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The power of plain language

British Columbia decision examines the fine print of an insurance policy

By Nick Safarik

March 28 2014 issue

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Insurers and their counsel are well aware of the risk that an ambiguous provision of an insurance policy will be construed contra proferentum – against the insurer – if the ambiguity cannot be resolved through application of the general principles of insurance policy interpretation as set out in the Supreme Court of Canada’s decision in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada [2010] S.C.J. No. 33.  Despite the modern trend towards the use of “plain language” in order to avoid ambiguity in insurance policies, many insureds continue to argue ambiguity exists when coverage under the policy is denied. In Strata Plan KAS3058 v. St. Paul Fire and Marine Insurance Company (c.o.b. Travellers) [2013] B.C.J. No. 2651, the Supreme Court of British Columbia recently upheld an insurer’s denial of coverage under an extension to the loss of revenue coverage for interruption by a civil authority, and found that the insureds were “simply searching for or creating ambiguity” where none existed.

The co-plaintiff, Strata Plan KAS3058, is a strata corporation whose members are owners of strata lots and common property of a condominium complex known as Cove Lakeside Resort, located in the municipal district of West Kelowna, B.C.

Certain units at the resort are available for rent through a rental pool operated by the co-plaintiff, 0739152 B.C. Ltd. The plaintiffs were named insureds under a policy issued by the defendant, St. Paul Fire and Marine Insurance Company, doing business as Travellers, which provided property insurance for Cove Lakeside Resort.

On July 18, 2009, West Kelowna issued an evacuation order for the area surrounding the resort as a result of wildfires in the area. The evacuation order was lifted three days later.

As a result of a significant number of cancelled rental bookings at the resort in the weeks after the evacuation order was lifted, the plaintiffs presented their insurer with a proof of loss of rental income between July 19 and Aug. 31, 2009, in the amount of $463,287.50. Although the defendant insurer agreed that the policy afforded coverage for the plaintiffs’ loss of rental income during the time the evacuation order was in effect, it denied coverage for the plaintiffs’ claims in the period after the order was lifted.

The extension of coverage for loss of revenue for interruption by a civil authority in the insurance policy provided as follows: “We will pay your actual loss of revenue when a civil authority denies access to an insured location as a direct result of physical loss or damage by a covered cause of loss to property not at an insured location. We will pay for loss of revenue for up to four consecutive weeks while access to an insured location is denied.”

Arguing that the civil authority clause was ambiguous, the plaintiffs submitted that each of the sentences in the clause had a different meaning and provided a separate grant of coverage. The plaintiffs argued that the first sentence established an entitlement to coverage that started when a civil authority denied access, but did not restrict the covered losses to the period during which access was denied. According to the plaintiffs, when read as a whole, the coverage provided by the clause included reimbursement for revenue losses suffered while access was denied and due to the impact of denial of access, including consequential losses after the evacuation order was lifted.

As there appeared to be no Canadian authorities interpreting similar civil authority clauses, the defendant insurer relied upon U.S. cases that considered the scope of coverage under civil authority clauses. Justice Margot Fleming noted that courts in both B.C. and other Canadian jurisdictions have recognized U.S. cases as persuasive authority in matter of insurance law and policy interpretation. Relying on the U.S. cases and the language of the clause itself, the defendant insurer argued that the meaning of the clause was unambiguous. According to the insurer, when the clause was read as a whole, it was plain that the second sentence was directly related to and modified the first, and clearly contemplated the requirement that there be a denial of access for coverage to continue, and that such coverage was limited to a maximum of four weeks.

Overall, Justice Fleming accepted the insurer’s interpretation, and found that the plaintiffs’ proposed interpretation of the second sentence of the clause rendered most of it, including the very clear four-week claims limit, meaningless. Noting that the drafters had attempted to use “plain language” throughout the policy, she found that when the ordinary language of the clause was considered as a whole and in its context, coverage was only provided for loss of revenue that occurred when a civil authority denied access, and while it continued to do so, for a maximum period of four consecutive weeks.

Although the applicability of the court’s decision in Strata is somewhat limited by the specific language of the insurance policy under consideration, insurers should take comfort in the court’s simultaneous recognition of the insurance industry’s efforts to use “plain language” and its refusal to find ambiguity where none exists.

Nick Safarik is an associate with Richards Buell Sutton LLP. His practice is focused on insurance defence and general civil litigation. He holds particular knowledge in matters related to third party property claims, and advancing subrogated claims on behalf of insurers.

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