Library:
Right to Cancel Not so Clear
Published in the September 2008 issue of Litigation Notes - View Article
Synopsis: The existence of a clause in an insurance policy which provided for an attempt to re-negotiate premium rates prior to cancellation, made it unclear whether the insurer could cancel on simple notice. Extraneous evidence of the parties’ intentions was required, so that the matter could not be resolved on summary judgment, but required a trial.
A group of municipalities formed an association in 2000 to secure insurance for property and liability risks on an economical basis. St. Paul Fire and Marine Insurance Company (St. Paul) issued a policy in June of 2001 which commenced July 1, 2000 for a 3 year period. The policy contained a provision whereby the insurer could cancel the policy on 90 days’ notice and also contained a “premium subjectivity clause” which provided that the premium could be increased in certain circumstances involving a specified increase in population in the municipalities in the pool, or an increase in the number of vehicles operated by those municipalities, or changes in their municipal by-laws which could result in a material change in the risk. If the parties could not reach agreement on the amount of the premium increase, the insurer was free to cancel the policy pursuant to the 90 day cancellation clause.
On March 25, 2002 St. Paul notified the pool that the policy was being cancelled effective July 1, 2002. The pool sought an injunction to prevent this from happening which was unsuccessful and they proceeded with an action alleging that the policy had been wrongly terminated.
St. Paul brought a motion to dismiss the action on a summary basis, alleging that the language of the cancellation clause was clear and unambiguous and that there was no genuine issue for trial with respect to whether or not the policy had been wrongly terminated.
The plaintiffs took the position that they had negotiated for a fixed 3 year term of insurance with a fixed premium and that if the policy could be cancelled by the insurer at will, there would have been no reason for the premium adjustment clause.
The Ontario Superior Court of Justice considered that the juxtaposition of the cancellation clause and the premium subjectivity clause created an ambiguity in the wording of the contract and that consequently it was necessary to consider extraneous evidence to determine the intention of the parties. While the wording of the cancellation clause was clear enough in and of itself, the court considered authorities on contractual interpretation which have held that “contractual interpretation is all about giving meaning to words in their proper context, and including the surrounding circumstances in which a contract has arisen – usually referred to as the “factual matrix”. Because language always draws meaning from context, the factual matrix constitutes an essential element of contractual interpretation in all cases, even when there is no ambiguity in the language”.
The court went on to review the caselaw relating to summary judgment and repeated the well-known principles that a judge on a summary judgment motion should not make findings on conflicting evidence nor make findings of credibility, since these are matters best left to the trial judge. Since in this case ,findings of fact had to be made on proper evidence in order to properly interpret the contract, it was held that the matter should go to trial and the motion for summary judgment was dismissed.
Ajax (Town) v. St. Paul Fire & Marine Insurance
Company, 2008 CanLII 47471