TABLE OF CONTENTS

Volume 1

Preface . .................................................................................................................... iiiA Note Regarding Case Citations . .......................................................................... TC-iTable of Cases . ......................................................................................................... TC-1

Chapter 1 — INSURANCE AND INSURANCE LAW

1.1 The Nature of Insurance. 1-11.2 The Distinguishing Principles of Insurance Law. 1-2

(a) Utmost Good Faith . 1-3(b) Fortuity . 1-4(c) Indemnity . 1-5(d) Consumer Protection . 1-6(e) Compensation . 1-7(f) The Law in Context . 1-9

1.3 The Sources of Insurance Law. 1-9(a) Legislation . 1-9

(i) Federal vs Provincial Jurisdiction . 1-9(ii) Provincial Insurance Acts . 1-11(iii) The Framework of Provincial Insurance Statutes . 1-12(iv) Identifying the Appropriate Legislation . 1-14

(b) Regulations . 1-19(c) Case Law . 1-19(d) The Terms of the Contract . 1-20(e) Industry Agreements . 1-21

1.4 Conflict of Laws . 1-21

Chapter 2 — REGULATION OF THE INSURANCE INDUSTRY

2.1 Introduction. 2-12.2 Defining Insurance. 2-12.3 The Insurance Company: Its Form. 2-42.4 Access to Business . 2-8

(a) The Federal System . 2-8(b) Provincial Systems. 2-10

2.5 Supervision . 2-13(a) Solvency Control. 2-13(b) The Federal System . 2-13(c) Provincial Systems. 2-14(d) Industry Compensation Plan. 2-15(e) Supervision of Contract Terms. 2-16

2.6 Reserves and Investments . 2-17(a) Reserves. 2-17(b) Investment Restrictions . 2-18

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(i) Federal Regulation ................................................ 2-18(ii) Provincial Systems................................................ 2-20

2.7 Accounting Requirements ............................................................. 2-212.8 Regulation of Premiums ............................................................... 2-232.9 Reinsurance............................................................................... 2-23

Chapter 3 — AGENTS AND OTHER INSURANCE INTERMEDIARIES

3.1 Introduction............................................................................... 3-13.2 Types of Intermediaries................................................................ 3-1

(a) Agents and Brokers......................................................... 3-1(b) Brokers in Ontario and Quebec.......................................... 3-3(c) Adjusters ...................................................................... 3-4

3.3 Intermediaries and Insurance Contracts ............................................ 3-5(a) Actual and Implied Authority ............................................ 3-6(b) Apparent Authority ......................................................... 3-8(c) Ratification ................................................................... 3-10.1(d) Statutory Authority ......................................................... 3-12

3.4 Intermediaries and the Transmission of Information ............................ 3-133.5 Personal Liability of an Intermediary............................................... 3-18

(a) Warranty of Authority ..................................................... 3-18(b) Contract ....................................................................... 3-19(c) Tort............................................................................. 3-20(d) Equity.......................................................................... 3-22(e) The Nature of the Duty.................................................... 3-23(f) Specific Obligations ........................................................ 3-25

(i) The Duty to Procure Appropriate Insurance orAdvise that it is Unavailable ................................... 3-25

(ii) Duties Regarding Renewal, Cancellation and Updating.. 3-30(iii) The Duty to Convey Information ............................. 3-32

(g) The Duty to Third Parties ................................................. 3-33(h) Duties Owed to Insurers................................................... 3-34(i) Defences ...................................................................... 3-34.1

(i) Showing Adequacy of Cover................................... 3-34.1(ii) Contributory Negligence......................................... 3-34.2

(j) Liability and Professional Discipline ................................... 3-34.3

Chapter 4 — INSURABLE INTEREST

4.1 Introduction............................................................................... 4-14.2 Determining Whether Insurable Interest Exists................................... 4-4

(a) Indemnity Insurance ........................................................ 4-4(i) Insurable Interest in Property................................... 4-5(ii) Marine Insurance.................................................. 4-8(iii) Liability Insurance ................................................ 4-9(iv) Shareholders and Creditors ..................................... 4-11

(b) Non-Indemnity Insurance.................................................. 4-124.3 The Time When the Interest Must Exist........................................... 4-134.4 Insuring Other Interests ................................................................ 4-14

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4.5 Summary .................................................................................. 4-16

Chapter 5 — NON-DISCLOSURE AND MISREPRESENTATION

5.1 Introduction............................................................................... 5-15.2 The Rules Developed By Courts .................................................... 5-2

(a) The Customer’s Duty ...................................................... 5-2(b) The Insurer’s Duty.......................................................... 5-6

5.3 How Legislation has Modified the Rules.......................................... 5-6.1(a) Unspecified Classes of Insurance........................................ 5-7(b) Fire Insurance................................................................ 5-8(c) Automobile Insurance ...................................................... 5-12(d) Life Insurance and Accident and Sickness Insurance ............... 5-15(e) Marine Insurance............................................................ 5-18

5.4 The Duty to Inform About Material Changes .................................... 5-19(a) Automobile Insurance ...................................................... 5-19(b) Fire Insurance................................................................ 5-21

5.5 A Word About Discrimination ....................................................... 5-24

Chapter 6 — CREATING, RENEWING AND TERMINATING INSURANCECONTRACTS

6.1 Making a Contract ...................................................................... 6-1(a) Offer and Acceptance ...................................................... 6-1(b) Consideration ................................................................ 6-4

6.2 Renewals .................................................................................. 6-56.3 Termination............................................................................... 6-106.4 Replacement of the Insurer ........................................................... 6-14

Chapter 7 — THE FORM AND CONTENT OF INSURANCE CONTRACTS

7.1 Requirements of Form ................................................................. 7-1(a) Life Insurance................................................................ 7-2(b) Accident and Sickness Insurance ........................................ 7-3(c) Marine Insurance............................................................ 7-4(d) Automobile Insurance ...................................................... 7-4(e) Fire Insurance................................................................ 7-5(f) Other Classes of Insurance................................................ 7-6

7.2 Required Content of Policies ......................................................... 7-77.3 The Structure of Policies .............................................................. 7-10.1

(a) The Insuring Agreement................................................... 7-11(b) Exclusions .................................................................... 7-13(c) Conditions and Warranties ................................................ 7-14

7.4 Multiple Insureds........................................................................ 7-177.5 Temporary Contracts ................................................................... 7-20

Chapter 8 — INTERPRETATION OF POLICIES AND RELATEDCOVERAGE ISSUES

8.1 Introduction............................................................................... 8-1

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8.2 Interpretation of Policies .............................................................. 8-1(a) What the Parties Intended ................................................. 8-3(b) The Limits of the “Literal” Approach .................................. 8-5(c) Presumed Intention ......................................................... 8-8(d) Ambiguities................................................................... 8-10(e) Contra Proferentum ........................................................ 8-13(f) Reasonable Expectation.................................................... 8-14(g) Rectification .................................................................. 8-20

8.3 Causation ................................................................................. 8-21(a) Proximate Cause ............................................................ 8-21(b) Types of Multiple Causation ............................................. 8-23(c) Chain of Causation ......................................................... 8-23(d) Independent Contributing Causes ....................................... 8-26

8.4 Fortuity .................................................................................... 8-28(a) Randomness vs Certainty ................................................. 8-29(b) Accident vs Disease ........................................................ 8-30(c) Accident vs Intention....................................................... 8-32

8.5 Public Policy ............................................................................. 8-37

Chapter 9 — NOTICE AND PROOF OF LOSS

9.1 Introduction............................................................................... 9-19.2 Notice of Loss ........................................................................... 9-1

(a) Time Limits .................................................................. 9-3(b) When the Time Starts to Run ............................................ 9-4(c) The Written Notice Requirement ........................................ 9-5

9.3 Proof of Loss ............................................................................ 9-6(a) Time Limits .................................................................. 9-8(b) The Information That Must be Supplied............................... 9-8(c) Manner of Proof............................................................. 9-11(d) Where Failure to Comply May be Excused........................... 9-11(e) The Insurer’s Obligation to Supply Proof Forms .................... 9-12

9.4 Matters Common to Notice and Proof ............................................. 9-14(a) Where Notice and Proof Must be Sent................................. 9-14(b) Who May Provide Notice or Proof ..................................... 9-15

9.5 Misrepresented and Fraudulent Claims............................................. 9-169.6 Relief Against Forfeiture .............................................................. 9-24

(a) Insurance Acts ............................................................... 9-24(b) Judicature/Courts of Justice Acts ........................................ 9-32

Chapter 9 — Case Digests ................................................................... 9D-1

Chapter 10 — DISPOSAL OF CLAIMS

10.1 Negotiation and Settlement ........................................................... 10-1(a) The Process................................................................... 10-1(b) Amending a Settlement .................................................... 10-2(c) Payment ....................................................................... 10-6

10.2 Actions Against the Insurer, Appraisal and Arbitration ........................ 10-710.3 Limitation of Actions .................................................................. 10-13

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(a) Uniform Act.................................................................. 10-13(b) Non-Government Automobile Insurance............................... 10-13(c) Government Automobile Insurance in British Columbia,

Manitoba and Saskatchewan.............................................. 10-15(d) Limitation Period Prescribed by Contract ............................. 10-16(e) Where No (Insurance) Statutory or Contractual Period

Provided....................................................................... 10-17(f) Determining Which Period Applies..................................... 10-18(g) When Time Starts to Run ................................................. 10-18(h) Factors Reducing the Effective Limitation Period ................... 10-22(i) Extending the Limitation Period......................................... 10-24

10.4 The Insurer’s Duty of Good Faith .................................................. 10-24(a) The Requirement of Good Faith......................................... 10-24(b) Punitive Damages ........................................................... 10-32(c) Aggravated Damages....................................................... 10-34(d) Bad Faith by an Insured................................................... 10-35

10.5 Marine Insurance Claims .............................................................. 10-3610.6 Liability Insurance Claims ............................................................ 10-39

(a) Insurers’ Rights and Duties ............................................... 10-39(b) Advance Payments.......................................................... 10-42

Chapter 11 — PARTIAL AND TOTAL LOSS OF PROPERTY:VALUATION, ABANDONMENT AND SALVAGE

11.1 Introduction............................................................................... 11-111.2 Valuation of Loss ....................................................................... 11-1

(a) Valued Policies .............................................................. 11-1(b) Other Indemnity Insurance................................................ 11-2(c) Actual Cash Value .......................................................... 11-3(d) The Cost of Repair and Allowance for Depreciation ............... 11-3(e) The Cost of Buying a Substitute ........................................ 11-7(f) The Cost of Making a Substitute ........................................ 11-8(g) Diminution of Value ....................................................... 11-9(h) Loss of Commercial Value ............................................... 11-11(i) Interest......................................................................... 11-12(j) Statutory Treatment of the Measure of Loss.......................... 11-12(k) Procedure and Practice..................................................... 11-14

11.3 Total Loss, Abandonment and Salvage ............................................ 11-15(a) How Total Loss is Determined (Non-Marine)........................ 11-17(b) The Customer’s Obligation to Assist the Insurer .................... 11-18(c) Special Rules for Marine Insurance..................................... 11-19

(i) Actual Total Loss ................................................. 11-19(ii) Constructive Total Loss ......................................... 11-20(iii) Notice of Abandonment ......................................... 11-20.1

Chapter 12 — WAIVER AND ESTOPPEL

12.1 Introduction............................................................................... 12-1

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12.2 Estoppel by Representation ........................................................... 12-2(a) Definition ..................................................................... 12-2(b) The Representation ......................................................... 12-3(c) Detrimental Reliance ....................................................... 12-6(d) Pleading ....................................................................... 12-7

12.3 Promissory Estoppel.................................................................... 12-8(a) Conduct ....................................................................... 12-9(b) Reliance ....................................................................... 12-11

12.4 Election of Remedies................................................................... 12-12.112.5 Variation and Repudiation of the Contract ........................................ 12-19

(a) Variation ...................................................................... 12-19(b) Repudiation................................................................... 12-20

12.6 The Role of Intermediaries ........................................................... 12-2212.7 “Waiver” in Legislation and Similar Contractual Provisions.................. 12-24

(a) Provisions Excluding Waivers in Certain Circumstances .......... 12-24(b) Provisions Requiring Waivers to be in Writing ...................... 12-26(c) Other Relevant Legislation................................................ 12-29

(i) Accident and Sickness Insurance .............................. 12-29(ii) Marine Insurance.................................................. 12-30(iii) Hail Insurance ..................................................... 12-30(iv) Automobile Insurance (British Columbia,

Manitoba and Saskatchewan)................................... 12-3112.8 Non-Waiver Agreements .............................................................. 12-31

Chapter 13 — SUBROGATION

13.1 Introduction............................................................................... 13-113.2 The Customer Must Have an Enforceable Right Against a Third

Party ....................................................................................... 13-3(a) Gifts ............................................................................ 13-4(b) Tort Rights ................................................................... 13-5(c) Contract Rights .............................................................. 13-5(d) Mortgage Agreements...................................................... 13-6(e) Agreements for Sale and Purchase of Real Property................ 13-6(f) Compensation for Expropriation of Land.............................. 13-7(g) Leasing Agreements ........................................................ 13-9

13.3 General Principles....................................................................... 13-11(a) The Insured Customer Must be Fully Indemnified .................. 13-11(b) The Customer’s Obligation to Pursue the Claim Against

the Third Party in Good Faith............................................ 13-12(c) Insurer’s Right to Control Proceedings ................................ 13-13

13.4 Statutory Modification of the Common Law Rules ............................. 13-14(a) Automobile Insurance: Uniform Act.................................... 13-14(b) Automobile Insurance: Ontario .......................................... 13-16(c) Automobile Insurance: British Columbia, Manitoba and

Saskatchewan ................................................................ 13-18(d) Fire Insurance................................................................ 13-20(e) Marine Insurance............................................................ 13-22

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(f) Other Statutory Subrogation Rights..................................... 13-22.113.5 Contractual Modification of the Common Law Rules .......................... 13-22.2

(a) Modification of the Full Indemnity Requirement .................... 13-22.2(b) Limitation of Subrogation Rights by Contract........................ 13-23

13.6 Subrogation vs Assignment of Rights to the Insurer............................ 13-2513.7 Is Subrogation Necessary? ............................................................ 13-29Chapter 13 — Case Digests ................................................................. 13D-1

Chapter 14 — CLAIMS AGAINST MORE THAN ONE INSURER

14.1 Introduction............................................................................... 14-114.2 Multiple Insurance ...................................................................... 14-114.3 Alternative Solutions ................................................................... 14-314.4 “Other Insurance” Clauses ............................................................ 14-5

(a) Clauses Requiring Notice ................................................. 14-6(b) “Other Insurance” Refers to Insurance in Effect ..................... 14-7(c) Clauses Requiring the Insurer’s Assent ................................ 14-7(d) Where Both Policies Contain “Other Insurance” Clauses.......... 14-8

14.5 Statutory Treatment of Multiple Insurance ........................................ 14-10.1(a) Fire Insurance................................................................ 14-10.1(b) Automobile Insurance: Liability ......................................... 14-15(c) Automobile No-Fault Insurance ......................................... 14-17

(i) Medical and Rehabilitation Benefits .......................... 14-17(ii) Income Loss Payments .......................................... 14-20

(d) Automobile First-Party Property Damage Cover..................... 14-22(e) Marine Insurance............................................................ 14-22

14.6 Industry Agreement on Overlapping Coverage in Property Insurance ...... 14-2314.7 Average Clauses......................................................................... 14-25

Chapter 15 — CLAIMS BY ASSIGNEES AND THIRD PARTIES

15.1 Introduction............................................................................... 15-115.2 Assignment Generally.................................................................. 15-1

(a) Legal Assignment ........................................................... 15-2(b) Equitable Assignment ...................................................... 15-6

15.3 Assignment as it Relates Specifically to Insurance Contracts................. 15-7(a) Assignment of the Subject Matter of Insurance ...................... 15-7(b) “Assignment” of the Insurance Contract: Novation ................. 15-8(c) Assignment of the Proceeds of Insurance ............................. 15-9

15.4 Assignments Upon Death or Bankruptcy or by Operation of Law .......... 15-10(a) Death........................................................................... 15-10(b) Bankruptcy ................................................................... 15-15

15.5 Assignment under Marine Insurance Contracts................................... 15-1715.6 Assignments by Mortgagors .......................................................... 15-1915.7 Claims by Purchasers of Buildings Under Vendors’ Policies ................. 15-2715.8 Claims by Other Persons with an Interest in the Insured

Property ................................................................................... 15-3015.9 Beneficiaries Under Life or Accident and Sickness Insurance................ 15-3115.10 Judgment Creditors ..................................................................... 15-32

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15.11 Unnamed Insureds ...................................................................... 15-35

Chapter 16 — ACCIDENT AND SICKNESS INSURANCE

16.1 Introduction............................................................................... 16-1(a) Definitions .................................................................... 16-1(b) Indemnity vs. Non-idemnity Insurance................................. 16-2

16.2 The Policy ................................................................................ 16-4(a) General ........................................................................ 16-4(b) Contents ....................................................................... 16-4(c) Construction.................................................................. 16-5

(i) Introduction......................................................... 16-5(ii) Total Disability — Definition .................................. 16-5(iii) Total Disability — Onus of Proof ............................ 16-8(iv) Regular Care Clauses ............................................ 16-11(v) Confined within Doors........................................... 16-12(vi) “External” Means ................................................. 16-12(vii) “Accidental Injuries” and “Accidental Means”............. 16-13(viii) Directly and Independently of All Other Causes .......... 16-13(ix) Violation of Law by Insured ................................... 16-15(x) While Engaged in Fighting ..................................... 16-16(xi) Voluntary Exposure to Unnecessary Danger................ 16-16(xii) Hazards of Insured’s Occupation .............................. 16-17(xiii) Engaged in More Hazardous Occupation.................... 16-17(xiv) Riding as a Passenger ............................................ 16-18(xv) Use of Intoxicating Liquor or Narcotics ..................... 16-18(xvi) While Driving or Riding in, or Boarding or Alighting

from an Automobile .............................................. 16-19(xvii) Death Was Not Attributable to Any of the Exclusions

Listed Below ....................................................... 16-19(d) Policy on Life of Minor ................................................... 16-20(e) Misrepresentation and Non-Disclosure ................................. 16-20(f) Renewal ....................................................................... 16-22(g) Attachment of Risk ......................................................... 16-23(h) Statutory Conditions........................................................ 16-24

(i) Statutory Condition 1 ............................................ 16-24.1(ii) Statutory Condition 2 ............................................ 16-25(iii) Statutory Condition 3 ............................................ 16-25(iv) Statutory Condition 4 ............................................ 16-27(v) Statutory Condition 5 ............................................ 16-28(vi) Statutory Condition 6 ............................................ 16-28(vii) Statutory Condition 7 ............................................ 16-28(viii) Statutory Condition 8 ............................................ 16-30(ix) Statutory Condition 9 ............................................ 16-30(x) Statutory Condition 10........................................... 16-30(xi) Statutory Condition 11........................................... 16-31(xii) Statutory Condition 12........................................... 16-31

16.3 Assignment ............................................................................... 16-32

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16.4 Beneficiary ............................................................................... 16-3316.5 Relief from Forfeiture .................................................................. 16-3416.6 Agent of Insurer not Agent of Insured ............................................. 16-3516.7 Actions .................................................................................... 16-35

(a) General ........................................................................ 16-35(b) Onus of Proof................................................................ 16-35(c) Insurer’s Onus ............................................................... 16-36(d) Duty of Good Faith — Punitive and Aggravated

Damages ...................................................................... 16-3716.8 Defence of Release of Liability...................................................... 16-37Chapter 16 — Case Digests ................................................................. 16D-1

Chapter 17 — AUTOMOBILE INSURANCE

17.1 Introduction............................................................................... 17-1(a) Compulsory Automobile Insurance ..................................... 17-3(b) Government Regulation of Automobile Insurance................... 17-4(c) How Automobile Insurance is Delivered .............................. 17-6(d) Automobile Insurance Rate Regulation ................................ 17-8(e) Entering the Insurer-Insured Relationship ............................. 17-9

(i) Government Monopoly Jurisdictions ......................... 17-9(ii) Standard Policy Jurisdictions ................................... 17-9

(f) Renewals ...................................................................... 17-12(g) Restrictions on Non-Renewal and Cancellation ...................... 17-13

(i) Government Monopoly Jurisdictions ......................... 17-13(ii) Standard Policy Jurisdictions ................................... 17-14

(h) Principles in Policy Interpretation ....................................... 17-15(i) Relative Emphasis on Tort or Accident Benefits for

Compensating Victims of Bodily Injury ............................... 17-1517.2 Definitions ................................................................................ 17-19

(a) Accident....................................................................... 17-19(b) Arising From/Arising Out of ............................................. 17-20(c) Automobile ................................................................... 17-21(d) Newly Acquired Automobile ............................................. 17-22(e) Temporary Substitute Automobile....................................... 17-23(f) Any Other Automobile .................................................... 17-24(g) Ownership, Use or Operation ............................................ 17-25(h) Trailers and Towing ........................................................ 17-28

17.3 Specific Coverages...................................................................... 17-30(a) Liability Coverage .......................................................... 17-30

(i) Consent.............................................................. 17-29(ii) Unnamed Insureds ................................................ 17-31(iii) Effect of Death of Named Insured ............................ 17-33(iv) Minimum Liability Limits....................................... 17-34(v) Restrictions on Coverage ........................................ 17-36

(b) Uninsured and Unidentified Automobile Coverage ................. 17-37(i) Uninsured Automobile ........................................... 17-38(ii) Unidentified Motorist ............................................ 17-39

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(iii) Insured Person ..................................................... 17-39(iv) Maximum Recovery .............................................. 17-41(v) Coverage Limitations............................................. 17-41(vi) Claims Procedures ................................................ 17-42(vii) Unsatisfied Judgment Fund ..................................... 17-43

(A) British Columbia, Alberta, Saskatchewan andManitoba ...................................................... 17-43

(B) Ontario and Atlantic Provinces .......................... 17-44(c) Property Coverage .......................................................... 17-44

(i) Collision and Upset............................................... 17-45(ii) Specified Perils .................................................... 17-46(iii) Comprehensive .................................................... 17-46(iv) All Perils ............................................................ 17-46(v) Theft ................................................................. 17-47(vi) Loss of Use by Theft............................................. 17-47(vii) Quasi-Liability Coverage for Damage to Temporary

Substitute Automobiles .......................................... 17-48(viii) General Average, Salvage, etc ................................. 17-48(ix) Deductible .......................................................... 17-48(x) Theft by Member of Household or Employee of

Insured............................................................... 17-49(xi) Exclusion of Certain Types of Losses........................ 17-49

(A) Damage to Tires, or Consisting of or Caused byMechanical Fracture or Breakdown, Rusting,Corrosion, Wear and Tear, etc ........................... 17-50

(B) Theft by Person in Lawful Possession UnderMortgage, Conditional Sale, etc ......................... 17-51

(C) Voluntary Parting with Title Whether Induced byFraud, etc ..................................................... 17-51

(xii) Exclusion of Coverage by Conduct of Insured............. 17-52(A) Impaired Driving and Criminal Offences .............. 17-52(B) Prohibited Use by Others ................................. 17-52.2

(xiii) Direct Compensation — Property Damage (Ontarioand New Brunswick) ............................................. 17-52.2(A) Application ................................................... 17-52.2(B) Restrictions on Other Recovery.......................... 17-54

(xiv) Government Monopoly Jurisdictions ......................... 17-54(d) Accident Benefits ........................................................... 17-55

(i) Who is Covered?.................................................. 17-56(A) Saskatchewan and Manitoba.............................. 17-56(B) British Columbia ............................................ 17-56(C) Ontario ........................................................ 17-57(D) Other Jurisdictions Using Standard Policies .......... 17-57

(ii) When Coverage Applies......................................... 17-58(iii) Priority of Payment Provisions................................. 17-60(iv) Death and Funeral Benefits ..................................... 17-61

(A) Funeral ........................................................ 17-61

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(B) Death........................................................... 17-62(1) Standard Policy Jurisdictions ....................... 17-62(2) British Columbia ...................................... 17-63(3) Ontario .................................................. 17-63(4) Saskatchewan and Manitoba........................ 17-63

(v) Medical and Rehabilitation Benefits .......................... 17-64(vi) Income Replacement Benefits .................................. 17-65

(A) Standard Policy Jurisdictions (other than Ontario) .. 17-65(B) British Columbia ............................................ 17-67(C) Ontario ........................................................ 17-67(D) Manitoba and Saskatchewan.............................. 17-68

(vii) Non-Earner Benefits .............................................. 17-68(viii) Permanent Impairment Benefits................................ 17-69(ix) Exclusions .......................................................... 17-69

(A) Standard Policy Jurisdictions ............................. 17-69(B) British Columbia ............................................ 17-71(C) Saskatchewan ................................................ 17-71(D) Manitoba ...................................................... 17-71

(x) Disputes and Limitation Periods............................... 17-7217.4 General Exclusions ..................................................................... 17-73

(a) Use Without Consent of Owner ......................................... 17-73(b) Garage Personnel Excluded............................................... 17-74(c) Automobile Rented or Leased to Another............................. 17-75(d) Automobile Used to Carry Explosives or Radioactive Material .. 17-75(e) Carrying Passengers for Compensation ................................ 17-76

17.5 Statutory Conditions.................................................................... 17-77(a) Applications of Statutory Conditions ................................... 17-77(b) Material Change in Risk................................................... 17-77(c) Qualified/Authorized to Drive............................................ 17-78(d) Permitting Person Not Qualified/Authorized to Drive .............. 17-79(e) Illicit Trade or Transportation ............................................ 17-80(f) Race or Speed Test ......................................................... 17-81(g) Requirement Where Loss or Damage to Persons or Property..... 17-82(h) Requirement Where Loss or Damage to Automobile ............... 17-84

17.6 Direct Recourse Against Insurer/Absolute Liability ............................. 17-85(a) Action Against Insurer for Application of Money Payable

Toward Judgment ........................................................... 17-85(b) Absolute Liability Provisions............................................. 17-87(c) No Defence that Instrument Issued as Policy is not a Policy ..... 17-88(d) Defence for Amounts in Excess of Minimum Limit ................ 17-89(e) Reimbursement of Insurer by Insured .................................. 17-90(f) Insurer as Third Party ...................................................... 17-91

(i) British Columbia, Saskatchewan and Manitoba ............ 17-9217.7 Inter-Jurisdictional Automobile Insurance Issues ................................ 17-93

(a) Legislative Provisions ...................................................... 17-94(b) Power of Attorney and Undertaking .................................... 17-96(c) Interprovincial Agreements ............................................... 17-97

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(d) Provisions of Auto Policy................................................. 17-97(e) Ontario Undertakings with Superintendent of Financial

Institutions .................................................................... 17-98Chapter 17 — Case Digests ................................................................. 17D-1

Volume 2

Chapter 18 — LIABILITY INSURANCE

PART 1: Introduction to Liability Insurance .......................................... 18-118.1 The Concept of Insurance for Legal Liability .................................... 18-1

(a) Sources of Legal Liability................................................. 18-2(b) Common Features of Liability Policies ................................ 18-3

18.2 Liability Policies in General .......................................................... 18-418.3 Defence of a Claim..................................................................... 18-6

(a) The Right to Defend ....................................................... 18-6(b) The Duty to Defend ........................................................ 18-7

(i) Existence of Contractual Rights ............................... 18-8(A) Validity of the Contract ................................... 18-8(B) Breach of Condition ........................................ 18-8(C) The Policy Period ........................................... 18-10

(ii) Policy Provisions Governing the Duty to Defend ......... 18-10(A) The Pleadings Rule ......................................... 18-11(B) What Constitues “The Pleadings”?...................... 18-13(C) Legal Labels and the Substance of the Pleadings.... 18-15(D) The Underlying Facts Exception ........................ 18-18(E) Coverage for Part of the Claim .......................... 18-21(F) Overlapping Coverage ..................................... 18-24

(iii) Excess Insurance .................................................. 18-25(A) The Excess Insurer’s Duty to Defend .................. 18-25(B) The Umbrella Insurer’s Duty to Defend ............... 18-26(C) Termination of the Primary Insurer’s Duty to

Defend Upon Exhaustion of Limits..................... 18-28(D) Allocation of Defence Costs Between Primary and

Excess Insurers .............................................. 18-30(E) Duty to Maintain Underlying Policy.................... 18-31

(c) Extra-Contractual Issues: Settlement of Claims and theDuties of Good Faith and Fair Dealing ................................ 18-31(i) Failure to Settle on Terms to Protect the Insureds from

Excess Liability.................................................... 18-34(ii) Failure to Advise Insureds of Conflict and to Appoint

Independent Counsel ............................................. 18-34(iii) The Change in the Relationship ............................... 18-35

(d) Duty of Good Faith Where There is Excess Insurance............. 18-36(e) The Agreement of Guiding Principles (Insurance Bureau of

Canada)........................................................................ 18-36.118.4 Injured Person’s Direct Right of Action Against Insurer ...................... 18-36.2

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Chapter 18 — Part 1 — Case Digests.................................................... 18D1-1PART 2: Commercial General Liability ................................................. 18-3718.5 Introduction to the Commercial General Liability Policy ...................... 18-3718.6 “Occurrence” Policies and “Claims-Made” Policies............................. 18-3918.7 The Basic Structure of the IBC Form 2100 CGL Policy ...................... 18-41

(a) The Declarations Page: Establishing the ContractualRelationship .................................................................. 18-42

(b) The General Preamble: Questions of Interpretation ................. 18-4318.8 Section 1 — Coverages................................................................ 18-44

(a) Coverage A. — Bodily Injury and Property Damage Liability... 18-44(i) Insuring Agreement: What Claims are Covered? .......... 18-45

(A) Occurrence.................................................... 18-46(B) Bodily Injury and Property Damage .................... 18-50

(1) Bodily Injury........................................... 18-52(2) Property Damage...................................... 18-52(3) When the Injury or Damage Took Place —

The Trigger of Coverage ............................ 18-58(C) Damages ...................................................... 18-61

(1) Environmental Remediation ........................ 18-62(2) Compensatory Damages ............................. 18-63

(D) Legally Obligated to Pay; Liability Imposed ByLaw ............................................................ 18-64(1) Contractual Liability.................................. 18-64(2) Other Legal Liability ................................. 18-68

(ii) Exclusions to Coverage A (Bodily Injury and PropertyDamage Liability) ................................................. 18-68.1(A) Exclusions to Coverage A (Bodily Injury and

Property Damage Liability) ............................... 18-69(1) Intentional Injury and Damage..................... 18-72(2) Liability Assumed Under Contract ................ 18-74(3) Automobile ............................................. 18-76(4) Property or Work in Which Insured has

Interest................................................... 18-80(b) Coverage B — Personal Injury Liability .............................. 18-98

(i) Personal Injury Damage ......................................... 18-99(ii) Exclusions to Coverage B....................................... 18-102

(c) Coverage C — Medical Payments ...................................... 18-102(i) Medical Payments and Exclusions ............................ 18-103

(d) Coverage D — Tenants’ Legal Liability............................... 18-104(e) Common Exclusions — Coverages A, C and D..................... 18-106

(i) Pollution............................................................. 18-108(A) Qualified Pollution Exclusion —IBC 2001 ........... 18-109

(1) Sudden and Accidental — Temporal Element.. 18-110(2) Primary versus Secondary Discharge ............. 18-111(3) Macro versus Micro Analysis ...................... 18-112(4) Known Loss, Loss-in-Progress and Fortuity .... 18-112(5) Regulatory Estoppel .................................. 18-112.1

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(B) Absolute Pollution Exclusion............................. 18-112.2(ii) Nuclear Energy Liability ........................................ 18-112.5(iii) War Risks........................................................... 18-112.5

(f) Supplementary Payments — Coverages A, B and D ............... 18-112.518.9 Section II — Who is an Insured? ................................................... 18-113

(a) Individuals .................................................................... 18-115(b) Partnerships and Joint Ventures ......................................... 18-115(c) Organizations Other than Partnerships or Joint Ventures .......... 18-116(d) Employees of the Named Insured ....................................... 18-116(e) The Named Insured’s Real Estate Manager........................... 18-117(f) Upon the Death of the Named Insured................................. 18-117(g) Newly Acquired Organizations .......................................... 18-118

18.10 Section III — Limits of Insurance .................................................. 18-118(a) Limits of Insurance in General........................................... 18-119(b) The Aggregate Limit ....................................................... 18-120(c) Each Occurrence Limit .................................................... 18-120(d) Personal Injury Limit....................................................... 18-120(e) “Tenants’ Legal Liability Limit [for] Any One Premises” and

the “Medical Expenses Limit [for] Any One Person” .............. 18-12118.11 Section IV — Commercial General Liability Conditions ...................... 18-12118.12 Section V — Definitions .............................................................. 18-128Appendix A: IBC Form 2100 — Commercial General Liability Policy ............. 18-133Chapter 18 — Part 2 — Case Digests.................................................... 18D2-1PART 3: Directors and Officers Indemnity and Insurance ........................ 18-15318.13 Liabilities of Directors and Officers ................................................ 18-15318.14 Indemnification of Directors and Officers ......................................... 18-154

(a) Permissive Indemnities..................................................... 18-155(b) Mandatory Indemnities .................................................... 18-155(c) Indemnity for Derivative Actions ....................................... 18-156(d) Court Approval of Indemnities........................................... 18-156

18.15 Insurance for Directors and Officers................................................ 18-156(a) Legislative Authority for Obtaining D&O Insurance ............... 18-156(b) Nature of D&O Coverage................................................. 18-157(c) Insured Persons .............................................................. 18-158(d) Coverage A - Direct Reimbursement Coverage ...................... 18-159(e) Coverage B - Corporate Reimbursement .............................. 18-161(f) Entity Coverage ............................................................. 18-161(g) Legal Obligation to Pay ................................................... 18-162(h) Loss ............................................................................ 18-163(i) Wrongful Act and Insured Capacity .................................... 18-164(j) Claims-made Coverage .................................................... 18-164.1

(i) Temporal Triggers of Coverage: the “Claim” and the“Retroactive Date” ................................................ 18-164.1

(ii) Definition of “Claim” ............................................ 18-164.3(iii) Reporting of Claims .............................................. 18-164.4(iv) Reporting of Circumstances That May Lead to a

Claim ................................................................ 18-164.5

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(v) Discovery Clauses/Extended Reporting Clauses ........... 18-164.6(k) Limits of Liability, Retentions, and Related Claim Provisions ... 18-164.6(l) Defence Costs and Settlement............................................ 18-164.7

(i) Reimbursement for Defence Costs ............................ 18-164.7(ii) Advancement of Defence Costs ............................... 18-164.7(iii) Conduct of the Defence and Selection of Counsel ........ 18-164.8(iv) Consent to Defence Costs and Settlement................... 18-164.9

(A) Consent May Not be Unreasonably Withheld ........ 18-164.9(B) Imposition of Insurer’s Billing Guidelines and

Hourly Rates ................................................. 18-164.9(v) Payment of Defence and Settlement Costs — First

Come, First Served Principle ................................... 18-64.10(vi) Allocation of Defence Costs.................................... 18-164.11(vii) Allocation of Settlement Costs................................. 18-164.12

18.16 D&O Exclusions ........................................................................ 18-164.14(a) Exclusions Applying Where Other Insurance is Available ........ 18-164.14

(i) Bodily Injury, Property Damage, and Personal Injury.... 18-164.14(ii) Pollution and Nuclear Risks .................................... 18-164.14(iii) Previously Reported and Prior Claims ....................... 18-164.15(iv) Pending or Prior Proceedings .................................. 18-164.15(v) Directorships or Offices in Other Corporations ............ 18-164.16(vi) Claims Covered Under Other Policies ....................... 18-164.16

(b) Exclusions for Dishonest Behaviour .................................... 18-164.16(i) Profit, Advantage, or Remuneration Without Legal

Entitlement ......................................................... 18-164.17(ii) Deliberately Fraudulent Acts ................................... 18-164.18(iii) Claims by Other Insureds — “Insured versus Insured”

and Major Shareholder Exclusions............................ 18-164.18Chapter 18 — Part 3 — Case Digests.................................................... 18D3-1PART 4: Residential Liability Insurance ................................................ 18-16518.17 Introduction............................................................................... 18-16518.18 The Insureds.............................................................................. 18-16618.19 Household ................................................................................ 18-16618.20 The Premises ............................................................................. 18-17018.21 Coverages: The Insuring Agreement................................................ 18-170

(a) Legal Liability ............................................................... 18-170(i) Legally Liable to Pay ............................................ 18-171(ii) Compensatory Damages ......................................... 18-172(iii) Bodily Injury....................................................... 18-172(iv) Property Damage.................................................. 18-173

(b) Personal Liability ........................................................... 18-173(c) Premises Liability ........................................................... 18-174(d) Voluntary Payments ........................................................ 18-174

18.22 Exclusions ................................................................................ 18-174(a) Common Exclusions ....................................................... 18-175

(i) Business Activities................................................ 18-175(ii) Intentional Acts.................................................... 18-177

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(iii) Criminal Acts ...................................................... 18-181(iv) Watercraft and Motorized Vehicles ........................... 18-183(v) Owned Property and Bodily Injury to an Insured ......... 18-184.1

(b) Other Exclusions ............................................................ 18-184.218.23 Defence and Supplementary Payments............................................. 18-184.2Chapter 18 — Part 4 — Case Digests.................................................... 18D4-1PART 5: Environmental Liability Insurance........................................... 18-18518.24 Introduction to Environmental Liability Insurance .............................. 18-18518.25 Commercial General Liability Policies and Pollution Exclusions ............ 18-186

(a) Qualified Pollution Exclusion ............................................ 18-186(b) Absolute Pollution Exclusion............................................. 18-188(c) Government Ordered Clean-ups, Costs and Damages .............. 18-188

18.26 Limited Pollution Liability (LPL) Coverage ...................................... 18-18818.27 Automobile Insurance Policy......................................................... 18-19018.28 Environmental Impairment Liability Policies ..................................... 18-191Chapter 18 — Part 5 — Case Digests.................................................... 18D5-1PART 6: Professional Liability Insurance .............................................. 18-19318.29 Introduction............................................................................... 18-19318.30 Coverage .................................................................................. 18-194

(a) Liability Imposed by Law................................................. 18-194(b) Professional Service ........................................................ 18-195(c) Coverage Period............................................................. 18-195

18.31 Exclusions ................................................................................ 18-197(a) Dishonest, Fraudulent, Criminal or Malicious Acts ................. 18-196(b) Express Warranties or Guarantees....................................... 18-199(c) Joint Ventures................................................................ 18-199(d) Miscellaneous ................................................................ 18-199

Chapter 18 — Part 6 — Case Digests.................................................... 18D6-1

Chapter 19 — MARINE INSURANCE

19.1 Introduction to Marine Insurance.................................................... 19-119.2 Constitutional Issues.................................................................... 19-2

(a) Jurisdiction Over Marine Insurance ..................................... 19-219.3 Canadian Maritime Law ............................................................... 19-7

(a) Definition ..................................................................... 19-7(b) Jurisdiction of the Courts.................................................. 19-9

19.4 Nature of Marine Insurance and Coverage ........................................ 19-10(a) Marine Adventures.......................................................... 19-11

(i) Maritime Perils .................................................... 19-11(ii) Perils of the Seas.................................................. 19-12(iii) Causation and Burden of Proof ................................ 19-14

(b) Inland Waters ................................................................ 19-15(c) Analogous Adventures — Land and Air Risks ...................... 19-16

19.5 Insurable Interest ........................................................................ 19-1719.6 Valuation and Measure of Indemnity............................................... 19-18

(a) Valued and Unvalued Policies ........................................... 19-18(b) Measure of Indemnity...................................................... 19-19

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(c) Floating Policies and Rectification ...................................... 19-20(d) Proportion Payable by Insurers .......................................... 19-21

19.7 The Policy ................................................................................ 19-22(a) Form ........................................................................... 19-22

(i) Lloyd’s S.G. Policy............................................... 19-22(ii) MAR Forms........................................................ 19-23

(b) Interpretation ................................................................. 19-23(c) Utmost Good Faith ......................................................... 19-24

(i) Disclosure........................................................... 19-25(ii) Representations .................................................... 19-27

(d) Formation and Conclusion of the Contract of Marine Insurance. 19-28(e) The Policy as Evidence of the Contract ............................... 19-29(f) Voyage and Time Policies ................................................ 19-30(g) Warranties .................................................................... 19-31

(i) Definition ........................................................... 19-31(ii) Effect of Breach of Warranty .................................. 19-32(iii) Descriptions of the Risk ......................................... 19-33(iv) Specific Warranties ............................................... 19-34

(A) Legality........................................................ 19-34(B) Seaworthiness ................................................ 19-35(C) Prohibited Waters and Sailing Dates ................... 19-37(D) Other ........................................................... 19-38

(h) Premium....................................................................... 19-38(i) Assignment ................................................................... 19-41

19.8 Establishing a Loss ..................................................................... 19-41(a) Abandonment ................................................................ 19-41(b) Proximate Cause and Inchmaree Clause ............................... 19-41(c) Changes in the Risk ........................................................ 19-42(d) “Sue and Labour” Clauses ................................................ 19-42

19.9 Recoverable Losses and Charges .................................................... 19-44(a) Actual Total Loss ........................................................... 19-44(b) Constructive Total Loss ................................................... 19-44(c) Partial Loss ................................................................... 19-46(d) Particular Average .......................................................... 19-47(e) General Average............................................................. 19-47(f) Salvage Charges............................................................. 19-48

19.10 Rights of Insurer on Payment ........................................................ 19-49(a) Subrogation................................................................... 19-49(b) Overinsurance and Contribution ......................................... 19-49

19.11 Actions .................................................................................... 19-50Chapter 19 — Case Digests ................................................................. 19D-1

Chapter 20 — PROPERTY INSURANCE

20.1 Fire Insurance............................................................................ 20-1(a) The Contract ................................................................. 20-1

(i) Introduction......................................................... 20-1

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(b) Perils Insured................................................................. 20-3(c) Other Elements of the Risk ............................................... 20-5(d) Limitation of Liability ..................................................... 20-7(e) Statutory Conditions........................................................ 20-8

(i) Introduction......................................................... 20-8(ii) Application of the Statutory Conditions in All Risk or

Multi-Peril Policies ............................................... 20-10(iii) Application by Statutory Prescription ........................ 20-10(iv) Application by Contractual Incorporation ................... 20-12(v) Defences to Contractual Incorporation Argument ......... 20-13

20.2 Theft Insurance .......................................................................... 20-14(a) General ........................................................................ 20-14(b) Conditions and Representations.......................................... 20-15(c) Proof of Loss ................................................................ 20-18

20.3 Hail and Weather Insurance .......................................................... 20-1920.4 Livestock Insurance .................................................................... 20-2220.5 All Risks Coverage ..................................................................... 20-24

(a) Scope of “All Risks” ....................................................... 20-24(b) “Physical” Loss or Damage............................................... 20-26(c) “Direct” Loss or Damage ................................................. 20-28(d) Loss caused by “any external cause” ................................... 20-29

20.6 Common Property Insurance Exclusions .......................................... 20-30(a) Introduction................................................................... 20-30(b) Faulty or Improper Workmanship and Design ....................... 20-30

(i) Policy Wording.................................................... 20-30(ii) “Faulty” and “Improper” ........................................ 20-31

(A) “Faulty” ....................................................... 20-32(B) “Improper”.................................................... 20-34

(iii) “Workmanship” ................................................... 20-34(iv) “Design” ............................................................ 20-35(v) The Resultant Damage Exception ............................. 20-36

(c) Inherent Vice................................................................. 20-39(d) Latent Defect................................................................. 20-40(e) Mechanical Breakdown .................................................... 20-41(f) Change in Temperature .................................................... 20-42(g) Setting, Moving, Shifting, Bulging and Cracking ................... 20-43

Chapter 20 — Case Digests ................................................................. 20D-1

Issues in Focus ................................................................................... IF-1Selected Legal Literature — Index to Insurance Legal Literature .................... LL-iTable of Concordance — Insurance Legislation Across Canada ..................... C-1Words and Phrases .............................................................................. WP-1Legislatively Defined Terms ................................................................... LT-1Index .............................................................................................. I-1

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