Limitation periods may differ

On May 8, 2013, the Court of Appeal for Ontario reversed a decision by Justice Michael Quigley of the Superior Court of Justice that the two-year limitation period in the province’s Limitations Act, 2002 applied to a claim under a business insurance policy that included multi-peril property coverage.

BACKGROUND AND PROCEDURAL HISTORY

By way of background, The Co-operators General Insurance denied the property loss claim of Thomas and Marilyn Boyce on the basis that the smell from their fashion boutique had been caused by a skunk, which was not covered under their policy. More than a year after the incident, the Boyces issued their statement of claim. The Co-operators brought a motion for summary judgment, arguing that the claim was prescribed by the one-year limitation period set out in the contract of insurance.

Justice Quigley dismissed The Co-operators’ motion on the basis that the fire statutory conditions did not apply to a multi-peril policy. The motions judge also concluded the policy could not be considered a “business agreement” because it did not meet the requisite criteria of such an agreement.

On appeal, The Co-operators did not challenge that the one-year limitation in the fire statutory conditions had no application, essentially conceding it was not applicable to multi-peril policies. However, the insurer disputed Justice Quigley’s decision that the contract of insurance did not contain an enforceable one-year limitation period.

ANALYSIS

Ontario’s Court of Appeal considered three questions on appeal:

1. Is there a term in the contract of insurance that provides for a one-year limitation period?

2. If there is a term in the contract imposing a one-year time limit on claims, is that term capable of overriding the otherwise applicable two-year limitation period set out in the Limitations Act, 2002?

3. Is the contract a “business agreement” as defined in section 22(6) of the Limitations Act, 2002?

On the first question, the Court of Appeal held that the contract of insurance provided for a one-year limitation period in “clear and unambiguous” language. The Co-operators included all of the statutory conditions contained in section 148 of Ontario’s Insurance Act, including statutory condition 14, which sets out a one-year limitation period.

The court found that the policy language used closely tracked the wording used in the insurance contract considered in its 2002 decision, International Movie Conversions Ltd. v. ITT Hartford Canada, where it held that the policy was “clear” and did not require any reference to a statute for clarification.

The language that the court held is clear states as follows: “The Statutory Conditions apply to the peril of fire and as modified or supplemented by forms or endorsements attached apply as Policy Conditions to all other perils insured by this policy.”

The Court of Appeal answered the second question in the affirmative. In its reasoning, the court disagreed with the four requirements that Justice Quigley imposed on parties attempting to contract out of the statutory limitation period. Rather, the Court of Appeal held that the only requirement provided for in section 22 of the Limitations Act, 2002, was found in the definition of “business agreement.” At paragraph 16, the court emphasized that: “No other limitation appears, expressly or by implication, and certainly no content-related requirements appear in s. 22(5).”

Furthermore, at paragraph 20, the Court of Appeal provided the following direction to courts dealing with parties that attempt to contract out of the statutory limitation period:

“A court faced with a contractual term that purports to shorten a statutory limitation period must consider whether that provision in ‘clear language’ describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods. A term in a contract which meets those requirements will be sufficient for s. 22 purposes, assuming, of course, it meets any of the other requirements specifically identified in s. 22.”

Last, the Court of Appeal determined that the insurance contract constituted a “business agreement.” This determination, the court held, could be made solely by reference to the definition of “consumer” in the Consumer Protection Act, 2002. The act provides that a “consumer” is “an individual acting for personal, family or household purposes, and does not include a person who is acting for business purposes.” Accordingly, since the policy in question was related to the operation of the Boyces’ business, the contract of insurance could be considered a “business agreement” under s. 22 of the Limitations Act, 2002.

In the first instance, Justice Quigley reasoned that the policy in question was not a “business agreement” because it was a “peace of mind” contract and that insurance contracts were not covered by the Consumer Protection Act, 2002.

The Court of Appeal concluded this reasoning was not relevant as the issues are simply whether the contract is a “business agreement” and whether any of the parties to the contract is a “consumer” for the purposes of this determination.

COMMENT

In light of the Court of Appeal’s decision that the Boyces’ property loss claim was statute-barred, a few important considerations deserve mention.

Given its reasoning, including its finding that the incorporation into the policy of the one-year limitation was clear and unambiguous, the appeal court, unlike the court at first instance, did not need to address whether or not a multi-peril policy, as opposed to a fire policy, can rely on the one-year limitation in the fire statutory conditions.

Consequently, it appears that when dealing with business, as opposed to homeowner, policies, a one-year limitation may be included as long as it is clearly worded. In other words, because of section 22 of Ontario’s Limitations Act, 2002, insurers may continue to incorporate statutory conditions into policies as contractual terms, whether or not the policy covers more than the peril of fire.

On the other hand, where the contract of insurance relates to “personal, family or household purposes,” the two-year limitation period will apply.

Note: Hughes Amys LLP is a member of the ARC Group. See the March 2013 issue of Canadian Underwriter, Beyond Limits, which addresses the Boyce decision by Ontario’s Superior Court of Justice.