In our article “A Brave New World” we took you through the history of the Insurance Amendment Act, 2009 (the “Act”) and the expected changes to British Columbia’s existing insurance legislation. We noted that the purpose of the Act was to reduce confusion for consumers and enhance consumer protection, for example, by ensuring coverage for innocent co-insureds and lengthening limitation periods.
While most of the Act has yet to be implemented, the innocent co-insured provision in section 28.6 of the Act and the associated regulations were officially brought into force on June 16, 2011. This clause ensures and enhances coverage for innocent co-insureds and also imposes obligations upon them. Section 28.6 and the new regulations read:
Recovery by innocent persons
28.6 (1) Despite section 2.3, if a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person
- whose act or omission caused the loss or damage,
- who abetted or colluded in the act or omission,
- consented to the act or omission, and
- knew or ought to have known that the act or omission would cause the loss or damage, or
- who is in a class prescribed by regulation.
(2) Nothing in subsection (1) allows a person whose property is insured under the contract to recover more than their proportionate interest in the lost or damaged property.
(3) A person whose coverage under a contract would be excluded but for subsection (1) must comply with any requirements prescribed by regulation.
(1) In this regulation, “Act” means the Insurance Act.
(2)(1) For the purposes of section 28.6(1)(d) of the Act, all classes of persons other than natural persons is prescribed.
(2) For the purposes of section 28.6(3), a person described by that provision must co-operate with the insurer in respect of the investigation of the loss, including, without limitation,
- by submitting to an examination under oath, if requested by the insurer, and
- by producing for examination at a reasonable time and place designated by the insurer, documents specified by the insurer that relate to the loss.
(3) Section 14 of the Insurance Amendment Act, 2009, insofar as it enacts section 28.6 [recovery by innocent persons] of the Act, does not apply to a contract in respect of loss or damage covered by the contract if the loss or damage occurs before the date section 28.6 of the Act comes into force.
Typically, if there is more than one insured under a policy, it is possible to exclude coverage for all of the insureds even if the loss is caused by the criminal or intentional act of just one of them. For example, in arson cases, coverage can and has been denied with respect to the interests of “innocent” co-insureds who are not in any way implicated in the arson: Scott v. Wawanesa Mutual Insurance Co.  1 S.C.R. 1445; Riordan v. Lombard Insurance Co. 2003 BCCA 267; Torchia v. RSA Insurance  O.J. No. 2316 (CA). So too with CGL policies where, depending on the wording, intentional assault by one insured may affect coverage for all insureds: see e.g. Bluebird v. Guardian Insurance 1999 BCCA 195.
The new section provides that the exclusion applies only to deny the claim of the actual wrongdoer and cannot be used against an innocent co-insured. That innocent co-insured will still be able to recover for losses proportionate to their share of the damaged property.
The regulations do not include a definition of proportionate and there is ambiguity concerning its meaning. Does the interest of the innocent co-insured have to be a legal interest in the property or can it include a beneficial interest of someone such as a spouse who has contributed to the maintenance or finance of the property but is not legally on title?
While there is increased protection for non-culpable parties, the new provision does not allow the claim of a person who has abetted or colluded in the wrongful acts or omission, consented to them being done or who ought to have known that the acts or omission could have caused damage. These are factual concerns that must be fully investigated prior to making a decision about coverage.
In exchange for receiving the benefits of this protective legislation, the innocent co-insured must cooperate with the insurer’s investigation of the loss. This assistance includes submitting to an examination under oath on request of the insurer and producing relevant documents specified by the insurer. The extent of the innocent co-insured’s cooperation and the practical consequences that arise from it are currently unknown. The obvious example that comes to mind is where the innocent co-insured is an abused spouse and the person who caused the criminal or intentional act is the abuser.
Finally, the application of the innocent co-insured provision is limited to real people (not companies) and concerns contracts where the loss or damage occurred after June 16, 2011.
For some reason the promised changes to British Columbia’s insurance legislation are being implemented in a piecemeal fashion and at a glacial pace. It remains to be seen what the next step will be and how this new “innocent co-insured” provision will be applied by the courts.