The Regulatory Framework

• Author: Denis Boivin
• Pages: 55-84

55

CHAPTER 3

THE REGULATORY

FRA M EWOR K

A. INTRODUCTION

Insurance law is pr ivate law. Not unlike torts and contracts, the fu nction

of this branch of law is to provide a relatively predictable framework in

which corrective justice can operate — that is, in which disputes be-

tween suppliers and consumers of ins urance products and services can

be settled eff‌iciently and fairly. This regulatory framework has many

interrelated sources, the most obvious of which is the contract itself.

In theory, when a conf‌lict arises, the f‌irst question is whether the parties

have envisaged a specif‌ic solution in their agreement. To the extent that

the contract is clear, it should arguably be enforced. As noted by the

Supreme Court of Canada, the primacy of private ordering is a funda-

mental tenet of the Canadia n civil justice system.1 However, in practice,

the insurance contract is often the problem, rather than the solution.

In many cases, the wording of the contract clashes with countervailing

factors or is open to conf‌licting interpretations. Moreover, the issue is

often whether a contractual relationship exists at all or whether the

terms of the agreement adequately ref‌lect the reasonable expectations

of both parties. In all of these instances, the so-called “will of the par-

ties” provides limited guidance. The regulatory framework must be

found elsewhere.

1 BG Checo Interna tional Ltd v British Columbia Hydro & Power Authorit y, [1993] 1

SCR 12 at 37.

INSURANCE LAW56

Canadian insurance law is a mixture of federal, provincial, and ter-

ritorial legislation, regulations, directives, common law, and custom.

This chapter provides an overview of this framework, but the details

are discussed throughout the book. The insurance industry is heavily

regulated. In fact, few industries have attracted the attention of fed-

eral and provincial governments, legislatures, and courts as much as

the insurance industry has. Self-regulation has never been a feasible

option. Along with banking, insurance was one of the f‌irst industries

targeted by federal regulators after Confederation,2 and the f‌irst statute

pertaining to insurance was adopted by Parliament in 1868.3 Insurance

was also one of the f‌irst industries to provoke serious ref‌lection con-

cerning the limits of classical contract theory, which places freedom of

contract above all other considerations. Indeed, most of the statutory

and common law principles discussed in this book were adopted in

response to def‌iciencies in the insurance market and in the laissez-faire

philosophy espoused in earlier centuries.4

B. DIVISION OF POWERS

Legislation is an important component of insurance law, and the Can-

adian insurance industry is subject to a myriad of legislative provisions

and regulations, many of which are discussed in the following ten chap-

ters. Generally speaking, two statutory schemes apply to the industry.

First, there is the federal scheme contained in the Insurance Companies

Act.5 Second, there are provincial and territorial schemes contained in

a series of provincial and territorial insurance acts. Today, there is rela-

tive calm between Ottawa and the provinces concerning their respect-

ive jurisdictions in the f‌ield of insurance. However, as is often the case,

this harmony came after years of constitutional battle between the two

levels of government.

2 Peter W Hogg, Constit utional Law of Canada, 2 d ed (Toronto: Carswell, 1985) at 457.

3 Marvin G B aer, “Harmonization of Can adian Insurance La w” in Ronald CC

Cuming, ed, Harm onization of Business Law in Canada (Toronto: Univers ity of

Toronto Press, 1986) at 208.

4 The story of how court s initially espous ed a laissez-fair e philosophy in resolving

contractual d isputes is recounted by Profe ssor Patrick S Atiyah in h is important

work, The Rise and Fall of the Freedom of Contract (Oxford: Cla rendon Press, 1979).

5 SC 1991, c 47.