Insurance Policy Interpretation and First Party Limitation Issues
Schroeder Transport v. Lloyd’s Underwriters [2011 ABQB 180], was a recent decision of the Alberta Court of King's Bench. In this case, the Court was called upon to consider issues relating to policy coverage and interpretation of the Limitations Act R.S.A. 2000, c. L-12.
A truck driver for the Plaintiff company was transporting electrical cable from Quebec to Alberta. During this trip he stopped at a truck stop to shower and eat. The driver locked the doors of the truck and left the keys under the floor mat in the cab. When the driver returned, the truck, trailers and cargo were gone. The Insurer denied coverage relying on exclusions contained in the Policy.
The Plaintiff argued two interpretive principles. Firstly, the interpretation of the policy must be consistent with the intentions of the parties. Secondly, if a phrase is ambiguous, the contra proferentem doctrine applies such that the policy must be interpreted against the party that drafted the Policy (the insurer).
The Plaintiff argued the intention of the Policy was reflected in its language. In this case, the Policy stated that coverage is “extended to include losses to cargo directly resulting from forcible and/or violent entry to unattended trucks”. The Plaintiff argued that because the truck doors were securely locked, access to the unit must have occurred due to “forcible and/or violent entry”, thus resulting in coverage. The Plaintiff also argued that the words “all keys removed” was an ambiguous phrase and therefore the interpretation of that phrase must be in favour of the Plaintiff who did not draft the Policy.
The Defendant argued the wording “all keys removed” was unambiguous and meant that all keys must be removed from the truck (as opposed to removed from the ignition), failing which coverage would be denied. The Defendant further argued that removing keys from the truck was a basic security precaution to ensure the truck, trailer and any load was not compromised.
The Court held an ambiguity existed as to whether the policy wording required the keys be removed from the inside of the locked truck. Accordingly, the policy must be interpreted against the Insurer pursuant to the contra proferentem doctrine. Coverage under the Policy was extended to the Plaintiff/insured.
The next issue required the Court to determine the application of the Limitations Act (the “Act”) to this denial of coverage. The loss occurred on March 1, 2006. The Insurer denied coverage on April 28, 2006. The Plaintiff’s Statement of Claim was filed on April 25, 2008, which was more than two years from the date of loss but less than two years from the denial of coverage by the insurer.
The Plaintiff argued that the claim was brought within the limitation period as specified by the Act. The Court reviewed case law as well as the Alberta Law Reform Institute’s report on the Act which expressed a firm view that this limitation period would run from the date coverage was denied.
There was also the issue of the Policy wording , it was a condition of the policy that any action had to be commenced within 24 months of “discovery by the Insured of the occurrence which gives rise to the loss..."
The Plaintiff argued that s.7(2) of the Act operated to remove this condition. The Defendant argued that s. 7(2) does not apply in this case because this section was not in force when the loss occurred . The Court noted that while s. 7(2) was not in force when the loss occurred, it was in force when the Defendant denied coverage and when the Plaintiff’s action was commenced. Therefore, it was a “legal situation that was ongoing at the time the Limitations Act was being modified, so that this was not a situation of retroactive effect, but immediate effect..."
This decision will serve as a precedent for the proposition that the term “injury”, in s.3(1) of the Act, refers to when the insurer denies coverage not when the initial loss occurred.
Further, a policy of insurance that has any provision which might affect limitation periods as set out in the Act may be held to violate s.7(2) of the Act (depending on the dates involved) and any such limitation clause as set out in the contract of insurance may be invalid.