The Mirage of Insurance Coverage and the Necessity of Court Interventions

Insurance is a way for individuals and organizations to distribute and manage their risk. In exchange for receiving payments in the form of premiums, an insurer makes sure that a policyholder is compensated when they incur a loss, provided that the loss isn’t specifically excluded.

However, given the breadth of possible exclusions, coverage disputes over the past decade have significantly increased. For many policyholders, exclusions coupled with aggressive policy denials have rendered coverage a mirage—seemingly within reach and yet unattainable.

In turn, this lack of coverage has resulted in an increased number of disputes being sent to litigation. A cursory search run on Ontario Superior Court of Justice data from the last five years revealed that the OSCJ decided 527 cases 1 related to insurance coverage disputes in that time.

For a recent case that reflects the mirage-like nature of coverage, we can look to Breen v. FCT Insurance. In Breen v. FCT, the Plaintiff, John Breen, was a homeowner who discovered his cottage had structural defects as a result of structural changes made without an adequate building permit and inspection process. As the defects were a result of construction done by the previous owner, Breen was not aware of these defects until they were discovered by the engineer he had hired to put in an addition to the home. Breen reported the loss to his insurer but was denied coverage based on the ‘governmental power’ exclusion, which allowed for the rejection of a claim where the loss occurred as a result of the “violation of any law, by-law, order, code or governmental regulation.”

In analyzing that provision, the Court agreed that it would take the matter outside of coverage, on account of being “so broad as to exclude all risks, including those that [were] otherwise mentioned in the policy.” In accordance with this quite scathing analysis, the exclusion was held to be ambiguous and hence inapplicable.

The outcome breakdown for recent cases like Breen vs. FCT shows that the majority of coverage disputes have been decided in favour of claimants disputing coverage denials. In the past five years of coverage dispute cases in the ONSC, the claimants have seen success in 47.07% of cases, as opposed to the defendants (i.e. the insurance companies) who had a success rate of 35.34%.

Damages data from the same period shows that the average (that is, mean) amount of damages awarded in insurance coverage disputes sat at $273,657.232. Most of the damages in these cases fell under the heading of Compensatory Expectation. Compensatory damages are paid to a claimant to compensate them for an injury or loss in cases where said loss has occurred as a result of the negligence or unlawful conduct of another party. In other words, many of these cases resulted in insurance companies being ordered to pay out the coverage for the claims that they had originally denied. 

The data shows a clear trend towards courts intervening in favour of claimants and in doing so, calling out vague coverage denials on the basis of ambiguous exclusions. The courts have given their judgement—insurance companies cannot continue with the practice of coverage denials on the basis of vague interpretations of open-ended exclusions.
  1. This report is generated using Court Analytics’ ‘Hearing Analytics Report’ feature. Parameters selected to run this report – Court: Ontario Superior Court of Justice; Practice Area: Insurance Law; Sub-Practice Area: Insurance Coverage Dispute; Date Range: 01/01/2015 to 12/31/2019.
  2. This report is generated using Court Analytics’ ‘Damage Analytics Report’ feature. Parameters selected to run this report – Court: Ontario Superior Court of Justice; Practice Area: Insurance Law; Sub-Practice Area: Insurance Coverage Dispute; Date Range: 01/01/2015 to 12/31/2019.

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