Court File and Parties
COURT OF APPEAL FOR ONTARIO DATE: 20220419 DOCKET: C69643
Feldman, Pepall and Favreau JJ.A.
BETWEEN
202135 Ontario Inc. cob Helping Hands Daycare, 841986 Ontario Limited and 2433845 Ontario Inc. Applicants (Respondents)
and
Northbridge General Insurance Corporation Respondent (Appellant)
Counsel: Andrew A. Evangelista, Jennifer L. Kent and Nikki Dehnashi, for the appellant Danielle Muise, for the respondents
Heard: March 16, 2022 by video conference
On appeal from the order of Justice Susan Vella of the Superior Court of Justice, dated June 14, 2021.
Feldman J.A.:
Overview
[1] The respondents operate seven daycare centres called Helping Hands outside the Toronto area. Their business at the seven locations was insured through a Business Choice Policy from the appellant Northbridge from February 2020 to February 2021. The policy included a special endorsement to cover business losses arising from a pandemic. As the seven locations were closed as a result of the COVID-19 pandemic from March 17, 2020 to June 22, 2020, the respondents made a claim for business losses under the pandemic coverage provision.
[2] The issue on the application and on this appeal is the proper interpretation of the $50,000 per policy period limit of liability clause in the endorsement, and whether it applies as a global total for the seven locations, or whether it means $50,000 per location, for a total exposure of $350,000.
[3] The application judge found the limit of liability clause to be ambiguous, but determined that the ambiguity was resolved when read in the context of the policy as a whole. Properly interpreted, she concluded that the limit of liability clause provides coverage of $50,000 on a per location basis. In my view, the limit of liability clause is not ambiguous. However, I agree with the application judge’s conclusion regarding its meaning. Therefore, based on the analysis set out in the following reasons, I would dismiss the appeal.
Facts
[4] The respondents’ seven daycare centre locations in the region around Toronto were insured for property and business losses under a policy from the appellant Northbridge for the period from February 3, 2020 to February 3, 2021.
[5] The business loss portion of the original insuring agreement is contained in Part II of the policy, and originally did not include coverage in the case of a pandemic. That coverage was added by a special endorsement titled the A.D.C.O. Program Endorsement, which amended the Part I – Property Insured, Part II – Business Income, and Part III – Commercial General Liability coverages.
[6] The indemnity agreement in the original policy provides:
- INDEMNITY AGREEMENT
We will pay for your loss of “business income”, your incurred necessary “extra expense”, or loss of “rental value” during the Period of Indemnity resulting from “covered direct physical loss” subject to the provisions and limitations as applicable to the coverage specified on the “schedule” in this Part. The “covered direct physical loss” must occur at a “scheduled risk location” that has a limit specified on the “schedule”.
[7] The limit of liability provision in the original policy had been revised in previous policy years and read as follows during the relevant year:
- Part II Section 2. Limit of Liability is deleted and replaced with the following:
The most we will pay under this Part is your Actual Loss Sustained of “business income”. [1]
[8] The “schedule” that is referred to in the indemnity agreement is attached to the declaration page of the policy. It is called the Part I & II Coverage Schedule. There is a separate schedule page for each of the respondents’ seven locations. Each schedule page lists each of the types of coverage that are contained in the policy, together with the “aggregate liability limit” for each head of coverage, the “deductible” for each one, and the “annual premium” for each one. An example for the daycare centre location at 743 Kingston Road in Pickering is reproduced below:
| Coverage | Aggregate Liability Limit | Deductible | Annual Premium |
|---|---|---|---|
| Business Personal Property Breakdown of Business Personal Property: Equipment $23,390 Office Contents $327,500 Tenants/Owners Improvements $25,000 | $375,890 | $1,000 | Included |
| Equipment Breakdown | $375,890 | $1,000 | Included |
| Business Income – Actual Loss Sustained Period of Indemnity: 12 Months | Included | ||
| Outdoor trees, shrubs, plants | $25,000 | $1,000 | Included |
| Debris Removal | $100,000 | $1,000 | Included |
| Professional Fees | $50,000 | $1,000 | Included |
| Sewer Backup | $2,500 | Included | |
| Outdoor Property | $100,000 | $1,000 | Included |
| Master Key | $25,000 | $1,000 | Included |
| Cyber Event Expense | $30,000 | $1,000 | Included |
| EDP Equipment, Data and Media Breakdown | $50,000 | $1,000 | Included |
| CBC 100 Earthquake | 3% $100,000 | Included | |
| CBC 101 Flood | $10,000 | Included | |
| CBC 106 Stated Amount Co-Insurance Clause Expiry February 3, 2021 | $375,890 | Included | |
| BI-Off Premises Heat, Power, Gas, Water Waiting period: 24 Hours | $100,000 | Included | |
| CBC 215 Actual Loss Sustained | Included |
[9] The A.D.C.O. Program Endorsement deletes certain sections of the Part II – Business Income section of the policy that excluded coverage for a pandemic. The endorsement adds that coverage as part of an extension of coverage for “Outbreak & Negative Publicity”. The relevant portion of the endorsement, including the limit of liability clause, provides:
- DELETED EXTENSIONS OF COVERAGE
Part II Section 6. Extensions of Coverage (j) Negative Publicity and (k) Outbreak Extra Expense are deleted in their entirety.
- ADDITIONAL EXTENSIONS OF COVERAGE
The following Extensions of Coverage are added to Part II Section 6. EXTENSIONS OF COVERAGE:
(l) Outbreak & Negative Publicity
(i) Indemnity Agreement:
We agree to extend the insurance provided by Part II – Business Income to apply to your loss of “business income” including incurred necessary “extra expense” resulting from interruption of or interference to your business operations at your “scheduled risk location” directly as a result of:
(1) A “pandemic outbreak” declared by Civil Authority or “public health authority”;
(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”….
[10] The parties agree that the stated limit of $25,000 is an error and that the actual limit of liability was $50,000.
[11] Due to the COVID-19 pandemic, all seven of the respondents’ locations were closed from March 17, 2020 to June 22, 2020. The respondents claimed coverage of $50,000 for the pandemic business loss coverage for each of their seven insured locations, for a total of $350,000. The appellant insurer responded that the limit of liability was $50,000 in aggregate for all insured locations. The respondents therefore commenced the application under appeal for a determination of the proper interpretation of the limit of liability clause for the extended coverage for pandemic business income loss.
The Findings of the Application Judge
[12] The application judge first summarized the principles of insurance contract interpretation articulated by the Supreme Court of Canada in its decisions in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, Consolidated-Bathurst v. Mutual Boiler, Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., and Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33. She then turned to the provisions of the policy and determined that the limit of liability clause under the extended coverage for pandemic loss is ambiguous, and could apply either to each location separately, or as an aggregate for all locations. Reading the contract as a whole and referring to other clauses in the contract, the application judge resolved the ambiguity in favour of the respondent insured. She also added that if she was incorrect, then the contra proferentem rule should be applied against the appellant insurer. In the result, she found that the $50,000 limit of liability for pandemic business losses applied to each business location separately.
Standard of Review on Appeal
[13] The parties both submit that the standard of review is correctness, on the basis that the insurance policy is a standard form policy: Ledcor, at para. 4. To clarify, the insurance policy under review is clearly a bespoke policy that includes and excludes defined coverages for specified amounts in respect of each of the respondents’ seven business locations. However, what is urged upon the court is that the clauses within the policy are standard, unmodified clauses that are also offered to similar businesses. In that way, they are in a standard form, and their interpretation will apply to the same clauses as they may appear in other policies and have precedential value. In addition, there is no meaningful factual matrix that is specific to the parties to assist the interpretation process. On this basis, I accept that it is appropriate to apply the correctness standard of review.
Issue on Appeal
[14] The issue on this appeal is whether the application judge erred in law in her interpretation of the limit of liability clause contained in the “Outbreak & Negative Publicity” coverage extension for business losses suffered during a pandemic.
Analysis
[15] The appellant acknowledges that the application judge identified and applied the correct legal principles of insurance contract interpretation from the case law.
[16] The application judge summarized the rules of interpretation of insurance policies from the case law in the following way:
a) The court must first determine whether the language of the insurance policy is unambiguous, within the contract as a whole. If there is no ambiguity, effect must be given to that clear language.
b) However, if the policy language at issue is ambiguous, the court must apply the general principles of contractual interpretation to resolve that ambiguity. This framework includes the principles that: the interpretation should be consistent with the reasonable expectations of the parties so long as that interpretation is supported by the language of the policy; the interpretation should not give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the insurance policy was entered into; and the interpretation should be consistent with the interpretation of similar insurance policies;
c) If the ambiguity is unresolved after the application of the general principles of contractual interpretation, then the court should apply the doctrine of contra proferentem to construe the policy against the insurer. This is a course of last resort. The corollary of this rule is that coverage provisions in insurance policies are to be interpreted broadly, whereas exclusion or limiting clauses are to be interpreted narrowly.
[17] She also added that: 1) the interpretive principles should not be used to create an ambiguity; 2) some imprecise language does not necessarily mean there is ambiguity when the contract is read as a whole; and 3) an ambiguity requires two reasonable meanings that each make sense within the policy read as a whole: Progressive Homes, at paras. 22-23; Surespan Structures Ltd. v. Lloyds Underwriters, 2021 BCCA 65, at para. 88; Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 S.C.R. 121, at para. 42.
[18] The appellant submits that the application judge erred in law by finding that the limit of liability clause is ambiguous and by resolving that ambiguity in favour of the respondents. Its further position is that the limit of liability clause is clear and unambiguous when read on its own, and that it means that the total maximum coverage is $50,000 per policy period in aggregate for all seven locations.
[19] The respondents agree that the clause is unambiguous when read in the context of the policy as a whole, but they say that it unambiguously provides that the limit of liability is $50,000 per location. In the alternative, if it is ambiguous, when read in the context of the policy as a whole, the ambiguity is resolved in favour of the respondent insured’s interpretation. In the further alternative, if the clause is ambiguous, it should be read contra proferentem against the insurer.
[20] I agree with both parties that the limit of liability clause is not ambiguous when read in the context of the policy as a whole. I set out again the indemnity and limit of liability provisions of the pandemic coverage extension contained in the A.D.C.O. Program Endorsement:
- ADDITIONAL EXTENSIONS OF COVERAGE
The following Extensions of Coverage are added to Part II Section 6. EXTENSIONS OF COVERAGE:
(l) Outbreak & Negative Publicity
(i) Indemnity Agreement:
We agree to extend the insurance provided by Part II – Business Income to apply to your loss of “business income” including incurred necessary “extra expense” resulting from interruption of or interference to your business operations at your “scheduled risk location” directly as a result of:
(1) A “pandemic outbreak” declared by Civil Authority or “public health authority”;
(iv) Limit of Liability:
The most that we will pay under this Extension of Coverage in any one policy period is [$50,000] or as otherwise indicated on the “schedule”… .
(1) The internal wording of the limit of liability clause is unambiguous
[21] First, looking only at the words of the limit of liability clause itself, the maximum amount is stated to be “or as otherwise indicated on the ‘schedule’”. As in this policy there are seven separate schedules, one for each scheduled risk location, the reference to “the ‘schedule’” can only mean to each individual schedule for each risk location.
[22] As a result, the maximum limit amount can be altered in each schedule separately. More significantly, the clause contemplates an individual maximum that could be referenced in each schedule.
[23] As set out in para. 8 above, the only reference in the schedules to a limit of liability for business losses is the “Actual Loss Sustained”, which applies to the business losses not referred to in the extended endorsement. [2]
[24] Thus, the internal wording of the limit of liability clause does not support the meaning suggested by the appellant insurer, that the maximum liability amount of $50,000 in the policy period is an aggregate amount for all locations. The appellant is effectively asking the court to read out or ignore the words “or as otherwise indicated on the schedule” that follow $25,000 (or $50,000, as the parties agree the clause should state), in order to substantiate its submission on the meaning of the clause.
(2) The wording of the indemnity provision that the limit of liability clause applies to provides further support
[25] The respondent insured’s interpretation is reinforced by the language of the indemnity agreement for pandemic loss coverage in the A.D.C.O. Program Endorsement. In accordance with the interpretive principles from the governing case law, as both the indemnity agreement and the limit of liability clause are subclauses of the “Outbreak & Negative Publicity” extension of coverage, they are to be read together. While said in the context of an exclusion clause, Rothstein J.’s statement in Progressive Homes, at para. 27 is relevant here: “Exclusions do not create coverage – they preclude coverage when the claim otherwise falls within the initial grant of coverage. Exclusions, however, should be read in light of their initial grant of coverage”. The appellant submitted the opposite: that the clauses must be read separately. However, counsel provided no case law to support that proposition.
[26] The indemnity agreement provides coverage for loss of business income as a result of a pandemic outbreak “at your ‘scheduled risk location’”. The respondents submit that because the indemnity agreement refers to scheduled risk location in the singular rather than the plural, it is referring to each single scheduled risk location (i.e., each of the seven daycare centres). Therefore, the limit of liability, which refers to and imposes a limit on the indemnity obligation, also applies to each single scheduled risk location. Had the policy used the plural, “scheduled risk locations”, then it would be arguable that the limit of liability could be interpreted to apply to all risk locations in the aggregate.
[27] In response to this argument, the appellant relies on the definition of “scheduled risk location” in the Definitions section of the Policy, and specifically s. 16(x), which provides: “‘Scheduled risk location’ means: risk location(s) specified on the ‘schedule’.”
[28] The appellant submits that the definition defines the singular to include the plural, that they are therefore interchangeable, and that accordingly, no significance can be attributed to the use of the singular in the indemnity agreement policy language.
[29] I would not accept this submission or the appellant’s interpretation of the definition. The definition merely explains that one looks to the schedule to find the scheduled risk location or locations, whichever may be applicable. It does not mean that the singular and plural forms of “scheduled risk location” are to be interpreted interchangeably when used in the policy and related endorsements.
(3) This interpretation does not require the inclusion of the word “each”
[30] The appellant also argues that the court is reading the word “each” into the reference to business losses “at your ‘scheduled risk location’”, and that without reading in the extra word, the singular reference cannot be given that meaning.
[31] I would reject this submission. There is no ambiguity in the language used. The singular reference to “scheduled risk location” indicates that the indemnity is for losses at the location listed on the schedule. In this case, there are seven separate schedules, one for each risk location. It is not necessary to read in the word “each” because the use of the singular performs the same function.
[32] Similarly, the appellant noted two coverage extensions that do use the word “each” in the limit of liability wording. It submits that this language is what is required to extend coverage to each risk location on an individual basis. The limit of liability clauses in the two extensions state as follows:
(c) Personal Effects (including Volunteers) amended limit:
The most that we will pay under this Extension of Coverage in respect of any one officer, director, partner, employee or “volunteer workers” is $10,000 for any one occurrence.
The most that we will pay under this Extension of Coverage at each “scheduled risk location” in any one policy period is $25,000, or as otherwise indicated on the “schedule”.
(z) Property of Tenants or Registered Guests of a Hotel or Apartment or Members, Guests and Residents of Health Care Facilities
The most that we will pay under this Extension of Coverage at each “scheduled risk location” per covered tenant, guest, member or resident is as specified on the Coverage Summary, or as otherwise indicated on the “schedule” for any one occurrence.
The most that we will pay under this Extension of Coverage at each “scheduled risk location” in any one policy period is as specified on the Coverage Summary, or as otherwise indicated on the “schedule”.
[33] The appellant suggests that these limits clearly apply on a per scheduled risk location basis and that, in contrast, the limit of liability for pandemic business loss lacks clear language to the same effect. I disagree. While the use of the word “each” is consistent with a limit that applies on a per location basis, as noted above, it is not a necessary word. The clause could have said at “a ‘scheduled risk location’” or at “the ‘scheduled risk location’” or otherwise indicated the singular, and it would have had the same meaning: that it applies on an individual basis.
(4) This interpretation is consistent with the policy read as a whole
[34] These indemnity and limit of liability provisions are consistent with the structure of the entire policy, which insures each location for its losses, as defined precisely in the separate schedules.
[35] For example, part of the A.D.C.O. Program Endorsement deals with extensions of coverage under Part I of the policy, which deals with insurance of property, as distinguished from insurance of business losses in Part II. Under Part I – Property Insured, there is an automatic blanket limit clause which provides:
Automatic Blanket Limit Clause
The most that we will pay under any one or a combination of the following Part I – Property Insured 8. Extensions of Coverage is $600,000 for any one occurrence in any one policy period. The Automatic Blanket Limit applies separately to each “scheduled risk location”.
[36] As it indicates, the limit of liability of $600,000 in a policy period applies to each scheduled risk location. The word “each” is used in this provision, but it is in the limit of liability wording rather than in the indemnity wording. In my view, the use of the word “each” here is consistent with the operation of the policy which effectively insures the risk locations as separate businesses.
(5) There are no other provisions that support the appellant’s interpretation
[37] While the appellant pointed to other provisions of the policy to try to assist in interpreting the limit of liability clause at issue, counsel did not identify another one in the policy with identical wording or effect that would assist in the interpretation of the limitation of liability clause in issue on this appeal.
[38] For example, the appellant notes that there are only two other extensions of coverage for business losses that contain a limit of liability clause per policy period, and that both of them provide a limit per “occurrence”. These provisions that apply “per occurrence” are not comparable and do not assist the appellant in the interpretation of the pandemic limit of liability clause. The first, for “Emergency Vacating Expenses”, uses the same language in the limit of liability as the clause in question apart from the “per occurrence” limitation. It provides: “The most that we will pay under this Extension of Coverage is $50,000, or as otherwise indicated on the ‘schedule’ for any one occurrence.” Just like the clause in question, this limit of liability uses the singular form of “the ‘schedule’” and supports the finding that the limit applies per location. The second extension, for “Tenant Lease Cancellation Expense”, does not address scheduled risk locations at all.
[39] The appellant also identified some extensions of coverage under Part I – Property Insured that contain identical or near identical language to the subject clause. However, there is no indication in those clauses that they are intended to apply on an aggregate basis. For example, the coverage extension for “Pollutant Cleanup and Removal” provides that “[t]he most that we will pay under this Extension of Coverage in any one policy period is as specified on the Coverage Summary, or as otherwise indicated on the ‘schedule’.” Again, the singular is used.
[40] Another extension, for “Furs, Fur Garments, Jewels, and Jewellery”, uses the same language in the limit of liability clause but refers to “any” scheduled risk location in the coverage extension language that precedes it:
We agree to extend the insurance provided by Part I Section 2. Insured Property (b) Business Personal Property to apply to loss of or damage by an insured peril to furs, fur garments, jewels, jewellery, costume jewellery, watches, pearls, precious and semi-precious stones while such property is at any “scheduled risk location”.
The most that we will pay under this Extension of Coverage in any one policy period is as specified on the Coverage Summary, or as otherwise indicated on the “schedule”.
[41] The appellant submits that this coverage extension applies on an aggregate basis because of the use of the word “any” in the coverage language. I disagree. Read in context, the above clauses provide that the most that the insurer will pay is as specified on the summary or schedule, as long as the loss or damage occurred while the property was at one of the scheduled risk locations. The language of the limit of liability clause is as indicated on the schedule, i.e., the same as in the pandemic loss limit of liability: on a per location basis. The use of the word “any” in the coverage portion of the clause does not modify this unambiguous language.
[42] In oral argument, the appellant also pointed to the coverage extension for “Professional Misconduct Legal Expense”, under Part III – Commercial General Liability, as an example of a type of coverage with a limit of liability that applies on an aggregate basis. The limit of liability clause under this section states:
We will reimburse you for “legal expenses” up to a maximum of $100,000 in respect to any single hearing or defence of “action” covered by this extension, or $100,000 in the aggregate in respect of all hearings or defences of “action” instituted during the period of this extension.
[43] However, the indemnity provision of this coverage is not location specific. Instead, it applies to expenses “arising from any hearing” or in defence of any “action”. In addition, it uses the words “in the aggregate”. Again, this provision does not assist the appellant in interpreting the pandemic business loss clause.
[44] In sum, the appellant has not pointed this court to any provisions of the insurance agreement or the applicable endorsements that provide coverage based on losses or damage at a scheduled risk location where the limit of liability for such coverage applies to all locations on an aggregate basis, rather than on a per location basis.
[45] As a result, the plain language of the limit of liability clause, as reinforced by the coverage extension and the structure of the policy as a whole, makes clear that the pandemic business loss coverage limit applies to each of the respondents’ seven daycare locations separately.
(6) The premium allocation bolsters the per location interpretation
[46] Finally, the respondents also rely on the fact that the premium they paid for the extended coverage was based on and divided among the seven risk locations in different amounts. I agree that this further supports the interpretation that it was the intention of the parties that the limit of liability would apply to each of the seven locations separately.
Conclusion
[47] In my view, the limit of liability for the coverage extension for pandemic business losses is unambiguous when read in the context of the indemnity agreement and the policy as a whole, and applies to each scheduled risk location. As a result of my conclusion, there is no need to apply the contra proferentem rule of interpretation. While the application judge found ambiguity which she resolved in favour of the insured, my conclusion regarding the proper meaning of the clause is the same.
[48] For these reasons, I would allow the fresh evidence and dismiss the appeal, with costs fixed in the agreed amount of $15,000, inclusive of disbursements and H.S.T.
Released: April 19, 2022 “K.F.” “K. Feldman J.A.” “I agree. S.E. Pepall J.A.” “I agree. L. Favreau J.A.”
[1] On appeal, the appellant brought a motion to file fresh evidence regarding which limit of liability provision was in effect during the relevant period. The respondents do not object to the fresh evidence being admitted. I accept that the relevant limit of liability provision was as stated in para. 7.
[2] The parties did not argue that the words “Actual Loss Sustained’ in the schedules should be read to modify the stated limit of liability of $50,000, as set out in the limit of liability clause which, again, states: “The most that we will pay under this Extension of Coverage in any one policy period is [$50,000] or as otherwise indicated on the ‘schedule’” (emphasis added).