The Second Opinion: Can the Reasonable Expectations of the Parties Ground Insurance Coverage? Sometimes…

The concept of the “reasonable expectations of the parties” is often alluded to in the insurance law context. Can this concept serve as the basis for granting insurance coverage to an insured? What if the reasonable expectation of the parties conflicts with the actual wording of the insurance policy? A recent British Columbia Court of Appeal decision provides insight into these issues.

The pertinent facts of the decision in Turpin v. The Manufacturers Life Insurance Company, 2013 BCCA 282, are as follows. The plaintiff had experienced abdominal pain for which she received medical treatment in British Columbia. Her abdominal pain subsided. She then purchased travel insurance before travelling to California. She did not read the insurance policy.

Upon arriving in California, her abdominal pain flared up again and she had to be hospitalized. Ultimately, she returned to British Columbia and underwent an appendectomy. She submitted a claim to her insurer to cover her medical expenses that were incurred during her trip to California. The insurer denied her claim. She then commenced a proceeding against her insurer, alleging a breach of the insurance policy.

The wording of the insurance policy excluded “pre-existing conditions” or “medical conditions” which were not “stable and controlled” during a defined period prior to the insured’s travel. The insured’s circumstances were caught by this policy language, given how these terms were defined in the policy. The trial judge nevertheless invoked the concept of the “reasonable expectations of the parties” in ruling that the insured was covered under the policy. The trial judge reasoned that failure to do so would nullify the coverage for which the insured had paid a premium and would not be consistent with the reasonable expectations of the parties.

The B.C. Court of Appeal reversed the trial judge’s ruling. The appeal court ruled that the “preponderance of authority” indicates that the concept of the “reasonable expectations of the parties” applies only in the face of an ambiguity (at para. 42):

“The Supreme Court of Canada has repeatedly and consistently confirmed that the reasonable expectations of the parties only become relevant if the provisions of an insurance policy are ambiguous.”

The B.C. Court of Appeal went on to rule that, in any event, the concept of the reasonable expectations of the parties could not apply on the facts of the case because the insured had not read the policy, and because the objective test of reasonableness was not met (at para. 46).

The principle of nullification of coverage also did not apply, according the B.C. Court of Appeal, as the policy covered “other medical risks” and “emergencies” encountered during travel.

As the B.C. Court of Appeal noted, the decision in the Turpin case adopted a different approach from the approach taken by the Ontario Court of Appeal in Cabell v. Personal Insurance Co., 2011 ONCA 105. In Cabell, the Ontario Court of Appeal invoked the principle of the reasonable expectations of the parties and the spectre of the nullification of coverage without finding that the policy was ambiguous. However, in a case decided just four days before the Turpin judgment was released, the Ontario Court of Appeal adopted an approach consistent with the B.C. Court of Appeal’s ruling in Turpin.

The McCarthy Tétrault Opinions Group consists of members of the firm’s litigation department whose practices focus on written advocacy and the provision of strategic advice and opinions in the context of complex business disputes and transactions.  The members of the Opinions Group are Anthony Alexander, Martin Boodman, Brandon Kain, Hovsep Afarian and Kirsten Thompson.



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