Contract Interpretation
| Author | Denis Boivin |
| Pages | 189-216 |
A. INTRODUCTION
In insurance law, the most litigated issue concerns the interpretation of
the contract. Open any issue of Canadian Cases on the Law of Insurance1
or Canadian Insurance Law Reporter2and you will invariably find that a
majority of the reported cases deal directly or indirectly with interpret-
ing the scope of coverage provided by an insurance contract. The same
is true of insurance cases reproduced in reporters such as the Dominion
Law Reports3and the Ontario Reports.4And without doubt, the most
frequently asked question is whether the loss suffered by the insured
comes within the coverage offered by the contract.
Contract interpretation involves three distinct dimensions. The first
concerns the agreement. First and foremost, contract interpretation is
about defining the insured object and the insured peril in light of the
conditions, warranties, and exclusions provided expressly in the con-
tract and derived implicitly from the circumstances. The second dimen-
sion is public policy. Independently of the contract, there are limits as
to what insurance providers and consumers can define as being within
the contract’s coverage or beyond its scope. As we shall see, considera-
189
1Canadian Cases on the Law of Insurance (Scarborough, ON: Carswell).
2Canadian Insurance Law Reporter (Don Mills, ON: CCH Canadian Limited).
3Dominion Law Reports (Aurora, ON: Canada Law Book).
4Ontario Reports (Toronto: LexisNexis Canada Inc.).
CONTRACT
INTERPRETATION
chapter 8
tions of public policy play an important role in shaping these limits. The
third dimension of contract interpretation is also the most abstract. Sim-
ilarly to public policy, there are principles of causation that can exclude
losses that appear, at first glance, to lie within the scope of the policy.
In this chapter, each of these three dimensions will be examined.
But at the outset, we will review the main principles of interpretation
that apply in this field. In essence, determining the scope of coverage
is about determining whether the expectations of an insured are rea-
sonably founded in view of the circumstances. The natural inclination
of an insured is to claim coverage. Conversely, the natural inclination
of an insurer is to decline coverage. Both parties have their expecta-
tions, but are these expectations reasonable or justified in light of the
facts, the policy, and the law? When a court interprets an insurance
contract, this is the ultimate question that must be answered.
B. PRINCIPLES OF INTERPRETATION
1) Burden and Onus of Proof
In establishing the scope of the agreement, the burden of proof is shared
between the insurer and the insured. According to Continental Insur-
ance Co. v. Dalton Cartage Ltd.,5the insured has the burden of establish-
ing that the insured object was damaged by an insured peril. On the
other hand, the insurer has the burden of establishing that the loss is
nonetheless excluded, either because of an exclusion or because the
insured breached a condition precedent to recovery.
In both instances, the civil onus of proof applies: the insured and the
insurer must establish their claims on a balance of probabilities. This is
true, even where there is an allegation of conduct that is morally blame-
worthy or that could have a criminal aspect, such as an allegation that
the insured acted fraudulently.6This being said, “a trial judge is justi-
fied in scrutinizing evidence with greater care if there are serious allega-
tions to be established by the proof that is offered.”7In other words, the
onus of proof is always the civil one, but the probative value of evi-
dence will vary commensurately with the nature of the allegation.8
190 Insurance Law
6Ibid. at 169.
7Ibid. at 170 [emphasis added].
8 For recent illustrations of the onus of proof involved in alleging fraud, see Barke
v. Economical Mutual Insurance Co. (1999), 12 C.C.L.I. (3d) 180 (Alta. C.A.);
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