Changes to the Insurance Act

Consumer Protection is a cornerstone of the Act and, at section 136.5, the new Act “ensures coverage for innocent co-insured by restricting the criminal or intentional-act exclusions such that it would not apply to an insured whose claim was triggered by the intentional acts of a co-insured.” (Committee Report, Manitoba Legislative Assembly, June 6, 2014/SED 31)

Thus, section 136.5 provides:

Recovery by innocent persons
136.5(1) If a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person

(a) whose act or omission caused the loss or damage;
(b) who abetted or colluded in the act or omission;
(c) who
(i) consented to the act or omission, and
(ii) knew or ought to have known that the act or omission would cause the loss or damage; or
(d) who is in a class prescribed by regulation.

Recovery limited to proportionate interest
136.5(2) Nothing in subsection (1) allows a person whose property is insured under the contract to recover more than the person’s proportionate interest in the lost or damaged property.

Compliance with regulations by certain persons
136.5(3) A person whose coverage under a contract would be excluded but for subsection (1) must comply with the requirements prescribed in the regulations.

Relevant Case Law:

Scott v. Wawanesa Mutual Insurance Co., [1989] 1 SCR 1445, 1989 CanLII 105 (SC)

Facts: Appellant’s home was damaged by fire that was deliberately set by their 15 year old son without their knowledge or complicity. At the time of the incident, the home was covered by a homeowner’s insurance policy where the policy contained the following exclusion:

“LOSSES EXCLUDED: This policy does not insure:
(d) loss or damage caused by a criminal or wilful act or omission of the insured or of any person whose property is insured hereunder;”

The appellants filed a proof of loss, but the claim was denied by respondent insurer on the ground that the loss occurred through the “willful act” of the “insured” which falls within the meaning of the quoted provision. In the policy, the word “Insured” includes “the Named Insured” and “if the residents of his household, his spouse, the relative of either, and any person under the age of 21 in the care of an Insured”. The judge found the son’s interest was separate from that of his parents and because of this, the exclusion clause did not apply to the claim. Judgment was reversed by the Court of Appeal.

Issue:

1. Whether the exclusion from coverage caused by the wrongful act or omission of an insured applied only to the insured responsible for the act or omission or whether it applies not only to that insured but also to an innocent insured.
2. Whether the insurer’s indemnification obligation is joint and several.

Held: The policy excludes liability of the insurer for damage caused by the criminal act or wilful acts of the insured, or his minor children living in the home. Given the facts of the case and the definition of “Insured” contained in the policy, the damages suffered by appellants were clearly excluded from coverage. Further, the insurable interest of the parents and that of the child in this case are inseparably connected and the misconduct of one was sufficient to contaminate the whole insurance policy.

Dissenting Opinion: The exclusion from coverage caused by the wrongful act or omission of an insured only applies to the insured responsible for the act or omission and does not apply to an innocent insured. Where the term “Insured” is so defined to extend to others other than the named insured, that definition should not be construed so as to restrict or limit the coverage enjoyed by the name insured. Rather, it is intended to extend coverage. In the absence of clear and precise language in the policy to the contrary, the obligation of the insurer of a fire insurance policy which covers the interest of more than one person, should be considered several as to each of them. Here, there was no clear language in the policy to the effect that the insurer considered its obligations joint. Where the language in the policy is ambiguous, the contra proferentem doctrine should be applied to construe the language in a manner favourable to the insured.

Comments:

The dissenting opinion in Scott has resonated strongly with Manitoba policy makers who have now introduced changes in existing legislation that would allow the innocent insured to recover his proportionate interest provided he has not abetted, colluded or consented in the criminal act or omission that caused the damage, or that he knew or ought to have known of such act or omission. He would be able to recover provided he complies with the requirements prescribed in the regulations. These changes are aimed at addressing the apparent unfairness to the insured brought about by Scott and the decisions that followed it and, at the same time, providing safeguards against fraudulent claims against the insurer in case recovery is allowed.

The new Act, however, does not define “proportionate interest” and grappling with its precise meaning may be fertile ground for future litigation on this issue. Furthermore, the new Act refers to prescribed regulation that must be complied with by the insured before recovery is allowed. Earlier articles and commentaries on the subject suggest that Manitoba regulations may follow in the direction taken by Alberta where its regulations require that “the innocent insured must cooperate with the insurer in the investigation and loss, including submitting to an examination under oath and producing for examination all documents relating to the loss in addition to those required under the policy.” We still need to wait and see what the Manitoba regulation would look like.

CITED CASE IN PRACTICE AND PROCEDURE
Almendral v. Tan, 2017 MBQB 54