Siskinds LLP’s personal injury lawyer, Victoria Edwards, was recently published in The Lawyer’s Daily. In this article, Victoria examines how the legal principles of insurance contract interpretation were approached in the case of 202135 Ontario Inc. v. Northbridge General Insurance Corporation.
This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.
Read the full article below.
Victoria Edwards – The Lawyer’s Daily – Posted: May 25, 2022
In March 2020, the deadly COVID-19 virus was spreading fast and public health measures such as social distancing and isolation were the first line of defence. The world seemed to come to a stop. Many businesses were forced to close, relying on insurance and government assistance to carry them through the shutdowns.
In the case of 202135 Ontario Inc. v. Northbridge General Insurance Corporation 2022 ONCA 304, one such business, Helping Hands Daycare Centres (Helping Hands), turned to its insurance company, Northbridge General Insurance Corporation (Northbridge), to honour its indemnity agreement regarding business income losses arising from a “pandemic outbreak” declared by civil authority or “public health authority.”
Helping Hands was forced to close its seven locations from March 17,2020, to June 22, 2022, as a result of the pandemic. Northbridge agreed that the indemnityagreement was engaged, but disagreed on the limit of coverage in the circumstances.
It was Helping Hands’ position that the coverage of $50,000 for the pandemic business loss converge for each of their seven insured locations, for a total of $350,000.
Northbridge responded that the limit of liability was $50,000 in aggregate for all insured locations.
The parties commenced an application before the court to determine the proper interpretation of the limit of liability clause for the extended coverage for pandemic business income loss.
The contract language
2. ADDITIONAL EXTENSIONS OF COVERAGE
The following Extensions of Coverage are added to Part II Section 6. EXTENSIONS OF COVERAGE:
(l) Outbreak & Negative Publicity
(i) Indemnity Agreement:
We agree to extend the insurance provided by Part II — Business Income to apply to your loss of “business income” including incurred necessary “extra expense” resulting from interruption of or interference to your business operations at your “scheduled risk location” directly as a result of:
(1) A “pandemic outbreak” declared by Civil Authority or “public health authority”;
(iv) Limit of Liability:
The most that we will pay under this Extension of Coverage in any one policy period is [$50,000] or as otherwise indicated on the “schedule”…
The “schedule” in the indemnity agreement was attached to the declaration page of the policy. There was a separate schedule page for each of the respondents’ seven locations. Each schedule page lists each of the types of coverage that are contained in the policy, together with the “aggregate liability limit” for each head of coverage, the “deductible” for each one, and the “annual premium” for each one.
The application judge set out the principles of insurance contract interpretation before turning to the provisions of the policy. She determined that the provisions were ambiguous, and could apply either to each location separately, or as an aggregate for all locations. Reading the contract as a whole in the context of the other clauses, she resolved the ambiguity in favour of the respondent insured. She also added that if she was incorrect, the contra proferentem rule should be applied against the appellant insurer.
Northbridge appealed the decision.
Standard of review
The standard of review is correctness, as this matter dealt with an insurance standard form policy (see Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. 2016 SCC 37 at para. 4). The insurance policy under review was a bespoke policy that included and excluded defined coverages for specified amounts in respect of each of the respondents’ seven business locations. However, the clauses within the policy were standard, unmodified clauses that are also offered to similar businesses.
In that way, they were in a standard form, and their interpretation will apply to the same clauses as they may appear in other policies and have precedential value. There is no meaningful factual matrix that was specific to the parties to assist the interpretation process. Therefore, the correctness standard of review applied.
The Court of Appeal was tasked with determining whether the application judge erred in law in her interpretation of the limit of liability clause for coverage extension during a pandemic. The court agreed that the application judge correctly identified and applied the legal principles of insurance contract interpretation. The rules were summarized as follows:
- a) The court must first determine whether the language of the insurance policy is unambiguous, within the contract as a whole. If there is no ambiguity, effect must be given to that clear language.
- b) However, if the policy language at issue is ambiguous, the court must apply the general principles of contractual interpretation to resolve that ambiguity. This framework includes the principles that: the interpretation should be consistent with the reasonable expectations of the parties so long as that interpretation is supported by the language of the policy; the interpretation 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 entered into; and the interpretation should be consistent with the interpretation of similar insurance policies.
- c) If the ambiguity is unresolved after the application of the general principles of contractual interpretation, then the court should apply the doctrine of contra proferentem to construe the policy against the insurer. This is a course of last resort. The corollary of this rule is that coverage provisions in insurance policies are to be interpreted broadly, whereas exclusion or limiting clauses are to be interpreted narrowly [para. 16].
The application judge also added that 1) the interpretive principles should not be used to create an ambiguity; 2) some imprecise language does not necessarily mean there is ambiguity when the contract is read as a whole; and 3) an ambiguity requires two reasonable meanings that each make sense within the policy read as a whole.
Both parties agreed that the application judge erred in finding the limit of liability clause ambiguous. However, each argued that the unambiguous clause should be read in their favour.
The Court of Appeal agreed that the limit of liability clause was unambiguous for the following reasons:
- Looking only at the words of the limit of liability clause itself, the maximum amount is stated to be “or as otherwise indicated on the ‘schedule’.” There were seven separate schedules, onefor each scheduled risk location. The reference to “the ‘schedule’” can only mean to each individual schedule for each risk location. As a result, the maximum limit amount can be altered in each schedule separately. More significantly, the clause contemplates an individual maximum that could be referenced in each schedule.
- The indemnity agreement in the extension of coverage endorsement provides coverage for loss of business income as a result of a pandemic outbreak “at your ‘scheduled risk location’. ”Because the indemnity agreement refers to scheduled risk location in the singular rather than the plural, it is referring to each single scheduled risk location (i.e., each of the seven daycare centres). Therefore, the limit of liability, which refers to and imposes a limit on the indemnity obligation, also applies to each single scheduled risk location. Had the policy used the plural, “scheduled risk locations,” then it would be arguable that the limit of liability could be interpreted to apply to all risk locations in the aggregate.
- The interpretation does not require the inclusion of the word ‘each’ in reference to business losses “at your scheduled risk location”.
- The indemnity and limit of liability provisions were consistent with the structure of the entire policy, which insures each location for its losses, as defined precisely in the separate schedules.
- There were no other provisions in support of the appellant’s interpretation.
- The premium they paid for the extended coverage was based on and divided among the seven risk locations in different amounts.
The Court of Appeal concluded that the limit of liability for the coverage extension for pandemic business losses was unambiguous when read in the context of the indemnity agreement and policy as a whole, and applied to each scheduled risk location. There was no need for a contra proferentem interpretation. The appeal was dismissed.
After years of shutdowns and reopenings due to the fluctuating pandemic, it has been more important than ever for businesses to purchase insurance for pandemic-related business losses. Insurers and insureds alike should make sure that they clearly understand what coverage they are paying for.