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Insurance - Interpretation of Specific Terms

. SIR Corp. v. Aviva Insurance Company of Canada ['catastrophe']

In SIR Corp. v. Aviva Insurance Company of Canada (Ont CA, 2023) the Court of Appeal engages in an interpretation of the insurance term: 'catastrophe', here in the context of COVID and a specific policy:
(ii) The COVID-19 pandemic was not an “other catastrophe” within the meaning of Clause 14

[82] As noted, the application judge was prepared to accept that the COVID-19 pandemic may, in certain circumstances, meet the definition of “catastrophe.” However, she found that for the purposes of Clause 14 it was not an “other catastrophe.”

[83] SIR argues that this court should find that the COVID-19 pandemic was a catastrophe for the purposes of Clause 14, since it falls within the ordinary meaning of the term. It urges this court to ignore the two Australian cases relied upon by Aviva and referred to by the application judge, which held that the COVID-19 pandemic was not a catastrophe for the purposes of the policies that were at issue, saying that they are of no assistance: LCA Marrickville Pty Limited v. Swiss Re International SE, [2022] FCAFC 17, (2022) 401 ALR 204; Star Entertainment Group Limited v. Chubb Insurance Australia Ltd., [2022] FCAFC 16, (2022) 400 ALR 25.

[84] A catastrophe has been defined as "an event causing great damage or suffering": Angus Stevenson and Maurice Waite, eds., Concise Oxford English Dictionary, 12th ed. (New York: Oxford University Press, 2011), at p. 222. I agree with SIR that the COVID-19 pandemic was a catastrophe within the ordinary meaning of that term. As the application judge noted in her reasons, “it has been characterized as ‘a natural catastrophe in slow motion’ by virologist Christian Drosten.”

[85] Like the application judge, I also agree with SIR that the insurance policies considered by the Federal Court of Australia (Full Court) are different from the Policy. I do not rely on them for assistance.

[86] The key issue is whether the word catastrophe in Clause 14 should be given its ordinary meaning. One of SIR’s main arguments is that the term should not be read down, or limited, in light of the words “conflagration or other” which precede it. The application judge did so, writing:
I would tend to agree with Aviva that given the sequence of words in [Clause] 14 (“to retard or prevent a conflagration or other catastrophe”), the meaning of “other catastrophe” is informed by the word in which it is in close proximity, that is “conflagration”, which is a physical event, an extensive fire. In my view, “or other catastrophe” would require a similar large‑scale destruction to property.
[87] SIR disagrees with this approach. It submits that the meaning of a word should only be determined by the words immediately surrounding it when the word is unclear, it forms part of a list, and the surrounding words have a recognizable characteristic (citing Tomko v. Wawanesa Mutual Insurance Co. et al., 2007 MBCA 8, 212 Man. R. (2d) 155, at para. 17; National Bank of Greece (Canada) v. Katsikonouris, 1990 CanLII 92 (SCC), [1990] 2 S.C.R. 1029). It argues that the word “catastrophe” is not unclear. Nor does it appear in or follow a list of specific words with a recognizable characteristic. It follows one word – conflagration – and conflagration has several meanings. The Merriam-Webster Dictionary (online) defines “conflagration” as a war, a conflict, or a large disastrous fire. Therefore, argues SIR, a conflagration does not necessarily involve large-scale destruction to property.

[88] I agree with the application judge that COVID-19 is not a “catastrophe,” within the meaning of this particular policy.

[89] Words used in a policy take their meaning from the context in which they are used. Here, that context included that the word “catastrophe” is found in a policy that has as its foundation a requirement for risk of direct physical loss or damage to property and that it was preceded by the words “conflagration or other”. Courts have long accepted that in the construction “X or other Y,” the specific term X may limit the more general term Y by association: see Stag Line, Limited v. Foscolo, Mango & Co., Ltd., [1932] A.C. 328 (U.K. H.L.), at pp. 334, 348-49. Tomko and National Bank do not limit the interpretation of “catastrophe” in the manner that SIR urges.

[90] If the intention were to capture all manner of catastrophes, not just those that are similar in nature to a conflagration, then the clause could have simply been worded “to retard or prevent a catastrophe.” To avoid a tautology, it must be assumed that the words “conflagration or other” were inserted for some reason.

[91] As for SIR’s argument that conflagration has several meanings, including a war or conflict, and is therefore not clear enough to inform the interpretation of “catastrophe,” wars and conflicts can also be the direct cause of destruction to property.

[92] SIR also submits that if Aviva had intended to limit Clause 14 to exclude pandemic catastrophes, it could have included a virus exclusion. While it is true that the Policy does not contain a virus exclusion, that fact does not persuade me that “catastrophe” should be interpreted as including the COVID-19 pandemic. Exclusions do not create coverage: Progressive Homes, at para. 27. Similarly, the absence of an exclusion does not imply coverage.

[93] In addition, SIR submits that if there were an earthquake or cyclone or other such event causing large scale physical damage, SIR would be covered for damage to its property under Section II, and for business losses under Sections III and IV. SIR also submits that if its business were affected by a civil authority order “given as a direct ‘result’ of loss or damage caused by an earthquake, volcanic eruption, cyclone or hurricane, or threat thereof” it would be covered under Clause 15. With coverage already available, there would be no reason for SIR to pay an additional premium to purchase coverage under Clause 14.

[94] I agree that this interpretation of catastrophe results in some overlap in coverage. However, interpreting “catastrophe” in light of the words “conflagration or other” does not nullify coverage under Clause 14. As Aviva submits, Clause 14 operates to ensure that any incidental damage to an insured’s property caused by civil or military ordered activity to try and contain or prevent an event which could cause large-scale destruction of property is covered. For example, it would provide coverage where a civil or military authority orders the destruction of an insured’s property, such as to create a fire break to stop the spread of fire. I note that Clause 14 may provide coverage that would otherwise be excluded by clause 5(b)(ix) of Section II. It excludes coverage for, among other things, loss or damage caused by war, hostilities (whether war be declared or not), or military power.

[95] In conclusion, I agree with the application judge that COVID-19 is not a “catastrophe,” within the meaning of this particular policy. There is no need to resort to the contra proferentem rule to interpret the meaning of “catastrophe.”
. SIR Corp. v. Aviva Insurance Company of Canada ['peril insured']

In SIR Corp. v. Aviva Insurance Company of Canada (Ont CA, 2023) the Court of Appeal engages in an extensive interpretation of the insurance term - 'peril insured', here in the context of a specific policy:
[57] Returning to the meaning of “peril insured,” SIR contends that it is wrong to say that “peril insured” in Clause 16 only refers to “All Risks of direct physical loss or damage”, since Clause 14 adds a peril: the risk that “an order of civil or military authority to retard or prevent a conflagration or other catastrophe” would cause loss to SIR.

[58] Citing Black’s Law Dictionary, abridged 5th ed. (St. Paul: West Publishing Co., 1983), the application judge stated that “peril” means “[t]he risk, hazard, or contingency insured against by a policy of insurance” and “[i]n general, the cause of any loss such as may be caused by fire[,] hail, etc” (emphasis added). “Peril” has also been defined as “The cause of an insured loss or the risk insured against”: Barbara Billingsley, General Principles of Canadian Insurance Law, 3rd ed. (Toronto: LexisNexis Canada, 2020), at p. 358.

[59] There is no dispute that an order by a civil authority can in certain instances constitute a peril insured. Clause 16 specifically refers to access being prevented or impaired by a civil authority. I agree that an “order of civil or military authority to retard or prevent a conflagration or other catastrophe” could be a “peril insured” but only if the order constitutes a risk of direct physical loss or damage. In other words, I disagree that Clause 14 adds a peril such that the Policy covers a risk of no direct physical loss or damage.

[60] As discussed above, the foundation of this Policy is a requirement of a risk of direct physical loss or damage. Clause 1 of Section II specifies that “This Policy” insures against “All Risks of direct physical loss or damage…except as hereinafter excluded.” If the parties had intended to extend the Policy to include what SIR describes as “non-damage business interruption coverage” one would have expected much clearer language.

(iii) Additional arguments raised by SIR

[61] For the sake of completeness, before turning to the question of whether an Order is a “peril insured or threat thereof”, I will address three further arguments advanced by SIR as to why “peril insured” should not be interpreted as meaning “all risks of direct physical loss or damage, except as excluded”. The first two also apply to the interpretation of Clause 14.

“Peril insured” is not ambiguous and so no broad interpretation in favour of SIR

[62] Below, SIR argued that the Policy is not ambiguous. On appeal, it now argues that it is ambiguous. As indicated above, I conclude that the term “peril insured” in Clause 16 is not ambiguous. SIR and Aviva advance different interpretations. The mere articulation of a differing interpretation or the fact that the terms of a policy require interpretation does not necessarily create ambiguity: Sabean, at para. 42; Canadian National Railway Co. v. Royal and Sun Alliance Insurance Co. of Canada, 2008 SCC 66, [2008] 3 S.C.R. 453, at para. 33.

[63] In light of my view on ambiguity, I disagree with SIR’s first argument, namely that “peril insured” should be interpreted broadly in favour of SIR because Clause 16 is a coverage provision. The principle that coverage clauses are interpreted broadly, and exclusion clauses narrowly, is a corollary of the contra proferentem rule, which comes into play when a contract is ambiguous and all other rules of contractual interpretation have failed to resolve the ambiguity: Sky Clean, at para. 56; Progressive Homes, at para. 24; and Sabean, at para. 12. As will be clear later in these reasons, there is similarly no need to resort to the contra proferentem rule in interpreting Clause 14.

Clauses 16 (and 14) must be read with regard to the Policy as a whole

[64] SIR’s second argument, relying on Le Treport Wedding & Convention Centre Ltd. v. Co‑operators General Insurance Company, 2020 ONCA 487, 151 O.R. (3d) 663, leave to appeal refused, [2020] S.C.C.A. No. 333, is that Clause 16 (and Clause 14) should be interpreted without regard to other sections in the policy. I disagree. Doing so would be contrary to the interpretive principle that a policy should be read as a whole. SIR misconstrues Le Treport. In both Le Treport, at paras. 31-33, and Pilot Insurance, at para. 21, this court held that the policy and the endorsement must be read together. Moreover, in Le Treport, unlike in this case, the endorsement was comprehensive on the subject of the coverage provided in the endorsement. Here, the clauses in question are not comprehensive and so can only be given meaning having regard to the rest of the Policy.

No nullification of coverage under Clause 16

[65] Finally, SIR submits that coverage for business losses resulting from “direct physical loss or damage” to SIR’s property or the property of others would already be available under Sections III and IV of the Policy and/or under Clause 15. It argues that restricting “peril insured” to all risks of direct physical loss or damage, except as excluded, would nullify coverage under Clause 16 and defeat the reasonable expectation of the parties in entering into the contract.

[66] As stated above, reading the policy as whole, in light of the factual matrix, the policy language “peril insured” is not ambiguous. Accordingly, it is not necessary to consider the reasonable expectations of the parties: Sky Clean, at para. 55.

[67] In any event, although I do agree there is overlap, interpreting “peril insured” as meaning all risks of direct physical loss or damage, except as excluded, does not nullify coverage.

[68] As this court has recognized, “[i]nsurance 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.

[69] In this case, Clause 16 captures claims that would not otherwise be covered under Sections III and IV. At a minimum, it extends coverage by providing coverage when access to the business is prevented or impaired as a result of a peril insured or threat thereof. Unlike the coverage provided under Sections II to IV, it does not require actual physical loss or damage to property. For example, it would provide coverage where a blockade is ordered in response to the threat of flooding or where there is a threat of a landslide and police cordon off the business. Also, Clause 16 appears to provide “loss of use” coverage, as contemplated by clause 5(b)(iii) of Section II of the Policy, where there is a risk of direct physical loss or damage. That clause provides that the Policy does not insure against, “loss caused by delay, loss of market or loss of use, except as may be provided under other Sections of this Policy.”

[70] Similarly, while there is overlap between the coverage offered by Clause 15 and Clause 16, coverage under the two clauses is triggered in different ways. Clause 15 covers situations where a civil or military order is given as a direct result of direct physical loss or damage covered by the Policy or a threat thereof, and the business is affected as a result of the order. Clause 16 provides coverage where a peril insured (which might include a civil or military order, depending on the nature of the order) or threat thereof leads to restricted access to the premises of the insured or of others.

[71] This case is different from Cabell v. The Personal Insurance Company, 2011 ONCA 105, 104 O.R. (3d) 709, at paras. 30-31, on which SIR relies. In Cabell, the court held that a common exclusion in the policy did not apply to an endorsement which the insured had purchased for loss or damage to their outdoor swimming pool and which “amended” the policy. Application of the common exclusion to the endorsement would virtually nullify the coverage purchased through the endorsement and such a result could not have been within the reasonable expectation of the parties.
. Trillium Mutual Insurance Company v. Emond ['any law']

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).

These quotes set out the court's reasoning on the interpretation of the term "any law":
(2) The meaning of the words “any law”

[64] The application judge held that the words “any law” in the para. 8 Exclusion do not include by-laws or regulations. In support of her proposition, she noted that the BBCC specifically refers to “any by-law, regulation, ordinance or law,” while the para. 8 Exclusion only refers to “any law”. She held that, “[h]ad Trillium wanted the term ‘law’ to include subordinate authority for the purpose of the para. 8 Exclusion, it could have drafted the Policy accordingly. It did not.” As such, she held that the increased costs to comply with by-laws and regulations were not subject to the para. 8 Exclusion.

[65] For the reasons that follow, I do not agree with this interpretation of the words “any law”.

[66] First, the word “law” is a clear and well-known concept. It is defined in the Oxford Dictionary as “a rule or system of rules recognized by a country or community as regulating the actions of its members and enforced by the imposition of penalties”: Angus Stevenson and Maurice Waite, eds., Concise Oxford English Dictionary, 12th ed. (New York: Oxford University Press, 2011), at p. 807. Case law has also defined “law” as, in essence, creating or imposing an enforceable obligation: Valley Rubber Resources Inc. v. British Columbia (Minister of Environment, Lands & Parks), 2002 BCCA 524, 5 B.C.L.R. (4th) 1, at para. 25. See also Armadale Communications Ltd. v. Saskatoon (City) (1990), 1990 CanLII 7507 (SK KB), 90 Sask. R. 23 (Q.B.), at para. 9, where the court found that, in general terms, “the term ‘law’ includes rules of conduct laid down by a legislative authority by way of statute, regulation, ordinance, by-law or some other form of prescribed method.” The plain meaning of the word “law” therefore includes both legislation and rules of subordinate authority such as by-laws and regulations.

[67] Second, the para. 8 Exclusion refers not just to “law” but to “any law” (emphasis added). The term “any” is all-embracing and without limitation or qualification: Epp School District v. Park (Rural Municipality), 1936 CanLII 151 (SK CA), [1936] 2 W.W.R. 331 (S.K.C.A.), at para. 20. The words “any law” are expansive.

[68] Third, the BBCC supports the interpretation that “any law” includes by-laws, regulations, and other subordinate legislation. It provides that the insurer will pay up to an additional $10,000 or the amount on the Declaration Page for the increased cost to comply with “any law” regulating construction. Like the para. 8 Exclusion, it uses the general term “any law” in the opening words articulating this additional coverage. It goes on to specify that this sum is to pay for, among other things, “any increase in the cost of…construction or reconstruction…arising from the enforcement of the minimum requirements of any by-law, regulation, ordinance or law.” Within the Policy, the term “any law” is an umbrella term that includes by-laws, regulations, ordinances, and laws. Furthermore, if the para. 8 Exclusion did not apply to cost increases relating to by-laws, regulations, or ordinances, the BBCC could not purport to provide “additional coverage”. Such costs are already fully covered under the GRC.

[69] Fourth, even if the MVCA Regulation Policies are “policies” as suggested by the respondent, they are included in the definition of “any law”.

[70] The MVCA Regulation Policies provide a detailed regulatory scheme that must be followed by those within the MVCA’s catchment area. Counsel for the respondents conceded in oral submissions that the MVCA Regulatory Policies reflect building requirements set by a public authority. They are not optional; the Emonds must comply with them when rebuilding their home.

[71] In Ainsley Financial Corp. v. Ontario (Securities Commission), 1994 CanLII 2621 (ON CA), 21 O.R. (3d) 104 (C.A.), Doherty J.A. considered the characterization of a policy statement issued by the Ontario Securities Commission. He held, at paras. 18-21, that the policy was regulatory in nature and constituted a “de facto legislative scheme” because it set out a comprehensive and minutely detailed regime that attracted sanctions if not followed. Doherty J.A. accepted the lower court’s finding that to hold otherwise would “ignore the plain language of the document itself and the reality of the regulatory environment in which it [was] to be implemented”: see para. 18.

[72] Similarly, the MVCA Regulation Policies clearly set out a detailed regulatory scheme which is mandatory in order to construct. As such, they are a de facto legislative scheme that captured by the term “any law”.

[73] Finally, the decision in Choukair v. Allstate Insurance, 2015 ONSC 4989, relied on by the respondents, is distinguishable. The exclusion clause in Choukair only excluded by-laws, a much more specific term than the more general term, “law”. Furthermore, the Choukair policy did not contain anything similar to the BBCC coverage in this Policy, which applies to by-laws, regulations, ordinances, or laws that clearly fall under the umbrella of the term “any law”.

[74] For these reasons, I find that the para. 8 Exclusion applies to increased costs to demolish and replace the dwelling as it was that are due to the operation of “any law” including the MVCA Regulation Policies, municipal by-laws, and other regulations regarding demolition or reconstruction of the dwelling, in the manner I have described above.
. Demme v. Healthcare Insurance Reciprocal of Canada ['reckless']

In Demme v. Healthcare Insurance Reciprocal of Canada (Ont CA, 2022) the Court of Appeal considers the meaning of 'reckless' in an insurance policy:
[61] Although the Jones decision does not contain a definition of “reckless,” it places reckless conduct side-by-side with intentional or deliberate conduct. Jones adopted the Restatement’s formulation of the tort as involving an intentional intrusion. As well, the decision limited claims for intrusion upon seclusion only to “deliberate and significant intrusions of personal privacy”: Jones, at para. 72. One cannot tease from the discussion in Jones any support for the proposition advanced by Ms. Demme that Jones’ inclusion of a reckless act within the tort of intrusion upon seclusion could involve unintentional conduct.[11]

[62] As well, Ms. Demme’s contention that reckless conduct possibly could amount to unintentional conduct runs counter to the thrust of Canadian insurance jurisprudence. The caselaw has been prepared to accept that an “accident” can include a negligent or grossly negligent act: General Principles of Canadian Insurance Law, at Ch. 3, B.2.a. Nevertheless, “accident” conveys the idea that the consequences of certain actions are unexpected: Martin v. American International Assurance Life Co., 2003 SCC 16, [2003] 1 S.C.R. 158, at paras. 13-15. By contrast, in Mutual of Omaha v. Stats, 1978 CanLII 38 (SCC), [1978] 2 S.C.R. 1153, both the majority and dissenting judge of the Supreme Court proceeded on the basis that what is typically called reckless conduct could not be regarded as accidental. The majority, at p. 1165, applied the principle that “[i]f … the person realized the danger of his actions and deliberately assumed the risk of it … his actions could not be characterized as accidental.”[12] Martland J., in dissent, stated, at p. 1173, that “[i]f a person voluntarily embarks upon a foolhardy venture from which personal injury could be foreseen as an almost inevitable consequence it cannot properly be said that when the mishap occurs, it is an accident.”

[63] The formulations in Stats closely resemble the concept of recklessness in Canadian criminal law as the attitude of one who, aware that there is danger that his conduct could bring about the prohibited result, nevertheless persists, despite the risk – that is to say, it is the conduct of one who sees the risk and takes the chance: Sansregret v. The Queen, 1985 CanLII 79 (SCC), [1985] 1 S.C.R. 570, at para. 16.[13]

[64] Whether one uses the concepts of recklessness described in Stats or our criminal law, reckless conduct stands very close to the intentional end of the conduct spectrum, far away from the unintentional end where Ms. Demme tries to place it.
. MDS Inc. v. Factory Mutual Insurance Company ['corrosion']

In MDS Inc. v. Factory Mutual Insurance Company (Ont CA, 2021) the Court of Appeal considered the interpretation of the term 'corrosion' as used in an insurance contract:
(ii) Interpretation of the term “corrosion” by the courts

[59] No Canadian court has squarely addressed the interpretation of the term “corrosion” in similar standard form all-risk policies of insurance. In obiter, Myers J. in PLC Constructors Canada Inc. v. Allianz Global Risks US Insurance Company, 2014 ONSC 7480, 123 O.R. (3d) 549, at paras. 15-16, stated that:
[The corrosion exclusion] of this policy…. effectively excludes from coverage loss or damage caused by corrosion. The exclusion for rust and corrosion is generally understood in the law to relate to the normal risk of wear and tear of property left exposed to the elements. Such natural processes are not considered to be “fortuitous” events of the type encompassed by an all risks policy.
[60] Canadian courts have accepted that American authorities may assist in interpreting insurance contracts where there is little Canadian authority: see e.g., Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), 2002 CanLII 33365 (ON CA), 62 O.R. (3d) 447 (C.A.), at para. 34, leave to appeal refused, [2003] S.C.C.A. No. 33.

[61] This is particularly true where the same contracts are used in multiple jurisdictions: Edmonton (City) v. Protection Mutual Insurance Co. (1997), 1997 CanLII 14758 (AB QB), 197 A.R. 81 (Q.B.), at para. 149, aff’d 1999 ABCA 6, 250 A.R. 93; Partners Investment Ltd. v. Etobicoke (City) (1981), 1981 CanLII 1831 (ON SC), 124 D.L.R. (3d) 125 (Ont. H.C.), at p. 3.

[62] American appellate courts have consistently held that the meaning of corrosion in standard form insurance policies includes corrosion, however brought about.

[63] In Bettigole v. American Employers Ins. Co., 30 Mass. App. Ct. 272, 567 N.E. 2d 1259 (App. Ct. 1991), at p. 274, the Massachusetts Appeals Court held that there was no reason “for confining the term corrosion … to a wearing away by ‘natural’ means”.

[64] Similarly, in Gilbane Bldg. Co. v. Altman Co., 2005 Ohio 984 (App. Ct.), at para. 18, the Ohio Court of Appeals held that, since the insurance policy did not “qualify [a corrosion] exclusion to cover only gradual-forming rust and corrosion”, the exclusion applied to preclude coverage for fast-forming corrosion.

[65] In Lantheus Medical Imaging, Inc. v. Zurich American Ins. Co., 255 F. Supp. 3d 443 (S.D.N.Y. Dist. Ct. 2015), at p. 459, aff’d 650 Fed. Appx. 70 (2nd Cir. 2016), a case which concerned the same facts as in this case, the District Court for the Southern District of New York held that, “[n]othing in the dictionary definition narrows the scope of ‘corrosion’ to that which occurs ‘inevitably’ over the life of a machine. Other courts have rejected analogous attempts to narrow the definition of ‘corrosion.’” The court determined that “rapid” corrosion fell within the exclusion: at p. 461.

[66] While the courts in these cases do not use the terms “anticipated” and “unanticipated” corrosion as the trial judge did in this case, all of these cases were about “natural” versus “unnatural” and “gradual” versus “non-gradual” corrosion. These are similar to the distinctions between “anticipated” and “unanticipated” corrosion made by the trial judge in this case.



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Last modified: 24-11-23
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