The Canadian Bar Insurance Association

Unclear language renders exclusion unenforceable

Ambiguously worded exclusions give policyholders a route to challenge coverage denials, says Vancouver insurance lawyer Sean Lerner.

In a recent case, the Supreme Court of British Columbia ordered an insurer to cover the owner of a fire-damaged tractor for its losses, even though the vehicle was deliberately set alight by the person who leased it from them.

The insurance policy contained an exclusionary clause for damage caused by “conversion, theft or concealment” of the vehicle by a lessee, but Justice Nigel Kent refused to enforce it because of the ambiguity of the term “conversion.”

Lerner, principal of Lerner Law Corporation, tells that courts will always construe unclear exclusions in favour of the insured person because of the one-sided nature of standard insurance contracts.

“The courts remind insurers again and again that because they are the ones who draft the policy, and their insureds do not get to negotiate it, they are responsible to ensure the language is clear and precise,” he says. “This decision emphasizes that language in an exclusion must not only be precise but must be readily intelligible to ordinary members of the public.”

The plaintiff in the case was a financing business that bought the tractor new for $160,000 in late 2010 and immediately leased it out to a trucking company. According to the decision, the company’s president intentionally set fire to the vehicle in 2013, causing more than $40,000 in damage.

The financing company, which still owned the tractor, paid for the repairs out-of-pocket and made a claim for reimbursement to B.C.’s provincially run insurer. The vehicle was later sold for about $60,000.

In court, the insurer argued that it should not have to pay up because the arson damage amounted to “conversion” of the vehicle.

But Kent agreed with the plaintiff that the term was ambiguous, noting that it was a “virtual certainty that the proverbial average insured has never heard of the tort of conversion, let alone that he would know what it might mean.”

In any case, the judge found that there was debate in the legal community about whether the destruction of property can be called conversion when the damage is repairable.    

“The first problem the court found was that a person of ordinary intelligence and education would not understand the word in its legal sense,” Lerner says.

 “The second problem was that, as a legal label, it was a matter of debate in the case law whether conversion could be established by damaging property but not damaging beyond repair, as was the case with this truck. For that reason, the court found the term in the exclusion was ambiguous and so interpreted it in a way favourable to the insured.”

In his decision, Kent wrote that the insurer could have worded the clause to exclude “coverage for loss or damage deliberately caused to the vehicle by the lessee.”

“In doing so, it could also have clarified whether this included any and all such deliberate damage no matter how minor, or whether it was limited to destruction beyond repair,” he added.

The exclusion was “vague and obscure” enough for him to conclude that it did not apply to the damage suffered in the case before him.

“The damage, while significant, was repairable. Because it was capable of repair, it cannot rightly be said the vehicle was ‘lost to its owner’ and hence no ‘conversion’ occurred, whether as a matter of tort law or just plain English,” Kent wrote.

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