Insurance policies typically contain a deductible clause, which typically states the amount that an insured is required to pay to the insurer before the insurer will be required to indemnify the insured for a loss.  When a deductible clause does not strictly comply with the requirements of section 31 of the Insurance Act RSBC 2012, c 1, the clause will not be binding on the insured.

In the recent decision of PCL Constructors Westcoast Inc. v Royal & Sun Alliance Insurance Company of Canada, 2019 BCSC 822,  the plaintiff, PCL Constructors Westcoast Inc. (“PCL”) was an insured under the policy as the contractor in a bridge replacement project. The policy contained the deductible clause:

17.5  Deductibles: The contractor will be responsible for the payment of all deductibles for the insurance policies described in GC. 17, including for the payment of all deductibles for the insurance policies described in GC. 17.7.

….

17.7  City provided Insurance Coverage: This policy will have the following deductibles: (A) $250,000 for water damage… and (C) $250,000 for all other losses.

PCL suffered damage to insured property and claimed for coverage under the policy. PCL argued that the deductible clause was not enforceable, as the policy does not comply with s. 31 of the Insurance Act, RSBC 2012, c 1. This provision sets out the following with respect to a deductible clause:

….

must have printed or stamped on its first page in conspicuous bold type the words “This policy contains a clause which may limit the amount payable” and, unless these words are so printed or stamped, the clause is not binding on the insured.

There was no such statement printed or stamped on the front page or any other location in the policy.

The first question the court looked at was the impact of non-compliance with s. 31 of the Insurance Act. The court adopted a strict application of s. 31 against the insurer and held that the case law is clear in determining that “if the words mandated by s. 31 do not appear on the front page of the policy, the deductible is not in effect.”

The insurer argued that equitable doctrines of rectification and promissory estoppel, or the duty of honest performance should override s. 31 of the Insurance Act. The insurer claimed that PCL was aware of the deductible clause at all material times, and therefore, it would be inequitable for PCL not to meet this obligation. Unpersuaded by the insurer’s argument, the court held that the law in BC is clear: “s. 31 of the Insurance Act is to be strictly construed even when the insured knew of the deductible and agreed to it.” The court further held that equitable remedies are not available against statutory duties.  As such, the court concluded that PCL is not obligated to pay the deductible arising from the claim, as the insurer failed to comply with s. 31 of the Insurance Act.

This decision is a good reminder to insurers that the policy must strictly comply with insurance statutory requirements, and any issues arising from lack of such strict compliance will generally be held against the insurer.