This was an appeal by the Defendant insurer SGI. At trial, the insurer was held to be liable to insure the loss by fire of the insured’s logging equipment. At issue was the communication between the insurer, the third party agent, and the insured Plaintiff. Between the time of the insured’s first policy issued in 1987 and the loss in May 1996, there were a number of oral revisions, yearly renewals, and additions to the equipment insured under the policy. One of the revisions was a warrantee requiring biannual inspections of fire prevention equipment. The insured never conducted those inspections and claimed he was not informed about the warrantee by the agent. The trial judge found that there was an oral contract of insurance in place at the time of the loss, accepted that the insured was not informed of the new warrantee and held that as the warrantee was unilaterally imposed by the insurer it was unenforceable. On Appeal, the court upheld the result at trial although on a different basis, finding that there was a new contract of insurance in place with each yearly renewal, and at the time of the loss, in May, the Plaintiff was in compliance with the warrantee which required only bi-annual inspections. A third party claim against the agent was dismissed.

L.L.A. Logging Ltd. v. Saskatchewan Government Insurance, [2004] S.J. No. 228, Saskatchewan Court of Appeal

The insured was a family logging company. In 1987, it purchased an SGI “Commercial Pak” policy from a SGI agent with a yearly premium of about $1,000. Throughout the next 10-year period the insured increased its coverage, always through the agent, until the policy covered ten pieces of equipment with an annual premium of about $50,000.

The original policy was for a one-year term, with automatic yearly renewals. Revisions were made by telephone call from the company principal to the agent when the insured acquired or disposed of equipment. The policy was revised in 1994 to add a “delimber” with a built-in fire suppression system. The agent told the principal he was covered and they discussed only that the premium would change. The agent sent a memo to the insurer requesting coverage, and SGI issued a Revision responding to the request and adding a new Warrantee that had recently been developed by the insurer to deal with logging equipment with fire suppression systems. The new Warrantee added a condition to the policy requiring biannual inspections of the system. The agent forwarded the new policy and the Revision to the insured by mail but did not draw his attention to the Warrantee. In addition to the Revision the insured also received renewal documents for 1995 and 1996 that included the Warrantee. The principal said he did not read them. The delimber, worth about $100,000, was destroyed by fire in May 1996. It had never been inspected in accordance with the Warrantee.

The trial judge found that the agent did not explain the Warrantee to the insured, and that therefore the oral agreement between the agent and the insured remained in place regardless of the mailed Revisions and renewals. The Appeal court disagreed, holding that the oral contract was simply a temporary contract, as is the practice in the industry to hold over until a formal policy is in place. However, on an analysis of the case law the Court held that each yearly renewal of the policy did not extend the original policy such that it could be characterized as “continuous” in law, rather each renewal created a new contract with new terms that were offered and accepted. Because the Warrantee in the 1996 contract required “biannual” inspections, the inspection could be delayed until June 1996, and therefore there was no breach of the warrantee when the loss occurred in May, regardless of the insured’s failure to inspect in previous years.

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