Court File and Parties
Court File No.: CV-23-00700005-0000
Date: 2025-02-19
Court: Superior Court of Justice - Ontario
Applicant: Charles Thomas McNair
Respondent: Aviva Insurance Company of Canada
Before: Lorne Brownstone
Counsel:
- For the Applicant: Christiaan A. Jordaan
- For the Respondent: Frank Csathy and Avi Sharabi
Heard: 2025-01-23
Endorsement
Background
[1] On July 5, 2020, Mr. McNair was driving a Sea-Doo, a watercraft powered by a jet-pump propulsion system, on Lake Muskoka. Mr. McNair’s Sea-Doo collided with a rowing scull whose occupant died at the scene. The deceased’s widow and children have sued Mr. McNair.
[2] Mr. McNair applies for an order declaring that his homeowner’s insurance policy, issued by Aviva, covers the claim the family asserts against him. He also asks that Aviva be ordered to indemnify him for costs and disbursements he has already incurred to defend that action.
[3] Mr. McNair acknowledges the policy contains an exclusion for watercraft. However, the exception to the exclusion specifies types of watercraft that are covered. The exception also provides a 30-day grace period. It is the 30-day grace period that Mr. McNair says provides him coverage.
[4] Aviva denies that the policy covers the claim against Mr. McNair for two reasons. First, the policy specifically excludes jet-pump-propelled watercraft from coverage elsewhere in the policy. Such watercraft therefore cannot be read into the definition of watercraft in the grace-period provision. Second and in the alternative, if the Sea-Doo is covered under the 30-day grace period, the incident occurred outside that 30-day period.
[5] The parties agree that the case turns on the interpretation of the grace period exception in the policy.
Issue One: Is the Sea-Doo Insured Under the 30-Day Grace Period Provision?
The Policy
[6] The policy at issue was in force from December 5, 2019, to December 5, 2020. It was a comprehensive homeowner’s policy, renewed as of December 5, 2019, with separate property and third-party liability sections. The liability coverage had a two-million-dollar limit.
[7] In the property portion of the policy, under the “Special Limits of Insurance”, the following provision appears:
We insure:
8. Watercraft, their trailers, furnishings, equipment, accessories and motors up to $2,500 in total, but we do not insure personal watercraft powered by a jet pump propulsion system.
[8] The liability section of the policy, Section II, provides a broad grant of coverage, stating in part as follows:
Coverage E - Your Personal Liability Protection
This is the part of the policy you look to for protection if you are sued. We will pay all sums which you become legally liable to pay as compensatory damages because of unintentional bodily injury or property damage arising out of:
- your personal actions anywhere in the world;
- your ownership, use or occupancy of the premises defined in Section II.
The amount of insurance shown on the Certificate of Property Insurance is the maximum amount we will pay for all compensatory damages in respect of one accident or occurrence regardless of the numbers of insureds against whom claims are made or actions are brought.
Defense, costs and supplementary expense payments as described under "defense, settlement, supplementary payments" are in addition to the amount of insurance.
[9] Section II of the policy contains a watercraft exclusion, and exceptions to that exclusion. The exclusion reads as follows:
Exclusions - Section II
We do not insure claims arising from:
8. the ownership, use or operation of any watercraft, motorized vehicle or trailer except as provided under "watercraft and motorized vehicles" and “trailers" in Section II;…
[10] The exception to the watercraft exclusion is found under the bolded heading “Special Limitations”.
Watercraft and Motorized Vehicles
You are insured against claims arising out of your ownership, use or operation of:
- Watercraft, including their attachments, equipped with an outboard motor or motors of not more than 19 kW (25 HP) in total when used with or on a single watercraft;
- Watercraft, including their attachments, equipped with any other type of motor of not more than 38 kW (50 H.P.), other than personal watercraft powered by a jet-pump propulsion system;
Any other watercraft is insured only if liability coverage for it is shown on the Certificate of Property Insurance. If the watercraft or motor with which it is equipped is acquired after the effective date of this policy, you will be insured automatically for a period of 30 days only from the date of acquisition, or until expiry of the policy, whichever comes first; [emphasis added]- non-motorized watercraft, including their attachments, not more than 8 metres (26 feet) in length;...
Principles of Contractual Interpretation
[11] The parties agree on the principles that apply to the interpretation of the policy as set out by the Supreme Court of Canada in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 SCR 245 at paras. 22-24, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 SCR 23 at paras. 27, 49-51, Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, [2017] 1 SCR 121 at paras. 12-13.
[12] First, where the language of the policy is clear and unambiguous, the court should give effect to that language, reading the contract as a whole. At this stage, words should be given their ordinary meaning, as understood by an average person applying for insurance, not by an expert in insurance law.
[13] If the language is ambiguous, the court should resort to the general rules of contractual construction. That is, the courts should give effect to an interpretation that is consistent with the reasonable expectations of the parties, as long as that interpretation is supported by the text of the policy. The court should not give effect to an interpretation that would lead to an unrealistic result, or one that was not within the parties’ contemplation. The interpretation should be consistent with the interpretation of similar insurance policies.
[14] If ambiguity remains, the courts will construe the policy contra proferentem, against the insurer. The corollary of this is that coverage provisions are interpreted broadly, and exclusion clauses narrowly.
[15] The interpretation should proceed in the following order: coverage, exclusion, exception. The onus shifts from insured to insurer and back to insured: Ledcor at para. 52.
[16] Limitations on coverage should be clearly expressed: Wigle v. Allstate Insurance Co. of Canada, 49 O.R. (2d) 101 at paras. 49-50, Progressive at para. 51.
Analysis
[17] The parties agree that the policy would apply to the allegations against Mr. McNair unless coverage is excluded. They agree that determination of this application rests on the interpretation of the grace period provision, set out in bold at paragraph 10 above.
[18] Mr. McNair argues that the wording of the policy is unambiguous. The exception provision specifies two small, slow watercraft and confirms that coverage extends to their use. It then provides for a grace period, which I restate here:
Any other watercraft is insured only if liability coverage for it is shown on the Certificate of Property Insurance. If the watercraft or motor with which it is equipped is acquired after the effective date of this policy, you will be insured automatically for a period of 30 days only from the date of acquisition, or until expiry of the policy, whichever comes first.
[19] Mr. McNair argues that “any other watercraft” must be interpreted as it is written. First, the language is clear, and Aviva did not limit its words in any way. Second, there would be no reason to have such a clause if it were intended to refer only to “small, slow” watercraft. These are specifically and automatically covered, do not need to be included in the Certificate of Property Insurance, and have no need of a grace period. While the certificate is called a Certificate of Property Insurance, it sets out the entire coverage under the policy, both property and liability.
[20] If the court finds the clause ambiguous, Mr. McNair argues that the parties’ reasonable expectations, and a proper interpretation of the policy, lead to the conclusion that the grace period extends to watercraft “at large”.
[21] Aviva argues that it is clear from a plain reading of the word of the exception, reading the policy as a whole, that watercraft powered by a jet-pump propulsion system, such as the Sea-Doo, do not fall within the meaning of “any other watercraft”. Aviva argues that because the Sea-Doo could never have been insured for property coverage under the policy, as set out in paragraph 7 above, it could never have been on the Certificate. This is clear from the wording of the policy, which evidences the parties’ reasonable expectations.
[22] Aviva acknowledges that the first sentence of the provision begins with “[a]ny other watercraft” – a broad term. The sentence goes on to say that such watercraft can be “insured only if liability coverage for it is shown on the Certificate of Property Insurance.” Aviva agrees that this provision cannot apply to watercraft not yet owned. Then, the provision states: “If the watercraft …is acquired after the effective date of this policy, you will be insured automatically for a period of 30 days only ….”
[23] Aviva argues that this second sentence refers to “any other watercraft” at the outset of the paragraph, and that it therefore must apply only to watercraft that could appear on the certificate of insurance, which it argues the Sea-Doo could not.
[24] Mr. McNair argues that the second sentence that contains the 30-day grace period must be read separately, as applying to watercraft that is acquired after the effective date of the policy, which has no chance of being included in the certificate of insurance.
[25] I find the provision ambiguous on its face. It could be read as either party proposes.
[26] I turn, then, to the reasonable expectation of the parties and the remaining principles of contractual interpretation set out in paragraphs 11-16 above.
[27] Aviva relies in part on its internal underwriting manual that stipulates that Aviva does not insure jet-pump-propelled watercraft on homeowners’ insurance.
[28] I agree with Mr. McNair that the underwriting manual is of no assistance to Aviva. There is no suggestion that the manual was provided to Mr. McNair, nor that its existence was revealed or explained to him. The meaning of the wording of the policy between Mr. McNair and Aviva should be determined without recourse to Aviva’s internal underwriting policy. As stated by the Divisional Court, the insurer “cannot, in the fact of its contractual obligations… avoid those obligations by relying on an internal company policy to the contrary”: Johnson v. Jevco, 2021 ONSC 4870 at para. 18.
[29] Aviva also relies on Woodbury v. State Farm, 2010 ONSC 4202 in support of its argument that watercraft exceptions create limited coverage. In that case, Pattillo J. found the exception to the watercraft exclusion did not include Mr. Woodbury’s watercraft, a motorboat with an inboard motor of more than 50 H.P. To hold otherwise would have rendered the specific exception contained in the policy meaningless. Such an interpretation was not within the intention of the parties.
[30] Interestingly, Woodbury did not consider the meaning of the grace period clause, because it was not applicable on its facts. There, the grace period clause provided: “Should you acquire any motors or watercraft larger than those stated above after the effective date of this policy, your insurance will be extended automatically for a period of 30 days in order for you to notify us of the acquisition.” On a plain reading of that entire provision, had Mr. Woodbury acquired his watercraft within the 30-day grace period, a different result may well have been attained.
[31] As noted by Aviva, the case law on watercraft exclusion clauses demonstrates that each insurer drafts its own version of the watercraft exception, making it difficult to draw on the cases for assistance.
[32] Aviva also relies on the clear wording of the policy excluding jet-pump-propelled watercraft from property insurance as evidence of the parties’ objective intentions, supporting the limited exceptions in respect of watercraft.
[33] Mr. McNair argues that the reasonable expectation of an insured is to be covered by the grace period. Mr. McNair himself obtains insurance for different kinds of vehicles for both his business and personal use. His evidence was that he was familiar with grace periods and expected these grace periods to extend to his acquisition of the Sea-Doo. The covering brochure from Aviva sent with the renewal package contained a general reference to watercraft as “other items covered under your policy”.
[34] The purpose and meaning of a grace period were specifically addressed by the Divisional Court in Jevco, a case relied on by Mr. McNair. In that case, Mr. Johnson, an insured automobile owner, advised his insurer (Jevco) that he was going to purchase a motorcycle. Jevco advised him that it did not insure motorcycles, and that given his poor driving record, he would have to look to the insurer of last resort. Nonetheless, Mr. Johnson purchased a motorcycle and was involved in an accident within 14 days of acquiring it. He sought statutory accident benefits, relying on coverage being extended to him under the 14-day grace period. Jevco denied coverage. The License Appeal Tribunal and the Divisional Court sided with Mr. Johnson.
[35] The Divisional Court stated as follows:
[17] Thus, a motor vehicle which, pursuant to the Highway Traffic Act includes a motorcycle is, for the purposes of the Insurance Act, an automobile because under the Compulsory Automobile Insurance Act it is required to be insured. On this basis a motorcycle is recognized as an automobile when that term is used in the Ontario Automobile Policy (OAP1) Owner’s Policy. This being so, when the Ontario Automobile Policy s, 2.2.1 refers to a “newly acquired automobile” it includes a newly acquired motorcycle. As found in the Decision of the Licence Appeal Tribunal and confirmed in the Reconsideration Decision this means that Jacob Johnson was insured on the day of the accident and, given the agreement of the parties qualifies for the benefits that were denied.
[18] The response of Jevco is to ask the question: How can it be found to insure this motorcycle when, as a matter of company policy, it never insures such vehicles? The Factum filed on behalf of Jevco refers to this as “the single most important fact” distinguishing this case. To my mind, this is wrong. It is not a factor at all. There is a simple answer. The insurance contract, the one the parties entered into, the substance of which is the Ontario Automobile Policy (OAP1) Owner’s Policy, requires that this coverage be provided. To put it another way, Jevco cannot, in the face of its contractual obligations imposed by provincial policy, or otherwise agreed to by Jevco, avoid those obligations by relying on an internal company policy to the contrary. This is not, as Jevco would have it, “a redrafting of the OAP”. Rather it is an understanding of the plain and ordinary meaning of the words of s. 2.2.1 of the Ontario Automobile Policy. (footnotes omitted)
[19] The company responds with another question: How can this be when, on July 5, 2016, before he purchased the motorcycle, and in conversations thereafter, Jacob Johnson was told by his insurance broker that Jevco did not insure motorcycles? For the company this question is underscored by noting that, in any event, Jacob Johnson did not advise Jevco of the purchase until August 2, 2016, well after the date of the accident (July 16, 2016) and after the 14 day period by which notice of such a purchase is, pursuant to section 2.2.1 of the Ontario Automobile Policy required. Moreover, no additional premium had been paid to insure the motorcycle. (I repeat what is said in s. 2.2.1: “Your newly acquired automobile(s) will be insured as long as you inform us within 14 days from the time of delivery and pay any additional premium required.”) The question misunderstands the import of the 14 day notice period. It is a grace period for continuing insurance to be arranged; it is not a precondition to insurance being provided for the 14 days. The expectation of an additional premium being required is for the continued insurance, once arranged, not for insurance over the grace period. The premium to cover the 14 days is assumed to have been included in the premium already paid since it covers insurance the contract already provides for. The absence of notice within 14 days means that, once the 14 day period had expired, Jevco no longer insured the newly acquired motorcycle. [emphasis added]
[36] A grace period is intended to provide the insured with a period of time to confirm or obtain coverage. As in Jevco, it is to be assumed that the premium paid for the contract that contains the grace period has factored in the cost of the 30-day grace-period coverage.
[37] I find that the contract, construed in accordance with the principles of interpretation applicable to insurance contracts set out above, is properly interpreted as follows:
| Sentence | Interpretation |
|---|---|
| “1. Watercraft, including their attachments, equipped with an outboard motor or motors of not more than 19 kW (25 HP) in total when used with or on a single watercraft”. | These watercraft are automatically covered under the policy. |
| “2. Watercraft, including their attachments, equipped with any other type of motor of not more than 38 kW (50 H.P.), other than personal watercraft powered by a jet-pump propulsion system”. | These watercraft are automatically covered under the policy. Watercraft powered by a jet pump propulsion system of under 50 H.P. are not automatically covered. |
| “Any other watercraft is insured only if liability coverage for it is shown on the Certificate of Property Insurance.” | Watercraft owned at the time of the policy purchase or renewal, not covered by 1 or 2 above, but specifically listed on the certificate of insurance (which includes both property and liability coverage, despite its name) is covered. |
| “If the watercraft or motor with which it is equipped is acquired after the effective date of this policy, you will be insured automatically for a period of 30 days only from the date of acquisition, or until expiry of the policy, whichever comes first.” | There is a 30-day grace period for liability for other watercraft, from the date of acquisition, in which there is automatic coverage. This provides the insured with 30 days to arrange whatever coverage might be necessary for the new watercraft. |
[38] That is, I find, reading the contract as a whole, that the grace period extends to any watercraft purchased. Requiring coverage for liability for the Sea-Doo under the grace provision does not lead to an unreasonable result. There is a broad grant of third-party liability coverage. Excluding the Sea-Doo from property coverage does not equate to excluding it from the grace period for liability coverage. Had Aviva wished to exclude such watercraft from the grace period, it could have done so expressly. It did not do so. As noted above, limitations on coverage are to be clearly expressed. No such limitation is clearly expressed here.
[39] Aviva submitted in oral argument that Mr. McNair should have checked with his insurer more quickly after acquiring the Sea-Doo. There is nothing in the policy that would require Mr. McNair to do so.
[40] I find that the grace period, properly construed, extends liability coverage to the Sea-Doo.
Issue Two: Did the Incident Occur During the 30-Day Grace Period?
[41] The grace period runs from “the date of acquisition” of the watercraft.
[42] Aviva argues that even if the grace period extends to provide 30 days of coverage to Mr. McNair for the Sea-Doo, the incident occurred after the expiration of that period. Aviva argues that as of May 28, 2025, Mr. McNair had an insurable interest in the Sea-Doo, so the grace period started to run from that date.
[43] Mr. McNair argues the grace period started to run on June 10, 2020, when the Sea-Doo was delivered to him.
[44] Mr. McNair began sourcing a Sea-Doo in early March 2020, shortly before the COVID-19 pandemic was declared. Mr. McNair dealt regularly with The Cove, a Muskoka-based vendor of watercraft. When Mr. McNair approached The Cove in early March, The Cove was unable to find a Sea-Doo for him to purchase. In May, The Cove telephoned Mr. McNair to advise him that it had sourced a Sea-Doo for him. On May 28, 2025, Mr. McNair paid The Cove for the Sea-Doo. On June 10, 2025, the Sea-Doo was delivered to him.
[45] A service history for the Sea-Doo printed in 2022 states that the warranty was registered on May 29, 2020. The service history is in Mr. McNair’s name. Mr. McNair stated that The Cove took care of the documentation. He assumes The Cove purchased the Sea-Doo from another dealer and registered the warranty. He had no knowledge of the registration of the warranty at that time. There is no evidence as to whether the warranty was registered in his name from the outset.
[46] Mr. McNair argues that “acquire” must be given its plain meaning. The definition of acquire in the Canadian Oxford Dictionary, 2d. ed., Katherin Barber, ed. (Canada: Oxford University Press, 2004) is “gain by and for oneself; obtain; come to possess.” Possession occurred on June 10, 2020. The July 5, 2020, incident is within the 30-day grace period. Mr. McNair distinguishes between the legal concepts of “purchase” and “possess”. He argues that had Aviva wished to have the grace period run from the date of purchase it could have said so.
[47] Indeed, in the nautical policy Mr. McNair purchased from Aviva on July 6, 2020, “purchase” is the language Aviva used in the grace period for newly acquired watercraft. The provision states:
Newly Acquired Watercraft
In the event that the named insured purchases a watercraft during the policy, either in addition to or to replace the insured watercraft, this policy shall extend to cover the acquisition, but the amount of insurance under section A will cover only up to the actual cost of the acquisition to the named insured….
[48] I note that in this provision in its nautical policy, Aviva uses “purchase” and “acquisition” somewhat interchangeably. Aviva could easily have chosen to use the word “purchase” in its comprehensive home insurance policy with Mr. McNair. It did not do so. It chose the word “acquired” and chose not to define the term.
[49] Aviva argues against using the dictionary definition of acquisition “in a vacuum”. It points to the use of the word “acquire” in another part of the policy to support its proposed interpretation of “acquire” as “purchase”. That is, the policy defines premises in part as "premises in Canada to be occupied by you as your principal residence from the date you acquire ownership or take possession". (emphasis added).
[50] This does not assist Aviva. Had Aviva wished to be as specific in the grace period in question, it could have done so. It could have referred to “acquiring ownership”. It chose not to. It could have used the term “purchase”. It chose not to. It chose the term “acquire”.
[51] In addition to the Canadian Oxford Dictionary, Black’s Law Dictionary, 11th ed., Bryan A. Garner ed., (United States of America, Thomson Reuters, 2019) defines acquire as “to gain possession or control of; to get or obtain”. “Acquisition” is defined as: 1. The process by which one gains knowledge or learns a skill
[52] Thus, the definitions in both the Canadian Oxford and Black’s dictionaries comprise elements of possession and control.
[53] Aviva raises two hypothetical arguments in support of its interpretation. Aviva asks, what if Mr. McNair had been unable to use the Sea-Doo for a year, and had arranged for it to be stored? What if he lent the Sea-Doo to a friend instead of taking possession of it directly for himself?
[54] I do not find the hypotheticals raised by Aviva change the analysis. In either case, Mr. McNair would have exerted control over the Sea-Doo and its physical possession, establishing acquisition.
[55] I do not accept Aviva’s arguments that the dictionary definition should not prevail. Insurance contracts are to be read by giving words their ordinary meaning. The dictionary is the natural place to go to determine that ordinary meaning.
[56] The evidence is that Mr. McNair did not possess or exert control over the Sea-Doo until June 10, 2025. Although he paid for the Sea-Doo on May 28, 2020, there is no evidence that the Sea-Doo was even available to be physically acquired by him on that date, or that he could exercise any degree of control over it. It is unknown whether The Cove had the Sea-Doo in its possession on that date, or whether it had merely sourced it for Mr. McNair.
[57] I therefore find there was no acquisition of the watercraft by Mr. McNair until he came to possess it on June 10, 2025. I find that Mr. McNair acquired the Sea-Doo within 30 days of the incident, and therefore falls within the 30-day grace period.
Conclusion
[58] I find that the policy covers the claims asserted to date in the underlying action, and order that Aviva indemnify Mr. McNair for costs and disbursements incurred to date to defend the action, with pre-judgment interest.
Costs
[59] Mr. McNair seeks full indemnity costs, as is usual in coverage applications, even in cases where the question is “a relatively novel issue of importance”: Deloitte & Touche Inc. v. American Home Assurance Company at para. 15.
[60] Fixing costs remains a discretionary exercise under s. 131 of the Courts of Justice Act, RSO 1990, c C.43, guided by factors including the non-exhaustive list in Rule 57. The overarching concern is to fix costs that are reasonable and proportionate, and fair for the unsuccessful party to pay: Boucher v. Public Accountants Council (Ontario), 71 O.R. (3d) 291 (C.A.).
[61] The applicant’s full indemnity costs total $55,376.27. In my view, the hours spent and fees charged are reasonable and proportionate. There were no extra or unnecessary steps, the matter was very significant to the parties, and entailed some interpretive complexity. The amount is proportionate to the significance of the outcome.
[62] I therefore order costs as requested on a full indemnity scale in the amount of $55,376.27.
[63] I have signed the judgment in the form agreed to by the parties.
Lorne Brownstone
Date: February 19, 2025