COURT FILE NO.: CV-20-00645327
DATE: 20210614
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
202135 ONTARIO INC. cob HELPING HANDS DAYCARE, 841986 ONTARIO LIMITED and 2433845 ONTARIO INC.
Applicants
– and –
NORTHBRIDGE GENERAL INSURANCE CORPORATION
Respondent
John J. Longo and Danielle Muise, for the Applicants
Andrew A. Evangelista and Jennifer L. Kent, for the Respondent
HEARD: March 15, 2021
VELLa j.
reasons for decision
[1] The Applicants (collectively, the “Insured” or “Helping Hands”) seek a declaration, under rr. 14.05(3)(d) and (h) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, against the Respondent (the “Insurer” or “Northbridge”) that they are entitled to further coverage under a provision of the Business Choice insurance policy (the “Policy”). The specific provision at issue can be referred to as the pandemic-related business income interruption/interference provision. The Insured seek a declaration that the maximum sum of $50,000 is payable for each of their seven locations, in the aggregate sum of $350,000.
[2] The Respondent replies that the coverage under this provision is restricted to an aggregate maximum limit of $50,000, in total, for the policy period.
Agreed Facts
[3] On March 17, 2020, the Insured were required to shut down their seven daycare centres as a result of the COVID-19 pandemic outbreak and the resulting state of emergency declaration by the Ontario Government. The daycare centres remained closed until June 22, 2020.
[4] The Insured made a claim under the Policy for income loss arising from the interruption or interference with its business operations.
[5] The parties agree that the COVID-19 pandemic outbreak triggered coverage under the Policy as of March 16, 2020.
[6] The Insurer approved coverage in respect of the Insured’s business income losses under the Policy in the amount of $50,000.
[7] The only issue in dispute is the limit of liability under the applicable endorsement in the Policy.
Legal Principles of Insurance Contractual Interpretation
[8] The outcome of this application will be determined by an analysis of the subject endorsement within the context of the Policy as a whole.
[9] The “rules” of contractual interpretation, as applied to insurance contracts, have been recently summarized by the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23. In this case, the Supreme Court builds its analysis on the principles set out in its earlier decisions rendered in Consolidated‑Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888 and Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245. Wagner J., as he then was, set out the framework of analysis at paras. 49-51 of Ledcor. I paraphrase this framework as follows:
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 proferentum 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.
For similar expressions of the contractual interpretation principles within the context of insurance policies see Consolidated‑Bathurst, at pp. 899-902 and Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 CanLII 150 (SCC), [1993] 1 S.C.R. 252, at pp. 268-69, 271.
[10] The Supreme Court of Canada in Progressive, at paras. 22-23, stressed that the interpretive principles used to resolve ambiguities in insurance contracts do not operate to create an ambiguity where no such ambiguity otherwise existed.
[11] Further, a contract that contains some language that may be unclear or imprecise does not necessarily give rise to ambiguity, when the contract is read as a whole: Surespan Structures Ltd. v. Lloyds Underwriters, 2021 BCCA 65, at para. 88.
[12] Finally, an ambiguity only exists if there are two or more reasonable interpretations of the subject policy provision(s). The fact that an alternative interpretation exists that does not make sense within the context of the insurance policy when read as a whole, will not give rise to an ambiguity: Sabean v. Portage La Prairie Mutual Insurance Co. 2017 SCC 7, [2017] 1 S.C.R. 121, at para. 42.
The Policy
[13] Northbridge issued the Policy to Helping Hands bearing the number CBC 063-0414 14. The Policy provided insurance coverage for multiple perils, including business income interruption/interference coverage.
[14] The Policy is comprised of CBC 001 (containing the General Terms and Conditions, including the Declaration Page and attached Coverage Schedules), a renewal of the Policy effective February 3, 2020, for a term of one year, and Endorsement 3 - Association of Daycare Operators of Ontario Program Endorsement (the “ADCO Endorsement”).
[15] The ADCO Endorsement is the version that was in force at the time of the loss and, the parties agree, applies to Helping Hands’ claim. It modified the coverage provided under Part II – Business Income found in CBC 001. In particular it deleted the coverage extension under Part II, ss. 6(e) Civil Authority, (j) Negative Publicity, and (k) Outbreak Extra Expense and replaced it with the Outbreak and Negative Publicity Extension. The Outbreak and Negative Publicity Extension is the relevant coverage provision at issue in this application.
[16] Under the Definition section of the Policy, s. 16(x) states that:
“Scheduled risk location” means: risk location(s) specified on the “schedule”.
[17] Section 16(v) of CBC 001 defines “schedule” as the Part I and II Coverage Schedule. There is a separate Coverage Schedule under Part I and II for each of the seven daycare centres. Therefore, each of the daycare centres constitute a “scheduled risk location” as defined by the Policy. There was no dispute that the daycare centres are each a “scheduled risk location” within the meaning of CBC 001 of the Policy.
[18] Part II - Business Income of the Policy originally contained coverage for business interruption, but it did not capture the pandemic as an insured peril.
[19] The original business interruption insurance limit of liability provision reflected in CBC 001 read in material part as follows:
PART II
BUSINESS INCOME
SECTION
- LIMIT OF LIABILITY
The most we will pay under this Part is the limit specified for each “scheduled risk location”. [Emphasis added.]
[20] The relevant coverage provision under Part II of the original Policy was set out in section 6(k) to CBC 001, entitled Outbreak Extra Expense:
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”, subject to indemnity provided by this Extension of Coverage will not exceed the shorter of:
(i) 30 days from the date of the declaration by the Civil Authority or “public health authority” or
(ii) the reasonable time required to comply with the declaration by the Civil Authority or “public health authority”. [Emphasis added.]
[21] “Schedule” is, in turn, defined by the Policy as the Coverage Schedules attached to the Declaration Page of CBC 001.
[22] Subsequently, the Insurer added an extension of coverage under Part II, Business Income, to provide for coverage with respect to losses incurred from business interruption caused by the COVID-19 pandemic. This extension was formalized by the ADCO Endorsement and replaced the Outbreak Extra Expense provision previously in place. It is added by way of form F3317EXQ and states that it is attached to and forms part of CBC 001. It also states that F3317EXQ forms part of the Declaration Page of the Policy. The relevant portion of the ADCO Endorsement is as follows:
- PART II – Business Income
The Endorsement modifies insurance provided under Part II – Business Income.
All the General Provisions, Conditions, Exclusions and Definitions of the Policy apply to this Endorsement except those specifically stated to apply only to other Parts. In addition, this Endorsement is subject to the exclusions, provisions and conditions of Part II – Business Income.
If the sequencing of any added clause in this Endorsement is in conflict with the sequencing of the respective clause of form CBC 001 and any endorsements attached thereto, then this Endorsement is changed to the next available sequencing.
- DELETED EXTENSIONS OF COVERAGE
Part II Section 6. Extensions of Coverage (e) Civil Authority, (j) Negative Publicity and (k) Outbreak Extra Expense are deleted in their entirety.
B. 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”, subject to:
(1) If indemnity provided by this Extension of Coverage is from (i)(1), (i)(4) or (i)(5), such indemnity will not exceed the shorter of:
(i) 30 days from the date of the declaration by Civil Authority or “public health authority”; or
(ii) the reasonable time required to comply with the declaration by Civil Authority or “public health authority”; [Emphasis added.]
[23] The Insurer acknowledges that the Limit of Liability under the Outbreak & Negative Publicity Extension was in the sum of $50,000, and that the limit listed in B(I)(iv) was incorrectly set out as $25,000.
[24] The Insured acknowledges that the above Outbreak & Negative Publicity Extension in the ADCO Endorsement deletes and replaces the s. 6(k) Outbreak Extra Expense coverage provision contained in Part II - Business Income (in CBC 001) of the Policy. However, the Insured claims that the ADCO Endorsement does not modify s. 2 of Part II - Business Income (in CBC 001), quoted above, which states that the limit of liability is the limit “specified for each ‘scheduled risk location’.”
[25] In support of their submission, the Insured relies on the following provision of the ADCO Endorsement (which references CBC 001):
- PART II – BUSINESS INCOME
This Endorsement modifies insurance provided under Part II – Business Income.
All the General Provisions, Conditions, Exclusions and Definitions of the Policy apply to this Endorsement except those specifically stated to apply only to other Parts. In addition, this Endorsement is subject to the exclusions, provisions, and conditions of Part II – Business Income.
[26] Also, of relevance, the ADCO Endorsement provides that “[a]ll other terms and conditions [from the Policy] remain unchanged” on the last page.
Analysis
[27] The underlined portions of the above ADCO Endorsement’s Additional Extensions of Coverage provision are at the heart of this dispute.
[28] The first task is to determine whether there is an ambiguity in the wording of the Outbreak & Negative Publicity provision contained in the ADCO Endorsement. In particular, the meaning of “at your ‘scheduled risk location’” (s. (l)(i)), and “The most that we will pay under this Extension of Coverage in any one policy period is $25,000 [sic] or as otherwise indicated on the ‘schedule’” (s. (l)(iv)).
[29] The Insured says that when the Policy is read as a whole, “the most that we will pay” means calculated for each “scheduled risk location” consistent with “schedule” and not a total aggregate sum. In the alternative, this coverage provision is ambiguous, and cannot be resolved by the applicable rules of interpretation. Therefore, resort must be made to the doctrine of contra proferentum to resolve the dispute in the Insured’s favour.
[30] The Insured relies, in part, on an email received from its insurance broker, in which the broker agrees that the subject limit of liability pertains to each of the seven daycare centres. However, this evidence is hearsay and irrelevant. The proposed evidence is self-serving and highly contentious and goes to the very issue before the court. The Insured has not satisfied me that this evidence is either reliable or necessary. Therefore, I am striking this portion of the affidavit evidence as inadmissible hearsay.
[31] The Insured also relies on the fact that the premium payable for this coverage was allocated on a per scheduled risk location basis. The proportion of the premium is relative to the expenses incurred by each daycare centre. If the prescribed limit of liability of $50,000 is a maximum total aggregate sum, then, the Insured says, certain scheduled risk locations will receive no coverage once the limit of $50,000 is reached, notwithstanding that each location was at least notionally assessed a separate premium.
[32] The Insurer says the opposite – the omission of the phrase “each” (or any similar word) from the “scheduled risk location” means that the $50,000 limit of liability applies to all of the scheduled risk locations as an aggregate, when read within the context of the Policy as a whole. The Insurer reasons that if it intended the sum of $50,000 to be the maximum payable for each scheduled risk location, it would have inserted “each” before “scheduled risk location” rather than “your”. It did not. Therefore, the court ought to construe this “silence” or omission as meaning the $50,000 limit of liability was in the aggregate for all of the scheduled risk locations.
[33] The Insurer relies on other endorsements contained within the Policy in which the respective limit of liability sections do specify that the limit of liability is with respect to “each ‘scheduled risk location” or similar words with the same effect, such as the Flood Endorsement, the Earthquake Damage Assumption Endorsement, and the Internal Water Damage Endorsement. These Endorsements are separate from the ADCO Endorsement.
[34] The ADCO Endorsement has a Coverage Summary relating to, inter alia, Part II - Business Income. The Coverage Summary specifically states that this Endorsement attaches to and forms part of CBC 001. Under the heading “Extensions of Coverage/Automatic Blanket Limit Clause”, item (z) states that the coverage for “property of tenants or registered guests” is $1,000 per occurrence or $5,000 in the aggregate.
[35] Hence, the ADCO Endorsement appears to be inconsistent as to when the term “aggregate” is and is not used, and what the court might extrapolate from the inclusion or omission of that term elsewhere in the Policy. Similarly, the ADCO Endorsement is inconsistent with respect to when the term “each” is and is not used, and what the court might extrapolate from the omission of this term from the subject limit of liability clause.
[36] If anything, the Coverage Summary from the ADCO Endorsement suggests that the omission of the term “aggregate” from the coverage as related to the Outbreak & Negative Publicity provision is some evidence that this sum was not intended by the parties to be a total aggregate limit of liability, but rather on a per “scheduled risk location” basis.
[37] Furthermore, the ADCO Endorsement’s preamble makes it clear that in the event that its Coverage Summary is in conflict with the Coverage Schedule (incorporated by reference into the Declarations page of CBC 001), the Coverage Schedule for Part I & II prevails.
[38] A review of the Coverage Schedule to CBC 001 clarifies that each of the seven daycare centres operated by the Insured are a “scheduled risk location” within the meaning of the Policy. Nothing in the ADCO Endorsement alters that characterization.
[39] A review of the Coverage Schedule reveals four columns: Coverage, Aggregate Liability Limit, Deductible, and Annual Premium. The Coverage column lists the insured perils, while the Aggregate Liability Limit refers to the limit of liability corresponding to each insured risk. There is a separate Coverage Schedule for each of the “insured risk location” (i.e., each of the seven daycare centres). Each Coverage Schedule shows that the Aggregate Liability Limit for business income is $25,000 (Insurer acknowledges that this is in error, and concedes that the correct coverage limit is $50,000). The Schedule itself does not say whether the Aggregate Liability Limit is the maximum cap for all of the seven daycare centres or for each of the individual daycare centres. However, it is noteworthy that the amounts listed under the Aggregate Liability Limit for Business Personal Property, Equipment Breakdown, and the Stated Amount Co-Insurance Clause, differs in each of the seven Coverage Schedules for the individual daycare centres. This suggests that the amounts listed under the Aggregate Liability Limit are on a per “scheduled risk location” and not a total aggregate amount for all of the scheduled risk locations combined. The Coverage Schedule would otherwise make no sense on its face.
[40] The problem with the Insurer’s position is that it relies on an interpretation of the limit of liability clause, in isolation from s. 2 and the Coverage Schedule, that contains the general terms, conditions, and definitions applicable to the Policy (unless expressly changed in an Endorsement or another part of the Policy).
[41] A review of the various endorsements submitted by the Insurer shows that there is no uniform wording specifying the application of the limit of liability for each insured risk and whether it is in aggregate or applies separately to each individual “scheduled risk location” . The Insurer requires the Insured to, in effect, be a detective to figure out whether the omission of “aggregate” and “each” means that the limit of liability is on a total aggregate or on a per scheduled risk location.
[42] In my view, the limit of liability provision in the ADCO Endorsement is not clear when read in the context of the Policy as a whole. The fact that the limit of liability provision was silent as to whether it is on a per scheduled risk location basis, or on a total aggregate basis, leads to an uncertainty as to its meaning, beyond being “unclear” or “imprecise” within the meaning of Surespan.
[43] The ADCO Endorsement’s limit of liability as it relates to the Outbreak & Negative Publicity Extension coverage under Part II - Business Income, is ambiguous when read in the context of the whole Policy. The interpretation posited by the Insured asks the court to effectively read into the provision “each” before the “scheduled risk location”. The interpretation proposed by the Insurer asks the court to effectively read into the provision “in the aggregate” after the phrase “scheduled risk location”. These are both reasonable interpretations that are capable of being supported by the wording of the Policy.
[44] However, when reviewing the Policy as a whole, and in particular the definition of “insured risk location”, including all seven daycare centres as per the Coverage Schedule, which is stated to prevail over the Coverage Summary of the ADCO Endorsement, I am persuaded by the Insured’s interpretation. In my view, the reasonable expectations of the parties, as reflected by the Policy as a whole, was that this coverage, like the majority of the other insured risks contained elsewhere in the Policy (which were specified to be either for each scheduled risk location or per occurrence), was to be subject to a limit of liability calculated on a per scheduled risk location, and not in the aggregate for one policy period.
[45] I am also persuaded by the Insured’s submission based on the fact that the limit of liability provision under Part II - Business Income, s. 2, of CBC 001, was not deleted or altered by the ADCO Endorsement. Section 2 provided that the limit of liability was for “each” “scheduled risk location”, meaning each of the seven daycare centres reflected in the Coverage Schedule of CBC 001. This argument is strengthened by the statement in the ADCO Endorsement that all other terms and conditions of the Policy remained unchanged.
[46] The Insurer did not provide an acceptable explanation for its choice of making “your ‘scheduled risk location’” singular. This phrase reasonably infers that the limit of liability is on a per scheduled risk location, otherwise the Insurer could have made “location” plural. The Insurer also did not provide an acceptable explanation for why it omitted the term “aggregate” from this limit of liability provision, if that was what it intended, particularly as that term is used elsewhere in the Policy in relation to limits of liability.
[47] The Earthquake Damage Assumption Endorsement, Flood Endorsement and Internal Water Damage Endorsement referenced by the Insurer fail to support the Insurer’s argument.
[48] In my view, the reasonable expectations of the parties are reflected by “filling in” the apparent omission with respect to the scope of the limit of liability by resorting to the general limit of liability provision contained in s. 2 of Part II – Business Income of CBC 001, which remained unaltered by the express terms of the ADCO Endorsement. The Coverage Schedules attached each reflect a limit of liability for business interruption insurance at $50,000 (as acknowledged by the Insurer) for each of the scheduled risk locations. The Coverage Schedules prevail in the event of any inconsistency with the Coverage Summary.
[49] In the alternative, if I am in error, and the ambiguity is not resolved by resort to the rules of contractual interpretation and reading the Policy as a whole, then the doctrine of contra proferentum must be resorted to. In this case, the Insurer drafted the insurance contract. As stated by the Supreme Court of Canada in Ledcor, coverage clauses are to be given a broad interpretation, and clauses purporting to restrict coverage a narrow one.
[50] Applying the doctrine of contra proferentum leads to the same result. The limit of liability under the Outbreak & Negative Publicity Extension provision of the ADCO Endorsement is a maximum of $50,000 for each of the seven scheduled risk locations, for a maximum aggregate coverage of $350,000.
[51] The application is granted, along with the requested declaration.
Costs
[52] The parties have already provided their respective Cost Outlines on CaseLines.
[53] The parties will have ten days from the release of this judgment to try to reach an agreement on costs. If they are unable to, then the Applicants shall have a further ten days to prepare written submissions, and the Respondent shall have ten days after that to provide responding written submissions. The written submissions from each of the parties will not exceed three pages, double spaced. These submissions may be provided to my judicial assistant.
Justice S. Vella
Released: June 14, 2021
COURT FILE NO.: CV-20-00645327
DATE: 20210614
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
202135 ONTARIO INC. cob HELPING HANDS DAYCARE, 841986 ONTARIO LIMITED and 2433845 ONTARIO INC.
Applicants
– and –
NORTHBRIDGE GENERAL INSURANCE CORPORATION
Respondent
REASONS FOR JUDGMENT
Vella J.
Released: June 14, 2021