S.C.C. Extends Limitation Period for Claims on "All-risk" Policies

On May 1, 2003 the Supreme Court of Canada clarified the law respecting the one-year limitation period applicable to property policy claims but at the same time has opened the door to much uncertainty for insurers and more litigation on the issue.

The Court has ruled that the one-year limitation period for an action to enforce coverage under an all-risk policy starts to run not from the date of the loss but rather from "the furnishing of reasonably sufficient proof of a loss or claim".

Part 5 of the B.C. Insurance Act addresses "Fire Insurance".  It provides for a limitation period of one year from the date of the loss.

Part 2 of the Insurance Act contains the "General Provisions" applicable to insurance policies except where the subject matter is dealt with by another Part of the Act (e.g. fire insurance).  Part 2 provides for a one-year limitation period "after the furnishing of reasonably sufficient proof of a loss or claim under the [policy]".

All-risk policies invariably incorporate the Fire Insurance statutory conditions, one of which includes the one-year limitation period "from the date of the loss".  But this conflicts with the longer limitation period contemplated by Part 2 of the Insurance Act.  So which limitation period applies?

The B.C. Court of Appeal had tried to resolve this issue by holding that the type of peril governed which limitation period applied.  If the loss was by fire, then the limitation period was one year from the date of the loss.  If, however, the loss was by a non-fire peril, e.g. theft, then the limitation period was one year from the filing of a Proof of Loss.

The Supreme Court held that the Insurance Act is outdated and urgently requires amendment by the legislature.  The Act was "designed for a world where insurers issued policies geared to specific risks and subjects, such as fire insurance, theft insurance, business loss insurance and so on.  Accordingly, it lays down rules, including limitation periods, based on different and discrete categories of insurance."

The Court observed that the Act "is incapable of coherently addressing the modern multi-peril policy.  It may have made good sense in the 1930's when insurance was offered in discrete packages, each containing its own special type of coverage [but] it makes much less sense now.....In an insurance era dominated by comprehensive policies, it is imperative that Canada's Insurance Acts specifically and ambiguously address how these statutes are to operate and the rules by which comprehensive policies are to be governed".

The Court held that:

• all-risk policies cannot be "shoe-horned" into the Part 5 Fire Insurance section of the Act and are therefore governed by Part 2 of the Act;
   
• Part 2 of the Act prevents an insurer from contractually incorporating the shorter limitation period contained in the fire statutory conditions; and
   
• accordingly, the longer limitation period contemplated by Part 2 of the Act applies, namely, one year from filing the Proof of Loss, regardless of whether the loss was caused by fire, theft or any other peril.

How does the insurer force the issue if an insured delays in the presentation of a claim?  Unless the legislature moves quickly to amend the Insurance Act to deal with these and other issues, more "unproductive and wasteful litigation about such technicalities" is guaranteed.

To access the Supreme Court decisions in the companion cases  of K.P. Pacific Holdings v. Guardian Insurance and Churchland v. Gore Mutual visit:
http://www.lexum.umontreal.ca/csc-scc/en/rec/html/kppacifi.en.html
http://www.lexum.umontreal.ca/csc-scc/en/rec/html/gore.en.html  

Readers with questions regarding limitation periods or any other aspects of all-risk policy coverage are invited to contact Nigel Kent of Clark Wilson LLP's Insurance Group by phone at (604) 643-3135 or by email at npk@cwilson.com.