International Movie Conversions Ltd. v. ITT Hartford Canada

[Indexed as: International Movie Conversions Ltd. v. ITT Hartford Canada]

57 O.R. (3d) 652

[2002] O.J. No. 76

Docket No. C36313

Court of Appeal for Ontario

Abella, MacPherson and Cronk JJ.A.

January 9, 2002

Limitations -- Insurance -- Insurance policy provided coverage for theft and loss of income from business interruption -- Clause 14 of policy imposed one-year limitation period -- Insured did not make claim for loss of income within one year of theft -- Clause 14 was identical to statutory condition 14 set out in s. 148 in Part IV of Insurance Act ("Fire Insurance") -- Insurer free to incorporate one-year limitation period for claim for loss of profits or theft -- Section 143 of Act did not create any confusion as to applicability of limitation period -- Clause 14 clear and unambiguous -- Insured's action against insurer for loss of income statute-barred -- Insurance Act, R.S.O. 1990, c. I.8, ss. 143, 148.

The plaintiff, which was insured under a policy of insurance issued by the defendant, suffered a theft of audio-visual equipment at its business premises in January 1995. The policy provided coverage for loss of income for business interruption, as well as stolen equipment, but no claim for loss of income was made within one year of the occurrence of loss or damage, as required by clause 14 of the insurance policy. The plaintiff had retained professional adjusters, NFA, to assist it with its claims in February 1995. NFA consistently took the position that a six-year limitation period applied to the claim for loss of income. In September 1995, a representative of the defendant told NFA that the defendant would consider a claim for loss of income. In September 1996, NFA informed the defendant for the first time of the plaintiff's intention to make a loss of income claim. The defendant informed NFA of its position that clause 14 of the policy proscribed the action. NFA did not submit an accountant's report to the defendant quantifying the plaintiff's loss of income claim until January 1997. The defendant formally denied the claim in April 1997. In November 1998, the plaintiff commenced an action against the defendant to recover its income losses occasioned by the theft. On a motion for summary judgment, the motion judge granted summary judgment in favour of the defendant on the basis that the claim was proscribed by the limitation period. The plaintiff appealed.

Held, the appeal should be dismissed.

On the summary judgment motion, the plaintiff alleged that it had not been provided with a copy of the insurance policy until the summer or fall of 1996. Although there was conflicting evidence on that point, the motion judge accepted that the plaintiff did not receive a copy of the policy prior to October 1996. However, she rightly rejected the plaintiff's assertion of prejudice for two reasons: the plaintiff did not file a claim within one year after it had the insurance policy, nor within one year after the defendant had suggested the possibility of a loss of income claim to NFA; and the plaintiff was guided throughout by NFA, which was firmly of the view that the language of the policy did not create a one-year limitation period, and which took no steps to seek an early resolution to the conflicting interpretations of the policy. In all of these circumstances, the plaintiff could not rely on the timing of the delivery of the policy to avoid the terms of the contract.

The preamble to the conditions set out in the policy provided"Otherwise, all of the Conditions set forth under the titles Statutory Conditions and Additional Conditions apply with respect to all of the perils insured by this Policy . . .". Immediately thereafter, under the heading "Statutory Conditions", various conditions were set out, including clause 14. That clause was identical to statutory condition 14 set out in s. 148 of the Insurance Act, which appears in Part IV of that Act, entitled "Fire Insurance". Section 148(1) of the Act provides that the conditions set forth in s. 148 are deemed to be part of every contract in force in Ontario, and stipulates that "no variation or omission of or addition to any statutory condition is binding on the insured". By operation of s. 143(1) of the Act, Part IV does not apply to theft or loss of profits insurance. The plaintiff could not rely upon s. 143(1) to argue that statutory condition 14, replicated in clause 14 of the policy, did not apply to its loss of income claim. Section 148 of the Act provides that the statutory conditions set out in that section are part of every fire insurance contract in force in Ontario. It does not stipulate, however, that the statutory conditions cannot also apply to other insured perils, such as theft, at the election of the insurer. In this case, the defendant elected to include the statutory conditions, including statutory condition 14, as terms of the insurance contract. There is nothing in the Act which prohibits an insurer from introducing a one-year limitation period for a claim of loss of profits or theft. The one-year limitation period was not imported, by direct or indirect reference, into the insurance policy by operation of statute because the policy was not a fire insurance policy. However, clause 14 was clearly and unambiguously included in the policy as a matter of contract, so as to bind the plaintiff under the normal rules of insurance law. Section 143 of the Act did not create any confusion as to the applicability of the limitation period in this case.

The use of the word "otherwise" in the preamble did not create any confusion. As the motion judge correctly concluded, whether the word "otherwise" was superfluous or whether it was to be interpreted as referring back to other sections of the policy dealing with other conditions, there was nothing about the word that would make it unclear whether or not the one-year limitation period applied to a loss of business income claim. It was clear from the language used that a one-year limitation period applied for the commencement of an action in respect of all claims under the insurance policy.

APPEAL from an order granting a summary judgment dismissing an action against an insurer.

Cases referred to Demeyere (George A.) Tobacco Farm Ltd. v. Continental Insurance Co. (1986), 1986 2634 (ON CA), 53 O.R. (2d) 800, 25 D.L.R. (4th) 480, [1986] I.L.R. 1-2036 (C.A.), affg (1984), 1984 1823 (ON SC), 46 O.R. (2d) 423, 9 D.L.R. (4th) 734, [1984] I.L.R. 1-1810 (H.C.J.); Matte v. Canadian General Insurance Co. (1971), 1997 26881 (ON CJ), 3 C.C.L.I. (3d) 62 (Ont. Gen. Div.); Northwestern Insurance Co. v. Continental Insurance Co., 16 O.T.C. 321 (Gen. Div.)

Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, ss. 143(1), 148

Alfred M. Kwinter, for appellant. Glynis Evans, for respondent.

The judgment of the court was delivered by

[1] CRONK J.A.: -- This appeal concerns the enforceability of a one-year limitation period set out under an insurance policy in respect of a claim for loss of income occasioned by a theft at the insured's premises. The motion judge granted summary judgment in favour of the insurer on the basis that the insured's claim was proscribed by the limitation period. For the reasons that follow, I would dismiss the insured's appeal from that decision, with costs.

Facts

[2] On January 5, 1995, International Movie Conversions Ltd. ("IMC") suffered a theft of audio-video equipment at its business premises. IMC is insured under a policy of insurance issued by ITT Hartford Canada ("Hartford") which provides coverage for loss of income for business interruption, as well as for stolen equipment. The relevant "conditions" section of the insurance policy includes a limitation period requiring that actions brought under the policy be commenced within one year of the occurrence of loss or damage. The relevant policy wording is as follows:

CONDITIONS APPLICABLE TO THE VARIOUS COVERAGES PROVIDED HEREIN

Otherwise, all of the Conditions set forth under the titles Statutory Conditions and Additional Conditions apply with respect to all of the perils insured by this Policy except as these Conditions may be modified or supplemented by the Forms or Endorsements attached.

STATUTORY CONDITIONS

ACTION 14. Every action or proceeding against the Insurer for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.

[3] In February 1995, IMC retained professional adjusters, National Fire Adjustment Co. Inc. ("NFA"), to assist it with its claims arising from the theft.

[4] A claim by IMC for the loss of the stolen equipment was paid by Hartford in four installments, ending in September 1995. That month, a Hartford representative told a NFA representative that Hartford would consider a claim for loss of income based on the reasonable amount of time it should have taken IMC to replace the stolen equipment. No mention was made then of a limitation period.

[5] In February 1996, no loss of income claim having been received from IMC, Hartford proceeded to close its file. Seven months later, in September 1996, NFA informed Hartford's representative for the first time of IMC's intention to make a loss of income claim. Hartford then reopened its file, although it immediately informed NFA of its position that clause 14 of the policy proscribed the claim.

[6] Notwithstanding notice to NFA of Hartford's position regarding the limitation period, NFA did not submit an accountant's report to Hartford, quantifying IMC's loss of income claim, until January 1997. Hartford formally denied this claim in early April 1997.

[7] Some 17 months later, on November 19, 1998, IMC commenced an action against Hartford to recover its income losses occasioned by the theft which had occurred almost four years earlier.

[8] IMC's policy was first issued in 1993, for the period from August 20, 1993 to August 20, 1994. It was subsequently renewed for the period from August 20, 1994 to August 20, 1995.

[9] Hartford steadfastly maintained from September 1996 onwards, that IMC's claim for loss of income was proscribed by the one-year limitation period set out in clause 14 of the policy. In turn, IMC insisted, through NFA, that a six-year limitation period applied and, as discussed later in these reasons, that its loss of income claim was exempt from the limitation provision in clause 14 in consequence of s. 143(1) of the Insurance Act, R.S.O. 1990, c. I.8. As noted by the motion judge: "Both parties were adamant in maintaining these conflicting positions through a series of letters and communications right up to the time of this action".

Analysis

(1) The suggestion of prejudice

[10] On the summary judgment motion, IMC alleged that it had not been provided with a copy of the insurance policy until some time in the summer or fall of 1996, well after the theft was reported to Hartford in January 1995 and expiry of the one- year limitation period. However, IMC's insurance broker provided evidence that it had furnished IMC with copies of the policy in October 1993 following its issuance, and in October 1994 following its renewal. Thus, on the materials before the motion judge, there was conflicting evidence concerning the date of IMC's receipt of a copy of the policy.

[11] Although it is difficult to conceive that IMC or its agents did not receive a copy of the policy for almost three years after its issuance, the motion judge concluded, rightly in my view, that for the purpose of the summary judgment motion she was required to accept that IMC did not receive a copy of the policy until after the date of the loss. She assumed, for her analysis, that IMC did not receive a copy of the policy prior to October 1996. On any view of the evidence, this was a generous interpretation of the policy receipt date.

[12] IMC argues that the late delivery of the insurance policy prejudiced it in relation to the expiry of the one-year limitation period. It asserts that had a copy of the policy been provided to it prior to expiry of the limitation period, either it or NFA would have known of the limitation period before the claim for loss of income was proscribed, leading to the earlier initiation of proceedings against Hartford or, alternatively, other measures challenging the wording of the policy. It suggests that all of these options were foreclosed because of its untimely receipt of a copy of the policy.

[13] In respect of IMC's assertion of prejudice, the motion judge concluded:

There are two points which I believe are fatal to the plaintiff's position on this issue:

(i) The plaintiff did not file a claim within one year after it had the insurance policy, nor within one year after the defendant had suggested the possibility of a loss of income claim to NFA.

(ii) [IMC] was guided throughout by NFA. NFA was firmly of the view that the language of the policy did not create a one-year limitation period. Even if [IMC] had the policy before the theft, and even if NFA had the policy at the outset of its retainer, NFA would still have taken the position that the one- year limitation period in paragraph 14 of the conditions did not apply to a loss of income claim and would have seen no reason to file the claim within the one-year period. This point was conceded by counsel for the plaintiff during the argument of the motion.

[14] The factors identified by the motion judge are compelling. IMC retained its adjuster in February 1995, within one month of the theft. It followed its adjuster's advice throughout its dealings with Hartford. Even assuming that IMC did not receive a copy of the policy until October 1996, it did not commence proceedings against Hartford until November 19, 1998, more than two years later. This was so, notwithstanding that a Hartford representative had raised the prospect of a loss of income claim with NFA in September 1995. Hartford was not informed until September 1996 that IMC was even considering such a claim.

[15] Although IMC asserts that it may have conducted itself differently had it received a copy of the policy on a timely basis, it is clear that its adjuster, NFA, was provided with a copy of the policy by at least October 1996. Even then, it did not accelerate submission to Hartford of the information necessary to support a loss of income claim and did not deliver same until January 1997. Proceedings were not commenced for another twenty-two months. Thus, even when NFA knew of the existence of the limitation period and Hartford's reliance on it, it persisted in the view that clause 14 of the policy did not apply and no steps were taken to seek an early resolution to the conflicting interpretations of the policy. [^1]

[16] In all of these circumstances, as found by the motion judge, IMC cannot rely on the timing of the delivery of the policy to avoid the terms of the contract.

(2) Incorporation in the policy of Statutory Condition 14

[17] IMC's policy with Hartford insures it against multiple perils, including theft. At the end of the policy, the conditions which apply to all insured perils are set out, except as modified or supplemented by the forms or endorsements to the policy. The preamble to the conditions, set out in para. 2 above, provides"Otherwise, all of the Conditions set forth under the titles Statutory Conditions and Additional Conditions apply with respect to all of the perils insured by this Policy . . .".

[18] Immediately thereafter in the policy, under the heading "Statutory Conditions", various conditions are set out, including clause 14. That clause is identical to statutory condition 14 set out in s. 148 of the Act which appears in Part IV of the statute, entitled "Fire Insurance". Section 148(1) of the Act provides that the conditions set forth in s. 148 are deemed to be part of every contract in force in Ontario, and stipulates that "no variation or omission of or addition to any statutory condition is binding on the insured".

[19] By operation of s. 143(1) of the Act, Part IV does not apply to theft or loss of profits insurance. Sections 143(1)(a) and (b) read as follows:

143(1) This Part applies to insurance against loss of or damage to property arising from the peril of fire in any contract made in Ontario except,

(a) . . . theft insurance;

(b) where the subject-matter of the insurance is . . . loss of profits;

[20] IMC relies upon s. 143(1) to argue that statutory condition 14, replicated in clause 14 of Hartford's policy, does not apply to IMC's loss of income claim. It submits that had Hartford intended a contrary result, its incorporation of the statutory conditions in the insurance policy should have been more clearly and explicitly accomplished. IMC argues that to be effective, clause 14 should state that s. 143(1) of the Act does not apply to the policy.

[21] Hartford submits that this argument is misconceived. It asserts that by incorporating the statutory conditions into the policy, to apply to all coverages, and by including statutory condition 14 providing for a one-year limitation period, the limitation restriction became a contractual term which does not depend upon the Act for effectiveness. Hartford, therefore, does not rely on application of the Act for enforcement of the limitation period but, rather, on the terms of the contract itself. Hartford also argues that it sought to avoid confusion regarding interpretation of the relevant provisions of the policy by stipulating in the preamble to the conditions that they apply to "all of the perils insured by [the] policy".

[22] Section 148 of the Act provides that the statutory conditions set out in that section are part of every fire insurance contract in force in Ontario. It does not stipulate, however, that the statutory conditions cannot also apply to other insured perils, such as theft, at the election of the insurer. In this case, Hartford elected to include the statutory conditions, including statutory condition 14, as terms of the contract of insurance. As Hartford argues, there is nothing in the Act which prohibits an insurer from introducing a one-year limitation period for a claim for loss of profits or theft.

[23] Ontario courts have recognized that it is not uncommon for insurers in this province to incorporate the s. 148 statutory conditions into policies of insurance to attract their application to one or multiple coverages. (Matte v. Canadian General Insurance Co. (1997), 1997 26881 (ON CJ), 3 C.C.L.I. (3d) 62 (Ont. Gen. Div.); Northwestern Insurance Co. v. Continental Insurance Co. (1996), 16 O.T.C. 321 (Gen. Div.); and Demeyere (George A.) Tobacco Farms Ltd. v. Continental Insurance Co. (1984), 1984 1823 (ON SC), 46 O.R. (2d) 423, 9 D.L.R. (4th) 734 (H.C.J.), affirmed (1986), 1986 2634 (ON CA), 53 O.R. (2d) 800, 25 D.L.R. (4th) 480 (C.A.)).

(a) Use of the heading "Statutory Conditions"

[24] In my view, we are not concerned on this appeal with whether the one-year limitation period was imported, by direct or indirect reference, into the insurance policy by operation of statute. That did not occur because IMC's policy with Hartford was not a fire insurance policy. Accordingly, the statutory conditions set out in s. 148 of the Act are not deemed to be included in the policy by operation of law. In this case, Hartford elected to incorporate the statutory conditions, including condition 14, into the policy. In consequence, the issue is whether clause 14 was clearly and unambiguously included in the policy as a matter of contract, so as to bind the insured under the normal rules of contract law.

[25] IMC argues that Hartford's use of the heading "Statutory Conditions" in the policy, is misleading and, on proper interpretation of the policy, compels the conclusion that an insured is to have reference to Part IV of the Act, including ss. 143 and 148. IMC submits that once regard is had to s. 143 of the Act, an insured would necessarily conclude that clause 14 in the policy does not apply to a claim for loss of income or business interruption. At the very least, it is said, regard to s. 143 renders the policy confusing and potentially misleading to an insured.

[26] In considering IMC's position on this issue, the motion judge stated:

. . . Section 143 of the Act clearly applies only to the deemed application of the statutory conditions to contracts for fire insurance. The language in the insurance policy itself is clear. The conditions listed in the policy under the heading "Statutory Conditions" are stipulated to apply to "all of the perils insured by" the policy. This language does not require any reference to the statute for clarification. Accordingly, I do not see how s. 143 of the Act creates any confusion as to the applicability of the limitation period in this case.

(Emphasis added)

[27] She further observed:

There is no evidence in this case that the plaintiff [IMC] was itself misled by the inclusion of the heading "Statutory Conditions". . . . the fact that the plaintiff's professional adjuster did not understand the distinction between conditions that arise by operation of statute and conditions directly incorporated into the insurance policy does not render the contractual language ambiguous. Professional adjusters are expected to know the difference. The fact that the plaintiff's adjusters misinterpreted the statute is not Hartford's fault and is not the fault of the language used in the Hartford policy. Hartford should not be deprived of the protecton of a clear and unambiguous contractual provisions [sic] merely because the plaintiff got mistaken advice from its own adjuster. Accordingly, I find that the use of the heading "Statutory Conditions" does not make the contractual terms which follow ambiguous. [^2]

[28] I agree with these conclusions by the motion judge. Clause 14 is clear and unambiguous. Indeed, in my view, it is difficult to conceive how it could have been made more explicit. Use of the heading "Statutory Conditions" does not render it ambiguous or confusing.

(b) Use of the word "otherwise"

[29] IMC also argues that Hartford's use of the word "otherwise" in the preamble to the recitation of the applicable conditions creates or exacerbates previously existing confusion regarding the application of the statutory conditions under Part IV of the Act to the policy. IMC argues that it is reasonable to assume that the word "otherwise", as used in the policy, means "in all other respects", thus referring to s. 143 of the Act. If so, the policy would be subject to s. 143, thereby excluding application of the subsequently recited conditions, including clause 14, to a loss of income claim. In effect, IMC invites us to "read" s. 143 into the preamble to the contractual conditions.

[30] In my view, there is simply no reasonable basis upon which it should be concluded that the word "otherwise" is intended, without more, to serve as an inferential reference to s. 143 of the Act, or to invite a reader of the policy to import s. 143 into the policy. I agree with the motion judge's conclusion that there is no foundation for such an interpretation. As she observed: "Section 143(1)(b) of the Act is not referred to anywhere in the policy and it simply makes no sense that the word 'otherwise' could possibly be taken as referring to that section". To this I would add that the relevant conditions section of the policy makes no reference to any part of s. 143 of the Act or, indeed, to any section in Part IV of the Act.

[31] IMC also argues that there is nothing in the context of the policy to which the word "otherwise" might refer, thus supporting the conclusion that it refers, by inference, to s. 143 of the Act. I disagree.

[32] The word "otherwise" appears at the beginning of the first sentence following the heading "Conditions Applicable to the Various Coverages Provided Herein". A review of the policy as a whole demonstrates that other conditions applicable to various sections of the policy are set out earlier. The motion judge concluded: "One possible rational interpretation of the word 'otherwise' is . . . that 'otherwise' at the beginning of the statutory conditions refers back to other policy conditions set out earlier in the contract". In my view, the motion judge was correct in concluding that it is possible that the word "otherwise" refers back to other sections of the policy dealing with other conditions.

[33] As observed by the motion judge, another possible explanation for the presence of the word "otherwise" is that it was inadvertently included in the Hartford policy during drafting, based on reference to a precedent insurance policy that contained a preceding sentence. This was the case in Matte v. Canadian General Insurance Co., supra, in which the court considered an insurance policy containing language similar to the language employed in the Hartford policy. If the language of a precedent insurance policy was used for preparation of the Hartford policy, without complete replication of all related sentences, it would follow that the word "otherwise" was included in the Hartford policy in error and without specific purpose.

[34] The result is the same under either approach to the meaning of the word "otherwise" as it appears in the Hartford policy. As stated by the motion judge:

Whether the word "otherwise" is superfluous (such that it has no real meaning) or is to be interpreted [as referring back to other sections of the policy dealing with other conditions], there is no ambiguity as to the applicability of the conditions that follow. The important point is that there is nothing about the word "otherwise" that would make it unclear whether or not the one-year limitation period applies to a loss of business income claim. While there may be some question about what "otherwise" means, there is no rational interpretation that would make its application in this case ambiguous. It is clear from the language used that a one-year limitation period applies for the commencement of an action in respect of all claims under the insurance policy.

[35] In my view, the conclusions of the motion judge in this regard are unassailable.

Conclusion

[36] Accordingly, I would dismiss the appeal with costs.

Appeal dismissed.

Notes

[^1]: It is not uncommon, of course, for proceedings to be commenced to protect a party's position once expiry of a limitation period is raised against it. That protective step was not taken in this case. Moreover, although the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provide various means by which contractual interpretation questions may be dealt with speedily, none of these options was pursued by IMC. There is no suggestions, on the record before this court, that NFA was not keeping IMC informed of developments with Hartford.

[^2]: On this appeal, IMC argued that the motion judge, in concluding that there was no evidence that IMC had been misled by the use of the heading "Statutory Conditions" in the policy, had failed to consider the evidence of Robert Watson, adduced by IMC on the summary judgment motion, to the effect that describing the conditions in the policy as statutory conditions was misleading. I disagree. Mr. Watson was a representative of NFA, IMC's adjuster. It was NFA who took the position throughout, on behalf of IMC, that a six-year limitation period applied to the loss of income claim. It was to NFA that the motion judge referred when she stated: "... the fact that the plaintiff's professional adjuster did not understand the distinction between conditions that arise by operation of statute and conditions directly incorporated into the insurance policy does not render the contractual language ambigious. Professional adjusters are expected to know the difference". Thus, the motion judge did specifically take into account the evidence adduced by IMC from its adjuster. Moreover, Mr. Watson testified on cross-examination that the insurance industry has not adopted a common position on the appropriate limitation period applicable to a loss of income claim. In effect, as asserted by Hartford on this appeal, Mr. Watson acknowledged under cross-examination that there is no statutory rule or industry practice that a one-year limitation period does not apply.