The B.C. Insurance Act has not been greatly modified since the 1960s and, not surprisingly, it has now been targeted as a statute in need of reform. While no specific amendments or Bills have been tabled, the government, in March of 2007, circulated a discussion paper on the possible developments to elicit discourse on the possible reforms to the Insurance Act. Legislation to implement reforms might take place as early as the Spring of 2008. This paper seeks to highlight some of the problems identified in the Insurance Act and identifies the key recommended reforms.
The Act is generally organized into: (1) the General Part; (2) the Life Part; (3) the Accident and Sickness ("A&S") Part; and (4) the Fire Part. It has been recognized that this schema does not reflect the current insurance landscape and, in particular, the nature of multi-peril insurance. Thus, one problem was determining what Parts of the Act applied to a policy and an example of this arose in 2003 when the Supreme Court of Canada found that the General Part of the Act governed typical multi-peril home insurance. 1 This was significant because, generally, the Fire Part provided more consumer protection rights as compared to the General Part, which was intended to apply to more sophisticated commercial entities. To have classification issues arise in respect of these Parts meant that these intentions may be frustrated. It is now being proposed that the consumer protection provisions of the Fire Part be extended to cover all basic home insurance policies, including multi-peril, all-peril, comprehensive, homeowners policies and so forth. In this manner, the General part will still govern commercial contracts which tend to involve more parties of relatively equal bargaining strength and knowledge. Raised for discussion and comment was whether such consumer protection provisions in the Fire Part should apply to small and medium sized-businesses as well.
Currently, the Act requires that all fire insurance contracts contain identical provisions respecting various matters (i.e. "mandatory" provisions) and provides that fire insurance cover all types of fires unless specifically excluded. Insurance companies have long-desired for more flexibility to exclude fire-related risks, specifically those caused by earthquakes and terrorism. In that regard, the insurance industry wanted the option of excluding fires arising from earthquakes and, instead, provide to consumers a comprehensive earthquake policy that would include fire coverage. However, due to the consumer expectation that fire insurance protects consumers from all causes of fire, it is being proposed that earthquakes not be added to the list of permitted exclusions. In contrast, it is being proposed that terrorism be recognized as a permitted exclusion because, in part: the Act already excludes items of a similar nature; there is a real solvency risk if insurers would be required to provide such coverage given the current inability to predict losses and risks; and the difficulty to acquire reinsurance. Up for discussion is whether "terrorism" requires a definition.
An important proposed amendment is to clarify the Act as to whether fire in a vacant home caused by vandalism will be covered. Typically, fire and vandalism are separate, insured perils but their coverage in regards to vacant homes differ; there are generally vacancy exclusions for vandalism but limited fire coverage for vacant premises. Recent judicial activity in this area generally supports the proposition that fire caused by vandalism is governed by the vandalism portion of the policy and, therefore, coverage may be excluded on the basis of vacancy. However, vandalism is not one of the listed exclusions under the Fire Part and the exclusion goes against consumer expectations. The proposal recognizes that only explicitly excluded causes should form exclusions in respect of fire losses and proposes that the legislation be clarified, without stating the manner of clarification. Despite that, it is being suggested that the meaning of "vacancy" be defined to include a statutory "grace period" of 30 days during which coverage for fire, and vandalism resulting in fire, would continue. The government requested input on whether other vandalism losses, such as broken windows or theft, should be covered.
The insurance industry has called for removal of the requirements to have mandatory statutory conditions, found particularly in the A&S and Fire Parts of the Act, so that more flexibility is afforded to designing insurance contracts. After acknowledging this, the Ministry has instead proposed that these statutory conditions be maintained and, in furtherance of consumer protection, recommends that these conditions be updated to further protect consumers and to enhance contract standardization. Notably, there was nothing specifically proposed in this regard. The reason for maintaining the status quo stems from the unequal bargaining power and knowledge inherent between the contracting parties in these forms of insurance contracts.
Another problem raised was the denial of coverage to innocent co-insureds. At present, persons who are jointly insured and suffer loss caused by the acts of a co-insured may be denied recovery. This result is based on the legal doctrine that the wrongdoer should not benefit from their own misconduct, the assumption being that the interests of the insured parties are inextricably connected. The proposal is to make the maintenance of insurance coverage for innocent co-insureds mandatory.
Changes to group insurance coverage are also being discussed. In particular, it is proposed that consumers be given a statutory right to obtain group insurance policies, subject to non-disclosure of personal and commercially-sensitive information. Further, it is being considered that consumers be given rights under group property and casualty insurance to sue on the insurance contract as well as the right to be notified of termination or changes in coverage much like in the case of group life or A&S insurance.
Limitation periods have been the subject of much litigation and the courts have urged the government to clarify the Act. This topic has been identified as a priority amongst stakeholders and the proposed changes in this area are extensive: (1) doubling the limitation period to two years; (2) adoption of a single provision for limitations, with the triggering event being "the date the cause of action arises against the insurer" with certain exceptions and modifications; (3) applicability of the incapacity and discoverability provisions of the Limitation Act; and (4) the requirement that insurers give notice to the consumer before the expiry of limitation periods.
Dispute resolution reform is also on the table. The Act currently provides two alternative dispute resolution mechanisms: the "appraisal" remedies, which help resolve valuation issues; and mandatory mediation under home warranty insurance disputes. In an attempt to avoid costly and perhaps unnecessary litigation, the government’s proposed reforms seek to mandate cost-effective methods for resolving disputes. Proposals in respect of this include more regulation into home, life or A&S policies requiring internal dispute resolution systems and the insurer to notify the consumer of such systems. It is further proposed that actual costs be awarded against intransigent parties that attempt to subvert the appraisal process by refusing to appoint appraisers or agree to umpires. Related to this is the proposed change to allow the insurer to examine the insured, under oath, if the insured makes a claim combined with regulations prescribing protection for the insured in such processes.
The government’s discussion paper on these potential reforms demonstrates several goals. There is an emphasis on (1) consumer protection and (2) balancing bargaining-power inequities between the consumer and the insurer. In furtherance of these two goals is the objective of (3) policy transparency. On a larger scale, the government is also concerned with (4) legislative harmony with other provinces. With these goals in mind and the comments solicited by the discussion paper, it will be interesting to see what proposals survive the legislative process. Other problems in the current legislation were discussed that led to no reform being proposed, but comments nevertheless were elicited. It is therefore possible that other amendments not highlighted in this paper will be made, perhaps in the area disclosure obligations, for example. In any event, legislative change for the Insurance Act is on the horizon and insurers will have to be ready to modify their internal administration and create new systems to adapt and come into compliance with these reforms. Underwriting practices may also be influenced as coverage issues are impacted by amendments which will, in turn, lead to changes in insurance costs for consumers.
1 See KP Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada , [2003] 1 S.C.R. 433, 2003 SCC 25 and Churchland v. Gore Mutual Insurance Co. , [2003] 1 S.C.R. 445, 2003 SCC 26.