Insurance

INSURANCE

1

INSURANCE

A. HISTORY AND BASIC THEORY OF INSURANCE1.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 industryi. Consumer demand - demand from those with economic interests to protectii. 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.Peculiar Legal Characteristics of Insurance

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)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: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(c)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 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. (b)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 processRe 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.(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 discriminationHeerspink 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 HRCRe 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 groupBd of Inquiry: found to be contrary in OnHRCOnDiv 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 institutionalizedDecision: 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)Insurance and Uncertainty

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 - 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; 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 deadArg: 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 eventsDecision: 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 KosmopoulosB. STRUCTURE OF THE INSURANCE INDUSTRY1.Types of Insurance

distinction b/w 1st party and 3rd party insurance:1st party - insuring against onws own loss3rd 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;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-IndemnityGlynn v. Scottish Union and National Insurance Co. Ltd (1963) OnCaFacts: 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-indemnityTJ: 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 What is indemnity insurance?i. have to have int in prop or event;ii. have to have loss following from event;iii. 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 tortfeasorComment: 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 lossGibson 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

Mutual Life Assurance Co. v. Tucker 1993 NS CAReasons: 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

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(b)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. 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 THEORYChiasson 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 damageReasons: 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 THEORYSlijepcevich 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. 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.

(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.

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 INTEREST1.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) 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 KSCC 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 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! subsequent developmentsRomani 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 KosmopolousDoyle v. Antigonish Farmers Mutual Fire Ins. Co. 1955 NSCAReasons: 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 NSSCReasons: 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 QBReasons: 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) 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

Proprietary InterestFACTUAL EXPECTANCYOccupancy of spousal homeInterest in economic welfare of an operationBona fide purchaser of stolen propertyCompany with small # of shareholdersBusiness arrangements (Romani)

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 parties3.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) SCCFacts: partially paid vendor suffered lossReasons: 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 QBFacts: husband and wife - insd had coverage in his name to cover goods, some of which were owned by wife. Reasons: Insd held to have iiComment: As in Keefer, no requirement that insd inform insrMaldover v. Norwich Union (1917) OnHCFacts: son got insurance for household goods, some owned by him and others owned by familyReasons: 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)Summary: Conditions to Recover on Insurance re: Interests of Othersi. intention of parties to insure more than one int (full value);ii. named insd must have ii;iii. policy must allow it (Keefer, Maldover, Decelle); andiv. disclosure or non-disclosure required by policy?Keefer - disclosure not necessary unless policy requires itMaldover - 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) ONHCReasons: 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 non-disclosure, 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)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 HLImportance: 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. BAILEESFacts: 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.

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?

Commonwealth Construction Co. v. Imperial Oil Ltd. (1977) SCCFacts: 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 siteReasons: 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 coverageComment: 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 InterestsScott v. Wawanesa Ins Co. (1989) SCCFacts: 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 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. VALUATION1.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 $80,000If 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

2.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)](a)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 over-indemnification. 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?

Canadian National Fire Ins Co. v Colonsay Hotel Co. (1923) SCCFacts: Bldg insured to 14,5001912 (before prohibition) sold for 20,0001917 sold for 3200-33001920 sold for 3000 + 950 for contentsinsurers offer 5700Trial: 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) NYCAReasons: 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 - 42,750value of premises by insd - 60,000advertised sale price - 12,000best offer - 6000estimate for assessors - 15,000jurys 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

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) SKQBFacts: 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: ACVi. use being made of the propertyii. purchase priceiii. sale valueiv. age and obsolescencev. condition and locationvi. expert opinionHydra Estates Ltd v. Elite Ins. Co (1985) BCSCReasons: 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.

(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) MBCAFacts: 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 DivFacts: Ins Cov - 15,000Assessment ev - 21,000Offer to buy (building and land) - 32,000Trial J - 8110.52 (1/2 of 16,221.04 which is repair cost)CA - 12,221Reasons: 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) NBCAFacts: 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 - 7,350CA - 12,900 (capitalization of rentals 12 X 215 = 2,580 X 5 = 12,900)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) ONCAFacts: 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 monthAmts: Ins cov - 35,000 (prop + building)loss on rentals - 12,500TJ - 1000 (1 month rental)CA - 36,000 (ins cov + 1 month rentalReasons 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) ONHCFacts: 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 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.3.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.4.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. there are situations where the insr can opt to replace or repair - this is true with fire insurance.BCIA s.220(2) stat cond 1313 (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 valueLepine v. Unigard Mutual Insurance (1976) BCSCFacts: 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 ClausesMalainy 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 insdReasons: 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. 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) ACBAFacts: 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.

Carlyle v. Elite Insurance Co (1987) BCCAFacts: 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.

Olynyk v. Advocate Insurance (1985) MBCAFacts: 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 replaceReasons: 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