Interpretation of an insurance contract can require a trial if a factual matrix is necessary to determine the context pertaining to the clause in question

The Defendant insurer brought a motion to dismiss an action concerning a cancellation clause written into an agreement via Summary Judgment.

There was ambiguity, and the issue dealt with conflicting evidence and therefore ought to go to trial.

Ajax (Town) v. St. Paul Fire and Marine Insurance Co., [2008] O.J. No. 3660 Ontario Superior Court of Justice, D.A. Wilson, J., September 22, 2008

A group of Municipalities and a Police Board formed an Association (“Ajax”) to secure insurance for property and liability risks.

After extensive negotiation, Ajax and St. Paul reached an agreement for a three year policy period. One of the main goals of Ajax was to secure a Contract of Insurance with a fixed three-year term and fixed premium, to provide price stability for its members.  The policy contained a cancellation clause which allowed Ajax to cancel the policy in whole or in part at any time.  St. Paul could also cancel the policy but would be required to give written notice.  There was a 90-day Notice of Cancellation requirement which was linked with the premium subjectivity clause.  The clause stated that the premium would remain unchanged unless the total population and/or the total insurable values of all the Municipalities combined exceeded ten percent, or a change in the Municipal Legislation resulted in a material change in risk, or claims paid by the insurers in any one year exceeded 65% of the premium.  If any of these occurred then adjustment of future premium installments may be requested by the Insurer.  If an agreement could not be reached, then the Insurer may exercise its right of cancellation, providing the 90-day notice.

St. Paul notified Ajax they were cancelling the policy, taking effect on the second year anniversary date.  Ajax brought an action alleging St. Paul wrongly terminated the insurance coverage.  St. Paul now brings a motion for a summary judgment under Rule 20 of Ontario’s Rules of Civil Procedure.

Prior to granting a summary judgment, the Court must be satisfied there is no genuine issue of material fact requiring a trial.  Matters of credibility requiring resolution in the case of conflicting evidence should go to trial.  The Judge considered both the pro contra proferentem rule as well as the normal rules of contract construction.  St. Paul argued that there was no ambiguity as the premium subjectivity clause and the general cancellation clause dealt with different matters.  The Judge disagreed saying that the premium subjectivity clause would otherwise be unnecessary since the general cancellation clause would enable St. Paul to cancel the policy at will.

Even absent the ambiguity, the factual matrix constitutes an essential element of contractual interpretation.  Since  Ajax wanted a three year term in order to have price stability, the clause allowing St. Paul to cancel the policy at will would bring about an unrealistic result that would not normally be contemplated in the commercial atmosphere.  This interpretation would defeat the intentions of the parties.

The Judge dismissed the motion for a summary judgment finding matters of conflicting evidence and the findings of credibility are best left to a trial judge.  The persuasive burden was on St. Paul to satisfy the Court that there was no genuine issue for trial.  That burden was not discharged.

This case was originally summarized by Neil J. MacDonald and originally edited by David W. Pilley.

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