Neo J. Tuytel, Fraser Litigation Group, General Editor Krista Prockiw, Insurance Corporation of British Columbia, Associate Editor

Transcription

1 Neo J. Tuytel, Fraser Litigation Group, General Editor Krista Prockiw, Insurance Corporation of British Columbia, Associate Editor VOLUME 32, NUMBER 5 Cited as 32 Can. J. Ins. L. SEPTEMBER 2014 ORDER TO SAFEGUARD THE RIGHTS OF THE PARTIES: A CAUTIONARY TALE Jocelyn F. Rancourt, Senior Partner Norton Rose Fulbright On February 28, 2014, in Hydro-Québec v. SSPHQ et al., 1 the Quebec Court of Appeal ruled on an employer s right to recover employees premiums retroactively to the effective date of changes to a supplemental group life insurance plan. Facts The unionized employees of Hydro-Québec belonging to two unions are entitled to In This Issue ORDER TO SAFEGUARD THE RIGHTS OF THE PARTIES: A CAUTIONARY TALE Jocelyn F. Rancourt AGAIN, AN AMBIGUOUS QUESTION: IS THAT ATV OWNED BY YOU? C. Nicole Mangan IS ANYBODY HOME? B.C.C.A. CLARIFIES SCOPE OF VACANCY EXCLUSION IN HOMEOWNER S POLICY Laura A. Wright supplemental group life insurance (SGLI) coverage. This insurance is optional, and the costs are borne equally by the supplemental group life insurance plan members (Plan Members) and Hydro-Québec. In November 2000, Hydro-Québec informed the Plan Members of changes that would result in a sharp increase in their premiums. Grievances were filed alleging that the changes contravened the collective agreement. Hydro-Québec set the effective date for the changes at August 31, 2001, and asked the Plan Members to elect to either maintain or terminate their enrolment in the plan on that date. On August 28, 2001, the union applied to the grievance arbitrator for a safeguard order. The order was allowed. The arbitrator ordered Hydro-Québec to maintain the status quo in respect of the plan, to maintain the funding method and existing rates, and to suspend the elections already made by the Plan Members until there was a final ruling or until an agreement was reached between the parties.

2 CANADIAN JOURNAL OF INSURANCE LAW The Canadian Journal of Insurance Law is published bi-monthly by LexisNexis Canada Inc., 123 Commerce Valley Drive East, Suite 700, Markham, Ontario L3T 7W8 Design and Compilation LexisNexis Canada Inc Unless otherwise stated, copyright in individual articles rests with the contributors. All rights reserved. No part of this publication may be reproduced or stored in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright Act. ISBN: ISSN: ISBN: (Print & PDF) ISBN: (PDF) Publications Mail Registration No Subscription rates: $440/year (Print or PDF) $505/year (Print & PDF) Please address all editorial inquiries to: Boris Roginsky, Journals Editor LexisNexis Canada Inc. Tel. (905) ; Toll-Free Tel Fax (905) ; Toll-Free Fax EDITORIAL BOARD GENERAL EDITOR Neo J. Tuytel, Fraser Litigation Group, Vancouver ASSOCIATE EDITOR Krista Prockiw, ICBC, Vancouver EDITORIAL BOARD MEMBERS Peter Aumonier, Vice-President, Claims, Lombard Canada Ltd. Professor Barbara Billingsley, University of Alberta, Faculty of Law J. Bruce Carr-Harris, Borden Ladner Gervais LLP, Ottawa André Legrand, Norton Rose Canada, Montréal Lee Samis, Samis & Company, Toronto Michael S. Teitelbaum, Hughes Amys LLP, Toronto Note: This newsletter solicits manuscripts for consideration by the General Editor, who reserves the right to reject any manuscript or to publish it in revised form. The articles included in Canadian Journal of Insurance Law reflect the views of the individual authors. This newsletter is not intended to provide legal or other professional advice and readers should not act on the information contained in this report without seeking specific independent advice on the particular matters with which they are concerned. 50 Three years later, an arbitration panel found that Hydro-Québec had not contravened the collective agreements. It did determine, however, that Hydro-Québec had failed in its duties as mandatary and that it prevented Hydro-Québec from giving effect to its changes unless certain conditions were met. Judicial reviews ensued, culminating in a Quebec Court of Appeal ruling on April 30, The court found that Hydro-Québec had not contravened the collective agreement, and revoked the arbitrator s conditions. A leave for appeal to the Supreme Court was dismissed on December 17, Following this win, Hydro-Québec asked the Plan Members to pay the premiums they would have been required to pay during the period from September 2001 to June The unions filed a grievance against this decision by Hydro-Québec, arguing that the changes to the SGLI plan came into effect only on December 17, Hydro-Québec argued that the safeguard order was provisional and conservatory and, consequently, the rights of the parties were preserved in the same state as before the order. Hydro- Québec could, therefore, demand payment of the modified premiums, because the arbitration panel had ruled that it had the right to make changes to the SGLI plan and to increase the premiums, because that right had existed since The Decision of Arbitrator Jean- Pierre Lussier Arbitrator Jean-Pierre Lussier allowed the grievances on January 27, He reasoned that a distinction needed to be made between a safeguard order issued in civil matters and such an order issued in labour law. The arbitrator stressed that a safeguard order in civil matters lasts for a very limited period

3 (i.e., until the interlocutory judgment) whereas a safeguard order issued under the Labour Code lasts until the grievance is finally decided. Arbitrator Lussier then refuted Hydro-Québec s argument that its right to collect premiums had been suspended since He stated that Hydro-Québec s right was uncertain at the time the safeguard orders were issued and that the exercise of that right had been suspended pending a final decision by the arbitrator. The right became certain and implementable only when the arbitrator handed down a final decision. The right to demand premiums from the Plan Members was therefore situated in time by the arbitrator at December 17, 2009, without retroactive effect. To support his reasoning, Arbitrator Lussier gave the example of an order to maintain the status quo ante, which allows a dismissed employee to continue working despite his or her dismissal. He explained that if the grievance contesting dismissal is subsequently disallowed, the dismissal has to take place after the arbitrator s final decision. Accordingly, the work that the employee performed in the interval and the compensation received could not be affected retroactively. By analogy, the right in the case involving Hydro-Québec came into existence at the time of the final decision, and the employees therefore did not have to pay the modified insurance premiums retroactively. Arbitrator Lussier recognized the potential damage this situation could cause Hydro-Québec, which had seen its exercise of a recognized right suspended by a safeguard order, and said that the case illustrated the need to be very careful before issuing such an order. The Ruling of the Court of Appeal The Court of Appeal dismissed the motion for a judicial review filed by Hydro-Québec. It 51 agreed fully with the arbitrator s line of reasoning. It said that it concurred with the arbitrator that certain safeguard orders, like those in this instance, cannot be revoked retroactively. It acknowledged that the changes to the SGLI plan presented by Hydro-Québec could not be implemented until the time of the final decision and that Hydro-Québec could not demand retroactive payment of the new premiums. Comments The court took great care to point out that its ruling did not claim to settle the fate of all safeguard orders issued under the Labour Code. It is important to realize that this was a very special situation for Hydro-Québec: it wanted to make changes to the terms and conditions of an SGLI plan; a safeguard order prevented it from implementing the changes during an eight-year period; its right to change the plan was finally recognized by the courts, and the safeguard order was revoked; yet, despite this, it could not demand payment of the insurance premiums retroactively because the right, according to the Court of Appeal, came into existence at the time of the grievance arbitrator s final decision. If there is a lesson here, it is this: be very careful before issuing an order to safeguard the rights of the parties. Norton Rose Fulbright 2014 [Editor s note: Jocelyn F. Rancourt s areas of practice include grievance arbitration, occupational health and safety, certification, collective agreement decrees, collective bargaining, labour standards, individual contracts of employment, human rights and freedoms, and pay equity. Mr. Rancourt is the Local Chair of the Employment and Labour Law Group in Quebec City.] 1 Hydro-Québec v. Syndicat des spécialistes et professionels d Hydro-Québec, section locale 4250, SCFP-FTQ (SSPHQ), [2014] J.Q. no 1552, 2014 QCCA 396.

4 AGAIN, AN AMBIGUOUS QUESTION: IS THAT ATV OWNED BY YOU? Allegations of the negligent supervision of a teenage child can have many consequences for insurers, the least of which may be extensive coverage litigation. The Supreme Court of Canada refused leave to appeal the Newfoundland and Labrador Court of Appeal ( N.L.C.A. ) decision in Dominion v. Hannam. 1 The decision interpreted a motorized vehicle ownership, use or operation exclusion clause and an exception for vehicles you do not own contained in a broad-form homeowner s insurance policy (the Policy ). The refusal to grant leave seems to maintain the murkiness in Canadian jurisprudence surrounding claims of negligent supervision in the context of motor vehicle accidents and coverage for these types of claims pursuant to personal lines policies. The Facts Multiple actions were commenced following an ATV accident in a gravel pit. A teenage passenger sustained serious injuries after the ATV driver crashed into a piece of heavy equipment. The ATV was owned by Larry Hannam who permitted his teenage son, Jordan, to use the ATV. Jordan, in turn, authorized Ms. Squires, also a teenager, to use the ATV. Ms. Squires was driving with the teenage passenger when the accident occurred. The actions named various defendants, including the driver and her parents, Mr. and Mrs. Hannam, Jordan, and the gravel pit owner. The allegations against the Hannams focused on motor vehicle owner s vicarious liability and failure on all their parts to supervise the use of the ATV. The ATV was not insured under the Hannam family s motor vehicle insurance policy though such insurance was available. The insurer sought a determination as to whether it had a duty to defend the Hannams. C. Nicole Mangan, Partner Richards Buell Sutton LLP The Ruling The applications judge determined that the insurer owed a defence to the Hannams. The appeal court agreed, for different reasons, that there was a duty to defend Mrs. Hannam and Jordan, but found that Mr. Hannam was not entitled to a defence. There was no question throughout the coverage proceedings that the claims against each Hannam family member fell within the grant of coverage. At issue was the application of two policy provisions: an exclusion clause for ownership, use or operation of motorized vehicles and an exception to this exclusion for motorized vehicles you do not own. The applications judge, relying on motor vehicle insurance coverage cases, concluded that use of a motor vehicle did not include the act of permitting another to operate a vehicle. 2 The appeal court rejected this analysis. It determined that the actions of the insureds themselves in the context of the policy wording must be considered. Doing so, it found that all allegations regarding supervision, including providing consent to drive, entrustment, and transfer of the ATV, arose from the ownership, operation or use of the ATV. The true nature of the allegations against the Hannams rendered the exclusion applicable. This determination, however, did not conclude the matter, because the exception to the exclusion required consideration. The exclusion contained an exception for Motorized Vehicles You Do Not Own. The exception read: You are insured against claims arising out of your use or operation of any motorized land vehicle [ ] which you do not own. The terms you and your were defined policy 52

5 terms that included: the named insured; that person s spouse; and the children of either. The argument surrounding the exception focused on whether vehicles you do not own required a singular or collective interpretation of you. The insured argued that it required a singular interpretation (i.e., it included only Mr. Hannam) while the insurer argued for a collective interpretation (i.e., it included all the Hannams). The Court of Appeal extensively discussed past court decisions that have struggled with the proper interpretation of similar policy terms. Terms such as you and your are often used in plain language policies, seemingly interchangeably, as both defined terms and pronouns (e.g., your may mean one or you or any of you or all of you ). Given the ambiguity this mixed use creates, the court concluded that it cannot be safely assumed that the word your has its defined, extended meaning wherever it appears in the Policy. The language of the exception thus gives rise to the possibility of coverage for Jordan and Mrs. Hannam. It does not for Mr. Hannam as the acknowledged owner of the ATV. No decision as to how this provision is to be interpreted was made by the court. For the purposes of assessing the duty to defend, it was sufficient that differing interpretations were possible. Practical Considerations for Insurers Using plain language in insurance policies is a valuable exercise; however, the exercise does have its pitfalls. In this case, words used interchangeably in a policy as both a defined term and a part of everyday language created ambiguity, which invariably was construed against the insurer. Insurers and their claims examiners, in the context of determining duties to defend, are well advised to pay particular attention to use of pronouns such as you and your in making their determinations. A reading of Dominion v. Hannam will assist in understanding the frailties inherent in this type of policy wording. Underwriters may wish to consider implementing greater usage of defined terms such as Named Insured and Unnamed Insured in policy language in order to avoid ambiguity. Finally, it is notable that the NLCA has again followed the Ontario Court of Appeal lead on awarding solicitor and client costs rather than party and party costs to successful insureds in the context of duty to defend applications. Insurers should consider including express language in their policies that addresses cost consequences in the context of duty to defend disputes. Richards Buell Sutton LLP 2014 [Editor s note: C. Nicole Mangan is a Partner at Richards Buell Sutton LLP in Vancouver, British Columbia, who practises in insurance litigation, defending personal injury, property damage, breach of duty, and coverage denial claims. Her other practice areas include real estate disputes and employment law.] 1 2 Pender (Guardian ad litem of) v. Squires, [2013] N.J. No. 228, 2013 NLCA 37, rev d Hannam v. Dominion of Canada General Insurance Company, [2013] S.C.C.A. No Pender, ibid., para

6 IS ANYBODY HOME? B.C.C.A. CLARIFIES SCOPE OF VACANCY EXCLUSION IN HOMEOWNER S POLICY The British Columbia Court of Appeal in Coburn v. Family Insurance Solutions [Coburn] 1 recently clarified the scope of a vacancy exclusion in a homeowner s policy, concluding that a house with no one living in it for more than 30 days is vacant even where the homeowner attends the property daily to conduct renovations, the homeowner sleeps in the house for a night, the homeowner has secured prospective tenants, and the prospective tenants store personal possessions on the property. In Coburn, the homeowners began extensive renovations to a house they had previously rented to long-term tenants whose lease had come to an end. While those renovations were underway, no one lived in the house. The previous tenants had already removed all their belongings, and they were not going to return. The homeowners stored a mattress in the garage, but they did not store any personal items, furnishings, or equipment in the home for their use. The homeowners found new tenants who agreed to move in after the renovations were completed. Prior to the move-in date, those new tenants stored some of their belongings under a lean-to shelter outside the house, but not in the house. One of the homeowners did most of the renovation work himself, which meant he was at the house almost daily between 8 and 14 hours each day. After working those long days, he returned each night to his principal residence in another community, except once, when he slept Laura A. Wright, Associate Counsel Alexander Holburn Beaudin + Lang LLP on a mattress on the floor in the house he was renovating. Before the new tenants moved in, the house was significantly damaged by a fire. The renovations had been in progress for approximately 80 days by that time. The insurer denied the homeowners coverage under their property policy, because the loss occurred while the house had been vacant for more than 30 days. The relevant exclusion in the policy provided as follows: This insurance does not cover loss or damage arising from [ ] any perils while the Dwelling Building is, to the knowledge of the Insured, Vacant, as defined, for more than thirty (30) consecutive days or in the Course of Construction. The term vacant was defined in the policy as follows: The occupant(s) has/have moved out with no intent to return or the dwelling does not contain furnishings or household equipment sufficient to make it habitable. However, the policy did not define the terms occupant, occupied, moves in, or contents. The summary trial judge upheld the insurer s denial. In coming to that conclusion, the summary trial judge rejected the argument that the homeowner s regular presence at the house, conducting renovations, meant that the property was not vacant. He also rejected the argument that the vacancy ended when homeowners reached an agreement with their new tenants, and those tenants moved some of their personal belongings onto the property. The Court of Appeal agreed with the summary trial judge. After reviewing a long line of authorities dealing with rental dwellings under renovation 54

7 and whether those dwellings were vacant within the meaning of the relevant insurance contracts, the appellate panel found that the homeowner s almost daily presence in the house to conduct extensive and protracted renovations did not make him an occupant. Quite simply, he did not live there; instead, he lived in a different home in another community. The Court of Appeal agreed to consider new evidence about the timing of the homeowner s overnight stay at the house in relation to the fire and accepted that he slept overnight at the house within 30 days of the date of loss. However, the Court of Appeal ruled that staying one night did not make the homeowner an occupant of the house. It also rejected the argument that the tenants had become occupants of the house (and the house had therefore ceased to be vacant) when they entered into a rental agreement with the homeowners or when they moved some of their possessions onto the property. Like the homeowner, the tenants did not reside in the house. As a result, the Court of Appeal agreed with the court below that the vacancy exclusion applied and that the homeowners therefore did not have coverage for their loss. Therefore, the Court of Appeal dismissed their appeal. Vacancy cases often feature policyholders who are unmindful of the vacancy exclusion in their insurance contracts. Coburn is distinct from those cases because, in Coburn, the homeowners took the appropriate steps to arrange and pay for a vacancy permit after renovations had been underway for a month (e.g., when the house had been vacant for 30 days). Their policy was amended by the addition of a one-month vacancy permit, and the homeowners paid the additional premium for that extra coverage. During the month the vacancy permit was in effect, the homeowners found their new tenants and reached a rental agreement with them. It was clear from the summary trial evidence that the homeowners did not permit the tenants to move in or even store some of their possessions inside the house at that time, because the renovations were not completed. However, the homeowners told their broker that the new tenants had moved into the house and arranged to have the vacancy permit cancelled, saving themselves approximately $45 per month in premiums. In so doing, the hapless homeowners left themselves uninsured for the very loss that the vacancy permit they cancelled but should have instead extended would have covered. The Court of Appeal may have been tempted to look past the language of the exclusion and to focus instead on the risk of loss actually assumed by the parties under the circumstances. The commercial reason for vacancy exclusions is the obvious elevated risk of loss when premises are vacant. In this case, one might have argued that the risk was not elevated at all, because the homeowner was physically present at the house from 8 to 14 hours per day, which is comparable to the amount of time that many typical homeowners spend in their own homes, when taking into account work and other commitments outside the home. Fortunately for insurers and others who depend upon consistent interpretation of contractual language, the Court of Appeal did not succumb to this temptation. Coburn serves as a useful precedent, which should give confidence to insurers, that the courts will interpret the vacancy exclusion in homeowner s policies in a fashion according with the plain meaning of the words used in the insurance contracts. It is also a reminder that, as always, insurers should ensure that their exclusion language is clear and unambiguous. Alexander Holburn Beaudin + Lang LLP 2014 [Editor s note: Laura A. Wright is Associate Counsel at Alexander Holburn Beaudin + Lang LLP 55

8 in Vancouver, British Columbia. With 20 years of legal experience both in private practice and as in-house counsel with a global insurance company, Ms. Wright has accumulated considerable knowledge in many aspects of the insurance industry. Her litigation practice at AHBL is focused exclusively in insurance law, and features the full range of coverage, defence, and subrogation matters.] 1 [2014] B.C.J. No. 314, 2014 BCCA 73. INVITATION TO OUR READERS Have you written an article on a current issue that you think would be appropriate for Canadian Journal of Insurance Law? The Editors welcome all article submissions and look forward to receiving articles that would be of interest to the readers of this Journal. Do you have any suggestions for topics you would like to see featured in future issues of Canadian Journal of Insurance Law? If so, please feel free to contact cjil@lexisnexis.ca 56