Court File and Parties
COURT FILE NO.: CV-20-00652814 DATE: 20210329
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
BACKYARD MEDIA INC. Applicant
– and –
HDI GLOBAL SPECIALTY SE Respondent
Gordon McGuire, for the Applicant Thomas Donnelly and Joyce Tam, for the Respondent
HEARD: March 26, 2021
REASONS FOR JUDGMENT
FL MYERS J
The Application
[1] The applicant is being sued. It claims that under the terms of the insurance policy it purchased from the respondent insurance company, the insurer is required to provide it with a defence in the separate piece of litigation.
[2] The insurer argues that while the litigation fall within the terms of coverage provided by the policy, coverage is expressly excluded by Exclusion 20 discussed below.
[3] I accept Mr. Donnelly’s argument that the parties are free to agree on the terms of coverage that they wish. There is much logic to his explanation about how this “claims-made and notice provided” policy is supposed to work and why coverage should be excluded. I am not keen to widen coverage for a party where it could have purchased the coverage for a cost and chose not to do so.
[4] The difficulty that I have is that the insurer drafted the terms of the policy. The law requiring exclusions from coverage to be clearly stated and unambiguous is not new. It was completely within the power of the insurer to exclude from coverage the circumstance before the court. But, I do not think Exclusion 20 means what Mr. Donnelly and Ms. Tam think it means. In the context of this policy, read as a whole, the wording is unclear and does not fairly put the insured on notice of the limitation on coverage advanced by the insurer. Moreover, as I read it and the rest of the policy in its objective factual matrix, the interpretation of the exclusion narrowly favours the applicant. In any event, were I unable to draw that conclusion due to the ambiguity of the exclusion, the doctrine of contra proferentum would compel the outcome favouring the applicant.
[5] For the reasons that follow therefore, the application is granted.
Basic Principles
[6] The policy in issue is a “duty to defend” policy. The insurer is required to provide a defence for the insured in the insured litigation if there is a “possibility” that the insurance policy will have to respond to the substantive claims against the insured in that litigation. The Supreme Court of Canada has held that in the context of a duty to defend policy, if a claim falls within the terms of coverage and is not clearly and unambiguously excluded, then, by definition, there must be a “possibility of coverage”. See: Progressive Homes Ltd. v. Lombard General Insurance Co., 2010 SCC 33, at para. 51.
[7] The burden is on the insurer then, to establish that its Exclusion 20 in this case clearly and unambiguously excludes its duty to defend the applicant in the litigation that has been commenced against it.
[8] Much of the logic of the insurer’s arguments flows from the fact that the insurance policy is a “claims-made” policy. The law is not in doubt that claims-made policies can provide somewhat limited coverage. They often can have a lower price compared to other types of coverage. That is the bargain: less coverage for a lower price. Moreover, there are options available on the market place to extend the basic coverage provided for a price.
[9] The Supreme Court of Canada has noted very expressly that there can be gaps in coverage in claims-made policies. If the parties agreed to limited coverage, with gaps, it is not for the court to re-make or expand their bargain.
[10] But, it is not enough to just assert that a policy is “claim-made” or any particular category of coverage. In Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 CanLII 150 (SCC), McLachlin J. (as she then was) reminded us that each case involves the interpretation of the particular insurance contract before the court:
18 These disagreements can perhaps be resolved by recognizing that there may be different types of "claims-made" and "occurrence" policies, as well as hybrid policies that have some features of "claims-made" policies and some features of "occurrence" policies. The essential is not the label one places on the policy, but what the policy says. The courts must in each case look to the particular wording of the particular policy, rather than simply attempt to pigeonhole the policy at issue into one category or the other. Construction of policies at issue in these kinds of cases depends much more on the specific wording of the policy at issue than on a general categorizing of the policy.
[11] McLachlin J. discussed the fact that there can be gaps in coverage in claims-made policies and found that this may be precisely the coverage for which the insured bargained. But she also found that there is a risk of real unfairness if the limits on coverage are only discovered while the policy is in force based on unclear wording or overly-technical analysis.
32 This is not to say "claims-made" or hybrid policies with these sorts of gaps in coverage are necessarily unfair to insureds. It is open to insureds to agree to a more risky sort of indemnity agreement (if the phrase is not an oxymoron) in exchange for a lower premium. The issue of fairness arises only if the insured is not aware that it is buying a "more risky" policy. But it should be noted that most insureds will purchase liability insurance assuming they are covered for all liability, and not realizing there may be gaps in the coverage they have purchased. These considerations suggest that so-called "claims-made" policies should be examined with care to determine whether, read as a whole, they clearly transfer the risk of the long-term liability in question to the insured. In particular - considering again the discovery principle as it relates to the purpose of avoiding the problems associated with "occurrence" policies - courts should be careful not to construe "claims-made" or hybrid policies in such a way as to exclude claims discovered by the insured during the policy period on the ground of some technical defect in the nature of the claim. If they do, they may be unfairly depriving people of the benefit of the coverage for which they reasonably understood themselves to have contracted. [Emphasis added.]
[12] It is no surprise that in this application, the insured says it never intended coverage to be as limited as the insurer claims it is. The insurer relies on the initial application process to argue that the insured knew it was applying for narrow coverage. I do not view the parties’ subjective intentions as appropriate facts to assist in the interpretation of the actual policy wording. I do not need to resolve the facts asserted one way or the other therefore. Interestingly, I note that, on its face, the respondent’s application form seems to be clearer than its actual policy exclusion. However, on deeper review, it too is ambiguous and depends on the meaning ascribed to a particular term (the “Retroactive Date”) and it uses a term (“first made”) that is not used in the policy itself. Accordingly, I cannot ascribe much interpretive value to the application form either.
[13] I do take the insurer’s point that the applicant knew that it was applying for claims-made coverage through a professional broker and, as such, must be taken to have known that there could well be gaps in coverage as are endemic in this type of policy. However, that just begs the question of what are the exclusions or gaps agreed to by the parties in the policy before the court? I turn to this now.
The Facts
[14] The facts are simple. On March 4, 2020, the insured received a demand letter asserting that it was liable on numerous grounds to a former business partner.
[15] March 4, 2020 was just before the province shut down due to the pandemic. Nevertheless, the applicant had the wherewithal to retain counsel who responded to the demand letter on March 25, 2020 (about ten days after the lockdown went into effect).
[16] On April 24, 2020, the applicant received a statement of claim from its former business partner. The applicants reported the claim to the respondent insurer a few weeks later.
[17] However, on April 18, 2020, the one year term of the insurance policy that was in effect when the applicant received the demand letter, expired. The policy was renewed for another year. That means the demand letter was received in the prior policy year – the year before the insured reported the claim made in the statement of claim.
[18] The parties agree that the claim against the applicant by its former business partner is covered by the insurance policy unless it is excluded. The policy covers claims that are made against the insured as long as the insured gives notice of the claim to the insurer within the same policy year.
[19] The policy does not restrict coverage to claims “first made” in a particular policy year. The business partner’s claim was first made in the prior policy year (April 18, 2019 – April 18, 2020). Had the applicant reported the claim before April 18, 2020, the insurer agrees that it would have been bound to provide to coverage under the policy.
[20] But just as a demand letter was a claim under the policy, so too was the statement of claim. The insurer agrees that the statement of claim was delivered in the same policy year that it was reported to the insurer. So, it is covered in the current policy year (April 18, 2020 – April 18, 2021) unless it is excluded by Exclusion 20.
[21] Had the insurer intended to cover only claims that are reported in the year they are first received, it could have said so simply by adding the word “first” to its coverage language.
Policy Exclusion 20
[22] The policy says:
This "Policy" does not apply to:
- Any "Claim" of which any director, officer, member, partner, manager or supervisory employee of an "Insured" entity is aware, as of the inception date of this "Policy" or of any fact, circumstance or situation which could reasonably give rise to any "Claim" being brought against any "Insured";
[23] This issue in this application resolves to the interpretation and meaning of the phrase “inception date of this ‘Policy’”. The insurer says that “the inception date of this ‘Policy’” is April 18, 2020 – the renewal date of the current policy term. The insured says that “the inception date of this ‘Policy’” is the date that the policy incepted or began – April 18, 2017.
[24] The insurer argues that this exclusion excludes all claims of which the insured was aware before the renewal date of the current policy year. More than that, it excludes all claims that are based on “any fact, circumstance or situation which could reasonably give rise to any ‘Claim’” where those facts were known to the insured prior to the renewal of the policy for the current policy year.
[25] In this case, had the policy renewal date been June 1 instead of April 18, then the demand, the statement of claim, and the notice to the insurer would all have been in the same policy year. So, the policy coverage claimed by the insurer turns on the fortuity of when the third party plaintiff gives notice and acts. In the insurer’s view, if the third party plaintiff first gives notice of some discontent but tries to settle or otherwise does not send a formal demand letter or litigate for more than one year, then the claim is not covered. Or, as was the case here, if the first notice and the claim come on opposite sides of an intervening renewal date (of which the third party has no knowledge) then the insured is just out of luck.
[26] At first blush, the breadth and asymmetry of the exclusion claimed is startling. Under this policy, the insured is not entitled to give notice of mere facts or circumstances from which a claim might arise later. Yet, the insurer submits that if the insured learns of facts or circumstances that are not yet a claim but which mature into a claim in a subsequent policy year, coverage is excluded and there is no ability of the insured to give notice to the insurer or to do anything to be covered.
[27] However, the insurer is not without arguments.
[28] First, the seemingly unfair hypothetic posed in the paragraph [26] is not this case. Here, the applicant received a claim on March 4, 2021. Despite the pandemic, it knew and was able to engage counsel to respond to the claim by March 25, 2021. All it had to do was send a quick email to its broker copying it on the correspondence or just telling it about the demand received. If it did not know that a demand letter was a “claim” under the policy, any loss caused by the insured’s failure to read the policy falls at its own feet.
[29] Moreover, the policy wording requires that “as soon as the ‘Insured’ becomes aware of a ‘Claim’”, it must “immediately notify the ‘Insurer’”. On the insurer’s theory of the case therefore, the applicant could have been covered but for its own breach of contract.
[30] Plus, the asymmetry that I found startling at first blush has been expressly recognized and allowed for by the Supreme Court of Canada. In Jesuit Fathers of Upper Canada v. Guardian Insurance Co., 2006 SCC 21, 2006, the Court discussed risks associated with claims-made policies and wrote:
- Many claims-made policies offer even more restricted coverage. For example, the policy might exclude from coverage any negligence of which the insured is aware prior to the coverage period even if no claims have been made. This leaves the insured in the situation where, although consistently insured over a period of years, there are still certain claims that do not fall within the purview of the policy namely, claims where the underlying damages (and related negligence) are discovered in one policy period but the claim is not made by a third party until a subsequent period. The current insurer may then be off the hook, while a new insurer will require an exclusion of the potential claims in its policy. The insured will fall between two stools.
[31] In Jesuit Fathers, the insurer cancelled the policy after only one claim had been made. The insured was left without insurance on numerous prior matters of which it had knowledge but which had not yet blossomed into claims. The court adverted to the risk that no new insurer would take on the insured for claims which it already knew were coming. The phrase “falling between two stools” referred to the insured being between insurers with no coverage.
[32] In Stuart v. Hutchins, 1998 CanLII 7163 (ON CA), 1998 CarswellOnt 3540, the Court of Appeal dealt with a case where the insured first had notice of a claim in December with its policy renewal coming at year-end. It did not give notice of the claim to the insurer until January of the next year.
[33] The Court of Appeal held that the policy clearly and unambiguously did not cover that circumstance. The policy provided insurance coverage only for:
…sums which the Insured shall become legally obligated to pay as damages resulting from any claim or claims first made against the Insured and reported in writing to the Company during the Policy Period.
[34] The insuring agreement was clear and express. A claim had to be “first made” and reported to the insurer in the same year. That is the coverage the insured bought. The Court of Appeal held that the insured was not entitled to extend coverage beyond what it had purchased as clearly and unambiguously expressed in the coverage language.
[35] South Stormont (Township) v. Frank Cowan Co., 2008 CarswellOnt 3444 is another similar case. Like Hutchens, the insuring agreement required the insurer to pay claims against the insured where,
…the claim for damages is FIRST MADE against the Insured during the policy period of the Part and the Insured had no knowledge of such impairment at the inception date of the policy or, in the case of property acquired after the inception date of this Part, at the time of acquiring that property; [Emphasis in original]
[36] Like this case, the question was whether the “inception date of the policy” related to the initial issuance of the policy some years ago or to the most recent renewal of the policy for the current policy year. At para. 15, Mackinnon J. wrote:
15 In my view, the reference to the inception date of the policy is not ambiguous, it refers to the inception date of the policy in effect during the policy period in which the claim is first made. The phrase must be interpreted in the context in which it appears, namely, as a clause included by reference in a renewal policy. In this context, it would not make sense that it would refer back to the inception date of another policy, one that was for a specified one year period and which had long since expired. In my view, this meaning is clear from a reading of the entire contract and from the applicable law. Any other interpretation would apply a different meaning to the word "policy" as it appears in the phrase "policy period" than given to it in the phrase "inception date of the policy", both of which appear in the same sentence.
[37] Mackinnon J looked at the definition of the “Policy” and “Policy Period” in that insurance contract. In paras. 16 and 17, he found that it was apparent from the review of the contract terms as a whole that in that contact the “inception of the policy” referred to the current renewal term only.
[38] I note as well the insuring agreement was drafted with absolute clarity to cover only the first instance of a claim and not claims of which the insured had prior knowledge of impairment.
Policy Terms
[39] The applicant argues that in the context of its policy, the “inception of this ‘Policy’” relates to the date it was first issued in 2017. Under the policy, the insured is not required to report when it has notice of facts that might relate to a claim. However, when it applied for the policy in March, 2017, it was required to report facts and circumstances of which it had knowledge that could amount to claims. There is a symmetry then, with this policy excluding claims that arise from facts which were known before it was first issued. They were reported on and are excluded from coverage knowingly.
The “Retroactive Date”
[40] In its factum, although not at the hearing, the insurer also argued that by submitting that the phrase “inception of this ‘Policy’” referred to the initial date of issuance in 2017, the insured was improperly creating a term that was already defined elsewhere in the contract.
[41] The policy has a defined term called the “Retroactive Date”. It is defined as follows:
"Retroactive Date" means date disclosed in "Policy" Declarations when "Claim" is made prior to inception of the "Policy". The "Insured" must not have prior knowledge of incident that may give rise to a "Claim".
[42] There is only one “Retroactive Date” set out in each successive Declaration associated with each policy renewal. It is and has always been April 18, 2017.
[43] Unfortunately, the definition is not written in grammatically scannable English. Before abandoning the argument orally, the insurer argued that the Retroactive Date is the date that the policy was initially issued on April 18, 2017. Therefore, the insurer argued that had the “inception date of this ‘Policy” in Exclusion 20 meant April 18, 2017, the insurer would have used the term “Retroactive Date” that was already defined.
[44] There are many difficulties with this interpretation. First, the definition of “Retroactive Date”, as written, seems to be conditional. It has a meaning “when ‘Claim’ is made..”. Does it mean something different when no claim is made? In addition, while the “Retroactive Date” can be the first date the policy was issued, it does not have to be that date. The date disclosed in the Declaration can be any date and can be before the policy issuance for example.[^1]
[45] Of greatest significance however, the definition of “Retroactive Date” incorporates the phrase “inception of the ‘Policy’”. That suggests that inception of the policy is a reference to a historic date well before the renewal of the current policy term. In this case it would be April 18, 2017.
[46] Finally, I cannot make sense of the second sentence in the definition of the “Retroactive Date”. It says, “[t]he ‘Insured’ must not have prior knowledge of incident that may give rise to a ‘Claim’”. It makes no sense sitting there. I proposed during the hearing that there might be a punctuation mistake in the definition. The yellow highlighting shows changes I have made to give the sentence grammatical meaning. It might mean:
"Retroactive Date" means date disclosed in "Policy" Declarations. When a "Claim" is made prior to inception of the "Policy"
. Tthe "Insured" must not have prior knowledge of the incident that may give rise to a "Claim".
[47] That gives the sentence a meaning. I have no idea if this is what was actually meant by the insurer. I cannot help but wonder if the sentence is a drafter’s “note to the draft” that she forgot to delete. It might be reminding the drafter in non-grammatical shorthand of a possible intent of the defined term. If the sentence was supposed to have meaning limiting claims based on prior knowledge, I cannot see why it would be sitting in the definition of the “Retroactive Date” instead of being in an exclusion or a limit on the insuring agreement?
[48] Overall, I can draw little from the definition of “Retroactive Date” except to note its complete lack of internal clarity and the muddiness it spreads to the phrase “inception of the ‘Policy’” as used both in this definition and in Exclusion 20.
The “Policy”
[49] The definition of “Policy” is also ambiguous as a guide to the issue in this case. The definition provides:
"Policy" means the application for insurance, the Declarations page, the insurance coverage described in this document that the "Insurer" has issued as evidence of insurance coverage, and any endorsements issued by the "Insurer".
[50] The policy is more than the annual renewal document. I understand that each renewal is a new contract at law. But this contract expressly includes the application for insurance from March, 2017 as well as endorsements.
[51] Unlike South Stormont, nothing in the definition of “Policy” limits the scope of the phrase “inception of this ‘Policy’” to just this year’s renewal form.
The “Policy Period”
[52] The contact terms define the “Policy Period” as follows:
"Policy Period" means the period between the Inception Date shown in the Declarations and the Expiry Date shown in the Declarations or until the "Policy" is cancelled in accordance with the conditions of this "Policy", If the "OPTIONAL REPORTING PERIOD" is exercised in accordance with General Condition "Optional Reporting Period" then it shall be part of the last "Policy Period" and not an additional period.
[53] This definition incorporates the capitalized term “Inception Date”. There are 68 defined terms set out in the contract wording. The term “Inception Date” is not among them. I note that defined terms in the policy are set out in bolded type. In the definition of “Policy Period”, the term “Inception Date” is capitalized but not bolded. To what does it refer?
[54] The definition of “Policy Period” refers to the “Inception Date shown in the Declarations”. Unfortunately, the Declarations do not use that term either. However, the Declarations each year do show the current policy terms from April 18 of the current year to April 18 of the ensuing year.
[55] The insurer therefore argues that the “inception date of this ‘Policy’” as used in Exclusion 20 must be a reference to the first date of the renewal term set out in the current Declaration because “Inception Date” is used in the definition of “Policy Period”. I do not think that follows however. When the drafter wanted to refer to the first day of the renewal term, it said “Inception Date shown in the Declarations”. Therefore, the “inception date of this ‘Policy” would seem to refer to something else.
Exclusion 21
[56] Exclusion 21 excludes from coverage:
Any "Claim" resulting from any prior or pending litigation as of the effective date of this "Policy" as stated in the Declarations, as well as all future "Claims", suits or litigation based on the pending litigation derived from the same or essentially the same facts (actual or alleged) that gave rise to the prior or pending litigation; This exclusion includes any "Claim" which has been the subject of any notice given under any other policy prior to the inception date of this "Policy". [Emphasis in original.]
[57] This exclusions uses the phrase “effective date of this ‘Policy’ as stated in the Declarations” to refer to the commencement of the current renewal term. If that is what was meant in Exclusions 20, it could have used that same term in the exclusion that immediately preceded it.
[58] Exclusion 21 refers to notice “given under any other policy prior to the inception date of this ‘Policy’”. With the reference to “this Policy”, it uses the exact same phrase used in Exclusion 20. Again, by its own wording, it could refer to either the current renewal or the initial policy date. The reference to a prior policy can be a policy issued by another insurer prior to 2017 or a prior renewal of this policy.
[59] But, if the phrase “inception date of this ‘Policy’” is intended to refer to only the current policy renewal, then why does this exclusion also define that same time period as the “effective date of this ‘Policy’ as stated in the Declarations”? Ms. Tam was left to argue that the two different phrases used in the same exclusion both refer to the exact same thing. That is not the ordinary interpretation given to differently phrased words.
Synthesis
[60] I am not quick to turn to the contra proferentem rule of construction. I do not jump quickly to interpret contracts against the drafter unless they cannot be interpreted otherwise and a tie-breaker is needed. In Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, the Supreme Court of Canada set out the applicable rules of construction as follows:
12 In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37 (S.C.C.), this Court confirmed the principles of contract interpretation applicable to standard form insurance contracts. The overriding principle is that where the language of the disputed clause is unambiguous, reading the contract as a whole, effect should be given to that clear language: Ledcor, at para. 49; Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245 (S.C.C.), at para. 22; Non-Marine Underwriters, Lloyd's London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 (S.C.C.), at para. 71. Only where the disputed language in the policy is found to be ambiguous, should general rules of contract construction be employed to resolve that ambiguity: Ledcor, at para. 50. Finally, if these general rules of construction fail to resolve the ambiguity, courts will construe the contract contra proferentem, and interpret coverage provisions broadly and exclusion clauses narrowly: Ledcor, at para. 51.
[61] In Ledcor, the Supreme Court of Canada described the rules that apply before one gets to contra proferentum as follows:
Where, however, the policy’s language is ambiguous, general rules of contract construction must be employed to resolve that ambiguity. These rules include that the interpretation should be consistent with the reasonable expectations of the parties, as long as that interpretation is supported by the language of the policy; it 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 contracted, and it should be consistent with the interpretations of similar insurance policies. See Progressive Homes, at para. 23, citing Scalera, at para. 71; Gibbens, at paras. 26-27; and Consolidated‑Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at pp. 900-902.
[62] It is fundamentally important that in this case (and neither of Hutchens nor South Stormont) the issue has arisen in the interpretation of an exclusion from coverage. In both precedents, the limits on coverage were set out in the basic insuring agreements set out in the policies in unambiguous language. Neither case dealt with the interpretation of an exclusion clause.
[63] As I am dealing with an exclusion clause, I am not sure that I ever get to Ledcor and contra proferentum. An unclear exclusion clause fails under Progressive Homes.
[64] I find Exclusion 20 hopelessly ambiguous. There are two reasonably possible interpretations. Neither is clarified or resolved by the context in the exclusion, by nearby clauses, or by the contract as a whole. References to clauses on related topics like Exclusion 21 and the definitions of “Retroactive Date”, “Policy”, and “Policy Period” do not point me to an understanding of what the drafters meant when they wrote the “inception date of this ‘Policy’”.
[65] If I could make heads or tails of the definition of “Retroactive Date”, I would think that the use of the phrase in that definition probably refers back to 2017. But the whole definition makes no sense so I am not inclined to try to draw a definite meaning from it. The incorporation of the initial 2017 application form into the definition of the “Policy” leaves it ambiguous. The use of the term “Inception Date shown in the Declarations” in the definition of “Policy Period” is ambiguous because it suggests that the capitalized “Inception Date” has a defined meaning when it does not. But, to the extent that both the “Policy Period” and Exclusion 21 use the modifier “shown in the Declarations” rather than “of this ‘Policy’”, they militate in favour of the applicant’s interpretation. If the two modifiers mean different things, then if the former refers to the commencement of the current policy year (as shown in the Declaration) then the latter must refer back to 2017.
[66] As the exclusion is ambiguous, it fails under Progressive Homes. I therefore never get to Ledcor.
[67] I find it difficult to overlook the fact that the applicant could have had coverage had it given timely notice of the demand letter. But the insurer concedes that the insuring agreement does not limit coverage to “first notice” of claims (or the like) and that the policy does cover the statement of claim as reported after the 2020 renewal subject only to the Exclusion 20.
[68] I am also mindful of the logic behind Mr. Donnelly’s argument that, as in some of the case law, the insured may effectively be asking to have the advantage of a “Continuous Coverage” clause or a “Notice of Circumstances” clause for which it did not pay. The common sense economics seem to be at risk.
[69] However, this insurance policy allows the applicant to pay for extended coverage for circumstances of which it has knowledge when the insurance ends. This offers the insured an opportunity, for a fee, to go to a new insurer without “falling between two stools” as was the case in Jesuit Fathers. But that means that, if the insurer is correct, the insured is worse off to stay with it from year-to-year than it is to leave after one year. According to the insurer, if the applicant stays with it and renews the policy, it loses coverage for circumstances that have not yet ripened into a claim and it cannot buy the Notice of Circumstances coverage that it can buy when it leaves. That cannot be right and undermines the applicability of the suggestion that the applicant is trying to get coverage for free or that the parties’ reasonable expectations were that the insured was not covered year-to-year.
[70] If the insurer wanted to achieve the result in Hutchens, it had the unilateral ability to limit the insuring agreement as was done in that case. It should not have tried (and probably did not try) to bury that outcome in an ambiguous exclusion clause.
[71] Moreover, as noted by the Supreme Court of Canada, there is an infinite continuum of insurance products between pure claims-made policies and pure occurrence-based policies. While Mr. Donnelly’s policy arguments are powerful on the policies applicable in other cases, I do not see the fact that the insurer created a policy that did not limit coverage to first notice and did not clearly exclude prior facts as undermining the economics and market norms at play. It drafted the policy that it wanted to sell as was its right.
[72] In my view, the interpretation advanced by the insurer denudes the contract of much of its apparent coverage. Excluding all claims that take more than a year to mature from first complaint to demand or litigation or which happen to cross the magic April 18 date is a very major limitation on coverage.
[73] As I said at the outset, it was open to the parties to make their bargain as they wish. But, as discussed by McLachlin J., these policies include a risk of unfairness if coverage is limited without clarity. Moreover, insurers know that exclusions must be clear and unambiguous. Perhaps that is why the coverage limits in the case law are contained in the insuring agreements rather than buried in exclusions or, in this case Exclusion 20 of 34.
[74] If I am entitled to go beyond Progressive Homes to try to interpret the exclusion after finding it to be ambiguous, I would narrowly find that the interpretation advanced by the applicant is the better interpretation. The comparison of Exclusion 20 to Exclusion 21 and the definition of “Policy Period” favour a meaning for “inception of this ‘Policy’” that is different from the renewal date set out in the Declaration. If that is too slender a reed on which to base an interpretation, I would then be driven to read the exclusion contra proferentum in any event.
[75] Order to go as sought in para. 58 of the applicant’s factum.
[76] Counsel agreed that costs should follow the cause fixed at $19,500. It is so ordered
FL Myers J
Released: March 29, 2021
DATE: 20210329
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
BACKYARD MEDIA INC. Applicant
– and –
HDI GLOBAL SPECIALTY SE Respondent
REASONS FOR JUDGMENT
FL Myers J
Released: March 29, 2021
[^1]: It is that possibility which makes the policy application form ambiguous as was adverted to previously.