- Insurance Reform Finally Arrives in British Columbia
- October 5, 2012 | Author: Stephen J. Berezowskyj
- Law Firm: Singleton Urquhart LLP - Vancouver Office
In most cases, people are able to enter into a contract with another person or company on terms that have been negotiated and are agreeable to both. However, the ability of parties to set their own terms is somewhat restricted when it comes to an insurance contract. There is a British Columbia statute,the Insurance Act, which requires that specific terms and claims-making processes form part of every insurance contract in the province—except motor vehicle insurance, which has its own dedicated statute. Because they are prescribed by a statute, these terms are referred to as statutory conditions.
These statutory conditions protect consumers who are not likely to read or understand the confusing language and fine print in a policy. They also establish consistency on fundamental aspects of the insurance contract such as:
- the time and process for making a claim
- how to cancel the policy
- how to resolve disagreements over the value of property
- when a lawsuit against the insurer must be commenced.
No change, removal or addition to any of these statutory conditions is permitted or enforceable. The Insurance Act was originally written during a time, the 1960s,when insurance policies covered specific types of risks whereas policies today typically provide coverage for a wide variety of risks. That version of the Act remained largely unchanged for almost 50 years which led many in the insurance industry, lawyers practising in the area, and even judges to complain that the Act was outdated and in need of reform to become compatible with current insurance products and business practices.
In a 2003 judgment, KP Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada, the Supreme Court of Canada described the Act as “based on the outmoded paradigm of discrete categories of insurance policies and is incapable of coherently addressing the modern multi-peril policy.” Responding to the call for an update, the B.C. Legislature has introduced some substantive reforms to the Act and its Regulations.These amendments were passed in 2009 and cameg into force on July 1, 2012.Some of their key features are:
Standardized rules for property policies The old Act had one set of rules for property insurance with fire coverage and a separate set for “multi-peril” property insurance. Under the new Act, the special rules for fire coverage have been removed so a single set applies to all property contracts and most liability policies. This change will eliminate confusion and make the Act easier to apply by avoiding the need to properly categorize a property policy to determine which rules apply. This change was called for by the Supreme Court of Canada.
Longer and simplified limitation periods The time period for an insured to start a lawsuit against its insurer in most cases has been increased from one year to two years, starting from the date of the loss or the date when the right to sue arose. The new Act also extends and clarifies the time for an insured to sue under life insurance policies as well as accident and sickness policies. Insurers will also have to provide their insureds with notice of the statutory limitation period at the time when a claim is denied and again at the one-year anniversary of the date an insurer receives a claim.
Protection for innocent co-insureds In cases where more than one person is insured under a policy, conduct by one insured that violates the terms of the policy can result in the claim of another insured (referred to as “innocent co-insured”) being denied. For example, homeowners were previously unable to recover for fire damage under their homeowner’s policy if it was determined that the fire was started intentionally by a family member who was also insured under the policy. Under the new Act, a claim by an innocent co-insured may not be denied so long as they are not implicated in the action violating the conditions of the insurance. The amendments require the innocent co-insured to cooperate with the insurer’s investigation of the loss.
Dispute resolution procedures The new Act requires insurers to develop and institute an internal complaint-resolution process and expands the dispute-resolution mechanisms in the current Act. These new requirements are intended to assist in the resolution of disputes and claims more quickly and inexpensively than is likely if people sue their insurer.
Electronic delivery of documents The new Act permits insurers to deliver some of the required forms and documents to their insureds electronically.
Uniformity on insurers’ right to pursue subrogated claims When an insurer pays a claim to its insured, it has the right to sue a party that is responsible for the loss in the name of the insured to recover the amount it has paid. This is called a right of subrogation. At common law, an insurer’s subrogation right arises only when the insured has been fully compensated for its entire loss. Under the old Act, an insurer was allowed, in the case of a fire policy only, to pursue subrogation even if the payment to the insured was less than the amount of the total loss. Any recovery from the subrogated action was shared between the insurer and the insured on a proportional basis. Under the new Act the insurer’s right to pursue subrogation where it has paid only a portion of the claim has been moved to the general provisions—it will now apply to all policies.
Although they have been a long time coming, these amendments implement some positive changes to B.C.’s Insurance Act. They should eliminate some of the uncertainty that led to unnecessary litigation under the old Act. The new Act also contains significant consumer protection measures similar to those found in the statutory conditions in other provinces.