As some businesses begin to emerge from the worst of COVID-19, they are increasingly turning to their insurance policies to help with their financial recovery. A recent ruling is a reminder that contracts need to be clear; they must say what they mean and mean what they say.
The daycare in 202135 Ontario Inc., et al. v. Northbridge General Insurance, 2021 ONSC 4299 shut down their 7 daycare centres for about 3 months, from March 17, 2020, because of the pandemic and the ensuing state of emergency. The daycare later claimed against the business interruption or interference provisions of its insurance policy.
The insurer argued that the policy terms were clear, that the daycare could only recover $50,000.00, in the aggregate, for all of the 7 daycare centres it closed. The daycare argued that it was entitled to $50,000.00 for each of the daycare centres closed. A $300k difference stood between daycare and insurer.
The judge reviewed the policy provisions and determined that the policy was ambiguous; it was unclear whether the $50,000.00 limit was in aggregate, or for each of the 7 daycare centres. The judge reviewed the policy as a whole, and in particular, the definition of “scheduled risk location”, used in the description of the policy limits. He determined that the policy limit was $50,000.00 for each of the 7 daycare centres, or an aggregate of $350,000.00, based on a reasonable interpretation of the policy.
As part of his analysis, the judge found that the insurer did not provide a reasonable explanation for using the singular form of the term “scheduled risk location” to describe the policy limits. He explained that the insurer could have made “location” plural, if it intended that the $50,000.00 policy coverage apply to all 7 locations in total.
Additionally, the judge found that the insurer could not explain why it omitted the word “aggregate” from the provision that limited the policy coverage; if it meant to limit coverage in the aggregate instead of per location, it should have just said so.
Meeting your duty of care
Draft contract provisions clearly to avoid ambiguity. Analyse contracts thoroughly before you sign them, to ensure that the contract is unambiguous. Upon closer review, contracts may mean something different from your initial interpretations. You may need to seek legal advice to ensure that contracts are clear.
Policies and procedures are essential, but the work required to create and maintain them can seem daunting. Finance and Accounting PolicyPro, Operations and Marketing PolicyPro, Not-for-Profit PolicyPro, and Information Technology PolicyPro, co-marketed by First Reference and Chartered Professional Accountants Canada (CPA Canada), contain sample policies, procedures, checklists and other tools, plus authoritative commentary to save you time and effort in establishing and updating your internal controls and policies. Not a subscriber? Request free 30-day trials of Finance and Accounting PolicyPro, Not-for-Profit PolicyPro, Operations and Marketing PolicyPro, and Information Technology PolicyPro here.