Marche v. Halifax Insurance Co.

Marche v. Halifax Insurance Co.
Collection
Supreme Court Judgments
Date
2005-02-24
Neutral citation
2005 SCC 6
Report
[2005] 1 SCR 47
Case number
29754
Judges
McLachlin, Beverley; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil; Deschamps, Marie; Fish, Morris J.; Charron, Louise
On appeal from
Nova Scotia
Subjects
Insurance
Notes
SCC Case Information: 29754
Decision Content
SUPREME COURT OF CANADA
Citation: Marche v. Halifax Insurance Co.,
[2005] 1 S.C.R. 47, 2005 SCC 6
Date: 20050224
Docket: 29754
Between:
Theresa Marche and Gary Fitzgerald
Appellants
v.
The Halifax Insurance Company
Respondent
Coram: McLachlin C.J. and Major, Bastarache, Binnie, Deschamps, Fish and Charron JJ.
Reasons for Judgment:
(paras. 1 to 45)
Dissenting reasons:
(paras. 46 to 123)
McLachlin C.J. (Major, Binnie, Deschamps and Fish JJ. concurring)
Bastarache J. (Charron J. concurring)
______________________________
Marche v. Halifax Insurance Co., [2005] 1 S.C.R. 47, 2005 SCC 6
Theresa Marche and Gary Fitzgerald Appellants
v.
The Halifax Insurance Company Respondent
Indexed as: Marche v. Halifax Insurance Co.
Neutral citation: 2005 SCC 6.
File No.: 29754.
2004: November 2; 2005: February 24.
Present: McLachlin C.J. and Major, Bastarache, Binnie, Deschamps, Fish and Charron JJ.
on appeal from the court of appeal for nova scotia
Insurance — Fire insurance — Statutory conditions — Material change to risk — Vacancy — Insured’s property destroyed by fire — Insurer denying claim because insured failed to inform them of earlier vacancy — Statutory condition permitting avoidance of fire insurance contract if insurer not promptly notified of any change material to risk within control and knowledge of insured — Provision in insurance legislation giving court discretion to relieve insured from avoidance of fire insurance contract where stipulation, condition or warranty unjust or unreasonable — Whether relief provision applies to statutory conditions — Insurance Act, R.S.N.S. 1989, c. 231, s. 171, Sch. to Part VII, Statutory Condition 4.
The insured purchased a house, converted it to two apartments and left Cape Breton to find work in British Columbia. The house remained vacant for a period of time before a tenant moved in. It was subsequently destroyed by fire and the insurer denied the claim, noting that the insured had failed to inform them of the earlier vacancy. The insurer maintained that the vacancy amounted to a change material to the risk which invalidated coverage pursuant to Statutory Condition 4 of Part VII (Fire Insurance) of the Insurance Act (N.S.). The trial judge found that, assuming the insured had breached Statutory Condition 4 by not advising the insurer of the earlier vacancy, the insured should be relieved from the consequences of that breach under s. 171 of the Act, which states that a policy condition is not binding on the insured if a court holds it to be “unjust or unreasonable”. The Court of Appeal reversed the decision on the ground that s. 171 did not apply to statutory conditions, but applied only to contractual conditions.
Held (Bastarache and Charron JJ. dissenting): The appeal should be allowed.
Per McLachlin C.J. and Major, Binnie, Deschamps and Fish JJ.: Section 171 of the Insurance Act applies to statutory conditions that are unreasonable or unjust in their application. First, s. 171’s purpose is to provide relief from unjust or unreasonable insurance policy conditions and should be given a broad interpretation. Second, on its face, s. 171 appears to apply to both contractual and statutory conditions. The word “condition” in that section is not qualified by a restrictive adjective. Since statutory conditions are part of the insurance contract, they fall within the phrase “[w]here a contract . . . contains any . . . condition” that defines the application of s. 171. Furthermore, in light of the imprecise use of the word “condition” throughout the Insurance Act, a reading of the entire Act, including s. 33, does not support the contention that the word “condition” in s. 171 refers only to contractual conditions. Third, the precursor of s. 171 referred expressly to statutory conditions while the current version does not. The legislative history of s. 171 and the guiding rule of interpretation that legislative change is made for a purpose confirm that s. 171 was intended to apply to all conditions, statutory or otherwise. [13-27]
The expression “unjust or unreasonable” in s. 171 allows a court to look at the application of a statutory condition. While an insurance condition may on its face be reasonable and just, it may in its application be unreasonable and unjust. The expression “unjust or unreasonable” in relation to a condition means little unless it refers to the effects the condition may create. To hold that only the condition in the abstract must be unjust or unreasonable without regard to its effects when applied would not accord with the broad remedial purpose of s. 171 to protect the public against unjust or unreasonable insurance conditions. [30-35]
In light of the finding that s. 171 applies to statutory conditions, there is no reason to interfere with the trial judge’s conclusion that if the insurance contract was void by reason of Statutory Condition 4, the court should relieve against that result under s. 171 on the ground that the vacancy had been rectified prior to the loss. [44]
Per Bastarache and Charron JJ. (dissenting): Section 171 of the Insurance Act does not apply to statutory conditions. An analysis of the immediate, broader and external contexts of s. 171 leads to that conclusion. [58-111]
A term or expression cannot be interpreted without taking the surrounding terms into account. In this case, while the word “condition” standing alone could potentially have a broader connotation, its association in s. 171 with the words “stipulation” and “warranty” narrows its scope. Since, under the Insurance Act, the concepts of “statutory” stipulation or “statutory” warranty do not exist, a stipulation or warranty is necessarily contractual. Consequently, the list should be limited to the common denominator of all the terms: the contract. [67] [70]
The broader context supports that interpretation. The purpose of the statutory conditions is to provide fairness to both the insured and the insurer. These conditions, taken as a whole, and their mandatory nature shows that the legislature intended to create an equitable scheme. Each condition is just and reasonable, as it is necessary to ensure the balance of the regime. The consequences of the application of a statutory condition in an individual case are not to be examined under s. 171, as they do not change the “just and reasonable” character of the condition. For the same statute to require on the one hand that statutory conditions be mandatory to assure fairness to both parties, but to allow on the other hand that the same conditions be avoided because they are unreasonable or unjust by virtue of s. 171 would defeat the purpose of the statutory conditions. Section 171 was enacted as a complement to the mandatory statutory conditions (s. 167) rather than as a curative provision applicable to such conditions. The scheme of Part VII of the Insurance Act can therefore only be interpreted as giving discretion to the courts to grant relief under s. 171 where a “contractual” condition is held to be unjust or unreasonable. This interpretation is consistent with s. 33 of Part II (Insurance Contracts in the Province) of the Act, which explicitly permits relief against forfeiture of insurance for imperfect compliance with a statutory condition. [77-94]
With respect to the external context, the legislative history of s. 171 clearly demonstrates that its predecessor sections have always targeted contractual provisions as opposed to statutory conditions. This is also evidenced by the legislative evolution of s. 33 which was in the past a companion to the provision under scrutiny. [98-110]
Finally, the alleged good intentions of the insured in this case cannot have any impact on the determination of the applicability of s. 171 to statutory conditions. Ignorance of the obligation to disclose or failure to appreciate its materiality will not excuse the insured. [117]
Cases Cited
By McLachlin C.J.
Referred to: Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778; Krupich v. Safeco Insurance Co. of America (1985), 16 C.C.L.I. 18; 528852 Ontario Inc. v. Royal Insurance Co. (2000), 51 O.R. (3d) 470; Nahayowski v. Pearl Assurance Co. (1964), 45 W.W.R. 662; Kekarainen v. Oreland Movers Ltd., [1981] 3 W.W.R. 534; Poast v. Royal Insurance Co. of Canada (1983), 21 Man. R. (2d) 67; Curtis’s and Harvey Ltd. v. North British and Mercantile Insurance Co. (1920), 55 D.L.R. 95; Arcand v. Grenville Patron Mutual Fire Insurance Co. (1923), 25 O.W.N. 175; Henwood v. Prudential Insurance Co. of America, [1967] S.C.R. 720.
By Bastarache J. (dissenting)
Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536; Canadian National Railway Co. v. Canada (Canadian Human Rights Commission), [1987] 1 S.C.R. 1114; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; R. v. Sharpe, [2001] 1 S.C.R. 45, 2001 SCC 2; R. v. Ulybel Enterprises Ltd., [2001] 2 S.C.R. 867, 2001 SCC 56; Chieu v. Canada (Minister of Citizenship and Immigration), [2002] 1 S.C.R. 84, 2002 SCC 3; Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42; Canadian Pacific Air Lines Ltd. v. Canadian Air Line Pilots Assn., [1993] 3 S.C.R. 724; 2747‑3174 Québec Inc. v. Quebec (Régie des permis d’alcool), [1996] 3 S.C.R. 919; Brossard (Town) v. Quebec (Commission des droits de la personne), [1988] 2 S.C.R. 279; Ontario v. Canadian Pacific Ltd., [1995] 2 S.C.R. 1031; R. v. Daoust, [2004] 1 S.C.R. 217, 2004 SCC 6; R. v. Goulis (1981), 33 O.R. (2d) 55; R. v. Nova Scotia Pharmaceutical Society, [1992] 2 S.C.R. 606; Dubois v. The Queen, [1985] 2 S.C.R. 350; Curtis’s and Harvey Ltd. v. North British and Mercantile Insurance Co. (1920), 55 D.L.R. 95; City of London Fire Insurance Co. v. Smith (1888), 15 S.C.R. 69; Ordon Estate v. Grail, [1998] 3 S.C.R. 437; Gravel v. City of St‑Léonard, [1978] 1 S.C.R. 660; Janzen v. Platy Enterprises Ltd., [1989] 1 S.C.R. 1252; Skoke‑Graham v. The Queen, [1985] 1 S.C.R. 106; R. v. McIntosh, [1995] 1 S.C.R. 686; Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778; Hirst v. Commercial Union Assurance Co. of Canada (1978), 8 B.C.L.R. 396, aff’d (1979), 70 B.C.L.R. (2d) 361; Nahayowski v. Pearl Assurance Co. (1964), 45 W.W.R. 662; 528852 Ontario Inc. v. Royal Insurance Co. (2000), 51 O.R. (3d) 470; Krupich v. Safeco Insurance Co. of America (1985), 16 C.C.L.I. 18.
Statutes and Regulations Cited
Act to Amend Chapter 9 of the Acts of 1962, the Insurance Act, S.N.S. 1966, c. 79, s. 2.
Civil Code of Québec, S.Q. 1991, c. 64.
Fire Insurance Act, R.S.N.L. 1990, c. F‑10, ss. 8, 11, Sch., para. 4.
Fire Insurance Act, S.N.S. 1956, c. 6, ss. 16, 19.
Fire Insurance Policies’ Act, R.S.N.S. 1900, c. 147, ss. 6, 7.
Fire Insurance Policies’ Act, R.S.N.S. 1923, c. 211, ss. 6, 7.
Fire Insurance Policy Act, R.S.N.S. 1954, c. 100, ss. 10, 11.
Fire Insurance Policy Act, S.N.S. 1899, c. 30, ss. 26, 27(1).
Fire Insurance Policy Act, 1930, S.N.S. 1930, c. 7, ss. 10, 11.
Insurance Act, R.S.A. 2000, c. I‑3, ss. 549, 552(1).
Insurance Act, R.S.B.C. 1996, c. 226, ss. 126, 129.
Insurance Act, R.S.M. 1987, c. I40, ss. 142, 145.
Insurance Act, R.S.N.B. 1973, c. I‑12, ss. 127, 130.
Insurance Act, R.S.N.S. 1967, c. 148, ss. 126, 129.
Insurance Act, R.S.N.S. 1989, c. 231, ss. 18, 21, 23, 32(1), 33, 159(1)(d), 163, 164, 166, 167(2), 169(3), 171, Sch. to Part VII, s. 4.
Insurance Act, R.S.N.W.T. 1988, c. I‑4, ss. 64(2), 67.
Insurance Act, R.S.O. 1990, c. I.8, ss. 148, 151.
Insurance Act, R.S.P.E.I. 1988, c. I‑4, ss. 114, 117.
Insurance Act, R.S.Y. 1986, c. 91, ss. 68, 71.
Insurance Act, S.N.S. 1962, c. 9, ss. 124, 127.
Interpretation Act, R.S.N.S. 1989, c. 235, s. 9(5).
Saskatchewan Insurance Act, R.S.S. 1978, c. S‑26, ss. 128, 131.
Authors Cited
Baer, Marvin G., and James A. Rendall. Cases on the Canadian Law of Insurance, 6th ed. Scarborough, Ont.: Carswell, 2000.
Boivin, Denis. Insurance Law. Toronto: Irwin Law, 2004.
Brown, Craig. Insurance Law in Canada. Scarborough, Ont.: Carswell, 1999 (loose‑leaf updated 2004, release 3).
Brown, Craig, and Julio Menezes. Insurance Law in Canada, 2nd ed. Scarborough, Ont.: Carswell, 1991.
Côté, Pierre‑André. The Interpretation of Legislation in Canada, 3rd ed. Scarborough, Ont.: Carswell, 2000.
Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.
Graham, Randal N. Statutory Interpretation: Theory and Practice. Toronto: Emond Montgomery, 2001.
Ivamy, E. R. Hardy. General Principles of Insurance Law, 6th ed. London: Butterworths, 1993.
Rendall, James A. Annotation to Krupich v. Safeco Insurance Co. of America (1985), 16 C.C.L.I. 18.
Sullivan, Ruth. Sullivan and Driedger on the Construction of Statutes, 4th ed. Markham, Ont.: Butterworths, 2002.
APPEAL from a judgment of the Nova Scotia Court of Appeal (Glube C.J.N.S. and Oland and Hamilton JJ.A.) (2003), 214 N.S.R. (2d) 1, 47 C.C.L.I. (3d) 165, 671 A.P.R. 1, [2003] I.L.R. ¶I‑4197, [2003] N.S.J. No. 121 (QL), 2003 NSCA 32, reversing a decision of MacAdam J. (2002), 202 N.S.R. (2d) 345, 632 A.P.R. 345, [2002] N.S.J. No. 157 (QL), 2002 NSSC 62. Appeal allowed, Bastarache and Charron JJ. dissenting.
Derrick J. Kimball, Nash T. Brogan and H. Heidi Foshay Kimball, for the appellants.
Scott C. Norton, Q.C., and Daniela Bassan, for the respondent.
The judgment of McLachlin C.J. and Major, Binnie, Deschamps and Fish JJ. was delivered by
The Chief Justice —
I. Introduction
1 This is the sad case of a couple, Ms. Marche and Mr. Fitzgerald, who purchased the latter’s family home, converted it to two apartments and, having left Cape Breton to find work in British Columbia, suffered the loss of the house through fire. They had insured the house with the Halifax Insurance Company (“Halifax”). It denied their claim for the fire loss. Until shortly prior to the fire, the house was occupied. Halifax relied on an earlier vacancy which it said the owners should have advised them of under the policy, and claimed that this amounted to a change material to the risk which invalidated coverage pursuant to Statutory Condition 4.
2 The trial judge found that, assuming the owners had breached Statutory Condition 4 by not advising Halifax of the earlier vacancy, the owners should be relieved from the consequences of that breach under s. 171 of the Nova Scotia Insurance Act, R.S.N.S. 1989, c. 231, which states that a policy condition is not binding on the insured if a court holds it to be “unjust or unreasonable”: (2002), 202 N.S.R. (2d) 345, 2002 NSSC 62. The Nova Scotia Court of Appeal reversed this decision on the ground that s. 171 did not apply to statutory conditions, but only to optional conditions in the policy: (2003), 214 N.S.R. (2d) 1, 2003 NSCA 32.
3 I conclude that s. 171 of the Insurance Act applies to statutory conditions, and that the trial judge’s decision should be upheld.
II. Facts
4 There is no real dispute about the facts relevant to the appeal. It is clear that the owners left the house vacant when they left for British Columbia. They did not inform Halifax that the property was vacant and that they were looking for tenants for both flats. The property remained vacant between September and early December 1998, when Mr. Fitzgerald’s brother, Danny, moved in. The rent not having been paid, Ms. Marche had the water to the property disconnected in mid-January 1999 and the electric power boxes removed at the end of January 1999. Although the intention was to induce Danny to move out, it was not established that he did so. At the time of the fire on February 7, 1999, his possessions were still in the house.
5 In these circumstances, Halifax could not establish a vacancy at the time of loss. However, it denied liability under the contract of insurance on the ground that Ms. Marche and Mr. Fitzgerald had not advised them of the earlier vacancy, prior to Danny moving in, and that this constituted a change material to the risk that voided the policy.
III. Analysis
6 The insurer argued the insured had breached Statutory Condition 4 by not advising of their earlier vacancy. The trial judge, without finding breach, stated he would have granted relief in any event under s. 171 of the Insurance Act. The main issue in the case as argued was whether s. 171 applies to statutory conditions. If it does, the issues arise of whether there was a statutory breach and whether relief against it should be granted.
A. Does Section 171 of the Insurance Act Apply to Statutory Condition 4?
7 Section 171 of the Nova Scotia Insurance Act provides:
171 Where a contract
. . .
(b) contains any stipulation, condition or warranty that is or may be material to the risk including, but not restricted to, a provision in respect to the use, condition, location or maintenance of the insured property,
the exclusion, stipulation, condition or warranty shall not be binding upon the insured if it is held to be unjust or unreasonable by the court before which a question relating thereto is tried.
8 The dispute about whether s. 171 applies to statutory conditions masks a deeper question: what does it mean to say that s. 171 applies, or does not apply, to a statutory condition?
9 For some, the question is whether s. 171 of the Insurance Act could be used to amend the contract and delete conditions that form part of every policy as a matter of law. Put that way, the question compels a negative answer: the legislature could hardly have intended to empower trial judges to declare unreasonable on their face conditions that the legislature has made mandatory for all contracts of insurance.
10 For others, the question is whether s. 171 applies not only to delete conditions that are unreasonable on their face (should there be any), but also to relieve against the results of applying conditions that, in the particular circumstances of the case, are unreasonable in their application or draconian in their consequences. Framed in these terms, the question takes on an entirely different complexion — which I find more attractive because it avoids an inequitable result otherwise inescapable.
11 The wording of s. 171 permits the issue to be characterized either way, but the second, in my view, better corresponds with the remedial objectives of the provision.
12 It follows that the essential question is whether s. 171 applies to statutory conditions that are unreasonable or unjust in their application. For the reasons that follow, I conclude that it does.
(1) Arguments for the Application of Section 171 to Relieve Against the Unreasonable or Unjust Application of Statutory Conditions
(a) Section 171 Is Remedial and Should Be Given a Broad Interpretation
13 In Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778, this Court held that the relief against forfeiture provision of the Saskatchewan Insurance Act, R.S.S. 1978, c. S-26, s. 109, was not confined to “statutory conditions” and could include “contractual conditions” even though the provision explicitly referred to “statutory conditions”. One of the key reasons was that the provision had a remedial purpose and should be interpreted broadly. Similarly, in this case, s. 171’s purpose is to provide relief from unjust or unreasonable insurance policy conditions and should be given a broad interpretation. This approach to interpretation is supported by s. 9(5) of the Nova Scotia Interpretation Act, R.S.N.S. 1989, c. 235, which states that “[e]very enactment shall be deemed remedial and interpreted to insure the attainment of its objects . . .”.
(b) The Wording of Section 171 Is Broad Enough to Cover Statutory Conditions
14 Statutory Condition 4 is a term of the contract and hence falls within the phrase “[w]here a contract . . . contains any . . . condition” that defines the application of s. 171. “Condition” is not qualified by a restrictive adjective. Thus on its face, s. 171 appears to apply to both negotiated and statutory conditions.
15 Including statutory conditions within the term “condition” in s. 171 may accord with the presumption in favour of the ordinary, non-technical meaning: R. Sullivan, Sullivan and Driedger on the Construction of Statutes (4th ed. 2002), at p. 41. There is no automatic inference that the term “condition” excludes “statutory conditions”; thus the text of the legislation supports this interpretation.
16 The insurer raises several arguments against this “plain reading” argument. None are convincing.
17 First, the insurer argues that since statutory conditions are mandatory, the phrase in s. 171 “[w]here a contract . . . contains” implies that the condition must be contractual since a contract must contain a statutory condition. However, this phrase is equally consistent with the intention to cover both mandatory statutory conditions as well as optional warranties, conditions and stipulations. Since statutory conditions are contained in the insurance contract, “[w]here a contract . . . contains” can be read as including these conditions.
18 Second, the insurer points to the grouping together of the terms “stipulation, condition or warranty”, and the absence of such a thing as a “statutory stipulation” or “statutory warranty”. This, it submits, implies that the condition referred to is a contractual condition: respondent’s factum, at para. 30. However, it is clear from reading the whole Insurance Act that there is little precision in the use of the term “condition”. Statutory conditions refer to themselves as “conditions”: e.g., Insurance Act, s. 167(2) (see Appendix A). “Statutory conditions” are also referred to throughout the Insurance Act as “mandatory conditions”: e.g., s. 159(1)(d). The fact that the term “condition” may include “statutory conditions” is reinforced by s. 32(1) which specifies “a condition, statutory or otherwise” and s. 169(3) which refers to “any contract condition”: Insurance Act. Thus a reading of the entire Act fails to support the insurer’s contention.
19 Third, the insurer argues that the only other relief provision potentially applicable to fire insurance contracts in the Insurance Act, s. 33 “relie[f] against forfeiture” (which it is agreed does not apply here), explicitly refers to statutory conditions, whereas s. 171 does not. The explicit reference to statutory conditions reinforces that s. 33 alone applies to statutory conditions, and s. 171 only applies to optional contractual provisions. This conclusion, however, is of limited relevance given the different legislative histories and objects of the two provisions, the broad interpretation of “statutory conditions” in Falk Bros., and the generally imprecise use of the term “condition” throughout the Insurance Act.
20 In summary, the wording of s. 171 includes statutory conditions.
(c) The History of Section 171
21 The Nova Scotia Interpretation Act, s. 9(5)(g), advocates considering the “history of legislation on the subject” as an aid to interpreting legislation. This is buttressed by the guiding rule of interpretation that legislative change is made for a purpose.
22 The precursor of s. 171 referred expressly to statutory conditions. It read:
11 Where the rate of premium is affected or modified by the user, condition, location or maintenance of the insured property, the policy may contain a clause not inconsistent with any statutory condition setting forth any stipulation in respect of such user, condition, location or maintenance, and such clause shall not be deemed a variation of any statutory condition. Such clause shall be binding on the insured only in so far as it is held by the court before which a question relating thereto is tried to be just and reasonable.
(Fire Insurance Policy Act, R.S.N.S. 1954, c. 100, previously S.N.S. 1930, c. 7)
23 This provision (and its predecessors) permitted optional, non-statutory, conditions not inconsistent with statutory conditions, and held they were binding if the court found them to be “just and reasonable”. The court could relieve, but only against optional, non-statutory, conditions.
24 In 1956, the legislature replaced s. 11 with what is now the present s. 171, which makes no distinction between statutory conditions and optional conditions, and provides that the court can relieve against conditions generally if it finds them “unjust or unreasonable”. See Fire Insurance Act, S.N.S. 1956, c. 6.
25 Thus prior to 1956, the legislature clearly stated that courts could not relieve against statutory conditions. In 1956, the legislature stated that courts could relieve against conditions generally. The guiding rule of interpretation, as mentioned, is that legislative change is made for a purpose. This confirms that s. 171 was intended to apply to all conditions, statutory or otherwise.
26 In effect, the insurer argues that we should proceed as if the law had not been changed in 1956, and read as it did prior to that date. To do so runs counter to accepted canons of interpretation.
27 Far from supporting the insurer’s position, the history of s. 171 demonstrates that it was intended to apply to statutory conditions.
(d) Jurisprudence
28 The cases that have considered whether s. 171 (or its equivalent) applies to statutory conditions have concluded that it does: Krupich v. Safeco Insurance Co. of America (1985), 16 C.C.L.I. 18 (Alta. Q.B.), at p. 27; 528852 Ontario Inc. v. Royal Insurance Co. (2000), 51 O.R. (3d) 470 (S.C.J.), at para. 24 (it distinguishes its facts from Krupich on other grounds). To date courts have not adopted the interpretation of s. 171 submitted by the respondent insurer. Despite these decisions, legislatures have not acted to alter the wording. This has significance: Falk Bros.
29 In sum, while the cases are few, there is no decision other than the N.S. Court of Appeal decision appealed in this case that finds that s. 171 (or its equivalent) does not apply to statutory conditions. The cases cited by the insurer claiming that courts have decided that s. 171 does not apply to statutory conditions have not in fact decided that point: e.g., Nahayowski v. Pearl Assurance Co. (1964), 45 W.W.R. 662 (Alta. S.C.); Kekarainen v. Oreland Movers Ltd., [1981] 3 W.W.R. 534 (Man. Q.B.); Poast v. Royal Insurance Co. of Canada (1983), 21 Man. R. (2d) 67 (Q.B.).
(2) Arguments Against the Application of Section 171 to Relieve Against the Unreasonable or Unjust Application of Statutory Conditions
30 The insurer’s arguments on the wording of s. 171, its history and the case law have been dealt with in the foregoing section. It remains to consider the insurer’s strongest argument — that statutory conditions by definition cannot be unreasonable or unjust and that hence s. 171 cannot apply to them.
31 The insurer asserts that the purpose of statutory conditions is remedial and intended to enhance, as opposed to restrict, the rights of the insured. Therefore, the statutory conditions are, by definition, “just and reasonable”, and s. 171 cannot apply: Court of Appeal decision, at paras. 53-54; Curtis’s and Harvey Ltd. v. North British and Mercantile Insurance Co. (1920), 55 D.L.R. 95 (P.C.), at p. 99, supported by Professor J. A. Rendall in a critical annotation to Krupich v. Safeco Insurance Co. of America (1985), 16 C.C.L.I. 18, at p. 19.
32 This argument ignores the fact that an insurance condition may on its face be reasonable and just but in its application be unreasonable and unjust. For example, whether a change is “material to the risk” is a highly charged, fact-based question whose strict application may be unjust or unreasonable in the particular factual circumstances of a case. In this respect, C. Brown and J. Menezes conclude that “[o]ne basic statement of approach to the question of what is unjust or unreasonable, and which has appeared to have remained constant over the years, is that the question is to be determined on the facts in dispute in a particular case and not on purely abstract general terms”: Insurance Law in Canada (2nd ed. 1991), at p. 190.
33 The concrete approach enunciated by Brown and Menezes is required by the words of the section itself. As discussed earlier, the legislature could hardly be intended to mandate clauses that are unjust on their face. The words “unjust” and “unreasonable” in relation to a condition mean little unless they refer to the effects the condition may create. For this reason few clauses in an insurance contract, viewed merely on their face without regard to their effect, could likely be called unjust or unreasonable. The question of how the clause will work when applied cannot be avoided, if we are to make sense of s. 171.
34 Finally, the principle enunciated by Brown and Menezes that “unjust or unreasonable” must be determined on the facts of particular cases and not in the abstract reflects the remedial purpose of s. 171. To hold that only the condition in the abstract must be unjust or unreasonable without regard to its effects when applied would not accord with the broad remedial purpose of the provision to protect the public against unjust or unreasonable insurance conditions.
35 Clearly “unjust or unreasonable” in s. 171 allows the Court to look at the application of the clause. It is not suggested that this would not be the case for optional, non-statutory, conditions. If this be so, there is no basis for arguing that when it comes to statutory conditions one must look only at the condition abstracted from the effects of its application. If one considers consequences, the argument that statutory conditions can by definition never be unjust or unreasonable vanishes. At this point the insurer’s main argument — that s. 171 cannot apply because statutory conditions must always be just and reasonable — collapses.
(3) Conclusion on the Application of Section 171 to Statutory Conditions
36 The remedial purpose of s. 171, its wording, its legislative history and the jurisprudence support the conclusion that s. 171 applies to statutory conditions. The opposing arguments fail to displace these considerations. I conclude that s. 171 applies to Statutory Condition 4. Where their application produces unjust or unreasonable results, the Court can grant relief under s. 171.
B. Did the Trial Judge Err in Relieving Against the Statutory Condition?
(1) Is Avoidance of the Policy Under Statutory Condition 4 Established?
37 Here we face a difficulty. The trial judge did not find that there was a change material to the risk that breached Statutory Condition 4. He simply stated:
To the extent the vacancy may have avoided the policy, I am satisfied it would be both unjust and unreasonable to give effect to the exclusion of coverage by reason of the non-occupancy, in view of the circumstance the Property was later occupied until shortly before the fire and at the time of the loss there was no breach of the statutory condition. [para. 63]
38 Oland J.A. at the Court of Appeal concluded, however, that Halifax had shown that the vacancy was a change material to the risk within the meaning of Statutory Condition 4, which obliged the insured to advise their insurer that the property was vacant. Noting that the insured failed to notify their insurer and concluding that subsequent compliance could not cure the material change in risk, Oland J.A. held that the contract was avoided from the time of that breach.
39 Statutory Condition 4 provides:
SCHEDULE TO PART VII
STATUTORY CONDITIONS
4 Material change — Any change material to the risk and within the control and knowledge of the insured shall avoid the contract as to the part affected thereby, unless the change is promptly notified in writing to the insurer or its local agent; and the insurer when so notified may return the unearned portion, if any, of the premium paid and cancel the contract, or may notify the insured in writing that, if he desires the contract to continue in force, he must, within fifteen days of the receipt of the notice, pay to the insurer an additional premium; and in default of such payment the contract shall no longer be in force and the insurer shall return the unearned portion, if any, of the premium paid.
40 It is well established in insurance law that vacancy can be a change material to the risk: e.g., Arcand v. Grenville Patron Mutual Fire Insurance Co. (1923), 25 O.W.N. 175 (H.C.), and this is reflected in the common and accepted practice of including 30-day vacancy exclusion clauses in insurance policies. Halifax, however, was presumably unable to rely on that clause in this case since MacAdam J. had found that the property was occupied until shortly prior to the time of the loss. Halifax could still, however, rely on Statutory Condition 4 to avoid the policy on the basis that “[a]ny change material to the risk and within the control and knowledge of the insured shall avoid the contract as to the part affected thereby”: Schedule to Part VII of the Insurance Act.
41 The insured argue that a vacancy months prior to the actual fire should not disallow their claim to coverage for the fire that destroyed their house. There is no concrete evidence linking that earlier vacancy to the actual circumstances of the fire, which was presumed to constitute arson. The insured submit that upholding the Court of Appeal’s decision could lead to situations where an unreported vacancy (e.g., for a vacation) prior to an unrelated fire would avoid the insurance policy. This could have serious implications for rental properties which may often remain vacant while landlords seek appropriate tenants. Moreover, while the first clause of Statutory Condition 4 states that the change “shall avoid the contract as to the part affected thereby . . .”, the balance of the provision suggests that the contract continues in effect until further events, for example cancellation by the insurer. It follows, the argument continues, that the contract does not automatically cease to exist prior to the correction of the change material to the risk. The question then becomes whether the insurer was entitled to cancel the contract on the basis of the earlier, rectified change to the risk. It might be argued that where the change has been rectified, this is at best a debt and hardly justifies the draconian consequence of policy cancellation where the change material to the risk has been corrected.
42 On the other hand, the insurer might argue that lack of notification of a change cost it an opportunity to cancel the contract before the loss. Moreover, it is not essential that a statutory breach be causally connected to the loss: see Henwood v. Prudential Insurance Co. of America, [1967] S.C.R. 720, in which coverage was denied where the insured had not disclosed the fact that she suffered from clinical depression, and was later killed in an unrelated car accident. It might be argued that this reasoning does not apply to failure to advise of a change in the risk which has subsequently been rectified and hence is not in play at the time of the loss. Many events can temporarily change the risk — for example, a short vacancy, or a sump pump breaking down. Are homeowners obliged, at the risk of losing coverage, to advise insurers of these temporary problems even after they have been remedied and are no longer of any consequence?
43 In conclusion, Statutory Condition 4 is not a model of clarity. Arguments can be put for and against the proposition that its application avoids the policy on these facts. Lacking as we do sufficient argument on the issue, the prudent course is to leave this issue to be resolved by legislative amendment or in another case.
(2) If the Insurance Contract Was Void for Breach of Statutory Condition 4, Should the Court Grant Relief Under Section 171 of the Insurance Act?
44 The trial judge held that if the insurance contract was void by reason of Statutory Condition 4, the court should relieve against that result under s. 171 of the Insurance Act on the ground that the vacancy had been rectified prior to the loss. This conclusion is not seriously contested; the insurer’s main argument was that s. 171 did not apply to Statutory Condition 4. Having concluded that s. 171 is applicable, I see no reason to interfere with the trial judge’s conclusion on this point.
IV. Conclusion
45 I would allow the appeal and affirm the decision of the trial judge with costs to the appellants/insured throughout.
The reasons of Bastarache and Charron JJ. were delivered by
Bastarache J. (dissenting) —
I. Introduction
46 The sole issue of contention in this appeal is the statutory interpretation of s. 171 of the Nova Scotia Insurance Act, R.S.N.S. 1989, c. 231, and its application to Statutory Condition 4. Section 171 gives the court discretion to relieve an insured from the avoidance of a fire insurance contract when it is determined that a stipulation, condition or warranty is unjust or unreasonable. Statutory Condition 4 will avoid a contract of insurance if the insurer is not promptly notified in writing of any change material to the risk within the control and knowledge of the insured.
47 Insurance has become an essential part of our society. “Whether public or private, compulsory or voluntary, insurance touches everyone on a daily basis”: D. Boivin, Insurance Law (2004), at p. 1. But what is the objective of insurance law? Insurance law provides control and ensures “a proper balance between insurers’ need to maintain sufficient financial viability and their customers’ reasonable expectations”: C. Brown, Insurance Law in Canada (loose-leaf ed.), vol. 1, at p. 1-1.
48 The insurance business was one of the first regulated industries, the legislatures having sought to control the economic impact of insurance companies, the undesirable business practices and the insolvencies of the insurers: M. G. Baer and J. A. Rendall, Cases on the Canadian Law of Insurance (6th ed. 2000), at pp. 27-28. Incursion by the provincial legislatures in major aspects of the relations between insured and insurers was first observed in matters dealing with the substance and the form of the contracts made with respect to fire insurance. Indeed, the widespread public criticism of the marketing practices and the content of insurance policies were so prevalent that legislatures set out standard terms for fire insurance policies which paved the way to the statutory conditions as we now know them: Baer and Rendall, at pp. 74-75.
49 The scheme surrounding s. 171 and Statutory Condition 4 (material change in the risk) appears in all provincial insurance statutes dealing with fire insurance (with the exception of the province of Quebec, which deals with material change in risk under the Civil Code of Québec, S.Q. 1991, c. 64): Insurance Act, R.S.B.C. 1996, c. 226, ss. 129 (“Unjust exclusions”) and 126; Insurance Act, R.S.A. 2000, c. I-3, ss. 552(1) (“Special stipulations”) and 549; The Saskatchewan Insurance Act, R.S.S. 1978, c. S-26, ss. 131 (“Special stipulations”) and 128; Insurance Act, R.S.M. 1987, c. I40, ss. 145 (“Unjust exclusions”) and 142; Insurance Act, R.S.O. 1990, c. I.8, ss. 151 (“Special stipulations”) and 148; Insurance Act, R.S.N.B. 1973, c. I-12, ss. 130 and 127; Insurance Act, R.S.P.E.I. 1988, c. I-4, ss. 117 (“Unjust or unreasonable exclusions or conditions not binding, where) and 114; Fire Insurance Act, R.S.N.L. 1990, c. F-10, ss. 11 (“Special stipulations”), 8 and Sch., para. 4; Insurance Act, R.S.N.W.T. 1988, c. I-4, ss. 67 (“Special stipulations”) and 64(2); Insurance Act, R.S.Y. 1986, c. 91, ss. 71 (“Special stipulations”) and 68.
50 I maintain that the interpretation of s. 171 of the Insurance Act can lead to only one conclusion: s. 171 does not appl