A recent decision of the British Columbia Supreme Court (Surespan Structures Ltd. v. Lloyds Underwriters, 2020 BCSC 27) confirms that when insurance companies negotiate the terms of a policy beyond their standard forms or precedents, they must beware of failing to follow a pattern of express reference.
A pattern of express reference exists where throughout a contract, a pattern can be discerned where the drafter expressly states a certain limit or other item. When this pattern exists, if there are places where the limit or item is not expressly referred to, then it is considered to have been left out on purpose.
In this case, a company called Graham Design was subcontracted to provide services through a design-build contract which required Graham Design to obtain project specific professional liability insurance that would cover all consultants providing services to Graham Design.
Surespan was one such consultant who, due to some cracks discovered in the parkade structure, made a claim under the “mitigation of loss” coverage under the policy. Lloyds argued that the amounts payable to Surespan were constrained by the $10 million limit under the policy.
The policy obtained by Graham Design was negotiated between themselves and Lloyds, and was not entirely standard form. The policy contained four areas of coverage: (1) damages; (2) defence costs; (3) mitigation of loss coverage; and, (4) supplementary payments.
The clauses relating to damages, defence costs and supplementary payments expressly stated that the coverage was subject to the $10 million limit, whereas the mitigation of loss coverage clause did not.
The court held that the $10 million limit did not apply to mitigation of loss coverage and, therefore, did not apply to Surespan’s claim under the policy. The court suspected that the failure to include the limit language in the mitigation of loss clause may have been an oversight during drafting. The loss of mitigation coverage is not a common element of Canadian insurance policies and the language was likely taken from another policy. However, there was no application for rectification in front of the court.
The court further determined that if it was wrong in concluding that the language was clear, any ambiguity would be resolved in Surespan’s favour. There was evidence presented that during the underwriting process there was careful consideration of the scope and cost of the project. Therefore, the insurer would have been aware of the natural limits of the worst case scenario of a complete re-build. The concepts of reasonable expectations and contra preferentum (any ambiguity will be read in favour of the insured) still supported a finding that the $10 million limit did not apply.
This case illustrates the importance to insurers of careful drafting when negotiating policies beyond their standard forms.