss - Part 6 applies. What if situation was different? You must look at
the cases.

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Case law espouses more than one theory

(i) Multi-Risk Policy
Prob: Where fire is a risk covered, but the claim relates to another risk clearly
covered by the policy: Does s. 6 apply?
Regal Film Corp Ltd v. Glens Falls Insuruance Corp

1946 (On HC apprd of by CA w/o arg)

Facts: Fire; insurance was in the form of inland marine insurance. Insr refused to pay b/c insd
missed time period. The fire insurance notice period was more flexible and would have
accomodated the insd.
Reasons: It was a fire and it covered fire - crt seems to have persuaded itself that fire was the
primary risk.
Comment: This is the PRIMARY RISK THEORY
Chiasson v. Century Insurance Co. 1978 NBCA

Facts: Homeowners policy which insured house and contents against fire and a number of other
perils, including burst pipes. Pipe burst and caused damage
Reasons: Crt held that fire was the dominant risk covered by the policy and therefore the risk
which occurred was governed by the fire part. As a result insd did not recover b/c he
failed to comply with limitation periods in the fire part.
Comment: This case rejected Regal approach. This test the DOMINANT RISK THEORY
Slijepcevich v. State Farm 1980 OnCA

Reasons: Homeowner policy covered personal prop re: fire and theft but excluded house itself.
Theft occurred; crt treated policy as theft insurance and refused to apply the shorter
limitation period in the fire part. Crt disting Chiasson by holding that fire was not the
dominant risk covered.
Dressew Supply Ltd v. Laurentian Pacific Insurance Co. (1991) BCCA

Facts: Involved two multi-risk policies - one was commercial and the other residential.
Commercial policy covered perils such as fire and extended coverage and burglary
and robbery - loss here was caused by a burst water pipe. Residential policy provided
coverage against fire and extended risks, theft and personal liability - loss here was theft.
Neither launched their action within the one year limitation period after damage or loss in
stat condition 14, s.220 of BCIA (Fire Part), although the actions were launched with in
the one year of proofs of loss - which is the limitation period in s. 24 - the general part of
the Act)
Reasons of CA: Comparing the fire risk with the totality of the coverage (one of 15 specified
risks) provided by the policies it was an incidental peril under s. 213(c). Fire was no
more impt than any other risk. According the stat cond under Part 6 did not apply to
either policy.

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however it is open to the insr to incorp the Fire Part stat cond into the multi-risk
policy and this had been done in the commercial policy so the insd couldnt recover
on it. [note: see Wagner]
Comment: This is the INCIDENTAL RISK THEORY
in terms of reality the BCCA position likely makes more sense and it will more often
than not help the insd
there needs to be legislative change to clear up the ambiguities in this area. For
example could have the same limitation periods for all risks. [Prof Craig Brown has
recommended this; this has been done in Australia and New Zealand - life, accident,
sickness and automobile have special rules but property insurance generally should be
governed by the same rules.] This will be very difficult to achieve b/c of the relship
b/w the Superintendents and the insrs.

still some controversy that you could incorp stat cond of Part 6 into the policy even if Part 6
would not otherwise apply
S. 4 of BCIA:
This Part (General Part) has effect, notwithstanding any law or contract to the
contrary, except that
(a) where any section or statutory condition contained in Part 4, 5, 6, 7 or 8 is
applicable and deals with a subject matter that is the same as or similar
to
any subject matter dealt with by this Part, this Part does not apply; and
(b) sections 8 to 16, 19 and 27 do not apply in the case of a contract to which the
Insurance (Marine) Act applies.
Rendall says that b/c of this section the court in Dressew was wrong. This sections
means that the General Part will apply to all policies unless another Part specifically
applies - thus the general limitation period in s. 24 would apply. If another Part
applies it will govern. The court in Dressew was wrong in allowing the incorporation
b/c the policy did not fit under the fire part therefore it is illegitimate to take the stat
conditions and import them. Basically this provides an argument when you have
mult-risk policies that Part 6 doesnt apply and that you cant import the Part 6 stat
conditions.
however, note the following case.

Wagner v. Commercial Union 1995 BCSC

Reasons: The TJ said that it was clear from Dresseau that if you have a case that is not a fire
policy, its open to the parties to K to have that Part and the stat conditions apply - if that
is done it becomes a matter of clear contractual intent.
Comment: Prof Rendall has criticized this decision and says that the Crt in Dressew should have
looked at the conflict of importing Part 6 - we are now seeing the implications of this
failure.

15

(ii) Fire Policies Containing Excepted Risks

Prob: Where what is expressly characterized as a fire policy contains coverage for
risks normally excepted from such policies.

s. 216 (1) deals with perils insured against in a fire policy and sets out a series of
exceptions to coverage where fire is caused by various agencies.
216 (1) Subject to subsection (4) of this section and to section 223(a), in any contract to
which this Part applies, the contract shall be deemed to cover the insured property
(a) against fire, whether resulting from explosion or otherwise, not occasioned by
or happening through
(i) in the case of goods, their undergoing any process involving the
application of heat;
(ii) riot, civil commotion, war, invasion, act of foreign enemy, hostilities,
whether war be declared or not, civil war, rebellion, revolution,
insurrection or military power;
(b) against lightning, but excluding destruction or loss to electrical devices or
appliances caused by lighning or other electrical currents unless fire orginates
outside the article itself, and only for destruction or damage occurring from the
fire;
(c) against explosion, not occasioned by or happening through any of the perils
specificified in paragraph (2) (ii), of natural gas, coal or manufactured gas in a
building not forming part of the gasworks, whether fire ensues from it or not.

section 216(2) excludes, the absence of express agreement by the parties, coverage for loss or
injury caused by contamination by radioactive material.
s. 216(4) allows insr to provide excluded coverage under subsection (1) by extension
insurance. However, such extended coverage does not fall within Part 6.
the question whether all extended coverage falls outside this part, or only the forms
mentioned in s.216?

CJBC v. Nickolievich 1977 MBCA

Reasons: Crt concluded that the Fire Part did not apply in the case of extended insurance, in this
case providing coverage for windstorm which was not specifically mentioned in the MB
equiv. of s. 216. Therefore the one year limitation period in the fire part didnt apply.
Chiasson

Reasons: took different approach - exclusion from the operation of the fire part only applied in
the case of perils expressly excluded by the Act. In the case of other perils the relevant
question is whether it is incidental to fire or not.

16
2.

Insurance Policies and the General Law

Constitution - used to be a hot topic but now is mostly settled. Bascially the power to
legislate in realtion to the business and insurance law and to regulate the industry lies with
the provinces, even though most insurance companies are federally incorporated.
Human Rights Law is the more interesting area. What happens if you have insurance policy
that breaches the HRC. There is an out recognized in the HRC - is there are a reasonable and
bona fide purpose/reasons for the distinction?
life insurance - want to know about your health and may deny on that basis; this is ok
b/c it has a bona fide basis - you may be a bad risk. [NSHRC v. Canada Life 1993
NSCA] However if they just went by the mortality tables this would likely be
unacceptable b/c it moves away from individual assessment to a generic assessment.
auto insurance and practice of charging young men (under 25) more. Insurance corp
seem to be ok to do this for now.
[Zurich v. OHRC 1992, SCC]. In that case the crt accepted the statistical
evidence that shows young male drivers are inherently more risk producing.
This was legit discrimination. Minority were not impressed with the stat
evidence - felt that insurers were using stereotypes.(See pg. 5 of outline)
[Cooperators Insur v. ABHRC 1994 ABCA]. Same issue as Zurich; ABHRC
argd that other juris have eliminated differential rates for young male drivers;
however the crt stated this has been done by raising other premiums and this is
unfair to young female drivers and all drivers over 25.
disability insurance does not allow the distinction. Recall the Gibb case (pg. 6 of
outline) where a provision which allowed for better benefits for those with physical
injury than for those with mental disability was struck down.

C. INSURABLE INTEREST
1.

Introduction

critical threshold issue in indemnity insurance - to get indemnity you must have recognizable
interest in whatever is insured. Indemnity only makes sense if you have ii - it is the value of
that ii and amount of loss that sets amount of recovery.
function of ii in non-indemnity insurance - prevents the insured from hastening the loss of
someone to whom they have no connection; prevents the use insurance for creative homicide;
discourages wagering. Person claiming must have moral, familial ore financial int/claim
BCIA and II
s.8(2) - gaming or wagering if insd has no interest in the subject matter of the
contract (Pt. 2)
s. 9 - recovery limited to amount of interest. [life insurance - measure of int insured
is the sum fixed by the contract. (Pt 2)
s. 129 - life insurance K void if insd has no ii (Pt 4)
s 130 - w/o restricting the meaning of ii, this section indicates that a person has an ii
in (Pt. 4)

17

his own life;

his childs life;
grandchild;
spouse;
any person on whom he is wholly or in part dependent for, or from whom he
is receiving, support or education;
his employee; and
any person in the duration of whose life he has a pecuniary interest.
s. 188 - almost identical list as s. 130 but this applies to accident and sickness policies
(Pt. 5). Instead of employee this section talks of officer or employee
s. 189 - accident or sickness policy is void where the insd has no ii (Pt. 5)
Part 6 (Fire) no direct reference to ii being required but it is obliquely referred to in s.
220, stat cond 2 which requires that the insd state his interest, where he does not own
the property insured.
2.

Nature of Insurable Interest

have to depend on the CoL for def of ii

(a)

What is test for ii (in indemnity insurance)?

Constitution Insurance Co. of Canada v. Kosmopoulos 1987 SCC

Facts: K insured the goods personally, not on behalf of corp of which he was the sole
shareholder. Evidence suggests insr and insd knew of the situation, there was no
evidence of fraud.
Issue: Does a sole shareholder in company have an ii in the prop of that company?
Insr Arg: No - looked to Macura, Aqua-Land and Wyland which stand as authority that there is
no ii.
Pffs Arg: Yes - sole shareholder should be seen as having an int; or you should recognize K as
agent or bailee of the company and that should be sufficient to give K an ii.
Lower Crts: found for K
SCC per Wilson J: refuses to pussy foot around the issue; prefers to tackle it head on. Real
issue: should ii be defined narrowly or boadly? Options from Lucena:
i. Lawrence - if so related to property, that loss is prejudicial to him or its
preservation a benefit then there is a factual expectancy and enough to found
ii.
ii. Eldon - focus on property rights; must have property interest to have ii. Rt in
prop or stated in some K; clear link to rt in prop. This formulation had been
accepted in Eng and in Cdn jurisdictions - Macura; Aqua-Land; Wyland.
Eldon and these cases have said that any other test is too uncertain and
Lawrences test might lead to too much insurance.
Wilson addresses the concern raised by Eldon and others. What is wrong with too
much insurance - that is not an adequate arg against Lawrence. If there is excess of

18
insurance it is b/c it is needed. Figuring out what an interest in prop is isnt an easy
thing to do - there is still uncertainty.
Wilson must address Macura and Aqua-Land (SCC - 3 shareholders) and Wyland
(SCC - insd in name of company before premises were transferred to the companies
name)
any practical difficulties in assessing interest is not that significant in Kos close identity with company;
despite these cases there are judicial statements that there is a presump of ii it is up to the insr to persuade the crt that there is no ii;
in Macura there was a whif of fraud. Wilson says that sometimes crt will say
there is no ii b/c the crt is concerned about fraudulent claims. She says that
these two issues (fraud and ii) should not be confused.
she says that the two SCC cases did not give sufficient consideration to ii and
may have been effected by stereotypes related to ii
functional objections to the broader test and Wilsons responses:
narrow test prevents wagering. RESPONSE: nonesense and if it is an issue
there are ways besides narrow defn of ii to deal with it - eg. crim law
should be limitation on indemnity. RESPONSE: not self-evident that
extending notion of indemnity is undersirable - hints that insurance industry
can take care of itself in terms of the products they mkt; we live in a complex
society with many risks; shouldnt limit indemnity
the more remote the insd int the greater the risk of them helping it along (eg.
arson). RESPONSE: there is ev that those with clear propietary int are
equally capable of hastening the risk along.
Wilson accepts the factual expectancy test as law (at least where there is a small # of
shareholders). Notes that US has accepted factual expectancy for years (subtext - US,
the bastion of free enterprise and prop rights, doesnt require propeitary int to find ii
so why should we?)
Dissent per McIntyre: found for K but had reservations about the maj judgement. He wanted to
confine factual expentancy to sole shareholder situations - wanted to limit extension of
the law to the facts of this case.
Comments: Wilson seems to explicity overturn Auqa-land where there were 3 shareholders.
This creates more difficulties in figuring out the interests but it is not impossible. There
were 3 of them but only one took out insurance - he had put money into the company - he
was the only one who sufferred loss. He should have recovered but he didnt. If these
facts arose after Kos he likely would.
good judgement; she quotes academics; has pragmatic knowledge of the insurance
industry; forensic strategy; empathy with honest insured; if insrs are worried about
broader defn of ii they have a risk avoidance capacity as they write the ks!

19

subsequent developments

Romani et al c.o.b. France v. Symons General Insurance Co. 1987 BCSC

Facts: 2 brothers involved in a venture; not actually incorporated; H had insd and had put out $
to get it started, he stored equip in his house. Equip was to be used to set up new
company to manu perfume. Looked as if H was going to manage the business. Was ev
that when H dealt with insurance agent that the agent knew the state of the business (ie.
not incorp). There was a fire and the equip was destroyed; insr refused to pay b/c H
didnt have ii.
Decision per Cohen J: thought it would be covered by the factual expectancy test. Insd had
suffered loss. Likely impt that the French brother was dead. Insd had int in bus and
prop; he was the only one to have suffered loss; no hint of skulduggery. Insd wins.
Comments: case suggests that Kos can be used in bus ventures which have not crystallized - not
yet incorp

(b)
Domestic Relationships
ii in domestic relationships. Prior to Kos there were a number of cases where judges
struggled to deal with ii in spousal situations. One spouse owns the prop and the other
insures - does the insd have int?
Cases Prior to Kosmopolous
Doyle v. Antigonish Farmers Mutual Fire Ins. Co. 1955 NSCA

Reasons: ii was denied where a husband insured in own name a house owned by wife in fee
simple. Crt left open whether shared occupancy would have been sufficient.
MacDonald v. Can. Accident and Fire Assur. Co 1978 NSSC

Reasons: ii was found in similar circ on the ground that the insd husband earned his living in
the auto body shop in question. It was more likely that the husband actually owned shop,
but had recorded title in wifes name to defeat judgement creditors.
Le Blanc v. Co-op Fire and Casualty Co. 1978 NB QB

Reasons: crt denied that the husband had an ii in a mobile home which he had bought and
ownership of which he transferred to his wife, to avoid trouble from his first wife.
Richard J. felt the h shouldnt be able to blow hot and cold on ownership.
Comment: seems to confound ii with the motive of the insd and more especially over fraud.
(some indication that the insd had set fire to the mobile home)

20

Post Kosmopolous
understandable that crts would appeal to lack of ii where they see difficulty in the
insr proving fraud, the judgement of Wilson in Kos hints that it is impt to deal with ii
as an independent issue and not as a shroud to further some unstated policy.
h and w are no longer treated as one for purposes of determining their rights to
property, family law reform has created new proprietary rights in married couples and
has enlarged statutory obligations of support. Under flexible Kos doctrine these
rights and claims may well be sufficient to sustain an ii, notwithstanding obstensible
ownership of the property by the other spouse.
there seems to be no good reason why occupation of premises, especially if it has
some value attached to it should not suffice

(c)
Problems - pg 20/21 of cb
Common law relnship problem - B wd likely be found to have ii - he stood to benefit from
continuation of the property and be harmed by its destruction. McL says that momentum is
there to apply the factual expectancy test.
Insd arg - factual expectancy should apply beyond business situations; pd for 1/2 of
prop; contrib to up keep; gave music lessons
Insr arg - disting from Kos and Romani so cant use factual expectancy; B let house
title be in wifes name to avoid his ex-wife - although this is a separate issue, crts
sometimes confuse matters of morality w questions of ii.
Reconditioned Truck - stolen engine
under sale of goods he would have no right to engine b/c he bought stolen goods
could arg that he was the only one to suffer loss as he was the owner of the vehicle
and thought he owned the engine too. He had acted in good faith, no underhanded
dealing - use factual expectancy test to say I cant use truck w/o motor therefore I
stand to be harmed by its destruction. Dont need propietary int.
actual case on these facts - Hrycan Enterprises Ltd v. ICBC 1989 BC Cty Crt - this
case was decided solely on the basis of proprietary interest and therefore the insd
lost. Case was decided after Kos but Kos not mentioned at all.
(d)

Factors under Factual Expectancy Which May Indicate Insurable Interest

Business arrangements (Romani)

Occupancy of spousal home

Proprietary Interest

Company with small # of shareholders

Interest in economic welfare of an operation

Bona fide purchaser of stolen property

FACTUAL EXPECTANCY

21

terms of the policy - even if you have ii per factual expectancy test, that doesnt mean you
can claim if circumstances dont fit w/i the terms of the policy. Insrs may narrow what kind
of int is covered by their policy (in response to broader factual expectancy test)
remoteness of the parties - factual expectancy is hazy b/c of remoteness of relationship b/w
the parties

3.
Time at Which Interest Must Exist
Inss must have int at time loss occurs; not nec to have int at time the policy is taken out;
recognize need to protect future commerical ints.
Caldwell v. Stadacona Fire & Life Ins. Co (1883) SCC - Ritchie suggested that it had to exist
at the time the policy was taken out, although it could be lost and regained in the interim.
Comment - no real reason why it should have to exist at time policy taken out; it
would be commerically inexpedient in cases where one is insuring against risks to
property not yet in existence.
Concern over wagering may be reason for wanting ii at time policy taken out - that is
no reason for such a blanket rule especially if to do so would deny recovery to an
insd who has been motivated by desire to protect a future commerical interest.
What happens to the int in the interim may be irrelevant to ii but it may be relevant to
the question of whether there has been a material change in the risk.
4.
Insuring Other Interests
will the law allow (and to what extent) one party to insure the int of another
Brown and Meneaes observe that business efficiency is enhanced it the individual insd, with
a partial int in the subject matter of the insurance, can at the same time insure the interest of
others.
to not allow this would create a build up of insurance policies and would increase the
complexity
trust - legal oblig on one to hand over part of the recovery to others whose int are insured
can do this provided that policy doesnt prevent it and the intention on part of the insd to
cover others is present at time the policy is taken out.
Keefer v. Phoenix Insurance Co. (1901) SCC

Facts: partially paid vendor suffered loss

Reasons: crt held that he could recover beneficial int in prop; as long as insd has int at time of
loss, entitled to cover value insd; insur policy isnt vitiated by fact that another party
(vendee) has int in prop and insd didnt disclose this fact.
Comment: some policies by require disclosure of other ints in property.
Decelle v. Lloyds of London (1973) SK QB

Facts: husband and wife - insd had coverage in his name to cover goods, some of which were
owned by wife.
Reasons: Insd held to have ii
Comment: As in Keefer, no requirement that insd inform insr

22
Maldover v. Norwich Union (1917) OnHC

Facts: son got insurance for household goods, some owned by him and others owned by family
Reasons: son had ii in all goods in house, regardless of whether they were personally owned by
him.
Comment: seems to be impt that insd had revealed that insurance was to cover others int to the
agent/insurer.
Likely that Keefer and Decelle are dominant and therefore no obligation on insd to
inform the insr. Crt recognize the business efficacy of insuring on behalf of others.
(a)
i.
ii.
iii.
iv.

Summary: Conditions to Recover on Insurance re: Interests of Others

intention of parties to insure more than one int (full value);
named insd must have ii;
policy must allow it (Keefer, Maldover, Decelle); and
disclosure or non-disclosure required by policy?
Keefer - disclosure not necessary unless policy requires it
Maldover - insd had disclosed he was insuring goods of family and this assisted him in getting $.

v. person who recieves benefit holds it in trust for others who have interest.
(b)

Stat Cond 2. BCIA - Is it Used?

s. 220, Stat Cond 2:
2. Unless otherwise specifically stated in the contract, the insurer is not liable for loss or
damage to property owned by any person other that the insured, unless the interest of the
insured therein is stated in the contract
this condition was in force at the time Keefer and Decelle were decided, why wasnt it
considered? It seems to suggest there is an obligation on the insd to communicate to insurer
the nature of the insd interest - ie where less than full ownership.
difficulty with this b/c there is a problem with establishing ownership at CoL - if it hard to
determine who is and who is not an owner, it is obviously difficult for an insd to know
where he or she stands in relation to the requirements of stat cond.2.

Marks v. Commonwealth Insurance Co (1974) ONHC

Reasons: the crt affirmed the lowe decision which held that pff was a nominal owner - not the
real owner - she didnt have a beneficial ownership in the property thus no ii. Crt added
that failure to comply with provision which stated insr not liable for damage to property
owned by others. (similar to stat cond.2)
Comment: impt to note that there was an obvious concern about the apparent dishonesty of the
claimant. Not well received b/c it was seen to impact on trustees and others w/o
beneficial ownership.

b/c stat cond. 2 seems to require more of the insd than stat cond 1 (relates to misrep and nondisclosure, and for non-disclosure fraud is required) and difficult interpretation of
ownership crts have tried to circumvent it by:
i. consciously ignoring it (Keefer; Decelle)

23

ii. by applying extended defn of ownership (holding land under k for purchase; as a
mortgagor, lessee, etc)
Wetson v. Commercial Union Assurance Group (1978) NSSC - Hallet went so far
as to say that lay persons view that who ever holds the deed is the owner
provides a reasonable basis on which to found ownership.
iii. denying relevance of stat cond 2 where insurer hasnt asked for the info - waiver.
Commerce & Industry v. West End Invt Co. (1977) SCC - insr taken to have
waived the requirement b/c there was no written application in which the insd
could have stated its interest. The parties could agree in other words that the
stat cond did not apply. Pigeon J. added that as far as he was concerned it was
enough if the insd had ii in the property.
this leaves us in an uncertain position, you dont know how a claim will go, thus it poses a
trap for the unwary. Needs stat modification.

Hepburn v. A. Tomlinson (Hauliers) Ltd (1966) Eng HL

Importance: represents one instance where one party is able to insure on behalf of the interests
of another, although the former may suffer no loss if a risk occurs. BAILEES
Facts: pff hauliers were in k with Players to haul products to market. They undertook to take out
insurance for theft of cigarettes. Theft took place while a consignment of cigarettes were
in the possession of Players, through the neg of their emees, not those of the hauliers.
Reasons: Even though the hauliers (bailee) had suffered no property loss and their liability was
not at issue, they were entitled to collect on the policy for Players, holding the money in
trust for the latter. Bailee liable at law for the loss of the chattels therefore had ii in
goods.
5.

Specific Problems Related to Insurable Interest

(a)

Real Estate

(i) Conveyancing
this is an issue in some provinces b/c it is standard practice for the offer to purchase to
contain a clause by which the purch agrees to assume the vendors insurance policy, and to
pay a pro rata part of the premium. Can be difficult if not handled properly especially
because the vendors insurance cannot be assigned without the insurers consent.
not a problem in BC b/c conveyancing practice has developed such that the risk stays with
the vendor until closing at which point they become the purchasers problem.
fact that the vendor is still the legal owner b/c the property has not been conveyed may be
insufficient to leave him an ii if he has been fully paid.

24

Rowe v. Fidelity-Phoenix Co. (1944) OnCA

Facts: pff sold cottage on installment payments. Final payment left at office the day before fire
destroyed the cottage. She did not receive pymt till the day after the fire. Deed of
conveyance had been prepared by her lawyers but was still held by them.
Reasons: crt said that she no longer had an ii in the property b/c she was paid in full.
Comment: as a result of this case it is not wise to assume that the purchaser will be able to rely
on the vendor claiming on their behalf, as happened in Keefer where there was money
still outstanding. HOWEVER: following Kosmopolous this is likely not a problem
anymore

where vendor retains ii, because they are not yet fully paid, there may also be difficulties for
the vendor claiming on his own behalf and that of the purchaser where he has failed to reveal
to his insurer what might be a material change in the risk. Disclosure required by s.220 stat
cond 4 in the fire part.

(ii) Financing and Leasing

Keefer - authority for propistion that where real property is being paid for in installments the
unpaid vendor can maintain an insurance to protect the entire property, covering the
purchasers int as well as his owne. Need to consider stat cond 2 and 4 in Fire Part though.
clear from Commerce & Industry Ins. Co. v. West End Investment Co. (1977) SCC that a
tenant has an ii in the premises which he leases, both b/c in many instances he will be
reqoired to insure by the lessor, or, as here, by the mortgagee, and b/c he may be open to a
suit by the owners/mortgagees insurer through subrogation. Under the law applicable here
the tenant was liable for damage by fire on the premises, unless he could prove lack of fault
on his part.
(iii) Expropriation
Jakimovich v. Halifax Ins. Co (1966) MBCA - where an insd whose property has been
expropriated has yet to receive compensation, the insd continues as owner and is for
purposes of the law of insurance in a similar position to an unpaid vendor. If yet to receive
comp, insd has ii.
(b)

Joint Ventures, Sub-contractors

issue here is a policy which purports to cover joint venture - builders risk policy. They are
designed to cover the owner, general contractor and various sub-contractors
if one of sub-contractors or emees are neg and damage extends beyond sub-contractors
property to the site in general what is the position of the insurer?

25

Commonwealth Construction Co. v. Imperial Oil Ltd. (1977) SCC

Facts: builders risk policy for a fertilizer plant. Policy issued to Imperial Oil and extended to its
subsidiary companies and any contractors or sub-contractors of Imperial or its
subsidiaries. Through neg of emees of Commonwealth a fire occurred and caused
minimal damage to Commonwealths prop but extensive damage to the site. Insr paid
out to Imperial and sued Commonwealth by way of subrogation, arguing, in part, that the
latters ii only extended to its own property on the site
Reasons: SCC makes it clear that in cases of insurance on large construction sites which
purports to cover all interests in the event of loss or damage, each insured party has an ii
in the whole site and the property located on it. Even though the individual stake of a
particular party may be small, it will be potentially liable for all of the damage which it or
its servants may do. Its interest is thus pervasive.
Impt in Grandpre J opinion that all the parties whose joint efforts have one common
goal (completion of the project) would be spared the necessity of fighting among
themselves should an accident occur involving the possible responsibility of one of
them.
B/C ii extended to the whole site it was impossible for the insr to exercise its right to
subrogation - insd cant sue itself; didnt make sense for insr to pay out and then
seek recovery.
policy provided umbrella coverage
Comment: SCC reversed the ABCA which had taken the view that just b/c you describe it as a
joint venture that doesnt mean that the sub-contractor has interest the same as the owner
or general contractor. ABCA limited Commonwealths ii to its own property
(c)

Identification of Family Interests

Scott v. Wawanesa Ins Co. (1989) SCC

Facts: coverage was afforded to named insd (husband and wife) and to residents of the
household, including relatives. Policy excluded loss or damage caused by a criminal or
wilful act or omission of the insd or of any person whose property is insured hereunder.
15 yr old son set fire to the house. Insr refused to pay on basis of the exclusion clause.
Decision of SCC (4-3) per LHD:
terms of the policy were unambiguous; son was an insd and the circumstances fell
w/i the exception clause.
insd tried to arg that the sons ii was limited to his own porpety and did not extend to
the remainder of the property. Crt (including Wilson) referred to the enlarged defin of
ii from Kosmopolous - pervasive int of son, i.e. total property therefore you can
indentify him and his misdeeds with the parents.
Minority per LaForrest:
said that the real issue was the exclusion clause and what it means, not ii. Clause is
limited to individual interest of un-named insured unless it expressly says otherwise.
Unless insr makes it clear that there is no recovery in this type of case, the crt can
interp how it wants. Read the exception clause to apply only where an insd was

26
claiming for a loss which he or she had wilfully caused. It should not be used to cut
down or exclude the rights of innocent, named insds.
Comment: McLaren says this case should have been decided solely on the interpretation of the
clause, there was no need to turn to Kosmopolous and ii as the crt had found no
ambiguity in the exception clause.
it is bizzare that notion of factual expectancy was used to broaden things in
Kosmopolous but narrowed things in Scott. The use of factual expectancy to support
claims in deserving cases does not dictate its use to deny innocent claimants access to
insurance which they reasonably thought they had.

D. VALUATION
1.

Introdution

how do you value the extent of the interest and how do you value the loss which was caused
by the happening of the risk?
not confined to the property but property is the most contenious area
for the moment we are looking at indemnity insurance - non-valued
terms:
non-valued: policy where there is no prior determination on the value of the loss but
there is a ceiling created by the policy limit; insd will get the lesser of actual amount
of loss or the policy limit. See Western Union Policy pg 11
co-insurance: (Limits coverage/recovery on unvalued policy) Device used by insrs
to persuade the insd to insure up to the value of the insured item - used to discourage
under-insurance. See Western Union Policy pg 38 Optional Coverages. Unless you
insure up to 80% of actual cash value of property you may not/wont get full value of
your loss. If you insure up to 80% of value you would get preferential premium;
would get lower premium. The insurer only undertakes to cover that part of the loss
which reflects the relationship b/w the amount underwritten and percentage of full
value which the insr co-insures.
Value of prop = 100,000, Policy limit = 80,000 & insr co-insurers for 80%
If loss = 80,000 then applying co-insurance, insd entitled to $80,000
If loss = 40,000 then applying co-insurance, insd entitled to $40,000
However if insure for less than 80% the result is different:
If you only insure for 50% (50,000) and your loss is 40,000 you will only
get 5/8 of loss - ie. 40,000 x 5/8 = 25,000 (assuming insr co-insures for
80%).
Co-insurance began to in b/c insrs noticed that insd tried to hedge their bets. Idea
was that the vast majority of fires only do partial damage so why would we insure
closer to the actual value - this bugged insrs.
deductible: (Limits recovery on unvalued policy) Insd agrees to shoulder the loss
completely up to a stated limit, or a proportion of the loss if it exceeds that limit. See
Western Union Policy pg. 11
valued: parties agree on amount in advance

27

2.

(a)

Measure of Propery Loss in Unvalued Policies - The Abnormal Cases

actual cash value (acv): term normally used to describe the measure of loss where property is
destroyed or damaged.
auto insurance is the only area where attention has been paid to acv in the statute. Mention in
s. 232(2) stat cond. 4(5) and in the BC Regs s.1(1) it is defined as the average market price a
purchaser would have paid for an insured vehicle or other insured property immediately
before loss or damage occurs to the vehicle or other property
apart from above acv is typically used as the term relating to measure of loss in policies.
Thus outside of automobile insurance what acv means is a matter of interpretation. Two
places to look for meaning are:
i. the policy itself - see pg 30 of CB for example of policy which defines acv for that
particular policy; most policies dont do this.
ii. the interpretation crts have given to it. See specific situations below.
in the case of both fire and automobile insurance in BC the insr has by statute the option of
repairing, rebuilding or replacing the property damaged or lost in lieu of payment for the loss
[see s.220(2) stat cond 13(1); BC Regs s. 117(3)]
Replacing the Property
Normal measure will be market value subject to deduction for depreciation of the property
damaged or destroyed. Therefore you need to distinguish b/w prop that has a discernible mkt
value and those which dont.
Chattels with a commercial value are easy b/c you can normally go out into mkt and
buy a replacement.
Real estate/buildings, either commercial or residential, may and do have a definable
mkt value on the basis of real estate sales and projections in a particular community.
However, as in the case of chattels, the mkt value in the case of buildings is usually
the cost of replacement with a building of like kind and quality with deduction for
depreciation. Typically that will mean the cost of constructing a new building of
similar character. However, it may be legitimate to buy a building already
constructed which is a valid substitute for the old one. - Chemanius Properties Ltd v.
Continental Insurance Co. (1990) BCSC decided that buying a new building to
replace one destroyed with similar features constitued a replacement.
more difficult are real estate cases where for whatever reason the buildings have decreased in
value - age, uniqueness or straight lack of commericial viability due to operation of law or
other reason - mkt value is not easily determinable and replacement cost would result in overindemnification. What do you do when valuation was made when valuable and premiums
assessed at that time but when loss occurred it is evident that value has declined?

28

Canadian National Fire Ins Co. v Colonsay Hotel Co. (1923) SCC

Facts:

Bldg insured to 14,500

1912 (before prohibition) sold for 20,000
1917 sold for 3200-3300
1920 sold for 3000 + 950 for contents
insurers offer 5700

Trial: valued prop at 16,500 and 3500 for contents. Gave judgement for 13,376.64. Trial judge
advised the jury that they were to use replacement cost minus depreciation (r-d).
SCC: TJ was wrong to advise jury to use r-d b/c that disregarded other factual elements and
external factors beyond wear and tear that caused that decrease in value.
Gauge to be used in these cases:
Iddington: uses saleable value which is equivalent to zero
Angling and other: cant use r-d b/c insd would get more than loss; however isnt
sure that mkt value is approp either b/c insd would get too little. Need some
value in b/w that you can only determine by looking at all the circumstances.
Gives no guidance to new trial court as to what factors are.
McAnarney v. Newark Fire Ins. Co. (1928) NYCA

Reasons: crt struggled with the same issues as the Cdn court did in Colonsay. They felt that they
couldnt apply r-d b/c that would give too much but the mkt test means the insr pays too
little. However, unlike the Cdn crt they provide a list of factors to consider. (see below).
Amts: Ins cov - 42,750
value of premises by insd - 60,000
advertised sale price - 12,000
best offer - 6000
estimate for assessors - 15,000
jurys value of loss - 55,000

The court also discusses obsolescence and says that it is included in the meaning of
depreciaton. An obsolete thing is a thing no longer in use. In determining the extent
to which these buildings had suffered from depreciation, the trier of fact should have
been permitted to consider that, owing to the passage of the National Prohibition Act,
they were no longer useful for the purposes to serve which they were errected. It
should have been permitted to consider their adaptability or inadaptibility to other
commerical purposes.
In addition they should have been able to consider the stmts against int made by the
insd - ev showed the insd would take far less than 60,000.
Comment: In many juris in the US they have brought in valued policy legislation. If there is
total loss you get the total amount stated in the policy. Legislators are aware that they are
consumer policies and that the consumer needs some protection. Legislation can create
problems of moral hazard. No such legislation in Cda so crts are left with the awkward
decision on where to come down

29
FACTORS TO CONSIDER IN DETERMINING ACV:
i. what was the original cost;
ii. what was the cost of reproduction;
iii. opinions on value of expert witnesses;
iv. the declarations against int which may have been made by the assured;
v. gainful uses to which the buildings might have been put;
vi. any other fact reasonably tending to throw light on the subject.
(b)
Real or Intrinsic Value to Insured
will sometimes be considered in valuation (where policy or stat doesnt define acv)
Ziola v. Cooperative Fire & Casualty Co. (1976) SKQB

Facts: claim for destruction of unused farm house; moved into new house on same property.
Close to a total loss. Coverage for 7000; insd said he had offer of 10,000; sale prices in
region of $1500 - 3000.
Trial J: talks about intrinsic value - no one in right mind would rebuild it as a farm house but
maybe we should believe it still has value. (Doesnt want the insr to get away w/o having
to pay anything.) When crt is asked to assess value of loss it is value at time the loss
occurred, not value later on. Says that you need to look at all the circumstances - pays lip
service to it and does do it to some extent and then out of the blue he comes up with
amount of 5000. He says in the judgement that you cant apply r-d or selling price however the figure he arrived at fell with in the range (4700 to 5700) given by realtors as
r-d .
MORE FACTORS to CONSIDER re: ACV
i. use being made of the property
ii. purchase price
iii. sale value
iv. age and obsolescence
v. condition and location
vi. expert opinion
Hydra Estates Ltd v. Elite Ins. Co (1985) BCSC

Reasons: task faced by the court is an assessment rather than a calculation of the pffs damages.
Do that by weighing opinion ev and making adjustments based on the reasonableness of
suggested figures in the light of all the ev. Could be considered an educated guess but
judge here felt is was more than that.
Comment: case is included b/c it suggests that what the judge did in Ziola was correct. Would
be nice to know what the judge actually did in Ziola but you can only speculate.

30

(c)
Assessing the Cost of Repairs
problem: extent of insrs obligation when insd takes on repairs.
P.M Scientific Fur Cleaners Ltd v. Home Insurance Co. (1971) MBCA

Facts: P (insd) claimed in respect of furs damaged by smoke while in its possession as bailee.
D (insr) agreed P could clean (repair) as it was had expertise in that area. Not clear in
informal agreement that pymt to P would cover the cost of repair only. P included in
claim for indemnity for this work an amt covering profit. Under the policy liability was
limited to cost of repair.
Reasons: crt held that the issue could not be decided according to the terms of the policy, but in
the context of the subsequent arangement for repair, which was a new k. The new k
provided for an element of profit by implication - if job let out to 3rd party profit would
have been included in any pymt made by the insr.
Comment: to protect self the insr should make it clear that indemnity covers cost and no more.
Malcom Walker and Sons Ltd v. Co-operative Fire and Casualty Co. (1966) NB Appeal Div

Facts: Ins Cov - 15,000

Assessment ev - 21,000
Offer to buy (building and land) - 32,000
Trial J - 8110.52 (1/2 of 16,221.04 which is repair cost)
CA - 12,221

Reasons: This case looks to repair costs as the gauge. In normal case this would be repair cost
minus depreciation to account for new for old. TJ set depreciation at 50% so he gave
1/2 the repair cost. CA said that TJ miscalculated b/c some of the repairs were not caused
by the fire, they were due to disrepair, and they had to be deducted so that insd is not
overcompensated. CA refused to halve for depreciation b/c there was not enough ev to
suggest that the insd was getting new for old and even if he was it wasnt increasing the
value of the building.
Comment: seems to be telling insr that if test is repair cost minus depreciation you better make
it clear in the policy or bring ev to show insd is benefitting from new for old. See pg
12 of W. Union Policy for example.
(d)
Other Gauges of Loss
where neither mkt nor sale value are realistic the crt may look to the lost investment in the
property.
Leger v. Royal Insurance Co. (1968) NBCA

Facts: Prop was so bad that it couldnt be upgraded. City put demolition order on it. Insd
reduced coverage on his own initiative - paying too much. 3 fires close together. TJ calc
loss at 7,350 - 1500 loss of rental, 5000 for depn of land, 850 removal costs.
Amounts: Ins Cov - 25,000; ev of value - 30,000 (purch price); 13,000 (tax assessment)
Insd value - 47,500 (with land)
rental val - 218 (per month)
Trial - 7,350
CA - 12,900 (capitalization of rentals 12 X 215 = 2,580 X 5 = 12,900)

31
Reasons: The only reasonable basis for assessing the loss is the rental value at the time of the
loss. Use capitalization - what you would get if you looked at it as an investment.
$12,900 is at the low end of ev as to investment potential.
Comment: crt attaches no impt to the demolition which was an almost certainty. Sticks strictly
to the idea that it is value at time of loss which is impt.
was ev at trial that there was demoln order but it hadnt been approved yet by city
council - this might bring it closer to Cyrand.
Cyrand Investments Ltd v. Aetna Insurance Co. (1979) ONCA

Facts: Insd had applied for demolition order when the fire loss occurred. TJ said that as a result
the building had no apparent worth to the insd. Didnt want to give insd any more than
he lost so he awarded 1000 rental for one month
Amts: Ins cov - 35,000 (prop + building)
loss on rentals - 12,500
TJ - 1000 (1 month rental)
CA - 36,000 (ins cov + 1 month rental

Reasons of CA: Value at issue is the value at the time of loss, you cant speculate on subsequent
events. Insd could have changed his mind about the demolition. In the result the crt
awarded 36,000 - full amount. CA also awards for rent but likely should have ignored it.
Comment: can distinguish Leger as there was no demolition order here so insd could have
changed his mind. Concern of moral hazard in these cases if the crts tend to overvalue
property that the insd has effectively given up on. Result in Cyrand may seem strange
for this reason but it can be justified on two alternative basis: (i) it would be difficult to
quantify a chance that the building might be demolished; (ii) if the insd had changed
mind about demolishing he could opt to sell the building or use it for another purpose.
[Rendall now favours (ii) although he did support (i)]

in some instanced the crts have not been so ready to treat future plans or an insd and his
conduct after the loss as irrlevant. This is especially true if they reveal that the value of the
property covered by the insurance policy to the insd has decreased. If reveal value of prop
to the insd at time of loss.

Scott v. Canadian Mercantile Ins. Co (1965) ONHC

Facts: chicken house which partially collapsed during a windstorm.

Reasons: TJ seemed to take into account ev that the egg industry was in a bad state and ev that
the insd was getting out of the business and may have been considering this before the
loss.
Comment: Prof Rendall notes there may be some cases where it is legit to take into account
certain future events. Eg. Prohibition legislation which is not proclaimed at the time of
loss. However we have 2 CA judgements which say that spec over future events is not to
be taken into account.

BCIA makes provision for institutionalized appraisal in the event that the parties cannot
reach agreement. Under s. 11 the process can be invoked in the case of a k of insurance: (a)
which provided insurance against loss or damage by fire, lightning or explosion, or from any
of the other perils mentioned in s. 214; (b) which provides insurance against loss of rents or

32

3.

4.

profits from business interruption resulting from any of the foregoing perils; (c) which
contains a condition, statutory or otherwise, which requires that a disagreement in respect of
specified matters be determined by appraisal - eg. K to which s. 220(2) stat cond 11 of Part 6
(Fire) would apply.
BC Regs s. 142 (ref to s.62) contain their own provision for appraisal in the case of dispute
over the nature of repair or replacement, their adequacy or the value of the loss.
The Measure of the Value of Property - The Normal Cases
In both commerical and residential policies (Walker, Ziola and Leger) there is a clause
covering calculation of loss which relates it to whichever is the least of:
i. ACV at the time of destruction or damage;
ii. interest of insd in the property;
iii. the limit of the insurance coverage (as stated in the policy)
where the cost of replacement or repair is greater than the limit in the policy, there is usually
no problem in the insd claiming up to the limit in the policy (except in abnormal cases, ie.
where the acv of the building is much lower than the limit).
in most cases of loss of viable commercial and inhabitable residential property the acv will
be the gauge where the prop is damaged and the cost of repairs is in issue - questions of
depreciation arise in these cases. (repairs minus depreciation)
where the int of the insd is partial, then the gauge will be the proportion of that interest to
the whole, as applied to the amount of the appraised loss. (Recall Keefer)
the final figures will of course be subject to the operation of any deductible and co-insurance
clauses.
Dealing with Rising Replacement Costs and Inflation

prop may theoretically be depreciating b/c of age, it is actually increasing in value b/c of mkt
forces; may have polcy limit which doesnt reflect the increased value of the property
possible solutions:
i. periodic renegotiation of the k; establishing a higher premium to afford greater
coverage;
ii. inclusion of an inflation adjustment clause in the policy to deal with the
undervaluation of property [see Western Union, pg 11, Inflation protection]. Moves
up value on a regular basis, stndrd clause in many homeowner policies;
iii. to deal with the problem of replacing old with new by the use of an optional loss
settlement (olsc) or a replacement cost endorsement [see W. Union,pg 11, Dwelling
Building and Detached Private Structures] If insd chooses to replace or repair clause
will allow for full cost to be recovered w/o deduction for depreciation, done for a
higher premium; note that what insr pays is still limited by policy limits. Best option
is inflation adjustment clause as well.

33

there are situations where the insr can opt to replace or repair - this is true with fire
insurance.
BCIA s.220(2) stat cond 13
13 (1) The insr, instead of making pymt, may repair, rebuild, or replace the property
damaged or lost, giving written notice of its intention so to do within 30 days after
receipt of the proofs of loss.
(2) In that event the insr shall commence to so repair, rebuild, or replace the property
w/i 45 days after receipt of the proofs of loss, as shall thereafter proceed with all
due dilligence to the completion thereof.

in cases where the repair, rebuild, or replace option is exercised it is possible that the insd
may recover more than the value of the loss or even recover more than the insd value

Lepine v. Unigard Mutual Insurance (1976) BCSC

Facts: Insr excercised right under stat cond. 13 to repair roof destroyed by fire.
Reasons: Insr did a lousy job on the repairs and in fact the work wasnt completed. The insd
was put to extra expense b/c he had to hire own repairman. Crt said that the stat cond
took the case out of the normal parameters of the valuation process with the result that the
insr who was in breach of its undertaking was saddled with the full cost of repairs done
which is associated with the fault of the insr. Breached ob to do job with all due
dilligence.
Nejasmic v. Royal Insurance Co. of Canada (1981) (ABQB)

Reasons: where an insd elects either to accept cash value or replacement under an olsc he or she
is bound by that election, as long as it is unequivocal.
where insd opts for replacement w/o depreciation it is that partys responsiblity to
make the necessary arangements for rebuilding, repair etc. It is not the insrs.
(a)

Optional Loss Settlement Clauses

Malainy v. Canadian Indemnity Co. (1970) SK District Ct.

Facts: boiler ruptured and the insd wanted to replace it but no actual replacement was available,
therefore the insd wanted a new boiler. Insr ard that they only had to pay acv of boiler
at the time of loss, not to replace the boiler. Insr trying to arg that olsc in the policy
which gave election to the insd didnt apply in this case. (may have thought that it only
applied to the building and not fixtures) In addition the insr said that olsc would over
indemnify the insd
Reasons: crt said that clause covered the boiler and as a result the insd would be
overindemnified - basically had attitude that insr put clause in there so it is their tough
luck. Not valid arg to say that replacement exceeds original value, if insr wished to
protect itself from the operation of the olsc it only had to inspect and appraise the value
of the boiler at the time the policy was taken out and limits it liability.
The policy clearly gave insd the right to ask insr to replace property; in other cases
where right to repair or replace is with the insr, insd is bound by insr decision; this
same logic applies in this case.

34
Comment: tj said when insd exercised olsc it takes it outside of policy - this is probably wrong
b/c if it was true the policy limits would no longer apply.

impt to look at the clause and context in which it is used in the policy. They dont have
standard wording.

Del Alba v. Metropolitan Insur Co (1995) ACBA

Facts: insd bought a really valuable computer (50,000) for 517 at an auction. Insd it and
policy had an olsc.
Clauses in policy:

replacement cost means the cost of replacing, repairing, constructing or re-constructing

(whichever is the least) the property on the same site with new property of like kind and quality
and for like occupancy w/o deduction for depreciation.
Replacement includes repair, construction or reconstruction with new property of like kind and
quality.
It also stated in the event that new prop of like kind and quality is not obtainable, new property
which is as similar as possible to that damaged or destroyed and which is capable of performing
the same function shall be deemed to be new property of like kind and quality for the purpose of
this endorsement.

Computer was damaged by lightning; insd wanted new computer as per replacement
clause but new computer of same brand no longer available; new computer would be
much superior.
Issue: Does compliance with replacement clause require new or used computer?
Decision: CA finds new computer required.
Reasons:
what did new mean? TJ said it meant new to the insd; substitute used computer
was seen as reasonable replacement. CA disagreed. They felt that new of like kind
and quality meant new not other. Notes the deeming provision. CA decided that
the new computer that did all the functions of the old was the replacement machine only one that fit the bill. 72,000 would be the replacement figure but it is subject to
the policy limit
new means more than new to the user; new in the clause means newly manufactured
and not yet acquired by a retail customer;
principle that an insd is entitled to indemnity but nothing more doesnt apply to
Replacement cost endorsements; if it did, insd wouldnt be able to substitute new for
old and purpose of such clauses would be defeated.
notes that while 72,000 may be the original cost of the new machine the insr only has
to pay out what the insd actually spends. If cost 50,000 that is all the insr pays. If
more than 72,000 the insr only pays to 72,000. If insr pays out first and the insd
ends up paying less than 72,000 the insr can recover the difference.

35

Carlyle v. Elite Insurance Co (1987) BCCA

Facts: Ps house destroyed by fire; acv of house $18,000 and reconstruction cost $33,000; hever
the city wouldnt allow reconstruction to specifications of old house so replacement cost rose to
$46,000. D wouldnt pay above cost required to build house according to old plan; relied on
rider stating co doesnt insure loss or damage resulting from by-law. Option of taking acv or
using the olsc but olsc seems to say that enhanced costs from by-law are not insr resposibility.
3 issues:
i. When insd elects olsc is the insr bound to pay upfront for repair to assist insd or did
inss have to pay then seek compensation?
ii. What is legal effect of the by-law exclusion?
iii. Did application of olsc take case out of the k and produce new relship so policy limits
dont apply?
Reasons:
Issue #1: disagreement b/w SC and CA. CA said that insr didnt have to pay acv
upfront or cost of replacement upfront. SC said they did. The CA notes that there
is a functional reason for upfront payment, the insr doesnt have to pay.
in most cases the insr does pay acv upfront or give undertaking that it will
pay cost so insd can get loan
what about other cases where insr doesnt do this? Esson, Seaton for CA - no
obligation on insr to do this. Hutcheon - expressed doubt on this. Situation
is really uncertain b/c other prov crts have said in obiter that they need to pay
upfront - 2 MB cases.
Issue #2: on wording of the clause, it didnt apply to olsc - in policy but not linked to
olscs operation - even though costs higher b/c of by-laws, this clause didnt bar
insd from receiving full $. [dependent on wording of the policy - Folk (below)
came to same conclusion about differently worded clause]
message to insrs that if they want to reduce liability under olsc they have to
put in limitations and clearly link them to olsc. [see W. Union pg.11 - they
have got the message]
Issue #3: CA said no; SC said yes.
CA: operation of clause is still subject to the rest of the policy, including
policy limits. (flies in face of Malainy) Usually contains a clause saying that
policy limits apply. Exception: if there is ev that insr breached k and caused
harm to the insd, then breach can allow policy limits to be exceeded.
Comment: Rendall believes crt wrong in saying there is no legal obligaton on insr to pay
replacement cost and even acv upfront. He argues that at very least they should pay acv,
if not an amount reasonably calculated as the cost of reconstruction. The insr would
be able to claim back any excess resulting from savings in construction costs or failure to
complete.

36

Olynyk v. Advocate Insurance (1985) MBCA

Facts: insrr suspecting arson, refused to pay insd claim (policy had olsc); insr argued its
liability shouldnt exceed acv of building in as much as the P had not replaced or proved
her intention to replace
Reasons: insd has obligation to act w/ due dilligence in rebuilding; insr entitled to ensure that
pymt beyond acv of the bldg is applied only to indmnify the insd against real costs of
rebuilding; where there is ev that insd doesnt intend to rebuild, he is entitled only to acv.
HOWEVER - where the insr wrongfully repudiates the K (as in this case), the insr cant
blame the insd for delaying in making rebuilding plans.
Folk v. Saskatchewan Mutual Ins. Co (1992) BCSC

Facts: P had insurance on building which sustained fire damage; foundation didnt conform to
city standards and repair costs would be very high. P allowed the city to demolish the
building and construct new building in compliance with by-laws. Policy contained bylaw exclusion clause.
Issues: (i) does by-law exclusion cl limit insr liability?
(ii) has insrd satisfied requirement that replacement proceed with due diligence?
(iii) does policy require payment of acv of building w/i 60 days of proof of loss, nws
election to proceed with replacement under olsc?
Reasons:
by-law exclusion must be very specific (Carlyle). In this case, the wording of the
clause couldnt be taken to refer to the olsc. Policy involved 2 different routes of
handling claim. (a) cost of repair or replacement up to acv of policy limit (main part
of policy); (b) olsc which allows insd to elect to repair damage or replace building
with like materials and claim cost of repair or replacement from the insrr; by-law
exclusion cl must unequivocally apply to the olsc.
due diligence and dispatch clause protects the insr from increased construction
costs; insd in the case met the obligation; Olynyk indicated that attempts by insr to
repudiate k can hinder insd from proceeding with due diligence.
insd not awarded acv b/c he didnt comply with this term of the policy (ie had to
show proof of loss - if he had, insr would have had to pay)
insd had failed to specify acv in proof of loss form - policy was subject to fire
stat cond which required acv stmt by the insd - failure to do this meant that
insd could not ask for acv on policy.
Comment: way matter framed - in insurance cases the courts asked to give declaration,
declaratory relief then parties do what crt says on basis of law in particular context
(i) Relationship b/w insr and insd after loss
can be problems for the insd if there is delay - whether b/c of difficulty in getting work done
by competent kors, to find $ at good int rates; or if delay caused by the insr
crts always point out that insd has obligation of due diligence but they tend to forget that
insr can delay things. Could be that crt do this b/c most policies have a provision which
requires the insd to act with due diligence and in a reasonable and timely manner.

37

tendency of crts traditionally was that unless there was a breach of policy obligation, then
there was no further cost/indemnity for insd for delay. Justified by stressing the
impecuniosity of the insd or by saying that under insurance law, you cant claim for
consequential damages..
Baer suggests that it is as if the crts feel the need to balance their reluctance to find actual
fraud on the part against claimants by making it tough for insd to succeed or succeed fully in
their claims where process is delayed b/c of doubts on the part of the insrs about the
legitimacy of the claims. May not want to rush to judgement but, says Baer, this doesnt take
account of power imbalance in relationship - insd may be in a weaker barg position
Cases dealing with justifications for denying claim:
Gannon & Associates Ltd. v. Advocate General Insurance Co. (1984) MBQB

Reasons: recovery was limited to the time during which the repairs should have been completed,
notwithstanding that they had taken longer b/c insd, who did not have access to
necessary financing, was forced to hire a less than competent contractor.
Comment: extra cost caused by IMPECUNIOSITY of insd.
also argd here that even where the insr is in breach of ob to act promptly etc. in
dealing with a claim there is no recovery under an insurance policy, in the absence of
express provision, for CONSEQUENTIAL DAMAGES. Baer says that
consequential damages are awardable under general k law so there is no obvious
reason why insurance k should be different as long as the damages flow from the
breach.
Omega Inn Ltd. v. Continental Insurance Co. (1989) BCCA

Reasons: CA overturned a trial decision which had awarded bus interruption insurance over the
10 months the insd waited while the insr made up its mind and substituted 4 months
losses. Facts here showed unreasonable stalling on the part of the insr but in line with
the general tendeny of the crts they ascribed the additional loss to the impecuniosity of
the insd rather than lack of good faith on the part of the insr.
Comment: Rendall says this tendency to concentrate on insd conduct and ignore possible bad
faith on the part of the insr denies the reciprocity of obligations which should be
present.

hope for the future in terms of judicial attitudes can be seen in the following Ontario cases
where the judges were willing to look more closely at the issue and were ready to investigate
fully the reciprocal obligations of both parties, and not to assume that the only issue was
whether the insd has acted reasonably. Also show that crt will grant consequential loss if
insr delay in settling has caused more economic loss to the insd.

Labelle v. Guardian Insurance Co. of Canada (1989) OnHC

Facts: pff made claim under olsc; insr refused to settle and long delay ensued.
Reasons: Trainor J. found fault on the part of the insr in delaying in recognizing the claim.
Insr in breach of fiduciary obligation to act fairly and promptly. Crt found that the pff
had been reasonable, responsible and matter-of-fact. Emees of the company were
uncooperative and overbearing and by their conduct the insr had failed to pay w/i 60

38
days of proof of loss as required by the policy. Damages were awarded to the insd to
compensate for the cost of borrowing money to replace the property (consequential loss),
as well as for punitive damages b/c the def conduct was malicious - unfairly accused her
of being dishonest.
Comment: Baer likes the decision but in terms of consequential damages it would have been
preferable for them to have been tied to a contractual base rather than the uncertain
fiduciary obligation.
Peters v. Commonwealth Insurance Co. (1991) ONHC

Facts: insr company initially refused to provide replacement cost b/c of the low stated value of
the pffs hog barn. Insr then changed mind and said it was only responsible for
replacement cost following replacement cost with due diligence. Insd unable to obtain
loan to rebuild the barn b/c he had lost any security in the fire which had consumed it.
Reasons: Donnely J. said that the insr had determined not to pay the replacement cost and was
in breach of the policy. The insd ob to rebuild could not attach until the insr
acknowledged its reciprocal obligation to pay. Thus, although the barn was not replaced
b/c to do so would be cost prohibitive, the insd was entitled to cost replacement value.
Approved of punitive damages awarded in Labelle but did not grant them here b/c there
was no ev of ill-will on the part of the defs officer to the pff.
(ii) Misc Issues: when do you make valuation under olsc? & flexibility under olsc
Datatech Systems Ltd. v. Commonwealth Ins Co. (1983) BCCA

Facts: offer to purchase lot (not building). Sale subject to a number of conditions and if not met
by April 10 the purch was entitled to return of deposit and the agreement would be null
and void. One of conditions was the vendor (pff) was to remove the building from the
land at its expense. On Feb 18th the building burnt, the lot was cleared and the purchase
went ahead. Insurance policy of the pff provided that in the event of fire the insr would
indemnify the the pff for such loss. The policy also contained an olsc.
Reasons:
you are to make the valuation at the time of loss; insr argd that the building was
worthless b/c it was slated for demolition. CA rejected this, you take the value at the
day of loss and at that point the sale had not been completed, things could have
happened - ie. parties could have changed their minds and building remained where it
was, if sale went ahead the building could have been moved, it may have been sold to
a 3rd party who could have moved it, demolished it and left the site clear. Thus the
pff still owned a valuable building.
insr also tried to arg that pff could not look to olsc until it had replaced the building
using materials of like kind and quality, on the same site or adjacent thereto. Said
that pff did not do this and did not intend to. Crt said that ev of pff at trial showed
that the pff had not proceeded to replace until the question as to whether or not it was
entitled to claim on the policy had been resolved in view of the fact that the insr had
denied liability from the outset. Crt seemed to agree that pff didnt have to replace
until issue of liability was settled and when it did replace that it had to meet the
requirements under the replacement provision.

39

replacement, if necessary, must be on the same site of adjacent thereto according to

the policy. In this case the replacement would be put on a lot 2 sites away - insr said
this wasnt adjacent. CA said adjacent doesnt require absolutely next to - can
accomodate if lot nearby. Crt notes that the insr chose the wording of the
endorsement.
Comment: shows that crts will construe olsc provisions reasonably. In another case the wording
under the olsc said same or another lot the crt felt that the purchase of an existing hotel
in another community 200 km away was a replacement [319107 Ab Ltd. v. New
Hampshire Ins. Co. (1993) ABQB] Therefore we shouldnt expect consistency as the
extent of flexibility under the olsc will depend on the wording of the clause and what is
reasonable
Anadriash v. Canadian Northern Shield Ins Co. (1987) BCSC

Reason: insd not allowed to exercise the replacement cost option in the policy where he could
not replace the destroyed building b/c he was already building a new home on the lot and
it was now unlawful to erect two dwelling houses on one parcel of land. He had planned
to use the money from the policy to advance the building of the new house. Note: the
new house was being built while the other was in existence.
White Spot Ltd. v. Continental Insurance Co. (1986) BCSC

Reasons: crt interpreted the policy which contained a replacement loss option and a provision
that allowed an insd to recover the extra cost of repair associated with by-laws,
ordinances etc. as entitling the insd to claim the full costs of repair and apply it to the
cost of replacing the original building. This conclusion was reached even though the
latter could have been repaired economically and the cost of a new building would
exceed that amount. In short the insd was entitled to be paid as if it was repairing and
could then use the insurance proceeds to repair or to rebuild, according to its own
preference. Note: according to the policy the upgrade amount would not have been
available if the insd was replacing the building.

there are situations in which an insd can claim on a replacement cost endorsement, even
though the construction work is ordered and supervised by a third party

Brkich & Brkich Enterp Ltd v. American Home Assur Co. (1993) BCSC revd by BCCA (1995)

Facts: Insd owns building, it burns and he gets estimates on repairs. Insd files proof of loss on
an acv basis, reserving the right to claim the rest of the insurance proceeds when it had
demonstrated replacement disbursements equally 1.45 million (policy limit). Insr paid
940,000 on acv basis. Insd later signs contract to rebuild for 1.35 million and later the
same day sells the prop to a 3rd party. Sale price covered land, licences as hotel, the
insd int in the insurance policy and the insd obligations in the contract with the builder note that it did not cover the value of the building. The agreement also contained a clause
underwhich the pff (insd) repurchased the interest in the insurance policy. The hotel
completed at a cost of 1.6 million. The pff (insd) filed a further proof of loss for 510,000
(that brings it to policy limit)

40
TJ: said that he could not allow the pff to recover b/c it would be a windfall b/c they had not
paid out any money on the reconstruction - those had been paid by the 3rd party. It is a
precondition to the right to indemnity for replacement costs that those costs actually be
incurred by the insd. Without that, the right to indemnity doesnt exist as the insd has
suffered no loss.
CA: the TJ overlooked the fact that the insd was not recompensed for lost value of the building
except for the insr paying over acv. Although the prop sold and insd benefitted & insr
paid out acv, the insd is still left with a shortfall of amount of replacing the building.
Need to note that this case is not one where replacement cost was an alternative basis for
valuing loss, it was the only basis asserted in the policy for valuation of loss.
5.

Measuring Loss in the Case of Valued Policies

valued policies are designed to deal prospectively with the issue of valuation, by attaching an
agreed value to the property covered by a policy in that document. Usually used in the case
of unique, prized objects upon which it may be difficult to put a value when a loss occurs.
doesnt eliminate dispute partic where the item is not destroyed but merely damaged
Re Art Gallery of Toronto and Eaton (1961) ONHC

Facts: Def (insr) issued a policy covering several objects of fine art. Paintings each valued at
3,000 or over. Six paintings with an insured value of 640,000 were stolen . Recovered in
a damaged state. Proof of loss showed that the actual loss was 1, 045,000. Value as
damaged - 613,900, the whole loss was 413,000. Insd claimed 394,000 reflecting the
fact that in the case of one of the paintings the damage was greater that the insured value.
The insr claimed that a valued policy and loss must be related to the figures in the policy,
by applying the value at the time of loss divided by the original values and applying that
to the full value in the policy. The insd argued that in accordance with the indemnity
principle enititled to recover up to the policy limit.
Decision: as the parties had agreed to use a substitute value for the actual value the former was
the value against which the issue of partial loss was to be guaged. The agreed value
reflected an agreed total loss. The recovery for each item had to be measured by applying
the percentage of actual depreciation resulting from the theft to the agreed values in the
policy.

impt to distinguish b/w a valued policy and a scheduled loss endorsement. These
endorsements are designed to identify and insure separately certain items of high value which
insrs have learnt from experience are subject to higher incidence of loss. It applies a low
upper limit to recovery on these items. However, it is possible by the pymt of an extra
premium for an insd to increase the amt insured on each separate item by a scheduled
property endorsement. In the case of valuation here, the normal rules relating to unvalued
policies apply so that recovery may be secured up to the limit set for each item.

41

eg of difference in calculation:
Actual Value
Damaged Value
Insured Value
Insured Gets

Valued Policy
100,000
50,000
60,000
30,000

Scheduled Loss Endorsement

100,000
50,000
60,000
50,000

E. SUBROGATION

1.
Introduction
is the corollary of the indemnity principle; if insd is to receive no more in the way of
indemnity than he has lost, then the question arises of what happens when she receives
money from other sources which can cover the loss - can insd keep it? NO
should be apparent from the Glynn case (mva - insd sues 3rd party and receives value of
medical expenses then sues insr for same amt; insr said insd would be overcompensated)
that the answer in insurance law is that accumulation of benefits, insurance and otherwise, is
not possible. Subrogation is the primary concept which has been used to prevent over
compensation. The decision in Glynn also makes it clear that it is not necessary for the
operation of subrogation that there be an express provision to that effect in the contract. It
applies by virtue of the common law.
has been some stat modification in partic in relation to fire and automobile insurance
2.

The Meaning and Function of Subrogation

(a) 3 Models/Ways Subrogation can be Used

(i) as a shield
Insr

Insd

TP

full amt of loss

(ii) Castellain
action for reimbursement
Insr

Insd

TP

full amt of loss

full amt of k price

42
(iii) Normal
Action in insd name for recoupment
Insr

Insd

TP

full amt of loss

(b)

Cases

Castellain v. Preston (1885) Eng CA

Facts: Insurance on residential property. Agreement for sale which said that the purch was liable
to pay full money regardless of whether building standing. Prop damaged by fire and the
vendor collects under the insurance and the purch also pays. Insr wants to recoup what
it paid out b/c insd got money from purch and to let the insd keep insurance would
result in over indemnification. Insr wanted to exercise right of subrogation to recovery
money.
TJ: no recovery as the insd had already exercised the right against the 3rd party so the insr
cant step in to the insd shoes.
CA: overturned as that was far too restrictive an interp of subrogation. Brett L.J then gives the
classic statement of subrogation:
as b/w the insr and the insd, the insr is entitled to the advantage of every right
of the insd, whether such right consists in contract, fulfilled or unfulfilled, or in
remedy for tort capable of being insisted on or already insisted on, or in any other
right, whether by way of condition or otherwise, legal or equitable, which can be,
or has been exercised or has accrued, and whether such right could or could not be
enforced by the insr in the name of the insd by the exercise or acquiring of
which right or condition the loss against which the insd is insured, can be, or has
been diminished.
impt to note that the right to subrogation applies whether or not the insd has
exercised legal right/action against indemnifier
the insd had to pay the $ back to the insr.
Exceptions to subrogation per Cotton J. gifts - given voluntarily out of public
goodness; and they are not given to the insd to benefit the insr- the amt has nothing
to do with the insr or insurability. Another possible reason for excluding gifts is that
the amt is not apertaining to the insd as owner of the property as the time when the
loss took place

43

Burnand v. Rodocanachi (1882) HL

Reasons: the insd was paid $ by US for loss. The HL said that this was an ex gratia payment
which had nothing to do with the insr. It was a gift, paid as goodwill, as comity of
nations. As a result the insr couldnt enjoy the benefit. There was no legal obligation on
US to pay it.
Rayner v. Preston (1881) Eng CA

Facts: facts in Castellain gave rise to this action where the 3rd party (purchaser - Rayner) tried to
claim the proceeds from the insurance to offset the loss that he suffered by having to pay
the full k price from Preston (vendor). He was essentially arguing that he shouldnt be
out of pocket and to ensure that he was not he should be entitled to claim the benefits of
the vendors insurance policy.
Reasons: lost arg on the grnd that the k of insurance was personal to the insd vendor, and thus
not subject to a claim by a stranger to it. In addition there was no ev that the policy had
been assigned to the purchaser. K was personal to the vendor so no way the he could be
obliged to act as trustee for the purch.
Comment: really is inequitable b/c it is the purch who really suffers the loss. The vendor gets
the full k price, the insr gets back what he paid out and the purch is left with a ruined
building unless he had insurance to cover own interests. Seems to be good law in Canada
though - Springfield Fire Ins Co v. Maxim (1946) SCC.
issue is now dealt with by modern conveyancing practice. Sale and purch agreements
now generally have a clause providing that the risk of damage to the property remains
with the vendor until closing. If damage or loss occurs after the agreement, but
before the trans is completed, the v holds proceeds for the purch or, if the damage is
extensive, the purch may revoke the agreement. There is no double recovery and
subrog cant operate.

issues similar to Rayner can develop with expropriation

Drache v. City of Winnipeg (1971) MBCA

Facts: fire on prop that was to be expropriated. The insd recovered full amount from insr. City
didnt want to pay exprop amt now.
Reasons: decision in Rayner was applied to prevent the city refusing to pay arbitrated
expropriation compensation under stat to the pff, although the pff who had suffered a fire
loss had recovered in full from her insr. They wrote the expropriation order and should
have addressed the issue of persons getting compensation from other sources.
Comment: Jakimovich - fire happened before comp for exprop was settled and the amt given for
exprop was reduced to less than full value of the house b/c of damage - no double
recovery.

44

3.

The Presence of an Enforceable Right

impt prin of doctrine of subrogation that the insd have an enforceable legal right against a
3rd party.

Simpson & Co. v. Thompson and Burrell (1878) HL

Facts: one person owned two boats that collided (D) P insd one boat an pd D (for boat not at
fault). Owner established fund to compensate the cargo owners re: the boat at fault. Insr
wanted to use subrogation arg to attack owner - wanted to be able to line up with the
cargo owners.
Reasons: Insr could not do this; cant step into the shoes of the insd to sue b/c he would be
suing himself. The insd was the same as the 3rd party - so not really a third party; cant
have enforceable right against himself.
Comment: if the insr had any claim against the insd if would be for pure economic loss and
you cant sue under neg for pure economic loss

are situations where the insr pays out but is a dispute about whether they should have or
needed to:

King v. Victoria Insurance Co. (1896) PC

Facts: Wool to go to Eng, insurance taken out on it. Clause seems to indicate that the wool is
insured once it is on a ship bound for Eng. Wool was damaged by water while on a
lighter which collided with punts (neg placed by the govt). Insr paid out. The insd
assigned all rights of action agains the 3rd party govt to the insr. (even though it is
assignment the stmts by the crt have relevance to subrogation). Govt argd that it wasnt
liable to the insr b/c the insr was not bound to pay out - (i) if the insurance was for wool
on ocean going vessel - lighter not ocean going so not covered; (ii) collision was not a
covered risk under the policy.
Reasons: even if there was some doubt about whether the insr was bound to pay out, the insr
subjectively felt it was bound to pay to, so it is not open to the 3rd party to arg the
subrogated/assigned rights could not be acted upon. The insr is the master in
determining if the loss is covered. To decide otherwise would leave it open the the 3rd
party to open it up in every case and the insr would be reluctant to pay out to the insd.
rights arise from payment - a payment honestly made by the insr in conseq of policy
granted by them and in satisfaction of a claim by the insd, is a claim made under the
policy which entitles the insr to remedies available to the insd The right to
subrogation remains if the pymt was honestly intended to be in satisfaction of a
loss under the policy.

45
COMPARE:
John Edwards v. Motor Union Ins. (1922) KB

Facts: vessel sunk through neg of others. The pff argd that the insr couldnt be subrogated b/c
it paid out under an honour policy w/o a requirement of insurable interest - such policy
was unenforceable under the Marine Insurance Act. Insr argd that having paid full
value of policy it was entitled to subrog anyway
Reasons: no right of subrogation. Subrogation springs not from pymt only but from actual pymt
co-jointly with the fact that it is made pursuant to the basic and original k of indemnity.
This was not a k of indemnity therefore no subrogation.
Wellington Insurance Co. v. Armac Diving Services Ltd. (1987) BCCA

Facts: Boat capsized. This was an indemnity policy. The insr resisted the insd claim and then
settled as a PR exercise after the insd had instituted legal proceedings against it - they
gave 1/2 the value of the loss. The insd sued the 3rd party for neg and won. The insr
then argd that they should be subrogated and should get their money back b/c the insd
got indemnification from another source.
Reasons: crt said that the insr could not succeed; if the clear intent was not to accept the loss
under the policy you have not made a pymt under the policy and you cant exercise the
right to subrogation. Basically if the insr refuses to pay b/c it says it is not liable and
then it makes an ex gratia settlement payment it cant sue on subrogation.
4.

Limitations on the Operation of Subrogation in Modern Practice

should subrogation be supported where there is some identity b/w the insd that the 3rd
party? Problematic - which insr will pay out? 3rd or 1st party

(a) Employees of the Insured

subrog seen as problematic in these case b/c it would be deterimental to industrial relations
(per Denning) and it means that an excessive amt of insurance will be created [Morris]
Morris v. Ford Motor Co. (1973) Eng Ca

Facts: (case is not about insurance but is about indemnity so is seen as an authority)
pff
(injrd emee of TP)

4th party
(def neg emee)

def (Ford)

Tp (pff emer)
clause in k with Ford - rqrd them to indemnify Ford

46

F ran a plant and had k with cleaning company. K holds the cleaners liable for
anything that happens, including the negligence of Fs emees. (likely agreed to this
b/c of unequal barg power and to get the k the cleaners would have had to conceed
certain things. Emee of the cleaners gets injured b/c of the neg of a Ford emee. Pff
brings action against F; F tps the cleaner co on the basis of the indemnity clause and
the cleaner tries to join the Ford emee on the ground that subrog or something similar
operates here.
Background Law: In Eng, at the time, the HL in Lister (3:2 decision) said that where an emee of
a partic emer thru his neg causes injury to a co-worker (emee of same emer) the insr has
a right over against the neg emee. This decision caused a stir that resulted in a
gentlemans agreement among insrs that they wouldnt exercise this right even though
they had it.
situation here is different b/c emees involved were from 2 different companies
therefore it is not covered by this agreement.
Reasons per Denning
turns to equity - there is no legal authority for the cleaner to use Fords name so the
cleaner would need the authority of the crt. Is it just to let cleaner sue in Fords
name? The crt has the equitable juris to decide. Denning says that here equity
wouldnt allow this to happen so the emee of Ford was shielded. Main reason for not
allowing it is industrial harmony
alternative ground - implied element in k not to go after the fourth party. This is
where the case actually is decided because James agreed on implied k but said it was
not a matter of equity.
Comment: this case was essentially decided for policy reasons, not allowing the doctrine of
subrog to work where it would be detrimental to industrial relations, wouldnt help
industrial peace to allow action against Fords emee.
Greenwood Shopping Plaza v. Beattie (1980) SCC

Facts: lessor and lessee have arangement whereby the lor gets insurance which has waiver of
subrogation in favour of the lee. Building is damaged by neg of lee emees (welding on
tire rack full of tires).
Issue: Can the lessors insr recover against emees or does the subrog waiver clause cover them
by implication?
NSCA: said that they couldnt subrog against the emee; emer cant act but thru its emees so
why wouldnt the waiver protect them?
SCC: said that subrog could op b/c the emees were not privy to the k, nor was it a situation
where the emer could be seen as agent or trustee of emees interest.
Comment:
lee likely had liability insurance policy which covered emees neg; so really the 1st
party insr is trying to get at the emers 3rd party insr thru the backdoor b/c the direct
way is bloced by waivers - this is a squabble among insrs The crts deal with this by
ignoring it - they act like this is not really the true facts. Some commentators arg that
this is a waste of $. So in Eng per Morris subrog would be barred but no authority for
this in Cda.

47

Greenwood is authoritative case re: question of whether doctrine of subrog will be

allowed to work in context of emer and emee where the emer is the lessee
case of London Drugs v. Kuehne and Nagel Int Ltd. (1992) SCC provides a narrow
relaxation of privity in cases where emees are performing services k for (doing
something necessary to the contract with the TP) and the emees will remain liable for
independent torts. Not clear that this would have helped emees in Greenwood as they
were not doing anything related to lease agreement b/w lor and emer (lee)

(b) Tenants

situation where have conjunction of one type of agreement (lease) which may import certain
obligations one of which may be insurance and then you also have the insurance policy
as a matter of landlord and tenant law one of the obligations of the tenant is repair - standard
exception is for wear and tear and fire. Can also have an exception to the exception implied
that fire means purely accidental fire, not one caused by lee or lee emees
say lor takes out insurance, lee is neg and causes fire. Insr pays out to lor. What rights
does insr have against the lee? Traditionally subrog would op b/c neg involved so the lee
is not shielded from repair ob. This was the law coming out of:

United Motor Service v. Hutson (1937) SCC

Facts: building damaged by fire caused by neg of tenants. Clause said tenants not liable to
repair fire damage and reasonable wear and tear. Under the lease arangement the lor was
bound to pay the insurance premiums
Reasons: Crt held that fire did not include fire caused by tenants neg and that therefore the
exception did not apply. Lor right of action and thru him the right of subrog of his insr
was preserved.. Crt here concerned that the opposite result would require a liberal
reading of a disclaimer clause, an approach which is not warranted, esp if it means that
the party who would normally be responsible at law is let off the hook.

landlord and tenant share common int in ensuring that each is adequately covered by
insurance while avoiding the cost of overlapping insurance. This can be done by one of them
insuring on behalf of both or the parties can provide in the lease that only one of them will be
liable for all loss no matter whose neg caused the loss. Then the liable party under the lease
could insure. For example if the landlord insures and is solely liable for loss under the lease,
the insr would pay the loss and would have no right of subrogation against the tenant.
HOWEVER - the crts often find that the terms of the lease have NOT clearly placed all
liability for the loss on the party insuring.
crts are influenced by the view that a clause which shifts liability (esp for neg) from
where it would normally rest is a disclaimer clause which must be strictly interpreted.
This is what happened in Hutson - crt took a very strict interpretation of the clause.

SCC got back to this area in the 1970s and appears to be of the view that subrog should be
excluded if at all possible - they have found exceptions to Hutson principle. Trilogy:
Cummer-Younge; Pyrotech; and T.Eaton.

48
Cummer-Younge Investments Ltd v. Agnew-Surpass Shoes Ltd (1975) SCC

Facts: lor was to take out insurance. Instead of stndrd repair obligation & implied exceptions,
the clause here extended to damage except to damage caused by perils against which the
lor was bound to insure (said insurer was obliged to insure against all risks of loss by
fire).
Reasons: Laskin said this required the lor to take out insurance to cover the lee even if neg.
Distinguished Hutson b/c clause there was bare bones and crt in that case had noted that
much stonger language was required to exclude tenant liability re neg. In this case the
clause was much more complicated and clearly excluded liability for all risks. Crt thus
found reason to deviate from traditional rule - subrog not allowed here
Ross Southward Tire Ltd v. Pyrotech Products Ltd (1976) SCC

Facts: Lease in stndrd form (ie tenant only relieved from liability re: reasonable wear and tear
and damage by fire, etc - as in Hutson); however the tenant was responsible for paying
the insurance premiums.
Reasons: Laskin says provision which covers pymts trumps the stndrd fire clause b/c if lee to
pay for insurance surely they would want full protection.
says that Cummer-Younge shows that covenant modifications of the relations b/w
landlord and tenant in respect of the tenants liability to the landlord for damage
caused by neg must be determined on the basis of the lease and not by reference to
insurance policy considerations.
T. Eaton Co v. Smith (1978) SCC

Facts: involved 2 commercial lease agreements; contained the stndrd fire clause. Complicated by
the fact that there was an option to purchase clause under which the lor/vor undertook
to take out insurance to protect int of lee/purch in event that option to purch was
exercised.
Reasons: Laskin said that you should be able to assume that when lor covenants to take out
insurance that it is designed to protect the lee int even in case of fire caused by neg
unless the clause/policy provides otherwise. Nothing in the policy speaks against this
presumption and the option to purchase clause butresses this position.
Comment: basically this demolishes Hutson b/c it means that in the absence of clear language to
the contrary, when the lor covenants to take out insurance, you can assume this means
coverage for all risks.
Dissent per DeGrandpre - Eatons is a big company, hiring big lawyers and they would have
known at the time the lease was signed that the law was Hutson - shouldnt shed tears for
the lessee here. In this case the lor ob to insure was only related to the option to
purchase. It did not modify the stndrd repair clause. Therefore it is not sufficiently
different to undercut Hutson.

49

still need to be cautious b/c the agreements are crucial to the ability to deviate from Hustson.
See following case:

Peel Condo Corp v. Vaughan (1996) OnCrt Gen Div

Facts: Condo corp and relationship to owners of individual units. Tenant was neg and caused a
fire. There was no formal agreement b/w the corp and owners nor b/w the owner and the
lessee. Insurance taken out by the Corp extended to premises (common and indiv) and
clause which provided for waiver of subrog against owner of units
Issue: Could insurer, having paid out, go after the tenant?
Reasons: crt said subrog could op. In Landlord and Tenant Act it says that tenant responsible for
damage caused by his/her neg to the rented premises. Nothing in the bylaws of Corp or
relationship with owners that would cast any doubt on this. Crt also concluded that
owner did not equal tenant.

note that Cdn courts have so far been adverse to extending protection from subrog to remote
parties such as emees (Greenwood Plaza)
Problem pg 47 based on Christian Vision Bookstore v. Avatex Mgmt (1987) ABSC
subrogated claim against mgmt company (partially owned A co which had subrog
waiver in its favour. Would waiver work for the mgmt company?
arg for mgmt company - subrog clause covers them; draw attention to the close
relationship b/w the mgmt company and the lor A - 25% ownership. Lee was
agent for lor and the mgmt company. Cite Ford for the arg about problems with the
proliferation of insurance where parties are closely related - does it make sense for
everyone to get first party insurance and 3rd party liability. Note that Laskin in
Trilogy says that lee/lor relationship is one where unless it is inevitable you
shouldnt allow subrog to operate
arg for insuror - plain meaing of lor means lor not mgmt company; deny agency
relationship. Arg Greenwood - in absence of extended defn of lor to include the
mgmt company the mgmt company is not privy to the contract.
Result in actual case - crt used narrown interp of lor - no intention to include mgmt
company in waiver of subrog.
(c) Subcontractors
Commonwealth Construction Ltd v. Imperial Oil Ltd (1977) SCC

Facts: Commonwealt were sub-ks on job for Imperial Oil; C response for fire that caused
damage on site which extended beyond their own property. Damage was covered under a
builders risk policy which covered company, subsidiaries, ks and subks. Insr paid to
Imperial and insr brought subrog action for indemnification minus value of subks
destroyed property
Issues:
(i) Whether subks had ii in whole project; if not, insr entitled to subrog; Did the various
trades have, prior to loss, such a relationship to the entire works that their
potential liability constituted an ii in the whole?
(ii) Even if subks int not pervasive, had insr waived subrog rights?

50
Reasons: On the first issue the crt found ii was pervasive; analogy b/w position of subk and
bailee. Policy in this case provided coverage to all for whole site.
Second Issue: Given the nature of the contruction k and insurance policy was it there
intent to waive subrog rights against unnamed insd like Commonwealth?
ABCA: interp insurance as relating to prop int of parties not as to liability
concerns. Only get protection if prop destroyed, no obvious implications
re: liability
SCC: said it was designed to protect prop but has implications for liability as the
risk policy is designed to eliminate protracted lawsuits b/w insd and an
individual insd. To extent that the policy discussed liability of subks it
mostly relates to deductibles or risks that were specifically excluded - eg.
design flaws - this did not negate the basic proposition. de Grandpre takes
comfort in judgements like Ford that protect unnamed insd for liability as
well as property
Basically the insr had waived subrog - the word insd in the waiver of subrog clause
referred to the entire group covered.
Comment: remember that the question of waiver of subrog in this type of case depends on the
terms of the policy, which may or may not sustain the waiver arg of the tortfeasor.
Implications of Commonweath - does it mean that in all joint venturer cases an
unnamed insd will be able to benefit from waiver? NO see following
Canadian Pacific Ltd. v. Base-Fort (1991) BCCA

Facts: Site risk policy designed to afford insurance protection t the owner, Gen kor and subk
associated with the venture. Waiver of subrog for insd parties - Cdn Pacific, kors, and
subks whose efforts relate to furthering of construction. Base Fort was kor providind
security services on site; damage resulted from neg of Base Fort personnel. Insr paid out
and tried to exercise subrog rights against Base Fort
Issue: Did Base Fort have int in project that would protect them from subrog?
Reasons: Int had to be related to construction project; while Base Fort provides security
services, this doesnt relate directly to construction, thus subrog was exercisable.
Services were ancillary to the venture - gives way to distinguish Commonwealth b/c subk
there was making a contribution to the project.
Comment: case highlights the importance of reading the specific policy!!
Sylvan Industries v. Fairview Sheet Metal (1993) BCSC (1994) BCCA

Facts: Builders risk policy taken out to by owner of mushroom farm. Insr wanted declaration
from the crt that the 2 subks werent covered by the policy; argd that they didnt intend
subks to be covered.
Reasons: in a builders risk policy which didnt specify clearly which parties were to be
protected by waiver of subrog they decided that it covered the sub k and and the
contractor. Said that the intention of the insuring owner was too vague to look at.
BCCA: agreed with the trial crt and added that given previous decisions on builders risk
policies one wonders why the insr would would write a policy using language already
found to confer unnamed insd status on contractor and subks if it did not intend to cover
them in that policy. [note that the crt did not attach any signif to the fact that the policy
did not contain an omnibus clause insuring contractors and subks]

51

stuff from text - not mentioned in class: arg of insr that Commonwealth did not take
the subks beyond establishing an ii in the project and there remained outstanding the
issue of whether they were covered as unnamed insds and entitled to protection
against subrog. Crt pointed to stmt from Base Fort in which the crt said that
principles governing the issue of whether one is an insd within the policy are the
same as those on the issue of ii. [given that in Base Fort subrog was allowed does this
mean that builders risk either presumptively or mandatorily insures all those with an
ii?]

(d) Relatives and Good Samaritans

in homeowner policies, some of protection afforded to named insd is also extended to family
members or other residents
question sometimes arises whether such a person is shielded from the exercise of subrog
rights ny the insr
issue typically arises where relative or good samaritan has been negligent and is not an insd
by virtue of lack of ii or by policy exclusion

Morawietz v. Morawietz (1984) OnHC; ONCA

Facts:
negligence
pffs (parents - Zurich)

son
(auto ins - Pitts)

indemnitypolicy
under liability
rider (Zurich
policy)
pff have homeowners
with Zurich.
House
was burned by sons neg - he was welding
on his van with fathers supervision. Son had auto policy with Pitts. Z pays out and seeks to
subrog in name of mother, nominally against the son but actually against Pitts. Pitts said son
is protected by liability rider on Z policy - named and unnamed insd. P joined father for neg
in supervision.
2 problems with the liability rider: (1) didnt apply where MV invoved; (2) didnt apply
where prop of an insd is involved
Trial: it is stupid and unreasonable to allow subrog to operate in these circumstances even
though it really is b/w insurers b/c someday there may be a case where it is not insrs
battling. Son had int in premises that went beyond his property stored in the house same int as parents. Auto exemption was to vague to be applied but did say that father
was neg. Z couldnt exercise right to subrog.
CA: reveresed trial decision.
son had ii but it was different than parents - just protection of his prop in the house
auto exemption applied - therefore Z had subrog rights against son (insurance) [1st
party had subrog against 3rd party]
neg of father was assessed at 50% [this leaves the possibility that son or Pitts could
try and get contribution from Dad who in turn would look to Z for coverage.]

52

crt not influenced by arg that subrog shouldnt be exercised in family situations such
as this one
Comment: interesting decision in light of Scott v. Wawanesa. Trial decision accords with Scott.
Scott says that sons int is identical to parents int. Morawietz was decided before SCC
heard Scott. (see pg. 25 of outline)
some say case is of little impt b/c it is b/w insrs. Hever it is not safe to assume that
a neg third party, whether a relative or good samaritan could not be sued directly by
the first party insr
Wade v. Canadian Northern Shield Insurance Co. (1986) BCSC

Facts: son asked by parents (named insd) to stay in their home while they are away on holidays.
Son was negligent. Insr pays out to parents and tries to subrogate against the son. Son
args that the was insd under the policy; defn of insd under the policy included
named insd and other residents of the household.
Reasons: MacEachern said there is a difference b/w being resident of and being resident in.
Son not resident of so not protected by waiver - not an insd
Comment: dont know if son had liability insurance which would have covered him.
most ridiculous part of this case is that the named insd did exactly what they should
have to ensure that their int were protected and the insurance co it was protected.
Often a requirement of homeowner policy that insd arrange for house to be inspected
while they are absent for certain period of time; ironic that insr would rq this and
then seek subrog rights against person the parents got to watch over home
son should have refused or stated that he wouldnt indemnify in event of my neg; or
son could have gotten liability policy.
(e) Suggestions on how to deal with problems re: opeation of subrog
i. crt could find insurance k covered the int of 3rd parties such as family members or
good samaritans; this was unsuccessful arg in Morawietz and Wade
ii. crt could find that insr waived its subrog rights; could imply it in the circumstances
iii. crt could adopt Dennings view that subrog is of equitable origin and should only be
allowed when it is just and equitable to do so;
iv. crt could find that named insd had assumed liability for the loss and had waived their
rights against 3rd parties.

53

5.

Operation of Subrogation at CoL and Statutory Modifications

when can the insr exercise the CoL right of subrogation?
when the insd is fully indemnified - by insr or if insurance didnt cover full amount, then
when the insd is cummulatively indemnified (insurance plus other sources) - and insr can
recover when the insd receives one dollar more than loss.
example: prop valued at 100,000; insured for 50,000; prop destroyed by 3rd party neg.
Under CoL no subrog until insd got 100,000 and the insr couldnt begin to recover until the
insd got more than 100,000
the CoL rule is really designed to favour insd
insr are concerned about the insd having the insr int sufficiently in mind when they engage
in tort action. Insd owes duty of good faith to take into account the insrs int when
negotiating tort settlement or in a tort acion.

Globe and Rutgers Fire Insurance Co. v. Trudell (1927) OnSC

Facts: under insurance; fire caused by spark from equip owned by municipality, building
damaged. Insd got pymt from insr and also sued municipality. Accepted low
settlement. Insr wanted its money back - insd hadnt acted in good faith in settlement
and hadnt considered insr int.
loss - 12,200
ins cov - 1,346
settlement - 3,850
insd ends up with - 5,196
insr ends up with - 0

Reasons: insr was denied by the trial court and by CA. CoL rule on subrog not satisfied b/c the
insd had not recovered full amount - not fully indemnified. No bad faith, low settlement
b/c of conern of establishing liability of the munic. Note that if bad faith was established
they would have recovered.
Davis v. MacRitchie (1938) NSSC

Facts: Mac in accident; collected insurance $ and also collected from tortfeasor w/o knowledge
or consent of the insr.
purch price - 1,184
ins cov - 755
settlement w 3rd - 265
insd gets 265
insr gets 755

Reasons: settlement was a giveaway - case was much better than the settlement indicated - this
showed bad faith. Insr gets its money back and the insd left with the settlement.
insd must prosecute his claim aginst 3rd party diligently and completely; no ev that
settlement was reasonable or prudent, in fact insd deliberately settled low to avoid
subrog by insr
Comment: at the very least the insd is not to do anything which would adversely affect the int
of the insr

54

under the CoL if the insd has been paid the full amount of the loss, then the insr gets control
of the litigation, although it still has to sue in the insd name. Insr can decide on lawyer,
when to settle and for how much and whether to appeal
CoL rules on operation of subrog apply to all forms of insurance, except where stat changes
to its operation have been made. Stat changes to CoL have been made re: fire and MV
insurance. (see below)
problem pg 50: there has been no stat modification re: disability insurance. A
undercompenstated when you add 79,000 and 18,000. Opn of the CoL doctrine means net
recovery - entitled to deduct legal expenses incurred in recovery of the loss. Insr said
there was protection for lost income and legal fees. Crt rejected this arg - her loss was
$105,000 for lost income from which you subtract legal fees (equals 79,000) and then add
18,000 she is still not fully compenstated. [Confederation Life Insurance v. Causton (1989)
BCCA]

(a) Stat Changes to Fire Insurance and Motor Vehicle

(i)

Effect of both is to provide the insr with the right of subrog when the insd recovers
anything from a third party source (even if total amount received by insd does not amount to
total loss incurred). Whatever comes from the third party is divided b/w the insr and the
insd in proportion to which theyve agreed to underwrite the loss.
example: Full value of loss: 100,000
policy limit: 80,000
insd burden: 20,000 (20% of loss)
amt recovered from TP - 50,000
Insd gets 20% of 50,000 (10,000) + 80,000 from policy = 90,000
Insr gets 80% of 50,000 = 40,000
**clearly is a departure from the indemnity principle. Insd can never get full recovery
where the compensation from the tp source is less than the amt of the loss, unless he has
insd the full value of the property
Fire Insurance
s. 224 (Part 6, Fire Part)
(1) The insurer, on making payment or assuming liability therefor under a contract of
fire insurance is subrogated to all rights of recovery of the insd against any
person, and may bring action in the name of the insd to enforce those rights.
(2) Where the net amount of the indemnity recovered after deducting the costs of
recovery is not sufficient to provide a complete indemnity for the loss or damage
suffered, that amount shall be divided b/w the insurer and the insd in the
proportion in which the loss or damage has been borne by them respectively

55

sub 1 allows the insr to proceed by subrogated right before the insd has recovered a full
indemnity. Does the insd lose control of the action, even though not fully compensated?
Who is dominus litus?
under CoL it is clear that insr controls the action. Concern for insd in case where
there is significant deductible - insd has interest b/c it wants to protect value of
deductible. This concern is magnified under stat where the insr right is triggered
whenever $ available from tp.
Brown and Menezes - no authority on matter but they hold the view that the insr may
take an action in insd name but the action is still controlled by the insd. Unlike the
CoL situation where the insr has to rely on the insd exercising good faith
independently of any constraint by it, here the insr can more easily insinuate its
interests into the proceedings
subsection does not seem to prevent the insd from proceeding against a tp,
particulary where the insr decides not to exercise right of subrog.

Farrell Estates Ltd v. Canadian Indemnity Co. (1989) BCSC

while s. 224(1) had changed the CoL in the case of fire insurance by permitting the insr to
commence litigation in the name of the insd upon payment of a partial indemnity, it did not
abrogate the right of the insd to control the litigation should it choose to do so, until full
indemnity had been made. Compared with s.271 of the Act (auto insurance) which contained
additional provisions to specify who should have control of tp actions. Insd has potentially
more to lose - has more at stake in action brought by the insr.
appeal to CA was dismissed. Said s.224 not designed to cover all elements of subrog, if it
was the may bring action in name of insd..... would have been unecessary. Sect is silent on
the issue of control, there is no justif for assuming that it changes the CoL in that respect
would be unfair to give control to insrs in all cases, including those in which the insr had
assumed liability only for a small portion of the insds loss. Language in policy which
tracked s.224 should be given the same interp.

(ii) Motor Vehicle

s.25 BCI (MV) Act (summary from course book)
(1) right of subrog against third parties is given to ICBC when it has made payments or
assumed liability for benefits under the auto insurance regime (benefits includes no
fault benefits under Pt 7 of the Regs, which are deducted from any amount awarded
against a third party, s. 24 of the Act), can take action in name of the insd or in its
own name
- Right runs against third parties not themselves covered by ICBC or who have
insurance with a private carrier. As in the case of fire the right is exercisable w/o
full compensation to the insd (section does not say this, must be interpretation)
(2) the same formula is applied in the case of fire policies in determining the relative
share of money received from a tp.
(3) it is only in the case where the interest of the insd relates to loss of or damage to the
vehicle or loss of its use, the corporation has conduct of the action

56
(4) in the case of any other interests [other than those in (3)] there is a provision for
application to a court by the parties to determine matters of dispute re representation,
conduct of the action, settlement, apportionment etc.
(6) settlement or release must be concurred in by the parties (see s19(11) re uninsured
vehicles.)
6.

Is Subrogation Really Necessary?

in theory subrog underpins indemnity theory

however there are arguments made for rethinking it and some even call for its abolition.
Prof Hasson points to:
i. the difficulty in distinguishing indemnity and non-indemnity insurance k for the
purpose of applying subrog;
ii. judicial confusion in the collateral benefits cases in determining whether disability
benefits are indemnity payments or not. This can only be resolved by legislation he
suggests
iii. the extent to which subrog relies upon fiction (or in Morawietz fiction upon fiction)
traditional justifications for subrog and his debunking of them:
a) necessary for the survival of the insurance industry - DEBUNK: returns through
subrog claims is insignificant - 0.6 to 0.8%;
b) is a cost saver, if insrs can recoup $, they will reduce premiums - DEBUNK: no ev
that it results in any decrease in rates paid by policy holders, nor that insr pursue the
right agressively, also is ev that it causes increase in 3rd party liab insurance;
c) deterrent against negligent behaviour - DEBUNK: most unlikely that has any such
effect either against corp (real concern is loss of business) or individuals (other more
signif deterrents)
other advantages which are cited:
d) not having subrog is windfall to tortfeasors [counter - usually 3rd party liab insr]; and
e) moral hazard [counter - other more effective ways of dealing with this]
disadvantages:
results in overlapping coverage;
produces wasteful litigation (Dorset Yacht (1970) HL - subrog claim for damages by
the insr of damaged yacht_);
can undermine insurance purpose (see emer liability cases)
insurance industry recognizes the stupidity of exercising strict rights of subrogation principle of give and take; recognize that sometimes they rep Ps and sometimes Ds
so they dont go after the other insr (Eng naught for naught principle or auto
insurers) In Cda insurers agree to proportion loss - Appendix F - stereotype accidents
and attribute fault on that basis
possible ways to deal with it:
Hasson, Menezes say that you should eliminate subrog statutorily except in the cases
of forgery and fidelity insurance where it has a potential deterrent effect. Pay off in
this case would be that the insd could no longer sue for the deductible

57
another possiblity suggested by Hasson is to allow the insd his insurance benefits
and foreclosing any action against the 3rd party, at least to the extent that losses have
been covered by insurance. However there is a problem with tort collateral benefits
so wouldnt do this until it is economically feasible
1st party Ins
P

D
Action for loss not
covered by insurance

3rd Party liability insr

7.

major difficulty is that subrog is well established such that crts not likely to throw it out
altogether. Would have to be legislated.
NB - ICBC claims to pursue its subrog right with vigour esp against uninsured motorists
(whatever the registration of the latters vehicles) and underinsured motorists and no-fault
payments (where 3rd party insured outside BC)
Subrogation and Collateral Benefits
accident victims cas often look to several soucrces for compensation, including universal
public insurance schemes such as hospital and medical plans; private insurance, such as
accident insurance; and the possible tort or contractual liability of someone responsible for
the accident. Made more complex with the inclusion of liability insurance. This system
creates a lot of duplication and many gaps; some will have multiple sources for compensation
while others will have none.
doctrine of subrog was created to give effect to the notion that an insd should not profit from
his loss, that he should only be indemnified. The same fundamental notion that a victim
should not be overindemnified exists in other branches of the law - most public insurance
schemes provide for a right of subrog; in tort law we have the doctrine of collateral benefits
which attempts to insure that a victim is not overcompensated.
until recently there was little recognition that the problem of double compensation is three
dimensional. Judges tend to see it as two dimensional, concentrating on the insr and the
insd in insurance cases and treating the tort recovery as fixed and the opposite in tort.
the existence of other collateral sources of compensation, side by side with conventional tort
liability raises questions as to their relationship to one another - are the funds available to the
injured person cumulatively, alternatively or in any particular order of priority? Should there
be any loss sharing b/w the collateral fund and the tortfeasor?
four possible solutions:
1. election: putting the insd person to his election b/w recourse against the tort
feasor or accepting compensation from the collateral source;
2. cumulation: permitting the insd person to take and retain both, damages and
the collateral benefit;

58

3. reimbursement: compelling the tortfeasor to pay the full amount of the

damage but crediting any excess, after making the pff whole, to the collateral
source;
4. relieving the tortfeasor: reducing the tortfeasors overall liability by the amt
of the collateral benefit received by the injured person.
all but second ensures that the injured person does not get double recovery; the fourth
(and possibly the 1st) allow the tortfeasor to be relieved of any monetary payment,
while all the others requrire him to pay in full - whether to reimburse the collateral
fund or overcompensate the injured person. Third and fourth force the raising of a
fundamental policy question: whether accident losses generally, or any particular
accident losses, should be absorbed by the tortfeasor or by a collateral source,
whether in accordance with the regime of tort law or the regime of private or social
insurance.
the meshing of subrog and collateral benefit doctrines is made more complicated by the
uncertainty surrounding collateral benefits doctrine in tort law.
other writers have gone belond this discussion of the failure to fit neatly together and have
noted that with the widespread availability of liability insurance a tortfeasor does not often
suffer the effects of an adverse tort judgement. In addition, they note that the modern
concern of tort law is not so much with admonishing wrongdoers as it is with compensating
victims. Hence, subrog does not in fact put the ultimate burden on the wrongdoer. Instead
b/c it operates case by case, it is a very expensive mechanism for shifting costs and
preventing overcompensation. Other less expensive means should be used for accomplishing
these tasks.
example of problem of trying to mesh insurance (private and social) with tort is found with
the introduction of no-fault benefits. There is a question of what effect the pymt or
availability of these accident benefits should have on the insds tort claim. Initial reaction of
the crts: allow full recovery of the tort claim coupled with some kind of subrogation by the
accident insr (depending on type of accident benefits involved). Recent cases: seem to hold
consistently that the insr is not entitled to any subrog and the amt of the tort claim should be
reduced by the amt of accident benefits received - this has been adopted by leg is some
provinces, eg. On.

F. CONTRIBUTION AND OTHER CONSEQUENCES OF INDEMNITY

1.

Introduction
contribution is the doctrine which operates typically where the insd has insurance with
more than one insr convering the same risk and the same interest
double coverage may be result of concern about insolvency of insr or result of inadvertance
(is possible for two policies covering the same risk to be taken out by different insds
to allow insd to recover under both policies would offend indemnity principle and create
moral hazard incentive for insd to engineer his own loss to gain benefit.

59

2.

Contribution Distinguished from Subrogation

contribution: insurance re: same risk; divides the loss

subrogation: doesnt involve the same interest; shifts the loss
North British and Mercantile Ins. Co. v. London, Liverpool and Globe Insurance (1877) Eng Ca

Facts: two underwriters involved in insuring good held by bailee - policies were to cover loss,
destruction or damage. Bailee (wharfinger) insured for loss by fire and the object of the
bailees insurance was potiential liability to bailor for damaged goods (1st party
possessory coverage for good owned by bailee and 3rd party liability in respect of
bailors goods). Bailor insured own int in the property .
Issue: is it a subrogation or contribution situation?
Held: subrogation
Reasons: subrog b/c the interests werent the same - bailor owned the goods. For contribution
you need the same interest. The function of the insurance was different - bailee was only
in possession, insurance was to protect it if goods were lost.
Comment: could be a different situation if both policies were taken out to protect the goods of
the bailor, i.e. if bailee took out insurance to protect the bailors goods on behalf of the
bailor - like Keefer - have insurance int in property - and contribution could operate.
that was not the situation here - bailor insuring goods, bailee insuring liability.
1st party on own goods, 3rd party liab on goods of bailor
1st party ins on goods

BAILEE

BAILOR
Subrogation

3.

if bailees insurance intende to cover bailors interest in its goods (see Keefer,
Hepburn) then to extent that both policies insured the bailors interest in those goods
contribution would have applied

The CoL Operation of Contribution and Statutory Modifications

(a)
Legal Basis of Contribution
the CoL rule on contribution still applies in all forms of insurance other than MV and fire, in
absence of contractual provisions to the contrary.
CoL rule allows the insd to go after any one of the insrs for full amount of the loss or limit
of the insurance, and it is left to that insr to seek contribution from the others (this done
under equity)
Legal & General Assurance Ltd v. Drake Ins Co. (1991) Eng CA - why did the 2nd insr
contest attempt by other insr for contribution? 2nd insr said that they had not been given
the 14 days notice as required by its policy b/c the insd went after other insr. Could the 2nd
insr use as an objection to contrib the fact that the insd had breached a condition of its
policy? CRT: said that the notice requirment was a condition subsequent and a breach of a
condition subsequent is not a basis for shielding the 2nd insr from contribution.

60

insrs by policies were able and are able to vary the CoL rule and apply a rateable
proportion system whereby the insd is only entitled to receive a rateable proportion form
each insr covering the interest. Insrs will not always know the insd has other insurance.

Legal & General Assurance Ltd v. Drake Ins Co. (1991) Eng CA

Facts: MV accident where the insd injured a third party. Insd covered by 2 policies and both
contained notification as a requirement for recovery. Both also contained rateable
proportion clauses (ie. if more than one policy covers risk, then insr only has to pay
rateable proportion). Insd claimed agains Drake but didnt proceed against Legal. Legal
was advised there was another policy and that a claim had been made. Drake settled with
the insd and then sought contribution from Legal.
Drake argd that there were two policies covering the same risk thus they should
share cost; where one of two insr accepts liability for the whole loss, they can seek
contribution from other insr - this right flows from equity. Inequitable that one insr
would be able to receive benefits of premiums and not pay share of loss. Both of the
policies had rateable proportion clauses.
Legal argd that they required 14 days notice to be liable for any share of loss.
Reasons:
as noted above the crt held that the notice provision was not a shield to the operation
of contribution. Crt sympathized with notice arg but gave greater weight to sharing
insurance burden.
rateable proportion clauses were in both contracts - means insd can only go after
each insr for a particular amt - changes CoL b/c the insd cant sue one insr for
100% and then that insr go after other for a share. The second insr tried to arg that
1st insr payment was voluntary and therefore they didnt owe anything. The first
insr paid out 100% of the loss b/c s.149 of the Road Traffic Act required this. Hever
this did not get the 1st insr out of difficulty b/c the same section went on to say that
when the insr pays out 100% they have action over against the insd to recover any
amount they paid over their rateable proportion. Crt said that b/c the first insr had
voluntarily chosen not to go after the insd they couldnt try to claim the 50% back
from the other insr.
Comment: the CoL contribution principle is similar to the contribution idea from neg in tort
Overhead Stuff:
1.
2.
3.

1.

Contribution at CoL reflects equitable notion that each insr covering same party re same interest or
contingency is entitled to pay no more than proportion of coverage for which responsible. At CoL as
each insr liable to insd for 100% of loss, left to insrs to sort out the equities.
Explains why the court concludes that if this had been a contribution case, Drake (P) would have been
entitiled to force Legal (D) to share in insurance burden, even though the insd had missed chance to
claim against Legal
That result not possible in this case b/c of the operation of a RATEABLE PROPORTION CLAUSE in
Drakes policy. Rateable proportion clauses are commonly written into policies to obviate the CoL rule
by limiting an insds claim to the proportion of loss for which the insr is responsible. This can be
achieved statutorily - eg. by s.221(1) BCIA (Fire Part)
In this case the rateable proportion clause worked to prevent Drakes recovering from Legal as Drake
liability under the policy limited to 50%. By stat they were reqd to pay out 100% of tp loss. Having
done that they had a stat right to claim 50% from the insd. They chose not to exercise that right
thereby making a voluntary payment of the other 50% of the liability. They could not then turn around

61
and seek contribution from Legal. Their legal liability was 50% under their policy. That was all they
were obliged to contribute here. They were thus not in a position to claim contribution.

(b)

rateable proportion practice has been given stat sanction in the case of fire insurance.
BCIA s. 221(1) (Fire Part) embodies the rateable proportion rule. Its effect is to limit the
insd to a claim against each of several insr for its rateable proportion.
s.221(1) Where, on the happening of any loss or damage to property insured, there is in
force more than one contract covering the same interest, the insrs under the respective
contracts are each liable to the insd for its rateable proportion of the loss, unless it is
otherwise expressly agreed in writing b/w the insrs.
Continental Insurance Co v. Prudential Ins. Co of England (1965) MBQB - Dickson J noted
that this section was not designed to allow an insr, who has chosen to pay the full amount, to
recover from other insrs, although equity may allow such an action.
BCIA s. 221(4) deals with the operation of a rateable proportion rule where one or more of
the policies contains a deductible. - different results can be achieved depending on whether
the strict words of the section are followed or you follow those of the Insurance Bureau of
Canada.
Establish Proportions Under Rateable Proportion Clauses Where Liability Policies
with Different Upper Limits

Commercial Union Assur Co. v. Hayden (1977) Eng CA

Facts: 2 liab policies covering same event but the limits were different. One had limit of
100,000 the other had a limit of 10,000. The loss was 4000.
Issue: how do you divide the loss for the purposes of contribution?
Options:
1. max liability - take limits and use those to develop a proportion. 1/11 and 10/11
2. independent liability - share equally up to 10,000 (lower limit) and any amount above
that is paid by the insr with the higher limit (up to its limit)
Reasons: the court chose independent liability. Max liability theory may operate for overlapping
property but has no application to liability insurance.
why independent? - you have different limits, however the premiums are almost the
same, therefore it doesnt make sense to penalize the larger limit insr - the highest
part of the premium relates to the low level loss - this decision reflects the realities of
liability insurance. In addition the Eng courts have to deal with unlimited liability
policies and as a result the max liability theory couldnt work.
Comment: where loss is less than the lower limit there is no problem, they just share equally, 5050.
where loss is greater than lower limit?
Cairns - apply ratio taking amount of loss against lower limit; i.e. 40,000 loss,
10,000 lower limit so 4:1 ratio so A pays 32,000 and B pays 8,000.
Lawton - seems to me the method that is followed. Equal division up to lower
limit then the burden of meeting amount over lower is to be borne by the one
with the higher limit. So 40,000 loss, A pays 30,000 and B pays 10,000.
[Dominion, McGeough seem to support what Lawton says in Hayden.]

62

in any case where the loss is greater than the lower limit, but less than double that
limt, then each policy shares equally.

Overhead
1. Independent liability theory chosen over maximum liability theory. Max liab may
well apply in the case of overlapping property insurance
2. Hayden Case
(a) states reasons for preferring independent liability approach - eg. existence
of unlimited liability policies; premium realities in liability ins
(b) all judges agreed that where loss less than lower limit policy, both insrs
contribute equally to the liability. Thus on facts the loss of 4,425
divided
50/50 between insr A with limit of 100,00 and insr B with
limit of 10,000
(c) Differences of opinion where loss greater than lower limit
(i) Cairns L.J. - loss of 40,000; limit of insr A 100,000; limit of insr B
10,000. Apply ratio of loss to lower limit (40,000: 10,000 or
4:1) and
insr A pays 32,000 and insr B pays 8,000. Figures
reached by
looking at the independent liability of each insr
(ii) Lawton L.J. - same figures. Applies equal division of liability up to
the lower limit: the burden of meeting that part of the claim
over the
lower limit would fall upon the insd who had accepted
the higher
limit.

Two possible interpretations of Lawton L.J.

A.
B.

Insr A = 10,000 + 20,000; Insr B = 10,000

Insr A = 5,000 + 30,000; Insr B = 5,000

Possibility A is supported by the wording of Legg J.A. in McGeough v. Stay N Save.

[Each] should....contribute in equal amounts until the applicable limits of each policy
have been reached or none of the loss remains, whichever comes first. Here he proported
to approve of approach used by Proudfoot J. in Dominion of Canada Ins v. Wawanesa.
Possiblity B is supported by the wording of Hinds J.A in Simcoe & Erie v. Kansa
General. Each insurance company would pay an equal amount up to the limit of the
policy which had provided the lowest [sic] limit of liability. She also purports of rely on
Dominion of Canada Ins.
Assume interpretation A is correct then a graphic representation using figures in Hayden
would look like this: (see attached page)
Carrier Ins. v. Am Policy Holders (1979) SC of Maine - US minority rule is equvialent to
option A. Delhanty J - minority rule is easier to admin b/c both pay up to limit of lower
policy then other pays up to their limit - this is fair. Minority rule utilizes the best aspects of
both rules w/o the downsides - comports with the most basic sense of justice. Maj rule
unfairly discrims against the large policy holder, subsidy from larger to lower.
McLaren says to follow option A.

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(c)
Relating Policies to Each Other to Determine Whether Contribution Applies
another device for sorting out the effect of insurance policies covering the same interest is to
separate them into primary and excess insurance. As a result it is not safe to assume that
overlapping will always lead to contribution.
if one is primary there is no contribution - primary covers to its limit and other covers any
excess.
this can be provided for by statute or by the policy itself.
BC Regs. ss 77 (Prt 6 - Third Party Liability)
(1) Subject to s.150(6), indemnity provided under this Part or Division 1 of Part 10 by an owners
certificate issued in respect of the vehicle involved in an accident is primary insurance and
any indemnity provided by a certificate issued in respect of a vehicle other than the vehicle
involved in the accident is available, subject to subsection (2), only to the extent that the
amount by which liability is limited under the other certificate exceeds the amount by which
liability is limited under the primary insurance.
BC Regs s. 104 (Part 7 - Accident)
(1) Benefits provided under
(a) the owners certificate issued in respect of a vehicle involved in an accident, or
(b) a contract of automobile insurance issued under the Insurance Act
are primary insurance and any benefits provided under an owners certificate issued in respect of a
vehicle not involved in the accident or provided by a drivers certificate are available only to the
extent that the amount of benefits provided by the certificate exceeds the amount of benefits
provided by the primary insurance.

St. Paul Fire & Marine Insurance Co v. Guardian Insurance Co. of Canada (1983) OnCA

Facts: Two lawyers liability policies covering the same law firm and containing excess
insurance clauses. Neither policy was in effect at the time of the neg which gave rise to
the claim against the firm, but (as is normal for these policies) covered it for liability
which related to previous business. St. Paul policy was taken out first.
Reasons: when did insurance take effect? - operative time in this case was when the claim was
made, ie. brought to the attention of the insd, which on the facts meant that both
policies were in existence.
not straightforward contribution b/c of the wording of the excess insurance clauses.
St. Paul was excess to any other coexisting insurance. Guardian was only excess if
the other valid insurance was not excess. Thus it was necessary to determine which
was primary and which was excess. On this matter the obligation of the insr arose
when the writ was issued and an obligation to defend was thereby triggered. At that
time only the St. Paul policy was operative, thus the excess insurance clause could not
be invoked and it was the primary insurer. As a consequence Guardian was excess.
St. Paul pay to its limit and if that is not enough the 2nd would kick in.

64

McGeough v. Stay N Save Motor Inns Inc. (1995) BCCA

Facts: Slip and fall on parking lot

Trial - labeled one as primary and the other as excess
CA - said that they couldnt do that. On a reading of the clauses they couldnt find that one was
primary; they were irreconciable, therefore contribution could operate.
Crts reading of the policies other insurance clauses - Laurentian policy seemed to
treat any other subsisting policy as primary insurance - on that basis alone Prudential
would be primary. The L policy went on to say that if the other policy purports to be
excess we are the primary insrs. The Prudential policy purported to be primary but
in event the claim relates to bodily injury we are excess ins.
Therefore cant reconcile the excess/primary insurance clauses so treat them both as
primary - therefore the both must contribute proportionally to the loss.

Overhead

Depending on the interpretation of the policies two possible answers:

A.
They overlap and contribution applies subject to operation of rateable proportion
clauses
See McGeough v. Stay N Save: crt concludes that both can be read as seeking to
treat other applicable insurance as Primary and themselves as Excess, and that it
is impossible to treat one as primary and the other as excess so the excess
insurance clauses cancel eachother out and they share
proportionally the loss.
[Note that this was the approach pioneered by Rowlett J. in the Weddell case in
which two overlapping motor vehicle liability policies covering: 1.
Driving with
consent of owner; 2. Driving. The latter could not be sued on b/c
the insd had
not met the notice requirements. The former insr, in response to
claim against it
by the insd, try to arg that, as both policies covering event
had co-existing cover
clauses it was not liable. Rowlett sensibly said that such
irreconcilable provisions
cancelled each other out. In this case as that policy had a
rateable proportion
clause the insd was covered to 50% of claim against him.
B.
One is primary and other excess insurance
See St. Paul Fire & Marine Ins Co. v. Guardian Ins where the court was able to
read the policies in such a way that one (St. Paul) was the primary insr,
and the
other (Guardian) was the excess insr.

65

it is essential for the doctrine of contribution that there be overlapping coverage by the
several policies. It is not necessary, however, that there be complete overlap.

Re Application of Wawanesa Mutual Insurance Co. (1951) BCSC

Facts: two policies covering the risk of damage for loss of a house and its contents for the same
value (3000 bldg and 1000 contents) one taken out in the joint name of h + w (while
together) and the other in the name of the w when they broke up. H argd that the wifes
insr was responsible for half the loss (she must be taken to have insd on behalf of both
of them)
Reasons: Crt said that policy was taken out only in her name and that therefore it was only in
relation to the wifes half interest that contribution could operate. That is, to 2/3 her loss
of $2,655.90, 1/2 the total loss of $5,311.80) The upshot of this was that that amount of
$2,655.90 paid by Wawanesa into court fell short of their obligation and they were
ordered to pay an additional $229.40 into court.
Comment: Contribution only applies in so far as the interests overlap.
4.

Co-existing Cover Clause

potential problems arise with co-existence of contribution clauses, excess coverage and other
insurance clauses in policies covering the same interest.
the particular issue is whether they can cancel each other out so that there is no insurance
covering the loss.
if this were the case there would be a big problem with the system - insr have arg this point
however.

Weddell v. Road Transport and General Insurance Co. (1932) Eng HC

Facts: ws mv policy cover relative or friend of w if this other person had no other coverage;
rateable proportion clause also in policy (stated that if another policy covers the same
interest, then insr not liable for more than its rateable proportion. Brother drove car and
got into an accident; his insurance policy covered him while he was driving other
vehicles, but contained no rateable proportion clause.
Issue: Situation b/w W and insr; brother failed to give adequate notice to his insr so he
couldnt recover under his policy.
Held: Road Transport Co. is liable, but only for rateable proportion.
Reasons: it is unreasonable to find that two insurance clauses would cancel each other out;
should exclude from the category of co-existing cover any cover which is expressed to be
itself cancelled by such co-existence, and to hold in such cases that both companies are
liable, subject to any rateable proportion clauses.
Comment: where there are co-existing excess insurance clauses, the Weddell principle applies
and clause is not to be invoked in relation to insurance itself containing such a clause. So
in St. Paul if both policies had contained identical excess insurance clauses and had been
operative at the time of the writ they would both have been classified as primary insurance
and would have been equally liable to the insd.
insrs can use all the clauses that they want but to the extent that operation would
jeopardize insurance coverage, a crt will not allow it to operate as a matter of policy.

66
Prevents insr where there are co-existing cover each with exculpatory clauses from
arg them in such a way as to deny coverage - only option is to see them as cancelling
eachother out and contribution will apply.
MPIC v. Scottish and York Ins. Co (1991) MBQB

Facts: teacher insured under two liability insurance policies. Covered under the MPIC policy as
an additional insured and covered under the policy issued by Scottish to MTS. Policies
provided as follows:

MPIC policy - s. 7 If the insd has or places other insurance against claim for loss or damage covered by this
policy, the Insr shall be liable hereunder only for that part of such claim which is in excess of the amount
recoverable or recovered from such other insurance.
Scottish policy - s. 15 If other valid insurance or indemnity exists protecting the INSURED or any person or
organization entitled to protection hereunder from liability for bodily injuries, shock, mental anguish, sickness
or disease, personal injury or damage to property of others, this policy shall be null and void in respect to such
specific hazards otherwise covered, whether the INSURED is specifically named in said other policy or not;
provided however, that if the Limits of Insurance in this policy are in excess of the limits provided by said other
insurance, this policy shall provide excess insurance against said hazards in an amount sufficient to give the
INSURED a combined amount or protection equal to the limits of this policy.

Crt: MPIC clause did not operate as an excess clause and that Scottishs escape clause relieved
it of liability. Hence, MPIC was the primary insr.
Dominion of Canada General Insurance Co v. Wawanesa Mutual Insurance Co (1986) BCSC

Facts: boat operator covered by his own liability policy and as an unnamed insd in one taken
out by owner. Both contained other insurance clause purporting to confine themselves to
excess insurance status.
Reasons: the crt applied Weddell and concluded that the 2 clauses cancelled each other out so
that each was first loss, and responsibility was divided equally.

in the case of two policies both of which contain other insurance clauses, ie which purport
to refuse coverage if another policy is in existence the solution is that set out in Gavel

Home Insurance Co. v. Gavel (1927) SCC

Reasons: Both policies had clauses which dealt with other insurance. The clause stated that the
policy would be invalid if any prior or subsequent insurance was not brought to the
attention of the insr and assented to by it. As notice was not given to the 2nd insr of the
pre-existing policy, the 2nd policy was ineffective, but this was held not to invalidate the
first policy under its other insurance clause. The subsequent insurance provision could
not apply b/c the second policy had never attached.

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5.

Constructive Total Loss, Abandonment and Salvage

developed in marine insurance that when the loss took place, especially if far away, and it
was impractical to bring in ship and repair, the insr would treat partial loss as a constructive
total loss (CTL) where a reasonable man w/o insurance would abandon the insured property
as not being worth the probable cost of repair. Insr would then pay out as if for total loss,
and the insd would abandon the property thereby giving rights of salvage to the insr - try to
recoup some of what it paid out. Insd must have formally abandoned (must give notice) the
rights in the vessel. [Kaltenbach v. Mackenzie (1878) Eng CA]
If there was an actual total loss (ATL) the insr automatically got salvage (eg. value
of the planks after a wreck) - the insd gets ATL and no more. [Kaltenbach]
Non-marine situation - salvage operates automatically for ATL. Not a doctrine of CTL but
it is open to the insr to treat it as CTL and if they do so the insd must abandon the
remainder of the property to the salvage right of the insr - this follows as a matter of implied
agreement or by the operation of equitable principle.
the more general application of the notion of abandonment was made clear in the judgement
of Lord Esher MR in Dane v. The Mortgage Insurance Co. Ltd. (1894) CA]:
....if the assured, who has been indemnified by the underwriters as on a total loss, saves
anything upon the loss, that salvage must go to the underwriter; otherwise the assured
would be more than indemnified. This is an incident of every kind of insurance which is
held by the law to be a contract of indemnity. ...[F]urther than that if anything is
obtainable by way of salvage, he has no right to say to the underwriter that he will not
take any step in order to obtain such salvage; he is bound to assist the underwriter in
obtaining it.
Statutory Provisions:
Part 6 (fire), s. 220(2) stat cond 9 Salvage makes sure that the potential int of insr
in salvage is protected - places the obligation on the insd party to take reasonable
care to protect property from further loss.
(1) The insured, in the event of any loss or damage to any property insured under the contract,
shall take all reasonable steps to prevent further damage to any such property so damaged and to
prevent damage to other property insured hereunder including, if necessary, its removal to prevent
damage or further damage thereto.
(2) The insurer shall contribute pro rata towards any reasonable and proper expenses in
connection with steps taken by the insured and required under subparagraph (1) of this condition
according to the respective interests of the parties.

Part 6 (fire), s. 220(2) stat cond 10 Entry, control, abandonment - provides insr
right of access to enable it to examine, appraise destroyed property w/o consent of
insr there can be no abandonment.
After any loss or damage to insured property, the insurer shall have an immediate right of access
and entry by accredited agents sufficient to enable them to survey and examine the property, and
to make an estimate of the loss or damage, and, after the insured has secured the property, a further
right of access and entry sufficient to enable them to make appraisement or particular estimate of
the loss or damage, but the insurer shall not be entitled to the control or possession of the insured
property, and without the consent of the insurer there can be no abandonment to it of the insured
property.

68
if the insd disputes the insrs assessment, considering there to be a total loss, he may resort
to appraisal procedures [stat cond 11, s.220(2)]
BC Regs s. 139, 142, 143 - Auto Insurance
Salvage s. 143 (summary of meaning from cb)
(1) as with fire insurance the insr has the option of whether to replace the vehicle
or pay declared value or acv of the vehicle or its equipment.. Where it
exercises one of these options, it is entitled, at its option, to salvage the
vehicle. If so the insd it bound to transfer title to the insr and sign the
necessary documents.
(2) In a situtation in which the insd is a co-insurer, as will be the case in coverage
for own property damage where there is a deductible, while the insr has
conduct of the sale of the salvage, the insd may choose to share in the
proceeds of the sale of the salvage in the proportion to which he is co-insurer.
(3) An insd cannot leave vehicle or abandon it to the insr w/o the latters consent
nor refuse to take the vehicle from the insr

6.

Evaluation s. 142 - makes provision for arbitration on any disputed matter of

valuation.

Duty to protect vehicle etc s. 139 - places a responsibility on the owner to protect
the vehicle from further loss or damage at the expense of the corporation until the
latter has a reasonable opportunity to examine it. The owner is prohibited from
removing the physical evidence of the vehicle and from making any repairs except
those necessary to prevent further loss or damage.

Sue and Labour Clauses

insurance policies on property interest will often contain sue and labour clauses imposing
duty on the insd to take reasonable steps to prevent further damage to property after the
intial loss is incurred, but not to the extent that the insd makes a capital gain at the insr
expense.
insd normally agrees to contribute on a pro rata basis to any costs incurred in taking such
steps (proportioned according to any co-insurance assumed by the insd)
under sue and labour clause or its stat equivalent (eg. s.220(2) stat cond 9 - see above; and for
auto BC Reg s. 139 - here at the expense of the insr), insd is entitled to reasonable expenses
incurred in taking steps to prevent further loss as part of his indemnity payable by insr
whether expenses are reasonable is a question of fact in each case.

69

Office Garages Ltd. v. Phoenix Insur Co (1966) OnHC

Facts: explosion at service station; insd excavated gas-contaminated soil to prevent further
explosions and sued for inrs share of that cost. Insr argd that excavation was
unreasonable and reasonable expense would have been sump pump
Reasons: crt said that the insd was right. Common sense dictated that soil had to be removed, it
was a reasonable step to take to prevent further loss. Looked to value of the property in
relation to the costs incurred - 900,000 and expense was 26,000; that is not unreasonable
Hartford Insurance Co. v. Benson & Hedges (Canada) Ltd. (1978) SCC

Facts: bottling tank exploded - killed emee; B & H hired investigative company to determine the
cause of the explosion and inspect other tanks for faulty workmanship.
Issue: what were reasonable steps to prevent further damage?
Held: all js agreed that investigation of tank that exploded was a reasonable step; split on
whether investigation of other tanks was reasonable; maj gave narrow interp to sue and
labour clause and said steps taken were unreasonable; min gave broad interp and said
steps were reasonable. Crt assumed that effect of sue and labour clause and stat cond
9 were the same.
Reasons:
Maj per Pratte J. Stat cond 9 is the embodiment of mitigation of damages which relates
to risk already taken place and prevent aggravation of that damage. Says 9(1)
relationship to stat cond 6 helps him to reach this conclusion. If make 9 broader it
would mean that in appropriate case if insd failed to carry out its ob under 9(1)
the insd could be seen to be (unfairly) in breach of 6. Stat cond 9 can olny apply
to risks that have occurred, too burdensome to expect the insd to adress every
potential problem. Concludes that must restrictly interp - any such prop so
damaged. Suggests that the insd sue the manufacturer in tort.
Dissent per Dickson J. Maj is too restrictive; words are broad enough to cover the
additional work done to see if other tanks will explode. The risk has occurred and
there is a danger of it occurring again - it is in the best interests of the insr and
the insd to see that it doesnt happen again. Phrase and to protect further
damage to prop insured hereunder is broad enough to allow for this - ran to other
property and ongoing risk of explosion. Dickson notes that we arent dealing with
cost of wear and tear but manufacturers neg and property defect - shouldnt
confuse possible actions against tp with 1st party insurance here and the purpose
of 1st p insurance. Says that insr should have paid to cover cost of more
extensive investigation, then exercised subrogation rights to recover costs from
manufacturer.
Comment: McLaren thinks that the dissent makes more sense

application of sue and labour clauses in liability policies - some the expense incurred by the
insd it to avoid liability

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MacMillian Bloedel v. Youell (1994) BCCA

Facts: ship was carrying coal which heated through spontaneous combustion; ship had to make
unscheduled stop and coal was unloaded to allow it to cool; ship was repaired.
Issue: whether expenses incurred in minimizing liability or avoiding liability were recoverable
under the policies
Held: crt found that the sue and labour clause did not apply b/c the words in case of misfortune
didnt inlcude liability for damages. Basically followed Eng authority [Cunard, 1902]
which said that in absense of language to the contrary you cant recover under sue and
labour clauses for expenses incurred to avoid liability.
crt also held that expenses coudnt be recovered under the imminent danger doctrine;
crt influenced by belief that insd has as much or more to gain as insrs from taking
avertive action; in supplementary reasons the crt admitted that they had committed a
factual error - there was in fact $25 million in excess insurance; crt still held that
imminent danger doctrine didnt apply b/c the costs of avertive action werent a loss
proximately caused by peril insured against.
Comment: crt referred to Am authority and McLaren says that Am approach makes more sense.
Quote from Lubov v. US Fidelity & Guaranty Co. (1960) Pa SC:
if the pff had not taken immediate and substantial measures to remedy the perilous situation,
disastorous consequences might have befallen the adjoining and nearby properties. If that had
happened, the def would have been required to pay considerably more than is involved in the
present lawsuit. It would be strange kind of argument and an equivocal type of justice which
would hold that the def would be compelled to pay out, let us say, the sum of 100,000 if the pff
had not prevented what would have been inevitable, and yet not be called upon to pay the smaller
sum which the pff actually expended to avoid a foreseeable disaster.

G. DUTY OF DISCLOSURE
1.
Introduction
good communication is essential if the parties mutual objectives in making an agreement are
to be realised and understood. This is implicit in consensus ad idem.
in 19th C general contract law the view was that each party was the arbitor of how much
info was shared. If you watned more you had to ask for it. Absent a willful attempt to
mislead there was no obligation to volunteer info.
subsequently this was qualified by statute b/c this assumed equality of barg power and
that the parties deal at arms length. Know this is not ture and that theres power
imbalance; and in addition deals are done w/o face to face contact - usually have an
intermediary; often standard form
insurance theory is different - contract is one of uberrimae fidei - the utmost good faith.
Usually interp to mean that honesty is rqd in making stmts, and also that material facts must
be disclosed. For risk to be covered the insr has to know certain details and facts about the
property, the life, the risk. Insr depends on info passing from the insd to the insr. Another
reason for this diff is historical - was worked out before the 19th C by Lord Mansfield.

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2.

question to be answered is whether uberrimae fidei imposes an obligation on both parties or

just one?
Mansfields Conception of Duty of Disclosure

Carter v. Boehm (1766) Eng

Facts: P took out insurance (for the benefit of his brother at the post) trading post in Sumatra for
loss or damage resulting from attack by European enemy; didnt tell underwriter that fort
was unprepared for French attack. B/C of communication delays it was taken out in May
1760 but it was to cover from Oct 1759 to Oct 1760. French attacked and insd tried to
recover.
insr refused to pay b/c it said it wasnt given enough info about Fr and the forts
fortification - not designed to deal with Eur invasion. Insr only told about fear of
designs of Eur enemies not about the Fr specifically.
Mansfield - obligations of the parties
insd to disclose special facts w/i their knowledge that was material to the risk being
underwritten. Quote:
The special facts, upon which the contingent chance is to computed, lie most commonly in the
knowledge of the insd only; the underwriter trusts to his representation, and proceeds upon
confidence, that he does not keep back any circumstances within his knowledge, to mislead the
underwriter into a belief that the circumstance does not exist and to induce him to estimate the
risk, as if it did not exist.

this principle didnt apply here b/c this was mere speculation and concern that Gov
could not reveal the shaky state of the fort defences.
In addition, there are certain facts which insr is in as good a position to figure out as
the insd. Either party may be innocently silent, as to grounds open to both to
exercise their judgement upon An insd would not need to reveal to the insr what
the insr already knew, ought to have known or what he waived knowledge of. The
underwriter does not need to be told what lessens the risk or what are generally
topics of speculation - general knowledge and political reality
on these facts the underwriter was in a better position to judge the general risk of
European attack; the gov had no notice of the specific design of the Fr when the
policy was taken out. On the unpreparedness of the fort, Mansfield was of the view
that the insr should have realised that this was info the Gov could not share - taking
out of the policy should have indicated the Gov apprehensiveness, but the insr issued
policy without asking for more info.
Comment: suggests that in the search for info on risk there may be obligation on both parties.
Provides impt counter balance to uberrimae fides that burden is solely on the insd - here
it is on both.
R. Hasson The Doctrine of Uberrimae Fides in Insurance Law - A Critical
Evaluation suggests that the placing by Mansfield of a burden on the insr to ask for
more infor indicates that the duty of disclosure on the insd was meant to be a
narrow one.

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3.

Subsequent Developement

in subsequent cases in the 19th C, the crts apparently forgot the baland Mansfield tried to
establish b/w the relative obligations of the partied in informing themselves of the risks and
any relevant moral hazard associated with the subject of insurance.
tendency to place burden solely on the insd
Lindenau v. Desborough (1828) Eng

Facts: Duke sought insurance; agent discussed his health with physicians and in answer to
general question about anything else about the Dukes health, the physician said there
was nothing else; agent, however, reported to insr that Duke had lost some of his mental
faculties. Policy was issued and the Duke died of a massive brain tumor. Insr refused to
pay out b/c of negative answer to the general question
Reasons: even though the insr had own knowledge of the danger both judges said that we
mustnt speculate on what was in the knowledge of the insr, it is the knowledge of the
insd which is crucial
Bates v. Hewitt (1867) Eng

Facts: Confederate cruiser converted to merchant vessel. Underwriter knew of identity of vessel
but forgot. Vessel insd and then seized by the US.
Crt: Heavy obligation on the insd to provide info and not willing to speculate on the knowledge
of the insr. Insd couldnt argue that the insd should have remembered the fact.
Comment: wouldnt this have fit with Mansfields constructive knowledge? This was ignored.

so entrenched was the idea that uberrimae fidei put the burden solely on the insd that even
judges who considered the efforts of the insr to avoid liability could only voice their
concerns in dicta

Glickman v. Lancashire and General Insurance Co

Facts: insd had been personally insd previously and it was cancelled. Never insd in corp
capacity. So negative answer was correct in corp capacity
Reasons: Upheld position of the insr that this was misrep of a material fact. However he wasnt
happy doing it - thought it was a mean and contemptible policy on the part of the insr
that it should take the premiums and then refuse to pay upon a ground which no one says
was really material - felt it was a purely techincal argument.
Horne v. Poland (1922) Eng

racist judgement of Lush J.

Facts: No question was asked about the insd nationality. Insd was Romanian Jewish and didnt
reveal it. There was a theft and insr denied coverage for failure to reveal nationality.
Reasons: would have been nicer if specific question had been asked but didnt matter b/c
nationality was material fact. May not be material in all cases but where the insd is from
a country of non-English traditions, nationality must be disclosed even if not asked.

73
Describes test as what the reasonable insd woud expect the reasonable insr would want
to know.
Comment: this case is probably the high point of onerous burden on the insd to provide info
even though insr doesnt ask question
recent courts are more symathetic to immigrants.
Laio v. Metropolitan Life Ins Co (1995) BCSC

Facts: application for life insurance; question about license suspension. App spoke only
Cantonese, no Eng. Agent spoke both. Insr denied claim b/c of untruthful answer.
Reasons: Insr asked 3 versions of the question in court and the judge said that this was
confusing and made it hard to know exactly what was asked - if he was confused, the
insr likely would have been too. Applicant only be expected to answer truthfully the
questions actually asked of him, given questions of accuracy of translation the crt said,
absent ev to contrary the applicant answered truthfully the questions he was asked.
Worral v. BCCA Insur Co. (1988) BC Cty Crt

Facts: insd had a claim 22 years ago and did not reveal this on application.
Reasons: crt disallowed the claim b/c the insd failed to reveal a material fact. Despite the fact
that some insr had stated they wouldnt consider any claim more than 5 yrs in the past.
Comment: judge seemed to be concerned with the insd honesty. Seems to think that the insd
knew what was being asked and considered it best to say no - earlier claim had been
rejected b/c fire was suspicious - judge felt insd knew advantage of saying no to the
question.
annotator suggests that it may be reasonable for the insr to be more demanding in
what it expects in the way of disclosure if the question is clearly put and understood
by the applicant.
Cdn Indemnity Co v. Cdn Johns-Manville Co (1990) SCC

discussion by SCC re: relative responsibilities of insd and insr re: communication and
acquiring of material facts. Is a Que civil code case so discussion of CoL is obiter.
Gonthier gives support to the principle from Carter v. Boehm
Facts: Insr denied coverage under a liability policy which covered product liability b/c insd
didnt disclose report (asbestos info). Could Insr rely on this or was it public and
notorious info such insr had obligation to know or to inform itself?
Reasons: reports were out there, know to the industry - public and notorious. Chided the insr
for not taking care of its own interests. The info was generally available.
refers to Mansfield in Carter - sets out when the insr has the burden; matters of
general speculation, which covers political and general facts and facts notorious in a
particular industry. Legitmate to interpret Mansfields words contextually and extend
to this context - ie the particular industry reference.

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Approval of Mansfields approach which suggested that:

1. Many matters on which insd could be silent including
(i) what insr knows
(ii) what insr ought to know
(iii) what insurer waives info of
2. Included w/i what the insr ought to know are natural and political perils, including
realities and trends of war and state of the enemy etc. This not an exhaustive list.
3. Wrong to assume that authority for exclusion of only natural and polictical perils and
matters known to all. Extended to matters relevant to trade, milieu, industry in
question.
if additional info required by an insr then the insr should make further inquiries. Where
insuring a particular type of risk for the first time the insd is entitled to assume that they are
dealing with a reasonably competent, knowledgeable insr. The insr is assumed to know the
facts and inform itself if it does not.
both are to treat it as k uberrimae fidei - the insd is to disclose fully and fairly facts known
only to him or her; the insr is to aquire good knowledge of the industry which it chooses to
insure.
Comment - suggests there is a balance and that insr has burden/responsibility at least to selves,
to go out and find info.
Coronation Insurance Co v. Taku Air Transprot Ltd. (1991) SCC

Facts: Taku has had liability insurance policy with Coronation, C refused to renew policy after
too many accidents. T was then insured by another Co which also refused to renew. T
then went back to C. C issued policy w/o reviewing their records or seeking other info
about Taku, even though the name rang a bell. T misrepresented their accident history;
when accident occurred, C refused to pay out based on the misrep and the fact that the
airplane contained 5 seats but was only supposed to have 4.
Held: insr did not meet duty required by insr operating in aviation insurance; hever T
breached K so insr can resist the claim
Issue: What was the position of the insrs in terms of finding out info where the insd had told
them a bare face lie?
Reasons:
Majority:
Regulated industry; safety to public; insrs woefully sloppy in not checking out
application, especially that it had insured them before; secondly it is regulated
industry so the insr could have found Ts record easily - it was public info.
Cory implies that Carter was narrower than what he did and explains that
expansion is b/c it is liability insurance. [McLaren says Carter was broad Gonthier recognized this in Johns-Manville and it is amazing that Cory doesnt
here.]
question of fact re carrying 5 passangers and only insured for 4. This mattered b/c
the insr wouldnt be able to find this info out - misrep of insd of this situation,
these were special facts in the insd particular knowledge. Insr entitled to deny
coverage on this basis.

75

Dissent: just grinches, no general concern for who losses out. In a heavily regulated
environment such as aviation industry, decision whether an insr should conduct
indep investigation of applicants record is to be made by insr, not crt.

General Observations about good faith in insurance

1. the duty is reciprocal; it applies to the insr as well as the insd
2. although the case law is heavily tilted toward issues of good faith in connection with
the application process, the contract is said to be a contract uberima fides and do the
reciprocal duty of good faith extends throughout and applies, for example, to the
claims process
3. In the context of the application process remember the good faith duty as stated by
Lord Mansfield was very sensible and balanced fashion, without relieving the
applicant of its disclosure duty, nevertheless empahsized that the underwriter had a
responsibility to bring some common sense and a reasonable level of professional
skill to the situation.

Comment on the meaning of good faith (NOTE: this stuff to materiality is from Nola, we
have nothing about this anywhere - dont know why?)
not a strict fiduciary obligation; a good faith obligation is one of fair dealing, but
doesnt require the party to put ints of other party in the forefront

Adams v. Confederation Life Insur Co (1994) ABQB

Facts: insd claimed disability benefits; later agreement provided that she could work 16 hrs/wk.
Insr undertook surveillance to determine if she was breaching the agreement and
eventually they terminated her benefits
Held: insr wrongfully terminated benefits and the crt awarded punitive damages for bad faith
dealing on the part of the insr
Reasons: insr acted in bad faith and with wanton disregard for insd rights by using covert
surveillance to spy on her and unilaterally terminated her benfits w/o giving her
opportunity to respond. Insurance K is uberimmae fides - requires the utmost good faith;
similar to fiduciary obligation and imbued with fair dealing.

Obligation of Good Faith

1. negotiation and communication leading to k - mutual obligation
2. servicing the K - insrs obligation
3. dealing with a claim
(a) 1st party - mutual obligation
(b) 3rd party - mutual obligation

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4.

Materiality

in modern insurance parctice, while the question of whether info is material may require
assessment of the insd conduct, also require determination of whether insr was reasonable
in denying coverage
application process and terms of policy are governed by insr so have to examine these
factors
What is the test of materiality?
Horne v. Poland 1922 Eng

what the reasonable insd would expect the reasonable insr would want to know

Mutual Life Insurance Co. NY v. Ontario Metal Products (1925) PC

Facts: life insurance k was taken out; questions about medical history were asked and insd said
he hadnt been seeing dr. However he had been receiving medication; when he dies, the
insr args the insd failed to disclose or misrepd a material fact
Insd dr said that even if he had known about the medication he would have
recommended the company accept the risk.
Held: the info concealed wasnt material so the insr had to pay
Reasons: reasonable insr test. If fact were disclosed what would reasonable insurer have done;
would they have influeced a reasonable insr to decline the risk or stipulate a higher
premium? What a reasonable insr in the shoes of actual insr would have thought was
material. Objective test - may require evid on the practice in the industry.
test: per Salveson In their view, it is a question of fact in each case whether if the
matters concealed or misrepresented had been truly disclosed, they would, on a fair
consideration of the evidence, have influenced a reasonable insr to decline the risk or
to have stipulated for a higher premium.
in this case there was no ev at trial of other practices but the insr own dr. said that if
he had positive answer, he wouldve still recommended that the insd be covered at
the same level, on the same terms.
Henwood v. Prudential Insur Co. (1967) SCC

Facts: claim under life insur policy by beneficiary mother. Insd died in an auto accident - she
was a passenger in the vehicle. Insr wont pay out b/c of answers of decd to questions
about mental state and medical treatment was a failure to disclose material info. Mental
state had nothing to do with death
Issue: could the insr avoid paying out?
Reasons:
Minority per Spence J - ev at trial from emee of insr who claimed that if info had been
given they wouldnt have covered her or if they did it would have been at an
enhanced premium. Practices of the partic insr being substitute for reasonable insr
and that isnt right. Burden is on the insr to provide the ev of a reasonable insr.
Relied on Salveson J quote from Mutual.

77
Majority per Ritchie J - burden on the insd to produce ev of what other insrs would do
or have done in the situation. Buttressed this by looking at Mutual where the PC said
it was legit to look at stmt of the particular insr dr. - that is what we have here so
should be satisfied with that. Also relied on Salveson quote from Mutual
Comment: the majority comes close to saying that you can substitute particular practices of insr
for reasonable insr if we (the crt) thinks their explanation is reasonable
now in the law there is a tension b/w Ritchie and Spences judgement.
Kehoe v. BCIC (1992) BCCA

Facts: insd got coverage for house hed only been in for 2 months. Application asked for
claims history for last 5 years and insd said there were none. He interp the question to
refer to the present location even though in a previous house he had made several claims.
Insr refused for burglary claim on basis that insd had misrepd his claims history. TJ
held for the insd, saying the insd failed to show materiality of misrep, after hearing
from other insrs
Reasons: TJ erred in law in requiring as criterion for the test of materiality that the insr have the
onus of demonstrating that its underwriting practices had a reasoable basis. Rather it is
clear that the test is one of demonstrating whether the insr, in treating an applicants
claim history as material to the risk of coverage being extended, was acting as a
reasonable or prudent insr.
BCIC had demonstrated its own practice and it has also demonstrated that Guardian
and all other insr called by the applicant (insd), and the industry in general adopted
a similar standard, it is very difficult to see BCIC as other than a reasonable insr
in absence of evidence to suggest that the insrs practice is anything but reasonable or
that any other insr would follow a different course, it has been shown that the nondisclosure by the applicant of his claims history was material to the risk and entitled
the insr to avoid the policy. (paraphrasing Henwood)
Comment: if crt accepted the insrs own opinion as prima facie evid of reasonable insr
practices, materiality has become a highly individualized concept. The crt here followed
Ritchie in holding that onus is one insd to show what reasonable insr would do.

there are cases where the crts have been able to come to the assistance of the insd

ICBC v. Heespink (1983) SCC

Facts: insd was charged with drug traffiking and his fire policy was cancelled as a result. ICBC
tried to arg that drug dealers are particularly susceptible to property damage, although no
ev given as to loss records or persons charged with traffiking.
BCHRC: said that this was discriminatory b/c the insr had no ev that being charged with partic
offence made you bigger risk.
SCC: upheld the BCHRC decision. Seems willing to recognize that the practice of partic insr
not reasonable

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Hudson v. Mutual of Omaha (1977) BCCA

Facts: Insd did not disclose ev of severe depression in policy

Reasons: Info not to be treated as material. Insd did not have to disclose this info since this did
not constitute mental illness which was the focus of the question asked. NOTE: that the
insr was aware from other sources that the insd had been hospitalized under the care of
psychiatrists four years earlier, before it decided to issue the policy - could explain this
decision on this basis as waiver by the insr
Comment: shows that insofar as Henwood is concerned, the crt may take a more liberal approach
on weaker facts.
Worral v. BCCA Insurance Co. Ltd (1988) BCCty Crt

Facts: 22 year old claim

Reasons: legit for the insr to require disclosure this far back despite fact that other insr only
require you to go back 5 yrs.
Comment: this could be explained b/c for this partic insd it was a more meaningful question
than it would be for others b/c he had to go to crt about the 22 yr old claim - you would
remember it.
Rendall suggests there is no harm on insr taking a hard line on partic questions as
long as the question is clearly put and understood by the applicant.
he goes on to say that to some extent the test for materiality becomes not, would
the reasonable insr consider this material, but is it reasonable for an insr to treat
this as material? Or even, and this may be somewhat different, am I content that it
is not unreasonable for an underwriter to treat this as material?
still it is left hanging is what would happen where the ev is clear that a maj
practice is different from that of the partic insr. He concludes that the int to be
balanced are, on the one side, a right in the insr to be unusually prudent, and, on
the other, a right of the insd not to be caught by surprised or to be oppressed by
an excessive prudence on the part of a partic insr
Sandu Estate v. Fidelity Life Assurance Co. (1987) BCSC

Facts: in app for life insurance the insd answered no in response to questions of whether he
suffered kidney, liver or digestive problems. He was a very heavy drinker and dr had
warned him of dangers of excessice alcohol consumption.
Reasons: there is a heavy burden on the insr to make clear what they want but the insd in
answering the questions must use common sense.
Armstrong v. North West Life Ins. Co (1990) BCCA

insr is not required to be a detective in order to determine the truth on its own initiative in
the face of lies.
the test is whether the info given was sufficiently indicative of something more to be
tantamount to a notice of the unrevealed. In other words insr only has to investigate truth of
info given if there is sufficient indication that something is not being revealed.

79

clear that if insr fails to construct its questions on medical history forms sufficiently
precisely so that they are misleading they will get little sympathy from the courts

Taylor v.National Life Assurance Co of Canada (1990) BCCA and Katrichak v. National Life
(1992) BCSC

both cases reveal the inadequacy of the of the questions set out in the Request for Info form
used by National Life to obtain medical info pertaining to borrowers form CIBC who decided
to apply to participate in the group policy issued to the bank by National to protect the bank
and borrower in event of death or diasability of the borrower while still indebted to the bank
also illustrates the modern phenomeon of not dealing with agent of the insr or med rep but
by emee of tp - here it was the bank
question asked if in past 5 years the applicant had consulted a phsician or been treated for list
of illnesses or any other chronic physical or mental condition.
Taylor - had gastroplasty to correct problem on obesity and then had other operations prior to
taking out the insurance; and finally died 3 months after policy issued of complications from
intestinal surgery. Crt said that the gastroplasty was not chronic in the proper medical sense
Katrichak - 5 yrs previously he had mycarditis, which is viral in nature and could be healed
and was not properly described as chronic. crt held that the word chronic modified all the
preceeding words
both crts seem to be indicating that if the insr wanted precise answers they needed to ask
precise questions
Comment: it is better for the insr to use this type of system and the crt says this is fine, but if
you want to do this better make sure the questions are precise and if you want more info
then the insr has to go back and check.

5.

Henwood is a problem. Need a case like it to go before the SCC again to see if it is
supported.
Contractual Variation of the Disclosure Duty
terminology is different here than in general commercial contracts.

COMMERCIAL CONTRACTS
Terms of K
called - conditions
breach - repudiate k

Representations
called - warranties
breach - damage for loss suffered

INSURANCE CONTRACTS
Terms of K
called - warranties
breach - repudiate

Representations
called - representations
breach - avoid the k

dealing just with insurance contracts

Warranty:

80
breach allows the insr to repudiate his liability. The effect is to treat the contract at
an end from the date of the breach. In terms of premium payments:
a) if the breach is of a warranty which occurs before the negotiation of the
contract (eg. if the insd claims to be temperate when he is not) the risk never
attaches, the premiums never become due and may be recovered as having
been paid w/o consideration;
b) if the breach is of a warranty relating to the future and occurs after the risk has
attached (eg. an unanticipated increase in the number of seats in an aircraft)
premiums paid before the breach cannot be recovered.

Representations
are considered collateral, their breach giving rise to recission of the contract. The
situation with premiums is that:
a) if the misrepresentation (or non-disclosure) is innocent, the insd can claim
back the premium as the policy is void from its inception;
b) if the misrep (or non-disclosure) is fraudulent the answer depends on whether
the insd or insr is bringing the action.
if the insd claims the premium back, the action will not succeed on
the dirty hands principle
if the insr claims recission of the contract, the crt may require it to pay
back the premium on the he who seeks equity, must do equity
principle.

a warranty must be strictly complied with, even if not material. A misrepresentation can only
be relied on by the insr if it is material and then substantial compliance is sufficient.
this distinction and implications was worked out by Mansfield in a series of marine law
cases. To Mansfield for a representation to have the force of warranty had to be incorporated
into the policy, otherwise it remained a simple representation.

Pawson v. Watson (1778)

representations as to complement of crew to be on a ship not incorporated into the contract

as it was a representation substantial compliance was sufficient
DeHahn v. Hartly (1786)

similar representation included on the policy in a marginal notation. Mansfield determined

that there was a warranty here which must be strictly complied with. Buller J. rejected insd
arg that notation could be severed such that the reference to crew complement was not a
warranty, just the ref to cooper sheathing was - Buller said the notation had to be read as a
whole with the policy.

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use of warranties as a means of securing compliance was very much in the interest of the
insr. The crt have justified it by saying that it would be unsatisfactory to the insrs interest to
contemplated any other result. In other words the draconian approach of De Hahn is
necessary if the insr is going to put matters which are impt beyond question.
the approach of the law may have made sense in a commercial environment in which the
parties did deal at arms length and had equal barg power. It has proven problematic in the
case of standard forms of insurance which are now used.
warranty approach wasnt enough for the insrs - they started to make every answer you gave
on application for insurance a warranty by using a basis of k clause. These make something
that is known to be immaterial, material by making it a warranty and it would be strictly
enforced. Thus if something is a warranty the materiality of it doesnt matter. This has made
the approach of the crts toward warranty even more problematic.

Dawsons Ltd. v. Bonnin (1922) HL

Facts: D sought insurance on trucks; on application he said that the trucks would be kept at the
Glasgow address when the trucks were in fact stored at another location. Policy
contained a basis of k clause; insr sought to avoid k on this basis.
Reasons: even though they felt that this was not a material fact as representation, b/c it became a
warranty thru clause it mattered and required strict compliance - insd had breached by
storing in different location so insr could repudiate.
Dissent per Findlay - didnt concede that basis of contract made the immaterial, material. Looked
to other clause which said could only repudiate it material fact not disclosed and this
wasnt material so insr couldnt repudiate.
Automotive Products Co v. Ins Co of N.America (1969) SCC

Facts: stipulation of commerical insur policy was that equip sales must be reported to insr as
soon as possible. Insr defended a claim on grounds that some reports had not been made
promptly
Reasons: reporting requirement was a warranty which must be exactly complied with, regardless
of materiality
Dissent: unlikely that parties had intended to make sale reports a condition precedent.
Yorkshire Insur Co v. Campbell (1917) PC

absurd eg of immaterial becoming material

inadvertant misdescription of horse insured for ocean transport. Horse lost at sea and policy
was avoided b/c description of horse converted to warranty by basis of k clause. Crt tried to
make lame arg that description was material b/c it reflected on courage, docility and
endurance.

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1.
2.
3.
4.
5.

Summary of Duty of Disclosure

Insur K = K uberrimae fides
unilateral or bilateral obligation of good faith?
latter is increasingly accepted in modern law
test of whether facts not disclosed or mispresented are material - reasonable insr
other modes of limitation of risk:
(a) terms of k
(b) basis of k clauses

6.

warranty as method of risk control is important b/c it binds the insd prospectively - must
carry thru undertakings precisely.
Only one situation where it will not operate as to the future - circ where insd at time
of making k intends to do something in future which offends understanding of the
parties, but has not done it at the time of the loss but has done it subsequently. In
other words it is the insd intention not to be bound by a stmt made in the proposal,
but at the time of loss the stmt is still good b/c he is still adhereing to it.
Eg. in Dawson if the insd had given the same answer as to where the truck was to be
stored, intending however, to store it elsewhere at a later date, but had not done so at
the time of loss, but did so after, the basis of k clause would not have worked. In this
instance, however, if the stmt is characterized as a material misrepresentation it may
be founded on. This is because in representation the state of mind of the party can be
relied upon. This may explain why there was also a material misrep clause in the
policy in the Dawsons case.
Limits on Insurers Risk Control
insrs naturally wnat to have some control over risks; ways to achieve this:
disclosure duty
attempts to define the risk or risks which are covered more precisely - could be done
by including exceptions and exclusions in the policy. This requires an ex ante
determination of what the relative positions and expectation of the parties are, rather
than leaving that to an ex post facto determination which may have no reference at all
to the reasonable expectations of the isnd.
use of warranty is a powerful device b/c:
a) it translates the insignif into a core obligation and imports strict stndrd of
compliance by the insd;
b) it binds as to future conduct (which is not true of disclosure duty which
normally relates to past or present facts only);
c) it allows the insr to avoid the k from the date of the breach, deny liability for
any subsequent loss, retain the premium and found on the policy in relation to
any prior shortcoming by the insd
leg and crts have tried to step in and redress the imbalance b/w the insr and the insd

83

(a)

Judicial Techniques for Limiting Insrs Freedom of Action

(i) Severability
effect of non-disclosure and misrep clauses is limited to risks which take place on property
which is adversely affected
statutory encapsulation in BCIA (Prt 6 - Fire) s. 220(1) stat cond. 1 which voids the contract
only as to any property in relation to which the misrep or ommission is material
eg. fleet policy on small commercial aircraft with seat limit. If had req # of seats in plane
that was destroyed it makes no difference that in another of their planes they had more seats.
(ii) Creative Characterization
crt interprets what might otherwise be a warranty as a term descriptive of the risk so that if
the actual risk and use which occurs is within the description coverage is secure. It does not
matter that at some earlier point in time a different use was made.
classic illustration
Re Morgan and Provincial Insurance Co. (1932) Eng CA

was a basis of k clause in the policy, the crt characterized the insds statement in answer to
the use to be made of the truck covered under the policy as descriptive of the risk. (On
construction of the proposal form it was not the intention of either party to extract or give a
warranty that the truck should be used for the haulage of coal) He had stated that it would
only be used for delivery of coal. When accident occurred he was using it to haul coal, so it
didnt matter that truck had been used at other times to haul materials other than coal coverage was afforded. It follows that had the insd been hauling other than coal at the time
of accident, his use would necessarily fall outside the description of the risk.
(iii) Creative Interpretation
the crt will use an interpretation of the term of the policy (if there is some ambiguity as to
term and application) which favours the insd
Staples v. Great American Insurance Co NY (1941) SCC

Facts: insurance coverage was against risks to boat while it was being used for private pleasure
purposes. The boat was not to be used for charter or hire w/o permission of the insr.
Friend of insd w/o payment took the boat accross a lake to enable his uncle to look at a
mine for a business purpose
Reasons: SCC said that private pleasure was ambiguous if mixing bus and pleasure and as a
result it could cover this situation.

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(iv) New Insurance Doctrine - Causality

requirement of a clear causal relationship b/w the data and information required and the loss
suffered.
Long v. Commercial Union Insurance (1981) OnHC

insr argd that there had been a material change in the risk (see BCIA (Part 6 - Fire)
s.220(2) stat cond 4) which had not been communicated by the insd and as such it could
avoid the policy on a truck - change was that it was being used in the US and On.
Linden J. used notions of causality to preserve the rights to the insd. At the time of the loss
the truck was being used in the way and for the purpose comprehended by the policy, ie in
On. There was no causal relationship b/w the breach of the stat cond and accident.
Comment: note that this is a lone case - flies in face of other cases
Webster v. Royal Insurance of Cda (1995) ABQB

Facts: insd took out policy on snow mobile - insd for recreational purpose. Insd gets into
racing. The snowmobile is stolen while not near race course. Insrs said there was mat
change in risk b/c or racing
Crt: agreed that there was a mat change in the risk and that insd should have informed the insr.
As insd failed to do so the claim was denied.
Comment: Long was pleaded but tj said that the law in On not the law in AB. Rendall said this
wasnt surprising given that there is no ev to suggest that Long is accepted as law in On

crts are really trying to do equity - depends on the crt and the judges to what extent they will
go out on a limb

(b)
Legislative Techniques
leg have intervened to try and deal with some of the problems created by the broad defn of
disclosure and the expansion of the warranty concept approved of in earlier cases.
(i) Insurance Policies in General
two provisions in general part of BCIA - however note that s. 4 provides that these provisions
do not apply to life, accident and sickness, fire and automobile insurance policies
s. 14 - term or condition of the k of insurance to be valid and admissible in evidence to the
prejudice of the insd or beneficiary must be set out in full in the policy or a document in
writing attached to it.
doesnt say that terms or conditions must be material; accordingly you can assume
that immaterial may be made material by their actual inclusion in the policy or an
attached document in writing - to that extent DeHahn may still be good law in BC
s. 15 - makes it impossible to use a basis of k clause to convert the immaterial into the
material.
For a misrep or failure to disclose in application or proposal for insurance to void or
make voidable the insurance k it must be material to the contract. The question of

85
materiality is one of fact. Dawsons v. Bonnin is thus no longer good law. Materiality
would be subject to the test of reasonable insr propounded by Salvesen in Mutual.
(ii) Life and Accident and Sickness Insurance
life insurance is contained in Part 4 of the BCIA.
s.123(1) states that the Prt applies notwithstanding any agreement, condition,
stipulations to the contrary. (one exception - see Bogh) This is to be understood as
preventing the parties from escaping the provisions of this part.
s.134(1) establishes the nature of the duty of disclosure. An applicant and the person
whose life is to be insured must disclose to the insr in the application, on a medical
examination and in any written statements or answers furnished every fact in his
knowledge that is material to the insurance and which is not disclosed by the other.
Materiality is tested by the reasonable insr test.
s.131(1)(c) a contract will not take effect if a change takes place is the insurability of
the life b/w the time of application and delivery of the policy, even though the policy
has been delivered and the first premium paid.
however, under s. 135 there is an incontestability provision which becomes operative
after the contract has been in effect for two years. Can only contest after 2yrs if there
has been fraud on the part of the insd. (innocent non-d or innocent misrep cant be
contested after 2yrs) By virtue of s.135(1) it does not apply to disability insurance or
mistatements as to age. The exception for disability probably reflects the belief that
since the insd is alive when the benefits are claimed, that person will be able to give
ev to refute objections based on innocent misrep.
s. 140(4) renewals are treated as a continuation of the original k; reinstatements are
not.
In the case of age the insurance money is varied up or down to the amount that would
have been provided for the same premium at the correct age - s. 137(2)
s.136 provides that for life insurance the insr also has a responsibility not to
misprepresent or fail to disclose material facts (subject to an incontestability clause)
Bogh v. National Life Assurance (1991) BCCA

-insd arg that s.123 only applies where change to detriment of the insd but not where the
variation is to benefit of insd. Benefit here is that policy gives incontestability for disability
policy which the insd otherwise would not have. Bad for insr to take away what he/she has
given. Crt accepted this argument
Comment: Rendall wonders why the insr took challenge to claim in the first place.

Accident and Sickness (Part 5)

similar provision to s. 134 is contained in s. 191(1), (2)
there is equivalent to incontestability in s. 192
the effect of a mistatement of age is the same as in life insurance, according to
s.195(1)

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McLean v. Paul Revere Life Insurance Co. (1990) BCSC

Facts: pff (insd) had been issued an accident and sickness policy by the insr for which she
applied in Oct 1981. Two weeks later she was injured in a car accident and paid benefits
under the policy for 3 years, at which time she was accidentally shot in the abdomen.
Insr continued to pay benefits until June 1988 at which time they purported to rescind
the policy. Insd brought action to compel pymt and the insr counterclaimed for decl
that the policy was void and for a judgement for pymts already made. Comp argd that
the insd had misrep certain facts in app.
Misreps: see pg. 77/78 of cb. Relates to fact that she was in prison
Crt per Prowse J. - answers re: residence, observation in an institution were not misreps b/c
the questions did not contemplate or extend to the circumstances in question.
hever the insd had materially misrepd the situation concerning the consultations
with the psychiatrist and psychologist. Matters were material to the risk. Insr own
emee so testified and no ev as to what other insr would have done, the judge
concluded that the prudent underwriter would have found it to be material.
to avoid the k after 2 years the insd had to prove fraud. The insd had made answers
knowing them to be false and intending the insr to act on them. To show fraud it was
not necessary to prove intention to cause harm. It was irrelevant that the loss was
unrelated to the insd misrep. Materiality is relevant to the time of application, not
the loss. Claim rejected.

given the wording of the stat sections on non-disc or misrep in the case of life (134, 123), or
accident and sickness, it is unlikely that an insr could incorp immaterial matter into the
policy by warranty or a basis of k clause.

(iii) Fire Insurance

BCIA s.220(2) stat cond. 1
1. If any person applying for insurance falsely describes the property to the prejudice of
the insr, or misrpresents or fraudulently omits to communicate any circumstance which
is material to made known to the insr in order to enable it to judge of the risk to be
undertaken, the contract shall be void as to any property in relation to which the
misrpresentation or omission is material.
summary: the contract is void if the insd
1. gives a false description of property to the prejudice of the insr;
2. Misrepresents any circumstance which is material;
3. Fraudulently omits to communicate any circumstance which is material.
departures from the CoL:
a) makes fraud a requirement for non-disclosure if the insr is to avoid the k an innocent
omission is not enough. Note that it upholds the CoL on misrepresentations (as long
as material) which allows k to be avoided if the misrep is innocent or fraudulent
b) also says that k is void (void ab initio) not voidable (by party on the receiving end)
c) use of the severability principle is different - only relates to property to which the
misrep or omission is relevant.

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unlikely that an insr is able to import non-material conditions in to a fire policy with a basis
of K clause
s.220(1)
The conditions set forth in this section shall be deemed to be part of every
contract in force in the Province, and shall be printed on every policy with the
heading Statutory Conditions, an no variation or omission of or addition to
any stat cond shall be binding on the insd.
this seems to preclude the insr from doing anything to vary the stat conds and stat
cond 1 says that they can only be relied on if material - so if the insr tried to use
immaterial made material by basis of k clause it would be violation of the stat cond.

Harten v. Grenville Patron Mutual Fire Insurance Co. (1938) On Hc

Green J concluded that such a clause (basis of k) could not vary the effect of the On
equivalent to stat cond 1
Comment: so basis of k clause, at least in terms of making immat mat is now dead. One
possible exception is for automobile insurance

what about making immat, mat by imcorportating the maters into the policy itself?
probable if an insr tried this, the insd could challenge it under s.223(b) whereby
courts are given the power to strike down any stipulation, condition or warranty that
is or may be material to the risk if held to be unjust or unreasonable

b/c of the variation in meaning of non-disc and misrep in stat cond 1 it is important to see
how it has been interpreted in practice. The most difficult issue has been what to do about
situations which have elements of both misrep and non-disc about them

Taylor v. London Assurance Co. (1935) SCC

Facts: lumber camp in On; in 2 of the past 3 yrs insurance had been taken out. This yr no
insurance until the insd is advised of fire in adjacent township - info was that it didnt
look like it would engulf the partic township. Insds wife talks to agent that they had
dealt with before. Ev reveals that she said that there were fires througout the north but
said nothing about proximity to the logging operation. Insurance was placed and the
camp was subsequently destroyed. Insr objected to pay out b/c she had omitted to tell
material facts - where the fire was located; or she misrepresented the situation by telling a
half truth
Issues:
a) what do you do with a situation which looks like misrep and also non-disclosure? On one
view it could be half-truth, on another, failure to reveal total info. Crts trying to navigate thru
this to decide if its one or other or hybrid. If hybrid, what test do you use?
b) If it is non-disclosure, what do we mean when we talk about fraud in this context?
c) when we discuss misrep, what do we require in way of reliance by the insr?

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Reasons:
a) TJ said that this was non-disclosure case. 2 out of 3 CA judges said it was non-disclosure of
a material fact.
The TJ and 2 of CA said that when stat cond 1 spoke of fraud it meant in broad
objective sense, even where there is no intention to deceive. On this basis she was
guilty
Dissent per Davis in the CA said that it meant fraud in the narrow sense which
requires an intention to deceive - but he felt that she had told a misrepresentation or
1/2 truth and since innocent misrep is sufficient to avoid k the insr wins
Dissent in CA and Duff (SCC) seem to think that the stmt was a hybrid - CA dissent
seems to suggest that you need an assertion and intention to deceive. BUT Duff says
that it is sufficient if it was calculated to deceive. Duffs view reigns - must be
calculated to mislead if the insr is to suceed with a hybrid.
b) Fraudulent
Duff agreed with the Dissent in the CA - narrow sense, intention to deceive required.
Insr couldnt rely on fraud here b/c the parties had agreed that there was no fraud in
the subjective sense - ie no deliberate intention to deceive.
c) If misrep what is required?
insr must have relied on the misrepresentation. Duff said that the ev at trial
established that the agent wouldve gone ahead anyway - didnt cosider the question
of fire, no reliance on misrep.
Conclusion: Taylors win b/c the partial stmt of facts was not calculated to mislead the agent;
and the agent said he was not induced to enter k b/c of it - thus not a misrep. Fraud in
ordinary sense was specifically denied by the parties.
would have thought that the crts would have made more of the fact that the insr
worked in the area where the fires were well publicized, well known to the public in
any case that the insr should have been able to ask more specific questions.
Dissent in the CA also notes that when the insurance was taken out there was nothing
said about fire risk. It was only in the second phone call, in which Mrs. Taylor called
to see if insurance was put on, that fire was mentioned. So there is a real possiblity
that there was no connection b/w what she said and insr issuing insurance.
clarifies two points about misrep and non-disclosure:
a) if there is an omission to communicate a material fact then there needs to be fraud in
the sense of an intention to mislead (actual or constructive) or at least recklessness
(not caring whether the information given is true or false)
b) if the insr is relying on a misprepresentation, there must be ev that that party relied
on it in circumstances in which if the truthful information had been given the inss
decision on insurability would have been different.
(iv) Automobile Insurance
special wording is used in the Insurance (MV) Act s. 18 to describe the situations in which a
claim may be rendered invalid and benefits and insurance money forfeited b/c of a
misleading communication of info by the insd. This applies to insd, applicant, person
claiming through or on behalf of or as dependent of the applicant or the insd

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18(1)(a) allows forfeiture where the applicant for an owners certificate (effectively an
application for insurance - BC Regs Pt.2) falsely describes the motor vehicle. There is no
case law which indicates whether an intention to mislead is necessary here
18(1)(b) provides for forfeiture where the applicant knowingly misrepresents or fails to
disclose in the application a fact required to be stated in it. This provision has not been
interpreted in a way which gives guidance on whether there must be an intention to mislead.

Sleigh v. Stevenson (1943) OnCa

same wording in auto part of the Insurance Act in On was construed to mean that if the
applicant had knowledge of facts which needed to be communicated that was sufficient to
entitle the insr to reject the claim even though the agent who knew the true state of affairs
did not include them in the application. App had signed the completed form w/o looking at
it.
Comment: based on this decision actual fraud does not have to be proven, nor knowledge that
the insr is about to be misled. It was enough that the applicant or the person to be
insured had the requisite knowledge and it was not communicated
Berkowits v. MPIC (1988) MBQB

Facts: app for insurance lived in Winnipeg but registered a vehicle, used largely for hauling
materials to and about the farm property outside the city, using the farm address. He
knew that the premium rating was more favorable for a rural address. Insr refused to
indemnify the insd when judgement issued against the insd out of a collision it was
involved in. He gave ev that he thought the farm address was acceptable b/c he was
using the vehicle at the farm
Reasons: the insd succeeded, the crt found that he had made an error in giving the farm address,
the error was not made knowingly or deliberately.
Scott ACJQB put it beyond doubt that the word knowingly qualifies both
misrepresents and fails to disclose. He went on to suggest that the use of
knowingly imports some element of a desire to gain an advantage. Refused to make
an adverse inference against the insd despite fact that the insd knew of the premium
advantage - said he had a good explanation for registering as he did.
Comment: Rendall points out that this is contrary to Sleigh. He suggests that the use of the term
knowingly was to rule out the application of the presumed knowledge test and to
confine the defence of misrepresentation to cases in which the applicant did actually
possess knowledge of facts at variance with the stmts in the application form. He thus
concludes that the MB court was mistaken in its interpretation of the term knowingly.

note that 18(1)(b) does not refer to material facts but to a fact required to be stated by the
applicant for an owners or drivers certificate. Interpreted as meaning that the fact does not
have to be material - Greyell v. ICBC (1979) BC Cty Crt.
Scott in Berkowits reached a different conclusion, suggesting that some element of
materiality is necessary, even though the word is not mentioned in the clause.
Rendall - Scott is wrong as the control over policies in this context is in the hands of
the Superintendent of Insurance and subject to his sound judgement.

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18(2) provides: Where a forfeiture would appear inequitable, the corporation may relieve a
person affected by it from the forfeiture of all or any of the benefits or insurance money
What does this mean?

H. AGENTS

this is big in insurance law as you typically arent dealing with ins co or emee of insurance co
but with an agent. This complicates the process of communication
law of agency in insuance is no different than in other areas:
an agents ability to bind his principal depends upon the authority which the agent possesses;
authority may be express or implied, actually granted to the agent by the principal or
implicit in the express powers given to that person.
however there are more extensive agency powers which flow from the fact that if a particular
type of principal uses a partic type of agent who would be assumed to have a range of
specific powers, the agent is held to have authority vis-a-vis the 3rd party contracting, b/c he
appears to be clotherd with the authority of that type of agent, even though he may not
possess it in fact - apparent or ostensible authority. This assumes the principal has done
nothing to indicate otherwise to the 3rd party or the world at large.
it is also open to the principal who has not authorized particular conduct on the part of the
agent to ratify it.
not in the realm of agency if the person you are dealing with is emee of the insurance co.
schizophrenic in terms of loyalty - reflected in the law as well
the fact that an agent for purposes of soliciting insurance may be considered as the
agent of the insr does not mean that the same individual cannot be the agent of the
insd in relation to other functions.
agent is essential to the mkting of insurance product and is an impt cog in the
insurance industry wheel.
to some extent the agent, partic the general insurance agent is also in business to serve
the public and in particular potential customers of insurance, and in that sense
responds to stimuli coming from that direction as well
insr try to arg that agents are indep kors so the insurance co is not responsible for training
them. Hever the insurance industry had moved toward providing more education [Hedley
Byrne]. Crts have said that consumers rely on insurance agents so agents have to have
adequate skills.
the legal status of the agent can change midstream - most obvious is in the case of the
solicting agent - they have auth to write up the application but not auth to give interim
coverage pending insrs final decision.
what if the answers given by the insd, but recorded by agent and the agent gets them
wrong? Insd required to sign form. Loss takes place; insr discovers erroneous
answer and denies the claim. What is the relationhip b/w insr; agent and insd?

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2.

Signed Application Forms and the Duty of Disclosure

(a)

Traditional Response

Newsholme Bros v. Road Transport and General Insuranc Co. (1929) Eng CA

Facts: Policy on a bus, partly first party and also liability. Correct answers were given by the
insd but were recorded incorrectly by the agent. Insd signs form with stmt that all
answers were true and that answers shall be the basis of the contract - hever the insd
never read the form. Insr refuses to pay out b/c of misrep on answer to 3 questions and
args that the agent was acting as the insd agent not the companys so the mistake must be
attributable to the insd not the company.
Reasons: crt held that the soliciting agent was the amanuensis (scribe) of the insd - only
recording the answers of the insd so was the agent of the insd at that point in time.
When there is soliciting agent, any mistake made by the agent in recording the answer
lies with the applicant, not the company, esp where applic signs doc after the answers
filled in.
shows that law embodies the schizophrenia
insd had signed form - attested to authenticity/truth of what was said.. Crt
considered the Bawden case where the crt came to different conclusion.
Distinguished it b/c B was illiterate, only had one good eye, and the question related
to disabilities. The agent would be aware of disability; agent recorded erroneous
answer and the insd signed it. Scrutton thought there were problems with Bawden
and limited it to its own facts - illiterate plus any reason to find exception to finding
the agent acting as agent of the insd. Didnt apply here as the applicant was literate,
intelligent - you can assume hell check the doc before signing it.

subsequent crts have tried to find ways around Newsholme but others have happily followed
it - Caputo

North American Life v. Caputo (1989) OnHc

Facts: app for disab insurance had failed to reveal that he had consulted Dr.s about a stomach
condition and was due to see a specialist.
Reasons: jury found on the ev that the agent had not asked the relevant questions but had merely
answered no to the question on consultation. Saunders J. nevertheless concluded that the
insd had a responsibility to check the application before signing - as he had signed w/o
correcting the faulty answers the answer of the agent was deemed to be his answer. Had
to pay back disability benefits that he was paid after stomach removed.
Comment: shows that Newsholme is good law in Canada

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(b)
Ways around Newsholme to fix the insr with the knowlge and mistakes of the
agent
(leaving aside Bowden which is considered as doubtful exception)
(i) Ambiguous questions or Requires Further Explanation
Joel v. Law, Union & Crown Ins. Co. (1908) CA

Facts: insd died by insane suicide had not revealed that she had visited a dr 8 yrs earlier for
nervous depression in response to question what medical men have you consulted.
Reasons: crt able to avoid placing the burden of the incorrect answer on the insd b/c it was on a
medical application form which did not contain a basis of K clause which was contained
in the general form.
crt said that if the insr attached so much importance to the question it should have
included a basis of k clause, especially as the answer to such a question was not
something with an insd would normally warrant.
there was also ev that the med examiner retained by the insr had explained not
explained the question, although it was one which required explanation.
baiscally used interpretive devices to find for the insd
(ii) Emphasize agents expalnatory/proactive role
when the agent endevors to explain a question or takes a more significant role that merely
recording the answer, the crt may conclude that the agent at that point is agent of the insr no longer a mere conduit of information but is seeking to interpret the form or policy of the
insr to the insd
Great West Life Assur Co. v. Paris (1959) PQ QB

Facts: insd paid for a minor league hockey team; application for accident policy. Insd asked
the agent what organized sport meant. The agent advised him that they meant a sport in
which the players were remunerated. On this basis the insd answered no.
Reason: crt said that the agent knew full well why the insd was taking out insurance (protect
from accidents on the ice) determined that he was acting for the insr when he gave the
interpretation. Noted that the agent here was fully accredited agent of the insr and had
taken courses for company agents which covered all the info which insd parties needed
to know.
Bird v. NY Life Ins. Co (1920) OnHc

case predates Newsholme but is authority that same result as in Paris would follow where the
insd asks the agen about the answer he should put down.
insd asked whether his acute indigestion should be mentioned in response to question about
state of health. Agent said that that was a trivial matter. Crt found that the agent had full
auth to obtain the application and that, short of fraud on the part of the insd, the agents
actions bound the insr

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dividing line in these cases seems to depend on whether the agent goes further than merely
writing incorrect answers, and if he does, whether the insd is in some way or degree
complicit

Whitney v. Great Northern Ins. Co. (1917) AB TD

Facts: Accepted ev indicated that insd had not been asked price of horse only what value he
placed on it. Not clear that agent knew purch price, although the answer to that question
had been changed on the form. Agent filled in the answers on the form and told insd that
everything was alright prior to him signing form
Reasons: crt found that agent had responsibility to communicate the facts surrounding the filling
in and signing of the form to the insr and that in the circumstances his knowledge must
be imputed to the insr.
Comment: insurance company should be careful in its selection and training of agents; even if
an agent acts as agent for the insd for certain purposes, his knowledge of what he does in
that capacity may mean that he is contemporaneously agent for the insr.
Bastedo v. British Empire Ins. Co (1913) CA

Facts: agent had in response and to the knowledge of the insd put in got in trade in answer to
question what did you pay for the animal. Despite the fact that this was false the insd
had expressed satisfaction with the agents actions
Reasons: crt concluded that that answer was that of the insd and, as it was incorrect, provided a
basis for the insr to avoid the k
Comment: ev of complicity b/w the agent and the insd meant that the insd was responsible for
conduct of agent.
Lewis v. Northern Assurance Co. (1956) OnHc

insd may succeed in situations where the insd put his own interpretation on a question
and it is the wrong one, especially if the question is abmiguous.
Facts: pff (app for insurance) had an artificial leg and explained this the agent. The agent wrote
in no to question which asked whether the vehicle would be driven by a person
suffering from loss of foot or limb. The insd signed w/o reading that answers, having
been told by the agent that she had recorded every answer the insd had given him.
Comment: Spence J refused to find the insd had knowingly misled the insr, b/c from the insd
point of view the correct answer to the question in this case might well be no (had limb
but it was artificial). In this case the insd had understandably deffered to the apparent
knowledge of and confidence exuded by the agent.
(iii) In some cases (eg. blanks) if the insr doesnt seek info cr may say insr has waived right
Gabel v. Howick Farmers Mut Fire Ins Co. (1917) HC

Masten J. concluded that by accepting the application with a blank the insr had waived the
question (in this case about apprehended incendiarism)

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Hanson v. Queensland Ins. Co (1966) ABSC

Facts: agent used a dash to represent both No and N/A and did so in relation to a question
concerning previous cancellation of insurance.
Reasons: Crt concluded that this was a fraudulent omission, and thus in contravention of stat
cond on non-disclosure and misrep in the Fire Part of the Insurance Act

approach in Gabel is preferrable. Anything on the application which might suggest that the
applicant has not directed his/her mind to the question or is in doubt as to how to answer
which is patent on the face of the document should be laid on the shoulders of the insr.
There is auth for this in Whitney by Fitzpatrick in the SCC - he felt that the insr
should have been alerted to the fact that something was wrong when the answer to a
question had been changed, and that it should have verified what the correct answer
was

Does Newsholme apply to cases where the insd signed application form before the answers
had been included, or could be included, or where the insr already had access to the correct
information required?

Carlin v. Ry Passengers Assur Co. (1913) SC

decided before Newsholme

insd left space blank which asked about use of explosives or boilers. The insd signed the
form and explained to the agent that he didnt need boilers but would be using explosives and
left the agent to fill in that section. Agent for some reason filled in answer to question as no.
the crt, sensibly, concluded that where an agent is left to fill in later the answers to a question
on the basis of correct info given to him, or subsequently changes the answer according to his
own judgement then he is not the agent of the insd but of the company.

Biggin v. British Marine Mutual Insurance Assn. Ltd (1992) Nfld SC Td

Facts: insd had answered all specific questions but didnt add in other info which went beyond
the specific questions - they left this blank; signed form.
if there are specific questions that lead the applicant to think thats all info the insr
needed, then the applicant wont be held at fault. Will disregard other general clauses
such as guidance notice (ie insd must supply material facts even if the insr doesnt
ask.) Crt said there is ambiguity and must be resolved in favour of the insd
if the insr wanted specific info it should have asked for it. Having asked specifically
for losses w/i three years one could rightly assume that losses beyond that were not
relevant and not added it in the space provided for other material facts
(c)
Recent Developments
signs that the crt will depart from Newsholme in cases where the facts are such that it would
be unfair to attribute the mistake to the applicant. Most of the cases involved agents who
were more than solicting agenst however

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Stone v. Reliance Mutual Ins Soc. Ltd (1972) CA Eng

Facts: insd had previous insur policy with insr; policy lapsed b/c of problem in the insurance
comp system. Inspector came around to see if they would renew; he filled in the policy
and Mrs. S signed them. Loss took place, Mr. S in the proof of loss forms was truthful
about ealier claim with insr - the insr denies the claim b/c new application didnt
indicate prior policy or claim.
Denning: decides against the insr; not covered by Newsholme. This was the same insr as
before, inspector asked no questions; he said that he had authority to fill out the answers.
Compares it to Bawden - she is a woman of little education so she wouldnt have
understood what was going on. Agents actions induced the mistake - ie her signing stmt
which said answers were true.
Comment: this was the right decision but for the wrong reasons. All this distinguishing by
Denning wasnt necessary b/c there wasnt an agent! The inspector was an employee of
the insurance company! Case is exceptional b/c it is one of the few in which the insr
and the insd actually come into direct contact.
fact that Denning made the point that there were situations to which Newsholme
didnt apply has inspired ways of circumventing Newsholme.
Blanchette v. CIS Ltd (1973) SCC

maj found circ to which Newsholme should not apply

Facts: farmer knows agent and they have done business before. Applies for liab granary and
public liability - done thru a composite policy, where things are done in different parts,
you can add or subtract stuff to it. Insd is told at first that coverage would be immediate
(on interim basis) so long as the premium is paid. On a question re: claims pending the
answer no was recorded despite the fact that insd was engaged in dispute with a third
party; answer was recorded by the agent. Insd signs the form under general clause
which guarantees the truth of the answers
insd then decides that he needs to cover his tractors - would be 2nd element in the
composite policy. Calls the agent and says he will come down to fill in the info. The
agent told him not to bother as we can do it over the phone b/c you have already
signed - well just fill in answers to new questions. Agent fills in the anwers and
misreps insds situation by putting in the wrong answer re: uses the tractors were put
to. Didnt reveal that they did brush clearing which is inherently more dangerous.
loss to tractor and the insr refuses to pay out b/c the insd was guilty of misrep in circ
where the agent was agent of the insd under Newsholme
Reasons:
different situation than Newsholme b/c the signature was already there, new questions
were filled in and there was no way for the insd to check the accuracy of the
answers.
Pigeon noted that this was a soliciting agent with a difference - he was capable of
providing interim coverage and seemed to have authority to fill in the answers
maj saw the composite policy as two separate policies - 1st policy re: public liability
and misprep made and app signed form; 2nd application a day later misrep and no
opportunity to check accuracy. [maj finding seems to indicate that misrep in 1st had
no bearing on misrep in second under which the claim was made]

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Dissent per Ritchie - Newsholme applied; no substantial difference; the onus still on the insd to
be truthful; insd signed policy with guarantee and anwer in 2nd application was
erroneous therefore the insd thru agent had mislead the insr.
doubted whether the agent had capacity to bind the insr on an interim basis.
Comment: maj was clearly inspried by Stone
Vrbancic v. London Life Ins. Co (1990) On Crt Gen Div

Facts: application for life insurance; both applicant and wife gave responses but the agent wrote
down the incorrect info. Applicant and wife sign form; insr argd that misrep when wife
made claim
Crt: felt that the agent had authority to fill in the answers
wife and applicant had given truthful answers to questions asked but the agent
recorded them incorrectly. Despite the fact that the insd had signed the form the crt
was ready to arg the very broad proposition (broader than anything before) that in
filling in the answers, given the auth that the agent had to do it, the agent was at that
pt acting as the agent of the insr not the insd. Unless the misrep/erroneous info
comes from the insd the insr is responsible. Uses Blanchette - see quote pg 466 to
this effect.
Comment: seemed not to matter that the insd had signed the document.
seems to recognize that the applicant doesnt really know what is going on and that
there is reliance on the agent and that there is benefit to insr in working thru agents
so they should be held responsible.
if crt cant find fault on the part of the applicant they will generally hold the insr
liable.
close to ditching Newsholme altogether
(d)
5 Reasons why current state of law is unsatisfactory
per MB Law Reform Commission (1976)
1. the agent is an indispensible intermediary in mkting of insurance
2. heavy reliance by the consumer on the agents knowledge and advice in aranging
coverage;
3. the public is unaware of the subtleties of agency as applied in insurance
4. decisions show total disregard of the reas expectations of the av policy holder, and
their lack of knowledge of the character of an insurance agents actual authority;
5. crts have been fixated with express auth granted to various species of insurance
agents, involving distictions which are meaningless to the insd. Some insd have
succeeded when the crts have focused on apparent or ostensible authority, but the
starting point of analysis is invariably been express authority
concludes that it is silly to leave matter of such importance (misrep and omissions
communicated by agents) to the arbitrary process of categorizing agents
reality is that insrs invite insd to deal with the agents, policy holders assume they are
representatives of the company and that they communicate info to them as such.
US law has long since ditched Newsholme; Eng Law Reform Commission proposed that
agents soliciting or negotiating k of insurance should be deemed for the purposes of
formation agents for the insrs, and their knowledge that of the insrs

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3.

MB report adopts Eng approach but extends it to matters arising after the policy takes affect
Other Intermediary Acting as Agents
question of agents authority being questioned in cases of people who mkt insurance by are
employed by other finance institutions, car sales men and emers, banks etc.
insurance is mkt is a myriad of ways
increasingly the situation arise where the question of whether you want insurance or not is
not put by agent but by person in whose interest it is to sell insurance - emee of 3rd party phenonmenon of one stop shopping.
early law in this area was not encouraging but crts seemed to have clued into what is going
on functionally.

Boutilier v. Traders General Insurance Co (1968) NS SC affd (1969) NS CA

Facts: Bs buy car for son. Part trade, financing and cash. Father is implicated in the financing.
Father has had his license suspended. Car salesman has forms for financing and
insurance. Ev at trial was that the salesman was informed of suspension; and that the trio
appended their signatures to app for insurance on understanding that it would be filled in
later. Answers filled in incorrectly. Son crashes and insr refuses to pay out.
first trial - the tj finds for the insd but that judgement was never executed. Now the
insr moved for a declaration that the trial decision was preverse
Reasons on 2nd go round:
tj and CA said that the insd was barred from recovering on the basis of erroneous
answers to question. Situation was covered by Newsholme and there should be no
difference b/c they signed blank form
CA had some difficulty with the salesmans ev but they could find no basis for
distinguishing Newsholme, even though there was stat provision which suggested that
car salesman could not be taken to be acting as agent of the insd. Crt said that
provision did not apply here.
Comment: crts prob worried that there was collusion - they told about the suspension but it was
in the trios interest to have the form filled in later on chance answer would be filled in
incorrectly.
Rendall says that this is another example of theory being compelled b/c of speculation
of collusion. If no ev of collusion a crt would have been unlikely to appy Newsholme.
unlikely to arise in BC in autosales b/c of s. 15 Insurance (MV) Act (agents
appointed by corp and all such agents must have license as insurance agent under
Financial Institutions Act)- but could well arise in relation to other types of
equipment, such as vehicles, boats and aircraft as well as other types of insuracne eg. mortgage insurance.

Boutilier may not be followed now as there is ev that crts are willing to say that 3rd party
emees who take on insurance obligations are in fact insurance agents

Quillard v. 541066 Ont Ltd. (1990) On Gdiv

98
Facts: case b/w 3rd party (not the insr) and applicant for insurance. App wanted to purch Volk
in Europe, arrangements were made in NA. Insurance issue: the salesman said that you
must take out insurance with our insr. That was erroneous. (Crt said that he was honest
salesman, he just didnt read the brochure or didnt understand it. Gave her brochure to
read. It had 4 options for insurance and she chose the cheapest one. Didnt realize that it
provided no coverage for theft - gave coverage for loss of assets (not car but assets in the
car). Theft of car not covered by the policy. She sues salesman and emer.
Crt - when salesman talked to her about the insurance etc he was acting as insurance agent and as
such he had obligation to know about what he was talking about - had obligation to
explain options to her. If he didnt understand he had obligation to find out.
also impt in this case that the 1st language of the app wasnt Eng and the form not
written in plain Eng - even native Eng speaker would have had trouble with it.
Boolinow Estate v. Canadian Imperial Bank of Commerce (1994) BCSC

Facts: mortgage situation. Def CIBC (actual def is National Life Assurance). 2 encounters b/w
insd and Banks rep. 1985 ev of wife of decd was that they went to office, they werent
asked questions about the insurability of Mr. B. Bank official filled in the blanks and
they signed the form w/o looking. Next meeting was in 1986 the same person dealt with
them, just asked if there was any changes, Bs responded no; they signed and left Bank
official with the form to fill out b/c they were in a rush. Male mor had heart problems orginal answer no was material b/c if insr had known about heart problems they
wouldnt have insured.
Issue: is bank person an insurance agent? It is convenient for insr to mkt product thru 3rd party
and this must be taken into account when looking at the relationship b/w the insr, 3rd
party and the insd. Who was bank guy working for?
Reasons: misrep is the fault of the bank emee not the insd. He didnt ask questions in 1985, he
answered them himself, the insd didnt provide the info. 1986 he filled in the answers
based on the previous form. Bank was responsible for the emees sins and so was the
insr.
insd could get at the insr even though it wasnt a licensed insurance agent they
chose to mkt in this way so the mistakes of the 3rd party are their mistakes.
diff for emee to arg he wasnt acting as agent - hed been given forms, authority to
calculate and accept premiums, issue payments etc; insurance would take effect after
the form signed and premium paid; had authority to bind the insr

99

Lawrance v. Mut Life Assur Co. of Canada (1992) BCSC

both the insr and the bank were named as def. Unlike Boolinow, it was decided that the
banks loan manager, Newbury, acted solely for the bank not the insr. Thus the action was
dismissed against Mutual. Action allowed in part against the Bank
emee revealed that he was out to get businees - quite candid.

BCIA (Part 4- life insurance) s. 173 Presumption against agency

No officer, agent or employee of an insr and no person soliciting insurance, whether or
not he is an agent of the insr, shall, to the prejudice of the insd, be deemed to be the
agent of the insd in respect of any question arising out of a contract
BCIA (Part 5 - Accident and Sickness) s. 212 Presumption against agency
No officer, agent, emee or servant of the insr, and no person soliciting insurance,
whether or not he is an agent of the insr, shall, to the prejudice of the insd, person
insured or group person insured, be deemed to be the agent of the insd or of the person
insured or group person insured in respect of any question arising out of the contract.
this language seems to suggest that there is stat provision preventing the people discussed
above as being considered as agents of the insd.
to McLarens knowledge they are never invoked - he assumes that lawyers arent raising
them. He would have thought that when facing Newsholme you would have resorted to these
sections.
this type of section was argd and dismissed in Boutilier but this doesnt mean that they shouldnt
be tried in another province or with a different type of insurance

A. HISTORY AND BASIC THEORY OF INSURANCE.........................................................................................1

1. HISTORICAL DEVELOPMENT........................................................................................................................................1
2. PECULIAR LEGAL CHARACTERISTICS OF INSURANCE.................................................................................................1
3. SOURCES OF INSURANCE LAW.....................................................................................................................................1
(a) Common Law........................................................................................................................................................1
(b) Legislation............................................................................................................................................................1
(c) Industry Practice..................................................................................................................................................2
4. BASIC INSURANCE THEORY.........................................................................................................................................2
(a) Probability............................................................................................................................................................2
(b) The Law of Large Numbers..................................................................................................................................3
(c) Difficulties of Assessing Risk................................................................................................................................3
(i) Degree of risk................................................................................................................................................................... 3
(ii) Amount at risk................................................................................................................................................................. 3
Re Northern Union Ins. Co. 1985 MBQB........................................................................................................................4
Webb Real Estate v. Can Surety Co. 1975 NSTD...........................................................................................................4
(iii) Unrelated risks................................................................................................................................................................ 4
(iv) Effect of insurance on risk..............................................................................................................................................4
(v) Adverse selection............................................................................................................................................................ 5
(vi) Epic Phenomena.............................................................................................................................................................5
(vii) Actuarial inexactitude................................................................................................................................................... 5
Heerspink v. ICBC 1982 SCC.........................................................................................................................................5
Re Bates and Zurich Ins. Co. 1987 ON Div Crt. (appeal to OnCA and SCC dismissed)...................................................5
Gibbs v. Battlefords & District Co-operative Ltd. 1994 Sk Ca........................................................................................6

100
(d) Insurance and Uncertainty...................................................................................................................................6
5. THE NATURE OF INSURANCE.......................................................................................................................................6
(a) Definitions............................................................................................................................................................6
(b) Wagering and Insurance......................................................................................................................................7
Earl of March v. Pigot 1771 KB.....................................................................................................................................7

B. STRUCTURE OF THE INSURANCE INDUSTRY............................................................................................8

1. TYPES OF INSURANCE..................................................................................................................................................8
(a) Indemnity and Non-Indemnity............................................................................................................................10
Glynn v. Scottish Union and National Insurance Co. Ltd (1963) OnCa..........................................................................10
Gibson v. Sun Life Assurance of Canada 1985 (Ont. HC).............................................................................................11
Mutual Life Assurance Co. v. Tucker 1993 NS CA.....................................................................................................12

(b) Classification of Insurance Contracts................................................................................................................12

(i) Multi-Risk Policy...........................................................................................................................................................13
Regal Film Corp Ltd v. Glens Falls Insuruance Corp 1946 (On HC apprd of by CA w/o arg)..................................13
Chiasson v. Century Insurance Co. 1978 NBCA...........................................................................................................13
Slijepcevich v. State Farm 1980 OnCA........................................................................................................................13
Dressew Supply Ltd v. Laurentian Pacific Insurance Co. (1991) BCCA......................................................................13
Wagner v. Commercial Union 1995 BCSC...................................................................................................................14
(ii) Fire Policies Containing Excepted Risks.......................................................................................................................15
CJBC v. Nickolievich 1977 MBCA...............................................................................................................................15
Chiasson......................................................................................................................................................................... 15

2. INSURANCE POLICIES AND THE GENERAL LAW........................................................................................................16

C. INSURABLE INTEREST....................................................................................................................................16
1. INTRODUCTION..........................................................................................................................................................16
2. NATURE OF INSURABLE INTEREST.............................................................................................................................17
(a) What is test for ii (in indemnity insurance)?......................................................................................................17
Constitution Insurance Co. of Canada v. Kosmopoulos 1987 SCC................................................................................17
Romani et al c.o.b. France v. Symons General Insurance Co. 1987 BCSC...................................................................19

(b) Domestic Relationships......................................................................................................................................19

Doyle v. Antigonish Farmers Mutual Fire Ins. Co. 1955 NSCA...................................................................................19
MacDonald v. Can. Accident and Fire Assur. Co 1978 NSSC.......................................................................................19
Le Blanc v. Co-op Fire and Casualty Co. 1978 NB QB...............................................................................................19

(c) Problems - pg 20/21 of cb...................................................................................................................................20

(d) Factors under Factual Expectancy Which May Indicate Insurable Interest....................................................20
3. TIME AT WHICH INTEREST MUST EXIST...................................................................................................................21
4. INSURING OTHER INTERESTS.....................................................................................................................................21
Keefer v. Phoenix Insurance Co. (1901) SCC................................................................................................................21
Decelle v. Lloyds of London (1973) SK QB.................................................................................................................21
Maldover v. Norwich Union (1917) OnHC....................................................................................................................22

(a) Summary: Conditions to Recover on Insurance re: Interests of Others...........................................................22

(b) Stat Cond 2. BCIA - Is it Used?.........................................................................................................................22
Marks v. Commonwealth Insurance Co (1974) ONHC.................................................................................................22
Hepburn v. A. Tomlinson (Hauliers) Ltd (1966) Eng HL..............................................................................................23

5. SPECIFIC PROBLEMS RELATED TO INSURABLE INTEREST..........................................................................................23

(a) Real Estate..........................................................................................................................................................23
(i) Conveyancing................................................................................................................................................................ 23
Rowe v. Fidelity-Phoenix Co. (1944) OnCA.................................................................................................................24
(ii) Financing and Leasing..................................................................................................................................................24
(iii) Expropriation............................................................................................................................................................... 24

(b) Joint Ventures, Sub-contractors.........................................................................................................................24

Commonwealth Construction Co. v. Imperial Oil Ltd. (1977) SCC...............................................................................25

(c) Identification of Family Interests.......................................................................................................................25

Scott v. Wawanesa Ins Co. (1989) SCC.........................................................................................................................25

D. VALUATION.........................................................................................................................................................26
1. INTRODUTION............................................................................................................................................................26

101
2. MEASURE OF PROPERY LOSS IN UNVALUED POLICIES - THE ABNORMAL CASES.....................................................27
(a) Replacing the Property.......................................................................................................................................27
Canadian National Fire Ins Co. v Colonsay Hotel Co. (1923) SCC................................................................................28
McAnarney v. Newark Fire Ins. Co. (1928) NYCA........................................................................................................28

(b) Real or Intrinsic Value to Insured.....................................................................................................................29

Ziola v. Cooperative Fire & Casualty Co. (1976) SKQB..............................................................................................29
Hydra Estates Ltd v. Elite Ins. Co (1985) BCSC...........................................................................................................29

(c) Assessing the Cost of Repairs.............................................................................................................................30

P.M Scientific Fur Cleaners Ltd v. Home Insurance Co. (1971) MBCA.........................................................................30
Malcom Walker and Sons Ltd v. Co-operative Fire and Casualty Co. (1966) NB Appeal Div.......................................30

(d) Other Gauges of Loss.........................................................................................................................................30

Leger v. Royal Insurance Co. (1968) NBCA................................................................................................................30
Cyrand Investments Ltd v. Aetna Insurance Co. (1979) ONCA.....................................................................................31
Scott v. Canadian Mercantile Ins. Co (1965) ONHC....................................................................................................31

3. THE MEASURE OF THE VALUE OF PROPERTY - THE NORMAL CASES.......................................................................32

4. DEALING WITH RISING REPLACEMENT COSTS AND INFLATION................................................................................32
Lepine v. Unigard Mutual Insurance (1976) BCSC.......................................................................................................33
Nejasmic v. Royal Insurance Co. of Canada (1981) (ABQB)........................................................................................33

(a) Optional Loss Settlement Clauses......................................................................................................................33

Malainy v. Canadian Indemnity Co. (1970) SK District Ct.............................................................................................33
Del Alba v. Metropolitan Insur Co (1995) ACBA.........................................................................................................34
Carlyle v. Elite Insurance Co (1987) BCCA...................................................................................................................35
Olynyk v. Advocate Insurance (1985) MBCA...............................................................................................................36
Folk v. Saskatchewan Mutual Ins. Co (1992) BCSC......................................................................................................36
(i) Relationship b/w insr and insd after loss......................................................................................................................36
Gannon & Associates Ltd. v. Advocate General Insurance Co. (1984) MBQB..............................................................37
Omega Inn Ltd. v. Continental Insurance Co. (1989) BCCA........................................................................................37
Labelle v. Guardian Insurance Co. of Canada (1989) OnHC..........................................................................................37
Peters v. Commonwealth Insurance Co. (1991) ONHC................................................................................................38
(ii) Misc Issues: when do you make valuation under olsc? & flexibility under olsc...........................................................38
Datatech Systems Ltd. v. Commonwealth Ins Co. (1983) BCCA..................................................................................38
Anadriash v. Canadian Northern Shield Ins Co. (1987) BCSC......................................................................................39
White Spot Ltd. v. Continental Insurance Co. (1986) BCSC..........................................................................................39
Brkich & Brkich Enterp Ltd v. American Home Assur Co. (1993) BCSC revd by BCCA (1995)................................39

5. MEASURING LOSS IN THE CASE OF VALUED POLICIES.............................................................................................40

Re Art Gallery of Toronto and Eaton (1961) ONHC.....................................................................................................40

E. SUBROGATION...................................................................................................................................................41
1. INTRODUCTION..........................................................................................................................................................41
2. THE MEANING AND FUNCTION OF SUBROGATION.....................................................................................................41
(a) 3 Models/Ways Subrogation can be Used.........................................................................................................41
(b) Cases..................................................................................................................................................................42
Castellain v. Preston (1885) Eng CA.............................................................................................................................42
Burnand v. Rodocanachi (1882) HL...............................................................................................................................43
Rayner v. Preston (1881) Eng CA..................................................................................................................................43
Drache v. City of Winnipeg (1971) MBCA..................................................................................................................43

3. THE PRESENCE OF AN ENFORCEABLE RIGHT............................................................................................................44

Simpson & Co. v. Thompson and Burrell (1878) HL......................................................................................................44
King v. Victoria Insurance Co. (1896) PC.......................................................................................................................44
John Edwards v. Motor Union Ins. (1922) KB...............................................................................................................45
Wellington Insurance Co. v. Armac Diving Services Ltd. (1987) BCCA.......................................................................45

4. LIMITATIONS ON THE OPERATION OF SUBROGATION IN MODERN PRACTICE............................................................45

(a) Employees of the Insured..................................................................................................................................45
Morris v. Ford Motor Co. (1973) Eng Ca......................................................................................................................45
Greenwood Shopping Plaza v. Beattie (1980) SCC.......................................................................................................46

(b) Tenants...............................................................................................................................................................47
United Motor Service v. Hutson (1937) SCC.................................................................................................................47
Cummer-Younge Investments Ltd v. Agnew-Surpass Shoes Ltd (1975) SCC...............................................................48
Ross Southward Tire Ltd v. Pyrotech Products Ltd (1976) SCC....................................................................................48
T. Eaton Co v. Smith (1978) SCC..................................................................................................................................48

102
Peel Condo Corp v. Vaughan (1996) OnCrt Gen Div.....................................................................................................49

(c) Subcontractors...................................................................................................................................................49
Commonwealth Construction Ltd v. Imperial Oil Ltd (1977) SCC................................................................................49
Canadian Pacific Ltd. v. Base-Fort (1991) BCCA..........................................................................................................50
Sylvan Industries v. Fairview Sheet Metal (1993) BCSC (1994) BCCA......................................................................50

(d) Relatives and Good Samaritans........................................................................................................................51

Morawietz v. Morawietz (1984) OnHC; ONCA...........................................................................................................51
Wade v. Canadian Northern Shield Insurance Co. (1986) BCSC..................................................................................52

(e) Suggestions on how to deal with problems re: opeation of subrog...................................................................52

5. OPERATION OF SUBROGATION AT COL AND STATUTORY MODIFICATIONS................................................................53
Globe and Rutgers Fire Insurance Co. v. Trudell (1927) OnSC....................................................................................53
Davis v. MacRitchie (1938) NSSC................................................................................................................................53

(a) Stat Changes to Fire Insurance and Motor Vehicle..........................................................................................54

(i) Fire Insurance................................................................................................................................................................. 54
Farrell Estates Ltd v. Canadian Indemnity Co. (1989) BCSC.......................................................................................55
(ii) Motor Vehicle...............................................................................................................................................................55

6. IS SUBROGATION REALLY NECESSARY?....................................................................................................................56

7. SUBROGATION AND COLLATERAL BENEFITS.............................................................................................................57
F. CONTRIBUTION AND OTHER CONSEQUENCES OF INDEMNITY........................................................58
1. INTRODUCTION..........................................................................................................................................................58
2. CONTRIBUTION DISTINGUISHED FROM SUBROGATION..............................................................................................59
North British and Mercantile Ins. Co. v. London, Liverpool and Globe Insurance (1877) Eng Ca................................59

3. THE COL OPERATION OF CONTRIBUTION AND STATUTORY MODIFICATIONS............................................................59

(a) Legal Basis of Contribution...............................................................................................................................59
Legal & General Assurance Ltd v. Drake Ins Co. (1991) Eng CA.................................................................................60

(b) Establish Proportions Under Rateable Proportion Clauses Where Liability Policies with Different Upper
Limits........................................................................................................................................................................61
Commercial Union Assur Co. v. Hayden (1977) Eng CA.............................................................................................61

(c) Relating Policies to Each Other to Determine Whether Contribution Applies..................................................63

St. Paul Fire & Marine Insurance Co v. Guardian Insurance Co. of Canada (1983) OnCA...........................................63
McGeough v. Stay N Save Motor Inns Inc. (1995) BCCA..........................................................................................64
Re Application of Wawanesa Mutual Insurance Co. (1951) BCSC...............................................................................65

4. CO-EXISTING COVER CLAUSE...................................................................................................................................65

Weddell v. Road Transport and General Insurance Co. (1932) Eng HC........................................................................65
MPIC v. Scottish and York Ins. Co (1991) MBQB.......................................................................................................66
Dominion of Canada General Insurance Co v. Wawanesa Mutual Insurance Co (1986) BCSC.....................................66
Home Insurance Co. v. Gavel (1927) SCC....................................................................................................................66

5. CONSTRUCTIVE TOTAL LOSS, ABANDONMENT AND SALVAGE..................................................................................67

6. SUE AND LABOUR CLAUSES......................................................................................................................................68
Office Garages Ltd. v. Phoenix Insur Co (1966) OnHC.................................................................................................69
Hartford Insurance Co. v. Benson & Hedges (Canada) Ltd. (1978) SCC......................................................................69
MacMillian Bloedel v. Youell (1994) BCCA.................................................................................................................70

G. DUTY OF DISCLOSURE....................................................................................................................................70
1. INTRODUCTION..........................................................................................................................................................70
2. MANSFIELDS CONCEPTION OF DUTY OF DISCLOSURE.............................................................................................71
Carter v. Boehm (1766) Eng...........................................................................................................................................71

3. SUBSEQUENT DEVELOPEMENT..................................................................................................................................72
Lindenau v. Desborough (1828) Eng.............................................................................................................................72
Bates v. Hewitt (1867) Eng............................................................................................................................................72
Glickman v. Lancashire and General Insurance Co........................................................................................................72
Horne v. Poland (1922) Eng..........................................................................................................................................72
Laio v. Metropolitan Life Ins Co (1995) BCSC............................................................................................................73
Worral v. BCCA Insur Co. (1988) BC Cty Crt..............................................................................................................73
Cdn Indemnity Co v. Cdn Johns-Manville Co (1990) SCC...........................................................................................73
Coronation Insurance Co v. Taku Air Transprot Ltd. (1991) SCC..................................................................................74
Adams v. Confederation Life Insur Co (1994) ABQB...................................................................................................75

4. MATERIALITY............................................................................................................................................................76

103
Horne v. Poland 1922 Eng.............................................................................................................................................76
Mutual Life Insurance Co. NY v. Ontario Metal Products (1925) PC..........................................................................76
Henwood v. Prudential Insur Co. (1967) SCC...............................................................................................................76
Kehoe v. BCIC (1992) BCCA......................................................................................................................................77
ICBC v. Heespink (1983) SCC.....................................................................................................................................77
Hudson v. Mutual of Omaha (1977) BCCA..................................................................................................................78
Worral v. BCCA Insurance Co. Ltd (1988) BCCty Crt...................................................................................................78
Sandu Estate v. Fidelity Life Assurance Co. (1987) BCSC...........................................................................................78
Armstrong v. North West Life Ins. Co (1990) BCCA....................................................................................................78
Taylor v.National Life Assurance Co of Canada (1990) BCCA and Katrichak v. National Life (1992) BCSC...............79

5. CONTRACTUAL VARIATION OF THE DISCLOSURE DUTY...........................................................................................79

Pawson v. Watson (1778)...............................................................................................................................................80
DeHahn v. Hartly (1786)................................................................................................................................................80
Dawsons Ltd. v. Bonnin (1922) HL...............................................................................................................................81
Automotive Products Co v. Ins Co of N.America (1969) SCC......................................................................................81
Yorkshire Insur Co v. Campbell (1917) PC...................................................................................................................81

6. LIMITS ON INSURERS RISK CONTROL......................................................................................................................82

(a) Judicial Techniques for Limiting Insrs Freedom of Action...............................................................................83
(i) Severability.................................................................................................................................................................... 83
(ii) Creative Characterization..............................................................................................................................................83
Re Morgan and Provincial Insurance Co. (1932) Eng CA..............................................................................................83
(iii) Creative Interpretation.................................................................................................................................................83
Staples v. Great American Insurance Co NY (1941) SCC.............................................................................................83
(iv) New Insurance Doctrine - Causality.............................................................................................................................84
Long v. Commercial Union Insurance (1981) OnHC.....................................................................................................84
Webster v. Royal Insurance of Cda (1995) ABQB.........................................................................................................84

(b) Legislative Techniques.......................................................................................................................................84

(i) Insurance Policies in General.........................................................................................................................................84
(ii) Life and Accident and Sickness Insurance.....................................................................................................................85
Bogh v. National Life Assurance (1991) BCCA............................................................................................................85
McLean v. Paul Revere Life Insurance Co. (1990) BCSC............................................................................................86
(iii) Fire Insurance..............................................................................................................................................................86
Harten v. Grenville Patron Mutual Fire Insurance Co. (1938) On Hc...........................................................................87
Taylor v. London Assurance Co. (1935) SCC...............................................................................................................87
(iv) Automobile Insurance..................................................................................................................................................88
Sleigh v. Stevenson (1943) OnCa..................................................................................................................................89
Berkowits v. MPIC (1988) MBQB................................................................................................................................89

H. AGENTS................................................................................................................................................................90
2. SIGNED APPLICATION FORMS AND THE DUTY OF DISCLOSURE................................................................................91
(a) Traditional Response..........................................................................................................................................91
Newsholme Bros v. Road Transport and General Insuranc Co. (1929) Eng CA...........................................................91
North American Life v. Caputo (1989) OnHc................................................................................................................91

(b) Ways around Newsholme to fix the insr with the knowlge and mistakes of the agent.....................................92
(i) Ambiguous questions or Requires Further Explanation..................................................................................................92
Joel v. Law, Union & Crown Ins. Co. (1908) CA.........................................................................................................92
(ii) Emphasize agents expalnatory/proactive role................................................................................................................92
Great West Life Assur Co. v. Paris (1959) PQ QB.........................................................................................................92
Bird v. NY Life Ins. Co (1920) OnHc...........................................................................................................................92
Whitney v. Great Northern Ins. Co. (1917) AB TD.......................................................................................................93
Bastedo v. British Empire Ins. Co (1913) CA...............................................................................................................93
Lewis v. Northern Assurance Co. (1956) OnHc............................................................................................................93
(iii) In some cases (eg. blanks) if the insr doesnt seek info cr may say insr has waived right.........................................93
Gabel v. Howick Farmers Mut Fire Ins Co. (1917) HC................................................................................................93
Hanson v. Queensland Ins. Co (1966) ABSC.................................................................................................................94
Carlin v. Ry Passengers Assur Co. (1913) SC...............................................................................................................94

(c) Recent Developments..........................................................................................................................................95

Stone v. Reliance Mutual Ins Soc. Ltd (1972) CA Eng.................................................................................................95
Blanchette v. CIS Ltd (1973) SCC.................................................................................................................................95
Vrbancic v. London Life Ins. Co (1990) On Crt Gen Div.............................................................................................96

(d) 5 Reasons why current state of law is unsatisfactory.........................................................................................96

104
3. OTHER INTERMEDIARY ACTING AS AGENTS.............................................................................................................97
Boutilier v. Traders General Insurance Co (1968) NS SC affd (1969) NS CA...........................................................97
Quillard v. 541066 Ont Ltd. (1990) On Gdiv.................................................................................................................98
Boolinow Estate v. Canadian Imperial Bank of Commerce (1994) BCSC....................................................................98
Lawrance v. Mut Life Assur Co. of Canada (1992) BCSC.............................................................................................99