Modern Paradigms – New Insurance Act Regulations approved

At long last the Lieutenant Governor in Council has provided Regulations enacting the changes to the Insurance Act (the “Act”). Executive Council orders were announced on December 2, 2011 formally enacting the Insurance Amendment Act. The new Act contains significant amendments and the new Regulations contain provisions implementing the reforms which, subject to some transitional provisions, will come into force on July 1, 2012.

The reformed Act and these Regulations have been a long time coming. In 2003 the Supreme Court of Canada in KP Pacific v. Guardian Insurance declared British Columbia’s Insurance Act to be “outmoded” leading to “unproductive, wasteful litigation about technicalities” and urged the legislatures to “rectify this situation by amending the Insurance Acts”.

In October 2009 the British Columbia legislature passed the Insurance Amendment Act 2009 which was the first comprehensive review and revision of the Insurance Act in more than 40 years. Highlights of the new Act include:

  •  Eliminating the Fire Part of the previous Act;
  •  The limitation period for claims against insurers under the general provisions of the Act, now being 2 years from the date the insured knew or ought to have known of a loss or from the date the cause of action against the insurer arose;
  •  The limitation period under Accident and Sickness and Life Insurance Polices to be, in actions involving insurance proceeds payable upon a person’s death, the earlier of either 2 years from the furnishing of a proof of claim or 6 years from the date of death. For other actions, not later than 2 years after the date the claimant knew or ought to have known of the first instance of the loss or occurrence giving rise to the claim. In regards to insurance monies payable on a periodic basis, 2 years after the date the next payment would have been payable;
  • Allowing a 30 day grace period for payment of overdue premiums in life and health insurance contracts;
  • Improved dispute resolution mechanisms including a requirement that insurers put in place an internal complaint resolution procedure;
  • Requiring insurers to become members of an ombudsman service organization for the purpose of resolving disputes.

The Regulations implementing the Act contain several key components in terms of implementing the above key changes as well as transitional provisions. The substantive provisions of the Regulations provide:

Electronic Communications

While the Act allows the service of documents under the Electronic Transaction Act, the Regulations provide that the Electronic Transaction Act does not apply in respect to an insurer’s notice terminating a contract under either a statutory condition or for non-payment of premiums. In those circumstances service of documents has to be done in accordance with the Act, i.e. personally or by registered mail.

Notification of Dispute Resolution Processes

In general, the dispute resolution processes set out in the Act and Regulations are those formerly referred to as the appraisal process.

The Regulations require an insurer to give written notice to an insured of the availability of the dispute resolution process applicable to disagreements over the value of the insured property, the value of the property saved, the nature and extent of the repairs or replacements required, or if made, their adequacy or the amount of loss or damage or any other condition of the Policy.

The Regulations require an insurer to give written notice to an insured of the availability of the dispute resolution process at one of two points in time. The first, within 10 days after the insurer determines that there is a dispute between themselves and the insured over matters to which the dispute resolution process would apply. The second, within 70 days after the insured submits a proof of loss if at the time the insurer has not yet made a decision in respect of a matter which would be subject to the dispute resolution process.

Notification of Limitation Periods

The Regulations provide that notification of the statutory limitation periods must be given at two points in time: (a) at the time or within 5 business days after the insurer denies liability for all or part of the claim; and (b) at or within 10 business days after the first anniversary of the date the insurer receives a claim.

However, the requirement for notification does not apply if the insurer has already adjusted the loss acceptably to the claimant or settled the claim. Further, an insurer is not required to give notices to a claimant who is represented by legal counsel.

The Regulations do not require an insurer to advise as to the date of the limitation period will expire, but rather just what the applicable statutory limitation period provides.

If an insurer fails to give the required notice the running of time with respect to the applicable limitation date is suspended. The limitation date only starts running on the date notice is given or a date that would cause the limitation period to exceed 6 years after the date the cause of action against the insurer arose. There is no provision for discretion on the part of a trial judge in regards to the suspension of the limitation period.

Exclusion of Statutory Conditions

The Regulations define a number of classes of insurance to which the Statutory Conditions set out in the General Provisions of the Act do not apply, namely; aircraft insurance, boiler and machinery insurance, credit insurance, credit protection insurance, hail insurance, mortgage insurance, product warranty insurance, title insurance, travel insurance, and vehicle warranty insurance.

Permitted Exclusions

The Regulations also set out the permissible fire exclusions as:

(a) Generally those related to an intentional criminal act or omission of an insured; and,

(b) Riot, civil commotion, war, invasion, act of a foreign enemy, hostilities, civil war, rebellion, revolution, insurrection or military power.

As expected, the permitted exclusions do not include fire following earthquake. However, they do include terrorism, albeit only for policies applicable to property that is not used for a residential purpose, i.e. commercial policies.

In addition the Regulations provide that a policy must not contain an exclusion for loss or damage by fire that occurs when the insured property is vacant for a period of less than 30 days.

Recovery by Innocent Persons

The provisions relating to the rights of innocent co-insured individuals to recover damages under a policy was brought into force in June 2011. However, for greater cohesion, the Regulations re-enact these provisions.

The Regulations provide that the protection for innocent co-insureds only extend to natural persons. In addition, in order to avail themselves of this protection, innocent co-insureds must cooperate with the insurer in respect of the investigation of the loss including submitting to an examination under oath and producing relevant documents.

Cooling off Period

The Regulations provide for a cooling off period in terms of life and accident and sickness contracts. In this regard a person who purchases a contract of life or accident and sickness insurance may rescind it within 10 days after receiving the policy or within a longer period specified within the policy.

Transitional Regulations for Part 2 General Provisions

The Regulations provide for the Act to come into force on July 1, 2012 so as to be coordinated with the implementation of Alberta’s new Insurance Act. A further 6 month transitional period until January 1, 2013 is provided to insurers to allow them to continue to use their existing license insurance classes for reporting and business authorization purposes.

In addition the transition sections of the Act state that certain sections of the Act do not come in force in regards to a contract which is in effect on July 1, 2012 and only come into force the date the contract is renewed or replaced. These sections include requirements for certain policy wordings, time for payment of claims, statutory conditions, limitation of liability clauses, exclusions from coverage and fire peril exclusions.

The dispute resolution portions of the Act do not apply to a contract in respect of the claim if an insurer has already given notice under the appraisal process before July 1, 2012.

Under the Regulations certain provisions of the Act do not apply to a contract in respect of loss or damage covered by the contract if the loss or damage occurs before July 1, 2012, namely, postponement of the limitation period, new 2 year limitation periods and the recovery by innocent persons provisions.

Conclusion

It has taken the British Columbia Legislature until now to rectify the “outmoded paradigm incapable of coherently addressing the modern multi-peril policy“ [KP Pacific] but with these Regulations and an enactment date of July 1, 2012 for the new Act, the insurance industry in British Columbia is, at long last, close to having a modern legal framework regulating contracts of insurance.