Introduction
In Ontario Inc. v Northbridge General Insurance Corporation, 2022 ONCA 304, the Ontario Court of Appeal (the “Court of Appeal”) highlighted the importance of succinctness in insurance contracts. Northbridge General Insurance Corporation (the “Insurer”) appealed the Ontario Superior Court of Justice’s decision wherein Justice Susan Vella found a limit of liability provision ambiguous and interpreted it in favour of Helping Hands Daycare (the “Insured”).
The Insurer appealed the decision on the grounds that Justice Vella made an error in finding the provision ambiguous and interpreting it in favour of the Insured.
Background facts
The Insured operated seven daycare centres located in the Toronto area, and held a property and business losses policy with the Insurer (the “Policy”). The Policy was amended by a special endorsement to include coverage for business losses caused by a pandemic. The limit of liability provision in the Policy included reference to a schedule that contained the types of coverage that were included in the Policy. There was a separate schedule for each of the Insured’s seven locations.
The following is the exact wording of the limit of liability provision:
(iv) Limit of Liability:
The most that we will pay under this Extension of Coverage in any one policy period is $25,000 or as otherwise indicated on the schedule […]
Both parties agreed that the $25,000 limit in the Policy was an error and the actual limit should have been $50,000. The Court of Appeal did not take issue with this point.
The Insured’s seven locations were closed for a three month period because of the COVID-19 pandemic. The Insured claimed coverage of $50,000 under the Policy for each of the seven locations.
The sole issue before the Court of Appeal was the proper interpretation of the limit of liability provision in the Policy. The Court of Appeal was tasked with considering whether the $50,000 limit of liability provision applied to the seven locations collectively or separately. Practically, at issue was whether the Insured’s claim was for $50,000 or $350,000.
Decision under Appeal
At the Superior Court of Justice, Justice Vella found the limit of liability provision to be ambiguous, in that it could apply to each location separately, or as an aggregate for all locations. Reading the contract as a whole and referring to other clauses in the Policy, she resolved the ambiguity in favour of the Insured. She found that the limit of liability provision coverage was on a per-location basis, which meant that the total coverage of the provision was for $350,000.
Parties’ positions
On appeal, the Insurer’s position was that the provision should be interpreted so that the limit of liability was $50,000 in aggregate for all seven of the Insured’s locations. The Insurer submitted that the limit of liability provision was clear when read on its own, and that Justice Vella made an error in finding the provision to be ambiguous.
The Insured’s position was that the provision should have been interpreted so that the limit of liability was $350,000 in aggregate for all seven of the Insured’s locations. The Insured also submitted that the limit of liability provision was unambiguous when read in the context of the Policy as a whole. In the alternative, the Insured submitted, if the provision was found to be ambiguous, the ambiguity of the Policy should be resolved in favour of the Insured’s interpretation or construed against the Insurer as the drafter of the contract.
Analysis
The Court of Appeal found that the wording of the limit of liability provision was not ambiguous when read as a whole, and that it provided separate coverage for all seven of the Insured’s daycare locations. Although the schedules themselves did not indicate a maximum coverage for business losses as a result of a pandemic, the Court of Appeal determined that the particular wording applied to each of the seven locations individually and not in aggregate. Specifically, the provision provided as follows:
(iv) Limit of Liability:
The most that we will pay under this Extension of Coverage in any one policy period is $25,000 or as otherwise indicated on the schedule […]
The Court of Appeal rejected the Insurer’s interpretation because it essentially required the Court of Appeal to ignore “or as otherwise indicated on the schedule”.
The Court of Appeal found that the wording of the Policy that provided coverage for business losses caused by a pandemic also favoured an interpretation that would provide separate coverage for the Insured’s seven daycare locations. The Policy provided that the coverage for loss of business income due to a pandemic was “at your ‘scheduled risk location’”. The Insured argued that since the Policy referred to the scheduled risk location in the singular instead of the plural, it was referring to coverage in each location. The Insured argued that this same approach should be applied to the limit of liability. Conversely, the Insurer submitted that the Policy definition of “scheduled risk location” defined the singular to include the plural, and this warranted no consideration being given to the singular language being used in the Policy. Specifically, the definition provided as follows:
‘Scheduled risk location’ means: risk location(s) specified on the ‘schedule’.
The Court of Appeal favoured the Insured’s argument. It found that the definition in the Policy was only directing the reader to look at the schedule to find the scheduled risk location or locations, and it was not defining the singular to include the plural.
The Insurer argued that the Court of Appeal was reading in the word “each” when referencing business losses “at your ‘scheduled risk location’”. The Court of Appeal rejected this submission because the singular reference to “scheduled risk location” meant that the coverage was for losses at the location listed on the schedule. Since there were seven schedules that each related to a specific location, the Court of Appeal determined that the provision’s wording and construction performed the same function as using the word “each”. Although there were two other coverage extensions that specifically used the word “each” to indicate limits on a per scheduled risk location basis, the Court of Appeal determined that the use of the word “each” was not necessary in these provisions. The Court of Appeal found that the clauses could have just said at “a ‘scheduled risk location’” and the coverage would have applied to each separate scheduled risk location.
The Court of Appeal also found that the interpretation of the limit of liability provision was consistent with the policy as a whole. The Court of Appeal noted that the Policy insured each location for its losses, as was highlighted in the seven separate schedules.
Furthermore, the Court of Appeal also found that the premium allocation of the Policy supported their interpretation of the provision at issue. The Insured’s payment of premiums for the extended coverage were based on and divided among the seven difference locations. The Court of Appeal found that this supported the parties’ intention that the limit of liability provision should apply to each of the seven locations separately and not collectively.
The Insured’s appeal was therefore dismissed.
Takeaway
This decision underlines the importance of clarity and succinctness when drafting insurance contracts. More specifically, Underwriters should be diligent when amending standard form insurance contracts to include, exclude and limit coverage. In the face of a potentially ambiguous provision, a court will often find in favour of an insured.
