"This policy contains a clause which may limit the amount payable." We all must have seen this line appearing at the beginning of almost every insurance policy, mostly on the first page. Did you know that this is a statutory requirement pursuant to the Insurance Act? Section 31 of the Act reads as under:
A contract containing
(a)a deductible clause,
(b)a co-insurance, average or similar clause, or
(c)a conditional or unconditional clause limiting recovery by the insured to a specified percentage of the value of any property insured at the time of loss,
must have printed or stamped on its first page in conspicuous bold type the words "This policy contains a clause which may limit the amount payable" and, unless these words are so printed or stamped, the clause is not binding on the insured.
Can you however contemplate the importance of this one line and what ramifications an insurer may face if this line is missed, even though in error or due to a simple clerical mistake for that matter? Until now, I used to think this one line is a mere formality that is put there just for the sake of it. However, this recent decision just sent me in a state of shock.
In PCL Constructors Westcoast Inc. v. Royal & Sun Alliance Insurance Company of Canada, 2019, the Supreme Court of British Columbia discussed the importance of this one line and how the absence of it could completely change the application of any “limitation clause” in any given policy.
The facts of the case are as under.
In 2012, the City of Victoria (the “City”) tendered the plaintiff, PCL Constructors Westcoast Inc. (“PCL”), a project comprising of the construction of the Johnson Street Bridge Replacement Project in Victoria, British Columbia (the “Project”).
The contract given by the City to PCL included the following clauses pertaining to insurance of the project:
17.5 Deductibles: The contractor will be responsible for the payment of all deductibles for the insurance policies described in GC.17, including for the payment of all deductibles for the insurance policies described in GC. 17.7.
17.7 City provided Insurance Coverage: This policy will have the following deductibles: (A) $250,000 for water damage… and (C) $250,000 for all other losses.
The City obtained builders risk insurance from the defendant RSA. For understandable reasons, PCL was not involved in negotiating the contract of insurance with RSA and was not involved in obtaining the insurance from RSA.
In 2015, PCL suffered direct physical loss of damage to insured property when water entered the formwork during a concrete pour damaging the concrete foundations of the new bridge. The loss was reported to RSA.
Over the next two years RSA refused to pay the claim on the basis that PCL was not the named insured under the policy. In 2017, PCL brought an application for, inter alia, a declaration that it was an insured under the Policy and RSA took no position on the application. An order was released confirming PCL is Insured under the policy. The defendant, after an year of the order, acknowledged that $520,330.22 of the $544,009.87 claimed by PCL was covered under the policy but was subject to the deductible of $250,000.
PCL, taking issue with the deductible, filed a Notice of Application seeking summary judgment against RSA.
POSITION OF THE PARTIES
It was submitted that the claim should not be subjected to a deductible as the policy does not comply with s. 31 of the Insurance Act. The front page of the Policy did not contain the statement: “This policy contains a clause which may limit the amount payable.”
It was a drafting error. Further, it was argued that it would be inequitable for PCL to not be bound by the Policy’s deductible given that the contract between the City and RSA was at all times intended to include a $250,000 deductible, a fact they say was known to and accepted by PCL at all material times.
1. What is the effect s.31 of the Insurance Act and consequences of this drafting error?
2. Whether Equitable Doctrines or the Duty of Honest Performance Override the Insurance Act?
The onus was upon RSA to prove that the deductible applied to the claim.
The Court stated:
Courts have routinely held that statutory provisions such as s. 31 are to be applied strictly against the insurer whether or not the deductible was otherwise brought to the attention of the insured.
It matters not if PCL was aware of the deductible. The cases are clear: if the words mandated by s. 31 do not appear on the front page of the policy the deductible is not in effect.
Equitable Doctrines or the Duty of Honest Performance – Can they Override the Insurance Act?
RSA sought relief from the effect of s. 31 pursuant to the equitable doctrines of rectification, promissory estoppel as well as a remedy for PCL’s breach of duty of honest contractual performance.
PCL took the position that equitable remedies cannot be invoked in the face of a mandatory statutory requirement enacted for the benefit of the insured.
The Honourable Madam Justice Murray, writing for the court, and ordering RSA to pay the $250,000 deductible to PCL, confirmed:
The law is further settled that equitable remedies are not available against statutory duties. It would therefore be incongruous to allow rectification or estoppel. Given that the duty of honest performance is based on the same premise, I find that it too cannot override statutory duties.
An eye opener decision. For the underwriters, be very cautious while drafting those policies. Also, from the Insured’s perspective, be cognizant of these statutory provisions and whether such provisions are complied with in the insurance policies issued by your Insurers.