The Ontario Court of Appeal recently in Boyce v. the Co-operators General Insurance Company, 2013 ONCA 298 (Doherty, Cronk and Lauwers JJ.A.), May 8, 2013 considered whether a provision in an insurance policy can override a statutory limitation period.
The Court of Appeal held that in certain specific circumstances a contractual provision in a commercial insurance policy can, in fact, override a statutory limitation period.
The respondents filed a proof of loss claim in December 2010 and issued a statement of claim in February 2012, more than one year but less than two years after an incident which resulted in damage to their boutique. The appellant insurer, The Co-Operators General Insurance Company, moved for summary judgment, claiming that the action was out of time due to the one-year statutory limitation period in s. 148 of the Insurance Act, R.S.O. 1990, c. I8. The appellant also submitted that a one-year limitation period applied by virtue of s. 22(5) of the Limitations Act, 2002, S.O. 2002, c. 24, which allows parties to vary or exclude the otherwise applicable two-year statutory limitation period set out in s. 4 of that Act. The Co-Operators relied upon a provision in the insurance policy which stated:
Every action or proceeding against the insurer for recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.
The motion judge held that s. 148 of the Insurance Act had no application. He also rejected the appellant's claim under s. 22(5) of the Limitations Act, 2002, holding that the term relied upon by the appellant lacked the specific language necessary to override the statutory limitation period, and that in any event the insurance policy was not a “business agreement” as required by s. 22(5).
The Co-Operators appealed the motion judge's holding that the contract of insurance did not contain an enforceable one year limitation. In so doing, the Court of Appeal considered three issues: (i) whether the insurance policy contained a term which provided for a one-year limitation period, (ii) whether such a provision could override the otherwise applicable two-year limitation period set out in the Limitations Act, 2002, and (iii) where the contract of insurance constituted a “business agreement” in accordance with s. 22(6) of the Limitations Act, 2002.
The Court disagreed with the motion judge that the provision relied upon by the appellant was “misleading”, finding instead that the policy, like the one it considered in International Movie Conversions Ltd. v. ITT Hartford Canada (2002), 57 O.R. (3d) 652 (C.A.), provided for a one-year limitation on claims “in clear and unambiguous language”.
Turning to the question of whether the impugned provision was capable of overriding the otherwise applicable two-year limitation period in the Limitations Act, 2002, the Court found that nothing in s. 22 of the Limitations Act, 2002 supports imposing the specific requirements set out by the motion judge. While the motion judge had held that the provision could only be effective for the purposes of s. 22 if it contained specific reference the parties' intent to vary the statutory limitation as well as an indication that the insured was alive to foregoing that protection, the Court noted that in fact the only limitation in s. 22(5) is that the contract be a “business arrangement”.
The Court noted that while the Supreme Court of Canada held in Hunter Engineering Company Inc. v. Syncrude Canada Ltd.,  1 S.C.R. 426 that “clear and direct language” was required in order to interpret a contractual term as relieving against a statutory obligation, the judgment did not suggest that the language need meet any of the requirements described by the motion judge. In that case, the Supreme Court considered a contractual term which provided that the warranty was “the only warranty ... and no other warranty or conditions statutorily or otherwise, shall be implied”, and found that it did indeed exclude the statutory warranty despite containing no reference to the terms of the statutory warranty and no acknowledgement that the other party was giving up a statutory right.
The Court concluded that when faced with a contractual term that purports to shorten a statutory limitation period, it will consider whether that provision clearly “describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods.” If the provision meets those requirements, it will be sufficient for the purposes of s. 22, as long as it meets the other requirements of the section.
That other requirement was that the contract be a “business agreement”. Excluding agreements entered into by “consumers” as defined under the Consumer Protection Act, 2002, S.O. 2002, C.30, s. 22(6) distinguishes business agreements from those entered into for “personal, family or household purposes”. Because the respondents entered into an agreement with the appellant for insurance related to their business and not as a “consumer”, the insurance policy was indeed a “business arrangement” and the parties could contract out of the statutory limitation period in the Limitations Act, 2002.
Many counsel assume that contractual limitation periods do not apply if they shorten the statute of limitation period. The Court of Appeal has now clarified that in specific circumstances and, in particular, when dealing with commercial insurance policies, a shorter limitation period may, in fact, apply. It is important to carefully examine the insurance policy to determine whether a shorter limitation period may apply.