Coverage

• Author: Denis Boivin
• Pages: 281-348

281

CHAPTER 8

COVER AGE

A. INTRODUCTION

In insurance law, the most frequently litigated issue is whether the loss

suffered by the insured comes within the coverage offered by the con-

tract. Consult the cumulative index of any Canadian general reporter,

such as the Dominion Law Reports,1 the Ontario Reports2 or the We ster n

Weekly Reports,3 and you will invariably f‌ind that a majority of the re-

ported insurance cases deal directly or indirectly with contract inter-

pretation. Better yet, conduct an Internet search on CanLII, Quick law®,

or Westlaw® and you will uncover thousands of decisions in which the

scope of coverage provided by an insurance contract is the main focus.

As observed by professors Baer and Rendall, “it is probable that no

other insurance law issue commands more time in the judicial system

than this one.”4

Generally speaking, coverage is determined by two distinct vari-

ables: the insuring agreement and the exclusions. The insuring agree-

ment is the part of the policy that contains coverage provisions. These

terms def‌ine the objects and perils that come within the undertaking

provided by the insurer — the people and property that are under the

1 Dominion Law Repor ts (Aurora, ON: Canada Law Book).

2 Ontario Report s (Toronto: LexisNexis C anada Inc).

3 Western Weekly Law Reports (Toronto: Carswell).

4 Marvi n G Baer & James A Rendall, 6th e d (Toronto: Carswell, 2000) at 676.

INSURANCE LAW282

metaphorical umbrella and the hazards from which they are given

shelter. On the other hand, the exclusions are a list of objects and per-

ils that are explicitly or implicitly removed from this protection, even

though they fall within the scope of the undertaking at f‌irst glance. At

the risk of oversimplifying a complex issue, coverage equals the insur-

ing agreement minus the exclusions.

But there may be more to the question. In some circumstances,

contract interpretation will also involve public policy. Independent of

the contract, there are limits as to what insurance providers and con-

sumers can def‌ine as being within the contract’s coverage or beyond its

scope. As we shall see, considerations of public policy play an import-

ant role in shaping these limits. Likewise, there are cases in which the

insured’s loss has two independent causes: one that falls within the in-

suring agreement and one that is excluded by the contract. Here, courts

resort to principles of causation in order to determine whether the loss

is covered.

In this chapter, each of these variables will be examined: the insur-

ing agreement, the exclusions, public policy, and causation. 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 deter-

mining whether the expectations of an insured are reasonably 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 expectations, but are these ex-

pectations reasonable or justif‌ied in light of the facts, the policy, and the

law? When a court interprets an insura nce contract, this i s the ultimate

question that must be answered.

B. PRINCIPLES OF INTERPRETATION

1) Onus and Standard of Proof

In establishing whether losses are covered by an insurance contract,

the onus of proof is shared between the insurer and the insured.5 The

insured has the burden of establishing that an insured object was dam-

aged by an insured peril. At this stage, both the object and peril must

fall within the scope of the insuring agreement. Otherwise, the insured

has no claim under the policy. If both object and peril are covered,

5 Continental Insurance Co v Dalto n Cartage Co, [1982] 1 SCR 164 at 167 [Contin-

ental Insurance].

Coverage 283

at f‌irst glance, the insurer has the onus of establishing that the loss

is nonetheless excluded by reason of an express exclusion. Notwith-

standing the language of the coverage provisions, if the insurer can

demonstrate that either the object or the peril is specif‌ically excluded,

the insurer will be justif‌ied in rejecting the claim.

At both stages of the inquiry, the civil standard of proof applies:

the insured and the insurer must establish their respective claims on a

balance of probabilities. This i s true even where there is an allegation of

conduct that is morally blameworthy or that could have a criminal as-

pect, such as an allegation that the insured acted fraudulently or com-

mitted arson.6 This being said, “a trial judge is justif‌ied in scrutinizing

evidence with greater care if there are serious allegations to be estab-

lished by the proof that is offered.”7 Similarly, “context is all important

and a judge should not be unmindful, where appropriate, of inherent

probabilities or improbabilities or the seriousness of the allegations or

consequences.”8 But the standard of proof is always the civil one. In

all cases, the trial judge must scrutinize the evidence with care and

determine whether it is more likely than not that the loss is covered by

th e pol icy.

2) Rules of Construction

The onus and standard of proof come into play when the meaning of

the policy is clear, but the facts are not. When the meaning is unclear,

however, the policy must be interpreted before conclusions of fact may

be drawn. The Supreme Court of Canada has canvassed the rules gov-

erning the interpretation of insurance policies on many occasions.9

6 Ibid at 169.

7 Ibid at 170. See, for example, Barke v Economical Mutu al Insurance Co, 1999

ABCA 230 (tria l judge erred in f‌inding fraud); Bevac qua v Insurance Corporation

of British Columbia, 1999 BCC A 553 (trial judge erre d in f‌inding fraud); Liesch

v Standard Life Assurance Co, 2005 BCCA 195 (trial jud ge erred in not f‌inding

fraud); Kerkowich v Wawanesa Mutual In surance Co, 2005 MBCA 33 (trial judge’s

f‌inding of ars on upheld); Richardson v Smith, 2012 NBCA 75 (trial judge’s f‌ind-

ing of arson upheld).

8 FH v McDougall, 2008 SCC 53 at para 40.

9 See Consolidated Bathurst E xport Ltd v Mutual Boiler & Ma chinery Insurance Co,

[1980] 1 SCR 888 at 889–904, Estey J [Consolid ated Bathurst]; Brissette Estate

v Westbury Life Insurance Co, [1992] 3 SCR 87 at 92–93, Sopinka J [Brissette

Estate]; Reid Crowther & Part ners Ltd v Simcoe & Erie General Insurance Co,

[1993] 1 SCR 252 at 269, McLachli n J [Reid Crowther]; Non-Marine Underwr iters,

Lloyd’s of London v Scalera, 20 00 SCC 24 at paras 67–71, Iacobucci J [Scalera];

Jesuit Fathers of Upper Can ada v Guardian Insurance Co of Canada, 20 06 SCC 21

at paras 27–30, LeBel J [Jesuit Fathers]; Co-operators Life Ins urance Co v Gibbens,