The Ontario Court of Appeal has affirmed that a contractual condition within an insurance contract imposing a limitation period of 1 year will override the statutory two-year limitation period found within the Limitations Act, 2002.
In Daverne v. John Switzer Fuels Ltd. et al., (2015 ONCA 919), a fuel oil leak from a fuel tank caused damage to the Davernes’ property. One of the co-defendants, McKeown & Wood, sold the tank to the Davernes. Federated, the insurers for McKeown & Wood, took an off-coverage position, stating that the policy was not in force at the date of loss. McKeown & Wood commenced a third party claim against Federated.
Federated argued that a contractual limitation period included in the insurance policy was applicable and that the third party action was therefore not commenced in time.
Section 148 of the Insurance Act lists certain statutory conditions which are to be part of every fire insurance contract in Ontario. Federated included statutory condition 14 in its policy as clause 14 of the Basic Policy Statutory Conditions form. Clause 14 provided:
14. Action: Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.
Clause 8 of the “Additional Conditions” of the Basic Policy form stated:
8. Applicability of Statutory Conditions and Additional Conditions: The Statutory Conditions and Additional Conditions apply with respect to all the perils insured by this policy and to the liability coverage, where provided, except where these conditions may be modified or supplemented by riders or endorsements attached.
The motion judge found that the contractual limitation period was unenforceable. The motion judge concluded that “loss or damage” in clause 14 did not include loss or damage suffered by a third party, such as the Davernes who bring an action against the insured.
However, the Ontario Court of Appeal overturned this decision. The court noted that section 22(1) of the Limitations Act, 2002 prohibited contracting out of a limitation period except in the case of “business agreements”.
A business agreement was defined as “an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002.”
The court held that none of the parties to Federated’s insurance policy were a “consumer”, which is defined in the Consumer Protection Act, 2002 to mean “an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes.” The court held that the parties were business entities. The court referred to its own decision in Boyce v Co-operators General Insurance Co., 2013 ONCA 298 in which it was held that an insurance policy covering various risks related to the operation of an insured’s business fell within the definition of “business agreement”.
The Court of Appeal ruled that clause 14 of the Basic Policy Statutory Conditions combined with clause 8 of the Additional Conditions varied the two-year limitation period provided for in the Limitations Act, 2002.
The Court of Appeal stated that the wording of the policy was clear and unambiguous in that the statutory conditions apply to the liability coverage under the policy. The one-year limitation period in the policy was therefore enforceable and it began to run when Federated refused to provide McKeown & Wood with a defence. As the claim against Federated was commenced almost two years after Federated’s denial letter, McKeown & Wood’s claim was barred by the one-year contractual limitation period.