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Insurance - Interpretation (3). Emond v. Trillium Mutual Insurance Co. [ambiguity]
In Emond v. Trillium Mutual Insurance Co. (SCC, 2026) the Supreme Court of Canada dismissed an appeal, here brought against an order in the Ontario Court of Appeal that "ordered that the cost of replacement payable under the insurance contract does not include the compliance costs" with building requirements imposed by the local conservation authority.
Here the court considers interpretive principles applicable to insurance contracts:(2) Unambiguous Language in Insurance Contracts
[37] Where the language of the insurance contract is unambiguous, effect should be given to that clear language, reading the contract as a whole (Ledcor, at para. 49, citing Progressive Homes, at para. 22, citing Non‑Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at para. 71). This is the first stage of the interpretive analysis. Other interpretive tools are only to be considered where the language is ambiguous.
[38] The words of the contract must be given their “ordinary and grammatical meaning” (Ledcor, at para. 27, citing Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47; see also Ledcor, at para. 61). For example, in Sabean, decided shortly after Ledcor, this Court gave the words of the contract “their ordinary meaning, ‘as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law’” (para. 13, citing Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 21; see also National Bank of Greece (Canada) v. Katsikonouris, 1990 CanLII 92 (SCC), [1990] 2 S.C.R. 1029). The Court concluded in that case that the insurer could not rely on its “specialized knowledge of the jurisprudence to advance an interpretation that goes beyond the clear words of the policy” (Sabean, at para. 4). This approach serves consumer protection, which this Court has said is an important purpose of home insurance law (see, e.g., Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129, at para. 11).
[39] The principle that unambiguous language in an insurance contract should be given effect reflects unique features of the insurance context. Courts “expect insurers to ensure that the policy terms are ‘clear, express and easily intelligible’” (Billingsley (2020), at p. 148, citing CIT Financial Ltd. v. Insurance Corporation of British Columbia, 2017 BCSC 641, at para. 52; see also Katsikonouris, at p. 1043). The factual matrix surrounding a standard form insurance contract is less relevant than in other contractual settings where parties negotiate (see Ledcor, at para. 28). In this context, focusing first on the ordinary meaning of the language will often offer a reliable path to discern the reasonable expectations of both the insured and the insurer (see Martin v. American International Assurance Life Co., 2003 SCC 16, [2003] 1 S.C.R. 158, at para. 19). Giving effect to unambiguous language also serves the goal of consistency in the interpretation of standard form insurance contracts, which this Court has said is “particularly important” (Ledcor, at para. 40).
[40] The initial focus on the language should not, however, be misunderstood as encouraging a reading of provisions in isolation, without understanding how they operate within the logic of the policy. In determining whether the language of a provision is ambiguous, the court must still read the contract as a whole (see Ledcor, at para. 49; McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, 1981 CanLII 53 (SCC), [1981] 2 S.C.R. 6, at p. 19; see also Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at pp. 897-98).
[41] Ambiguity arises where there are multiple “reasonable but differing interpretations of the policy” (Sabean, at para. 42, citing B. Billingsley, General Principles of Canadian Insurance Law (2nd ed. 2014), at p. 147). “The mere articulation of a differing interpretation does not always establish the reasonableness of that interpretation and does not necessarily create ambiguity” (Sabean, at para. 42) — not all interpretations advanced will be reasonable. For example, in Ledcor, this Court concluded that the language of the contract was ambiguous because it identified two reasonable interpretations: (1) the term “cost of making good faulty workmanship” in its “plain, ordinary and popular meaning” could be understood as the cost of redoing faulty workmanship and “resulting damage” could be understood as including damage resulting from the faulty work, or (2) “cost of making good faulty workmanship” could be understood as including the cost of repairing the parts of the property or project that were damaged by the faulty work and “resulting damage” could refer to consequential damage to other parts of the property (see Ledcor, at paras. 59-61). The contract did not contain definitions that could assist in resolving the ambiguity. As a result, the Court concluded that this ambiguity remained after the language at issue was read in the context of the contract as a whole.
[42] Ambiguity as it has been described in other interpretive contexts is also instructive by analogy here. In the statutory interpretation context, some “secondary principles of interpretation” are said to apply only if a legislative provision is ambiguous (Piekut v. Canada (National Revenue), 2025 SCC 13, at para. 48). A statutory provision is not ambiguous for this purpose simply because different courts or authors have reached different conclusions as to the proper interpretation (ibid., citing Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 30). As the Court noted in Bell ExpressVu, the “words of the provision must be ‘reasonably capable of more than one meaning’” (para. 29, citing Westminster Bank Ltd. v. Zang, [1966] A.C. 182 (H.L.), at p. 222, per Lord Reid).
[43] In statutory interpretation, the Court has emphasized that “one must consider the ‘entire context’ of a provision before one can determine if it is reasonably capable of multiple interpretations” (Bell ExpressVu, at para. 29). This Court has also said that “[w]ords that appear clear and unambiguous may in fact prove to be ambiguous once placed in their context” (Montréal (City) v. 2952-1366 Québec Inc., 2005 SCC 62, [2005] 3 S.C.R. 141, at para. 10; see also La Presse inc. v. Quebec, 2023 SCC 22, at paras. 23-24).
[44] Similarly, in the interpretation of insurance contracts, a provision’s text cannot be read in isolation; it must be interpreted in light of the contract as a whole. The provision’s interaction with other contractual provisions may colour its meaning.
[45] Specifically, the generally advisable order in which to interpret insurance contracts, discussed above, should not be taken to require provisions to be read in isolation. The Emonds contend, for example, that relying on the text of the exception to an exclusion to understand the exclusion within the context of the contract as a whole contradicts the generally advisable order set out in Ledcor (A.F., at paras. 9 and 31). This argument reflects a misunderstanding of the role that the generally advisable order plays in the interpretation of insurance contracts. The generally advisable order assists interpreters of insurance contracts in understanding the structure of coverage, exclusion and exception and clarifies the burden of establishing each. It does not mean a court must, for example, interpret a provision that confers coverage without recourse to other provisions, including exclusions or exceptions to exclusions. To the contrary, [translation] “the text of a provision that defines the insurer’s undertaking may be helpful in clarifying the meaning of an exclusion clause, and vice versa” (D. Boivin, Le droit des assurances dans les provinces de common law (2nd ed. 2020), at para. 8-10).
[46] In reading the language of an insurance contract, then, ambiguity will generally arise in two cases. First, ambiguity may arise when a provision appears unclear in isolation and continues to admit of more than one reasonable meaning when read in light of the contract as a whole (see Brown, at § 8:6, citing Taylor v. National Life Assurance Co. of Canada (1990), 1990 CanLII 935 (BC CA), 7 C.C.L.I. (2d) 146 (B.C.C.A.); Ledcor, at paras. 59-64). Second, ambiguity may arise when a provision that appears clear in isolation is capable of holding more than one reasonable meaning when the contract is read as a whole. For example, ambiguity may arise “where two or more provisions in the same contract, each clear in itself, are irreconcilable” (Brown, at § 8:6; see, e.g., Ajax (Town) v. St. Paul Fire & Marine Insurance Co. (2008), 2008 CanLII 47471 (ON SC), 93 O.R. (3d) 73 (S.C.J.)).
[47] That said, two or more provisions in the same contract are not irreconcilable or ambiguous merely because they overlap. Insurance policies “often contain multiple, sometimes overlapping coverages, exclusions, conditions, and endorsements” (EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange, 2022 ONCA 514, at para. 58). Reading the contract as a whole is an exercise in “searching for harmony rather than discord” between such provisions (ibid.).
(3) Resolving Ambiguity
[48] In the face of ambiguity, the court cannot rely on the language alone. Instead, it must move to a second stage and employ other rules of contractual interpretation to resolve that ambiguity (Ledcor, at para. 50).
[49] These rules include, but are not limited to: that the interpretation should be consistent with the reasonable expectations of the parties; it should not give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the insurance contract was formed; and it should be consistent with the interpretations of similar insurance policies (Ledcor, at para. 50).
[50] If ambiguity still remains after the two first stages, the court must have resort to the contra proferentem rule at a third stage, which provides that the ambiguity must be resolved in a manner favourable to the insured (Ledcor, at para. 51). In the context of insurance policies, contra proferentem means that interpretations that result in broader coverage, narrower exclusions and broader exceptions to exclusions are favoured at this stage (para. 51). This rule recognizes the “unequal bargaining power at work in insurance contracts” (Scalera, at para. 70). The insurer is the drafter of the contractual language and bears responsibility for residual ambiguity. . Emond v. Trillium Mutual Insurance Co.
In Emond v. Trillium Mutual Insurance Co. (SCC, 2026) the Supreme Court of Canada dismissed an appeal, here brought against an order in the Ontario Court of Appeal that "ordered that the cost of replacement payable under the insurance contract does not include the compliance costs" with building requirements imposed by the local conservation authority.
Here the court canvasses principles of the interpretation of insurance contracts:A. Principles of Interpretation for Insurance Contracts
[32] The parties to this appeal do not take issue with the settled principles governing the interpretation of insurance contracts, which were summarized by this Court in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, and Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 S.C.R. 121 (transcript, at pp. 8-9, 35 and 66-67). ....
(1) The “Generally Advisable” Order for Interpreting Insurance Contracts
[33] In Ledcor, this Court endorsed a “generally advisable” order in which to interpret insurance contracts (para. 52). First, the insured has the onus of establishing that the damage or loss claimed falls within the initial grant of coverage. Second, the onus shifts to the insurer to establish that one of the exclusions to coverage applies. Third, if the insurer is successful in demonstrating an exclusion, the onus then shifts back to the insured to prove that an exception to the exclusion applies (see ibid.; Progressive Homes, at paras. 29 and 51).
[34] The generally advisable order reflects the structure of insurance policies. Insurance policies set out coverage, followed by specific exclusions. Exclusions preclude coverage “when the claim otherwise falls within the initial grant of coverage” (Progressive Homes, at para. 27). Policies may also contain exceptions to exclusions. The exceptions to exclusions “do not create coverage — they bring an otherwise excluded claim back within coverage” (para. 28). . Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here the court cites authority for contractual interpretation in insurance law:[70] The relationship between an insurer and its insured is contractual in nature. An inquiry into the nature and scope of the duties an insurer owes to its insured starts with the insurance policy that governs them: Hanis, at para. 22; Family Insurance Corp., at para. 19; and Markham, at para. 44. When interpreting contracts of insurance, the court should give effect to clear language, reading the contract as a whole and applying general rules of contractual construction to resolve any ambiguities: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras. 21-24. . SIR Corp. v. Aviva Insurance Company of Canada
In SIR Corp. v. Aviva Insurance Company of Canada (Ont CA, 2023) the Court of Appeal considers a business insurance policy that the insured claimed was triggered by provincial EMCPA COVID orders.
In these quotes, the court considers the unique interpretation doctrine that applies to insurance contracts:(3) Interpretation of the Policy
(a) Principles of interpretation
[39] Insurance policies form a special category of contracts and are subject to a unique three-step interpretative approach: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27; Sky Clean Energy Ltd. (Sky Solar (Canada) Ltd.) v. Economical Mutual Insurance Company, 2020 ONCA 558, 152 O.R. (3d) 159, at paras. 54-56; Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras. 21-24; Ledcor, at paras. 49-51; Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 S.C.R. 121, at para. 12; and Geoff R. Hall, Canadian Contractual Interpretation Law, 4th ed. (Toronto: LexisNexis Canada, 2020) at pp. 266-68.
[40] This court summarized the three-step approach applicable to the interpretation of insurance policies in Sky Clean, at paras. 54-56:The principles of interpretation applicable to insurance policies are well settled. The primary principle is that when the language of the policy is unambiguous, the court should give effect to its clear language, reading the policy as a whole: Progressive Homes, at para. 22, referring to Non-Marine Underwriters, Lloyds of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at para. 71.
Where the policy language is ambiguous, the general rules of contract interpretation provide guidance, including the rule that effect should be given to the reasonable expectations of the parties, as long as the interpretation is supported by the text of the policy: Progressive Homes, at para. 23. Similar insurance policies should be construed consistently. These rules should be applied to resolve an ambiguity, not to create one.
Where ambiguity remains after the application of these rules, the contra proferentem rule applies to construe the policy against the maker, the insurer. This gives rise to the precept that coverage provisions are interpreted broadly and exclusions clauses narrowly: Progressive Homes, at para. 24. [41] Although insurance policies are subject to this unique interpretative approach, as with all contracts, the terms of the policy must be examined in light of the surrounding circumstances: Jesuit Fathers, at para. 27; Carter v. Intact Insurance Company, 2016 ONCA 917, 133 O.R. (3d) 721, at para. 28, leave to appeal refused, [2017] S.C.C.A. No. 53; and MDS Inc. v. Factory Mutual Insurance Company, 2021 ONCA 594, at para. 78, leave to appeal refused, [2021] S.C.C.A. No. 382. This is an essential part of the first step in the three‑step interpretive approach.
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[54] The Binder was prepared by SIR’s insurance broker, who acted as SIR’s agent and negotiated the policy that replaced the Binder. While not part of the Policy, the Binder is clearly part of the factual matrix: Lloyds Syndicate 1221 (Millennium Syndicate) v. Coventree Inc., 2012 ONCA 341, 291 O.A.C. 178, at para. 29, leave to appeal refused, [2012] S.C.C.A. No. 276. Indeed, in its supplementary factum below, SIR relied on the Binder as forming part of the factual matrix and setting out a summary of the terms of the Policy. Significantly, the language used in clause 1 of Section II is virtually identical to the language in the Binder describing “Perils Insured” as “All Risks of Direct Physical Loss or Damage (except as excluded)”.
[55] Contrary to SIR’s submission, relying on the Binder to interpret the coverage afforded under the Policy is not contrary to s. 124(1) of the Insurance Act, R.S.O. 1990, c. I.8. That section provides:124(1) All the terms and conditions of the contract of insurance shall be set out in full in the policy or by writing securely attached to it when issued, and, unless so set out, no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or beneficiary. [56] The purpose of s. 124 is to protect an insured from unilateral changes to an insurance policy: Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, 249 O.A.C. 234, at para. 68, leave to appeal refused, [2009] S.C.C.A. No. 303. Here, I consider the Binder to interpret the Policy, not to modify or impair its effect. As Sattva instructs, the factual matrix is to be “used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words”: at para. 60. . SIR Corp. v. Aviva Insurance Company of Canada
In SIR Corp. v. Aviva Insurance Company of Canada (Ont CA, 2023) the Court of Appeal considers the 'policy contains all terms' provision of the Insurance Act [s.124(1): 'Requirement for all terms to be set out in policy; relevance of proposal, etc. - Terms, etc., of contracts invalid unless set out in full'], here as it relates to insurance policy interpretation:[54] The Binder was prepared by SIR’s insurance broker, who acted as SIR’s agent and negotiated the policy that replaced the Binder. While not part of the Policy, the Binder is clearly part of the factual matrix: Lloyds Syndicate 1221 (Millennium Syndicate) v. Coventree Inc., 2012 ONCA 341, 291 O.A.C. 178, at para. 29, leave to appeal refused, [2012] S.C.C.A. No. 276. Indeed, in its supplementary factum below, SIR relied on the Binder as forming part of the factual matrix and setting out a summary of the terms of the Policy. Significantly, the language used in clause 1 of Section II is virtually identical to the language in the Binder describing “Perils Insured” as “All Risks of Direct Physical Loss or Damage (except as excluded)”.
[55] Contrary to SIR’s submission, relying on the Binder to interpret the coverage afforded under the Policy is not contrary to s. 124(1) of the Insurance Act, R.S.O. 1990, c. I.8. That section provides:124(1) All the terms and conditions of the contract of insurance shall be set out in full in the policy or by writing securely attached to it when issued, and, unless so set out, no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or beneficiary. [56] The purpose of s. 124 is to protect an insured from unilateral changes to an insurance policy: Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, 249 O.A.C. 234, at para. 68, leave to appeal refused, [2009] S.C.C.A. No. 303. Here, I consider the Binder to interpret the Policy, not to modify or impair its effect. As Sattva instructs, the factual matrix is to be “used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words”: at para. 60. . Trillium Mutual Insurance Company v. Emond
In Trillium Mutual Insurance Company v. Emond (Ont CA, 2023) the Court of Appeal considered (and allowed) an insurer's appeal on the interpretation of a home owners insurance policy, here involving flood damage. The policy essentially insured the 'replacement cost' of the destroyed home as it stood at the time of destruction [see para 56], and a main issue was the interpretation and application of a limiting provision that excluded "increased costs of repair or replacement due to the operation of any law regulating the zoning, demolition, repair, or construction of buildings” (the 'para. 8 Exclusion')" (ie. new, legally-required work).
In these quotes the court considered general principles of insurance law interpretation:VII. PRINCIPLES OF INSURANCE CONTRACT INTERPRETATION
[36] I begin my analysis with a review of the principles applicable to the interpretation of contracts of insurance.
[37] As the Supreme Court of Canada explained in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 24:[W]here an appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review. [38] The factual matrix is less relevant in such standard form contracts because, as Wagner J. (as he then was) explained, “the parties do not negotiate terms and the contract is put to the receiving party as a take-it-or-leave-it proposition”: Ledcor, at para. 28, citing MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, 127 O.R. (3d) 663, at para. 33, leave to appeal refused, [2016] S.C.C.A. No. 39.
[39] The general principles for interpreting insurance policies as set out in Ledcor, at paras. 49-51, are that:[W]here the language of the insurance policy is unambiguous, effect should be given to that clear language, reading the contract as a whole.
Where, however, the policy’s language is ambiguous, general rules of contract construction must be employed to resolve that ambiguity. These rules include that the interpretation should be consistent with the reasonable expectations of the parties, as long as that interpretation is supported by the language of the policy; it should not give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the insurance policy was contracted, and it should be consistent with the interpretations of similar insurance policies.
Only if ambiguity still remains after the above principles are applied can the contra proferentem rule be employed to construe the policy against the insurer. [Citations omitted.] [40] All parts of a policy should be given meaning: RBC Travel Insurance Co. v. Aviva Canada Ltd. (2006), 2006 CanLII 32594 (ON CA), 82 O.R. (3d) 490 (C.A.), at para. 11.
[41] Provisions granting coverage should be construed broadly and provisions excluding coverage construed narrowly: Sam’s Auto Wrecking Co. Ltd. v. Lombard General Insurance Company of Canada, 2013 ONCA 186, 114 O.R. (3d) 730, at para. 37. Even a clear and unambiguous clause should not be given effect if to do so would nullify the coverage provided by the policy: Sam’s Auto Wrecking, at para. 37.
[42] Endorsements to an insurance policy should be read together with the other policy provisions because “an endorsement is generally not understood to be a self-contained policy”: Pilot Insurance Co. v. Sutherland, 2007 ONCA 492, 86 O.R. (3d) 789, at para. 21.
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[53] The onus rests on the insurer to establish an exclusion of coverage: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 51. . Kellerman-Bernard v. Unica Insurance Company
In Kellerman-Bernard v. Unica Insurance Company (Div Court, 2023) the Divisional Court considered an interesting SABS appeal where the insured, whose son was injured in a bicycle accident, herself applied for 'catastrophic impairment' SABS coverage on the basis of emotional and psychological injuries. She was denied coverage both at the LAT appeal and a further LAT reconsideration on grounds that she was not categorically-eligible, but reversed at the Divisional Court on a statutory interpretation argument.
Here the court sets out the basics of it's statutory interpretation assessment:[14] In Skunk v. Ketash, 2018 ONCA 450, the Court of Appeal states as follows:[8] The principles of statutory interpretation require the court first to look to the plain meaning of the statute. If the words have a plain meaning and give rise to no ambiguity, then the court should give effect to those words. ....
The interpretation adopted by the LAT ignores the purpose of the SABS
[23] In Vavilov, supra at para. 117, the Supreme Court reiterates that the words of a statute are to be read “ in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.”
[24] The courts have repeatedly recognized that the SABS are remedial and constitute consumer protection legislation and ought to be read, interpreted and applied in such a way. This was confirmed by the Supreme Court of Canada in Smith v. Co-Operator’s General Insurance Co. 2002 SCC 30 (CanLII), [2002] 2 S.C.R. 129 at para. 11.
[25] In Tomec v. Economical, 2019 ONCA 882 the Ontario Court of Appeal confirmed that “[the] legislature’s definition of ‘catastrophic impairment’ is intended to foster fairness for victims of motor vehicle collisions by ensuring that accident victims with the most health needs have access to expanded medical and rehabilitation benefits. That definition is meant to be remedial and inclusive, not restrictive” and that the goal of the SABS “is to reduce the economic dislocation and hardship of motor vehicle accident victims and as such, assumes an importance which is both pressing and substantial” (see para. 42). . Intact Insurance Company v. Laporte et al.
In Intact Insurance Company v. Laporte et al. (Div Court, 2023) the Divisional Court sets out principles of insurance interpretation:[36] The approach to interpretation of insurance contracts is well-settled law. Those principles include:a. effect should be given to clear and unambiguous language;
b. ambiguous language should be interpreted using general rules of contract construction; and
c. courts should avoid interpretations that would give rise to an unrealistic result or one that would not have been in the contemplation of the parties at the time that the Policy was entered.[13][Progressive Homes v. Lombard General Insurance Co of Canada, 2010 SCC 33, at paras 21-25] [37] Justice Laskin, writing on behalf of the Ontario Court of Appeal, stated that “indemnity is a main objective of insurance and, to the extent possible, coverage provision should be interpreted with that objective in mind”.[14][Carter v. Intact Insurance Co. 2016 ONCA 917, at para. 48] He described a policy providing for actual cash value coverage as a pure indemnity contract: “actual cash value recovery prevents insureds from profiting or benefitting from their loss.”[15][Carter, at para. 21]
[38] Justice Sopinka stated that “[a]n interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided”.[16] [Brissette] Justice Laskin explained how insurers control or limit the “moral hazard” in the context of replacement cost coverage:But, allowing insureds to replace old with new raises a concern for the insurance industry. The concern is moral hazard: the possibility that insureds will intentionally destroy their property in order to profit from their insurance; Or the possibility that insurers will be careless about preventing insured losses because they will be better off financially after a loss.
To put a brake on moral hazard, insurers will typically only offer replacement cost coverage if insureds actually repair or replace their damaged or destroyed property. If they do not, they will receive only the actual cash value of their insured property.[17] [Carter, at paras. 24-25.] . Varriano v. Allstate Insurance Company of Canada
In Varriano v. Allstate Insurance Company of Canada (Ont CA, 2023) the Court of Appeal held that a SABS provision that required notice was not also a 'coverage' provision, and thus not subject to a broad interpretation, as opposed to a narrow interpretation to which exclusions or restrictions are subject:B. The Divisional Court Erred in Construing s. 37(4) as an Insurance Coverage Provision
[35] The Divisional Court held that its interpretation of s. 37(4) is consistent with the general principle that “insurance coverage provisions are to be interpreted broadly, while coverage exclusions or restrictions are to be construed narrowly, in favour of the insured”.
[36] While I do not quarrel with this statement, the provision in question is not a coverage provision – s. 37(4) does not in anyway determine whether a person is entitled to coverage under the SABS. The only issue to be determined was whether that notice provision had been complied with. The correct interpretation of s. 37(4) requires an interpretation that accords with the purposes of the SABS, that is the timely submission and resolution of claims (Sietzema, at para. 16) and the purpose of the provision itself, which is to permit the insured to decide whether or not to challenge the denial of benefits (Turner, at para. 8). Respectfully, the Divisional Court’s interpretation of this notice provision did not accord with those principles.
[37] Because I have found that the notice was not deficient and complied with the legislative requirements of s. 37(4) of the SABS, it is not necessary to address either Allstate’s alternative argument that even if the notice was deficient in failing to provide a medical reason, it had triggered the limitation period by clearly and unequivocally terminating Mr. Varriano’s IRBs, nor Mr. Varriano’s rejoinder that the termination left his eligibility for future benefits under s. 11 unclear. . Cronos Group Inc. v. Assicurazioni Generali S.p.A.
In Cronos Group Inc. v. Assicurazioni Generali S.p.A. (Ont CA, 2022) the Court of Appeal considered an issue of insurance contract interpretation:[44] With respect to the fourth matter, Generali had submitted that the absence of an explicit payment term for an Excess Policy OEP option created an ambiguity that supported the exclusion of an OEP option. The application judge assessed that submission in light of the principle that contracts of insurance are to be interpreted to give effect to their terms and in a commercially reasonable manner. She found support for such an approach in the decision in Re Canada 3000 Inc. (2002), 2002 CanLII 49602 (ON SC), 35 C.B.R. (4th) 37 (Ont. S.C.). ... . EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange
In EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange (Ont CA, 2022) the Court of Appeal considered basic contract interpretation principles:(b) Principles of interpretation
[56] The principles of interpretation applicable to insurance policies are not in dispute and can be briefly summarized.
[57] The first principle is that when the language of the policy is unambiguous, the court should give effect to the clear language, reading the insurance contract as a whole: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 22, referring to Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at para. 71.
[58] The instruction that the contract must be read as a whole is frequently expressed but equally frequently ignored by both insurers and insureds as they focus on the coverage or exclusion at issue. Insurance policies, like the one at issue in this appeal, often contain multiple, sometimes overlapping coverages, exclusions, conditions, and endorsements. Reading the policy as a whole informs the exercise of ascertaining the intention of the parties. Reading the policy as a whole, and searching for harmony rather than discord, is often helpful in reconciling apparent ambiguities or inconsistencies.
[59] Where the language of the policy is ambiguous – where the meaning is not clear, and there are competing reasonable interpretations – the general rules of contract interpretation come into play. Courts can give preference to an interpretation that is consistent with the reasonable expectations of the parties, as long as that interpretation is supported by the language of the policy: Progressive Homes, at para. 23. Courts should avoid an interpretation that would give an unrealistic result or that would not have been in the contemplation of the parties when the contract was made: Progressive Homes, at para. 23; Ledcor, at para. 78.
[60] When these rules of construction fail to resolve the ambiguity, the court will construe the policy contra proferentem, against the insurer. This gives rise to the principle that coverage provisions are to be interpreted broadly and exclusions are to be construed narrowly: Progressive Homes, at para. 24; Scalera, at para. 70.
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