Canada
In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for Canada.
Key developments from 2021
2021 brought with it the continuation of the COVID-19 pandemic, impacting insurance companies and the regulation of insurance more broadly. In this chapter we recap of some of the major changes impacting the insurance industry moving into the new year.
Business Loss Coverage
The COVID-19 pandemic brought with it the rise of business interruption claims and pandemic insurance. In MDS Inc. v Factory Mutual Insurance Company, the Ontario Court of Appeal considered whether the insurer appellant was required to provide insurance coverage for losses arising from an unplanned shutdown. The Court providing broadly awaited clarity on the scope of the term “physical damage” in the context of exceptions to exclusion clauses. The Court held that the “physical damage” exception to the exclusion clause did not apply to economic losses caused by the inability to use equipment during a shutdown. While the case did not arise from a COVID based shutdown, this may be relevant to COVID-19 related insurance litigation claiming business interruption losses moving forward.
Promissory Estoppel and Insurance
In Trial Lawyers Association of British Columbia v Royal & Sun Alliance Insurance Company of Canada, the Supreme Court of Canada considered the application of the doctrine of promissory estoppel in the context of a personal injury claim. Specifically, the Court found that an insurer was not estopped from denying coverage by its conduct before it had actual knowledge of material facts constituting the insured’s breach of the policy.
“Core Policy Decisions” and Government Immunity
As well, in 2021, the Supreme Court of Canada heard Nelson (City) v Marchi. The Court clarified the law with respect to what constitutes a “core policy decision” rendering a government of public authority immune from liability. The Court specifically defined a core policy decision as “decisions as to a course or principle of action that are based on public policy considerations, such as economic, social and political factors, provided they are neither irrational nor taken in bad faith.” The Court went on to outline 4 factors to be used to identify core policy decisions including: the level and responsibilities of the decision-maker; the process by which the decision was made; the nature and extent of budgetary considerations; and the extent to which the decision is based on objective criteria. As well, the Court noted that financial implications and/or using the word “policy” are not determinative of whether a decision is a core policy decision immune from liability.
Duty to Defend Claims Alleging Intentional Acts
The Supreme Court of British Columbia in Henderson v Northbridge General Insurance Corporation considered whether an insurer had a duty to defend a claim against its insured arising from negligence and assault allegations in the alternative. The insured operated a daycare and had been accused of shaking an infant baby in her care. The insurer provided general liability coverage but denied coverage on the basis of an exclusion for bodily injury despite the negligence claim being the primary cause of action. The court held that the claims in negligence and the intentional tort of assault were not sufficiently disparate to render the two claims unrelated as they arose from the same actions and had caused the same harm. The court therefore held that the negligence claim was derivative and the insurer was not obligated to defend the insured.
Indivisible Injuries
The British Columbia Court of Appeal in Neufeldt v Insurance Corporation of British Columbia commented on whether injuries sustained in two accidents were indivisible in nature. If injuries are indivisible, the damages which flowed from each injury cannot be assessed separately and distinctly, leading to liability concerns. The Court found that, in order to determine if injuries are indivisible, causation needs to be determined and, if only some injuries are indivisible, damages must be approached through the Long v Thiessen approach.
Dispute Resolution Provisions
The Superior Court of Quebec in 9369-1426 Quebec inc. (Restaurant Bâton Rouge) declined jurisdiction over a class action suit against an insurer in favour of dispute resolution provisions in the insurance policy, namely, mediation and arbitration provisions.
Material Change
In Dubroy v Canadian Northern Shield Insurance Co, the British Columbia Superior Court considered whether an individual moving out of a home constituted a material change in risk such that its non-disclosure warranted no coverage. The Court found that the policy was not void because there was no change in risk – the house was still occupied by family members of the exclusive owner and the insurer continued to insure the same risk.
Climate Change
On October 12, 2021, OSFI published a summary of stakeholder feedback in respect of a discussion paper entitled “Navigating Uncertainty in Climate Change: Promoting Preparedness and Resilience to Climate-Related Risks” released on January 11, 2021. This discussion paper invited federally regulated financial institutions, federally regulated pension plans and interested stakeholders to respond to specific questions developed by OSFI regarding climate change-related risks and the development of guidance to address such risks.
Foreign Insurers
On March 29, 2021, OSFI released a letter indicating that it will be revising the vested asset regime for foreign insurance companies operating as branches in Canada. The Insurance Companies Act (Canada) requires foreign insurance companies to maintain in Canada an adequate margin of assets in respect of their insurance business in Canada. The Canadian branch of the Company must vest these assets in trust pursuant to OSFI Standard Form Trust Agreement (Form 541) in a Canadian financial institution selected by the Branch.
On June 28, 2021, OSFI issued its final version of Guideline E-4: Foreign Entities Operating in Canada on a Branch Basis (Guideline E-4). Previous guidance in respect of foreign insurance branches and bank branches (Branches) was contained in Guideline E-4A: Role of the Chief Agent & Record Keeping Requirements and Guideline E-4B: Role of the Principal Officer and Record Keeping Requirements, respectively. OSFI has now consolidated its guidance in respect of foreign insurers and banks.
What to look out for in 2022
Business Loss Coverage
We see that more COVID-19 litigation will be addressed by Canadian Courts as damages crystallise and the Courts begin to review these cases in earnest. We expect a number of decisions will be summary in nature and that a great deal of guidance will be taken from the initial cases on how courts in general will deal with these issues.
Promissory Estoppel and Insurance
Looking forward to 2022, we envision that insurers may be more ready to issue reservations in cases where they might not have done so previously, particularly in cases that have potential for prior notice and disclosure issues.
“Core Policy Decisions” and Government Immunity
In 2022 we expect that there will be more discussion and potential litigation on Municipal Liability matters and whether infrastructural decisions were policy or operational, particular as climate change is said to cause weather-related flooding.
Duty to Defend Claims Alleging Intentional Acts
Looking to 2022, we see this case as making it clear that deliberate conduct exclusionary language will have to be made more distinct if Underwriters wish to avoid liability.
Indivisible Injuries
We see more potential in the “invisible injury” category particularly with regard to brain damage as more is understood about the nature of brain trauma. The topic is fast becoming one of interest amongst the personal injury bar.
Dispute Resolution Provisions
We expect to see a renewed emphasis on insurance providers inserting well-drafted dispute resolution provisions in their policies especially in light of the rise in class actions against insurance providers amid COVID-19.
Material Change
For 2022 we note that the problem of unoccupied dwellings continues to be significant for insurers and we suspect the move may be to require warranties from insureds as to occupancy so as to emphasise the need to not leave dwellings unprotected for prolonged periods of time.
Written by Thomas R. Whitby, Amanda Cutinha and Mark R. Frederick
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