The Second Opinion: Contracting Out of the Limitations Act -- The Ontario Court of Appeal Provides Guidance
When will a contractual provision purporting to shorten a statutory limitation period be effective? The Ontario Court of Appeal addressed this issue in its recent decision in Boyce v. The Co-Operators Insurance Company, 2013 ONCA 298.
The facts of the Boyce are straightforward. The owners of a fashion boutique suffered loss as a result of a foul odour in their business premises on October 20, 2010. They sued their insurer in February 2012 – more than a year after suffering the underlying loss – seeking indemnification for the loss.
The owners’ insurance policy contained a clause which stated that: “Every action or proceeding against the insurer for recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year after the loss or damage occurs.” (This clause was intended to contractually incorporate a statutory condition that applies to other types of policies).
The insurer sought to summarily dismiss the claim, based on the expiry of this contractual limitation period. The motion judge dismissed the summary judgment motion. He did so by, among others things, ruling that a contractual provision that shortens the statutory limitation period (in Ontario’s Limitations Act, 2002) can only be effective if various pre-conditions are met, namely, such a provision must:
(i) make specific reference to the statutory limitation period;
(ii) use clear and unequivocal language that the parties were intending to vary the statutory protection;
(iii) clearly alert the insured that they were foregoing a statutory right to a longer limitation period; and
(iv) be signed by the person(s) foregoing such a right in order to make clear that he/she understands the forfeiture of that statutory right.
The Court of Appeal reversed the decision of the motions judge, giving effect to the contractual limitation period and dismissing the insureds’ claim. The Court of Appeal expressly rejected these preconditions to the enforceability of a contractual limitation period clause, stating that nothing in the language of the Limitations Act supported the imposition of such conditions (at para. 16).
In order to be valid, the Court of Appeal stated (at para. 20) that a contractual limitation period provision must (assuming it is found in a “business agreement”, as it was in the instant case, rather than in an agreement that is for “personal, family or household purposes”) simply:
“[I]n ‘clear language” describe a limitation period, identif[y] the scope of the application of that limitation period, and exclude the operation of other limitation periods.”
As these requirements had been met in this case, the contractual limitation period was given effect and the case dismissed.
The decision in Boyce is an important one which gives effect to the legislative intention to permit the shortening of limitation periods in business agreements. The Court was reluctant to import conditions into the validity of such contractual clauses that were not found in the legislative text. The types of safeguards rejected by the Court of Appeal are more suited to the consumer context, and consumers who enter into agreements for personal, family or household purposes are already precluded from forfeiting the benefit of a longer statutory limitation period in the Limitations Act.
2013 ONCA 298 Boyce Boyce v. The Co-Operators Insurance Company clause Court of Appeal insurer Ontario’s Limitations Act