What is the difference? An insurance policy or an insurance contract for a group insurance program – Insurance

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The decision of the Ontario Court of Appeal in Van Huizen v. Trisura Guarantee Insurance Company, 2020 ONCA 222 emphasizes the distinction between an insurance policy and an insurance contract; in particular the importance of this difference in determining whether an insurer’s obligation to defend is engaged for persons participating in a group insurance program.

Background

The Trisura Guarantee Insurance Company (“Trisura”) has issued a professional liability insurance policy (the “Master Policy”) to the Appraisal Institute of Canada (“AIC”). The main policy involved claims made against AIC members, their personal companies, employers and AIC for negligence in the provision of professional assessment services.

Coverage was extended to individual AIC members under the master policy through an individual application. An individual insurance certificate was issued to each member.

Mr. Van Huizen, professional appraiser and member of AIC, made a claim under the Master Policy and his individual insurance certificate (the “Van Huizen Insurance Contract”) for coverage against of three proceedings (two actions and a third claim), which were brought against Mr. Van Huizen and a style company, Hastings Appraisal Services (collectively referred to as “Van Huizen”).

These proceedings stem from an allegedly negligent property assessment carried out by another AIC member, Mr. Barkley. Mr. Barkley was also insured under the Master Policy and had his own Individual Certificate of Insurance issued by Trisura (the “Barkley Insurance Contract”). Mr. Barkley died in October 2016.

Before Trisura could issue its hedging position with respect to the Van Huizen claim, Van Huizen sued Trisura for a declaration that Trisura had an obligation to defend and indemnify them under the contract of Van Huizen insurance for all three procedures.

The motion for summary judgment

Trisura brought a motion for summary judgment dismissing the action on the basis that she had no obligation to defend herself. In particular, Trisura argued that, among other things, no cover was available under the Van Huizen insurance contract because it did not cover the Mr. Barkley’s alleged professional negligence.

The motions judge dismissed Trisura’s motion and granted judgment in favor of Van Huizen. In reaching this conclusion, the motions judge adopted a broad interpretation of the main policy and concluded that “Mr. Van Huzien is covered for legal action arising from his own actions and also when it arises from his status. legal employer of the alleged wrongdoer [Mr.
Barkley]. The Motions Judge also found that Trisura had a duty to defend Van Huizen on the grounds that such an interpretation was necessary for the vicarious liability provision to have practical effect.

Trisura appealed the decision of the motions judge.

The call

The main issue on appeal was whether the Motions Judge erred in concluding that Trisura’s obligation to defend Van Huizen was incurred under the Van Huizen insurance contract.

Although the Motions Judge correctly identified the interpretive principles relevant to determining whether there was a duty to defend, the Court concluded that the Motions Judge erred in treating the main policy as the entire insurance contract for all AIC members.

The court ruling focused on the differences between insurance policies and insurance contracts, as recognized by the statutory definitions of “contract” and “policy” in the Insurance Act, RSO 1990, c. I.8.1 The Court noted that the insurance
Strategies are instruments which do not create legal obligations simply by virtue of their existence. Without an additional contractual relationship, a policy is simply a listing of terms and conditions that do not attach to any particular person or item.

On the other hand, insurance Contract creates contractual obligations between the parties. Like any contract, there must be an offer, acceptance and agreement on all material conditions. Premiums, the nature and duration of the risks, and the extent of liability are all important terms in an insurance contract.

The adjudicated motion interpreted the main policy as constituting a binding agreement between Trisura and allmembers who had received certificates. Since Mr. Van Huizen and Mr. Barkley each held certificates under the Master Policy, the Motions Judge erroneously found that they were both “insured” and entitled to coverage.

The Court explained that the framework policy in itself was not a binding agreement and that it simply set out the terms of the professional liability insurance available to members of the AIC. Each AIC member who has requested coverage must apply for it and, provided that the member and the insurer agree on the other essential conditions (for example premium to be paid and the duration of the insurance), an insurance certificate must be issued to the member to confirm the existence of the insurance contract. Thus, the certificates issued to Mr. Van Huizen and Mr. Barkley constituted proof of separate insurance contracts.

In light of this, the individual certificate issued to Mr. Van Huizen should have been used to determine whether Trisura had an obligation to defend. Since the Motions Judge erred in finding a duty to defend based solely on the principal policy, the Court re-examined the issue on the basis of an interpretation of the true contractual relationship between the parties.

Since Mr. Barkley’s certificate was not part of the Van Huizen insurance contract, only Van Huizen would fall within the definitions of “member”, “insured” and “wrongdoing”. In other words, coverage was only available for claims against Van Huizen regarding Mr. Van Huizenthe provision of professional services. Therefore, there was no coverage under the Van Huizen insurance contract for
Mr. Barkleyalleged professional negligence.

Ultimately, the court concluded that Trisura’s duty to defend was not engaged and the motions judge’s order was set aside.

TO TAKE WITH

The appeal decision in Van Huizen v. Trisura serves as a useful reminder of the important distinction between an insurance contract and an insurance policy, especially when coverage is offered as part of a group insurance program. It is the insurance contract, and not the insurance policy, that must be taken into account in determining the liability of an insurer.

Footnote

1 Article 1 of Insurance Actdefines “contract” as meaning “an insurance contract, and includes a policy, a certificate, … evidencing the contract …” and “policy” as meaning “the instrument evidencing a contract”.

Originally posted by Clyde & Co, Aug 2020

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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