Some Welcome Clarification of Policy Interpretation for Insurers

The Court of Appeal’s recent decision in Turpin v. The Manufacturers Life Insurance Company, 2013 BCCA 282, helps bring certainty back to the interpretation of insurance policies with respect to the application of the “reasonable expectations” principle. 

In Turpin, the Plaintiff had experienced abdominal pain and sought medical treatment shortly before purchasing a travel insurance policy. She then travelled to California and, within a day of her arrival, again experienced abdominal pain and sought treatment. The Plaintiff incurred significant medical expenses and sought indemnity under her travel insurance policy. The claim was denied on the basis of an exclusion for pre-existing medical conditions. The trial court held that the policy was not ambiguous, and that the Plaintiff’s abdominal pain was a continuation of a pre-existing condition. However, the court then went on to find that, despite the Plaintiff not having read the insurance policy, she had a reasonable expectation that she would have coverage and, therefore, awarded the same. 

The trial court decision brought uncertainty into the application of the reasonable expectations principle in cases where the insurance policy was otherwise clear in its exclusion of a particular risk. 

The Court of Appeal clarified that, in British Columbia at least, “reasonable expectation” is not actually a “doctrine”, but merely an aid in interpreting an insurance policy when construing an ambiguity. Therefore, the reasonable expectations of the parties only become relevant where the insurance policy is ambiguous. The court stated:

[45] I therefore have some misgivings as to the trial judge’s reliance on the Ontario authorities to overcome an unambiguous exclusion in the policy. In my view, the weight of authority, at least in this province, suggests that nullification of coverage and the reasonable expectations of the parties are not doctrinal concepts, but simply interpretive aids to be invoked in the face of ambiguity, and directed to a resolution that favours the insured. 

As there was no ambiguity in the insurance policy present before the court in Turpin, there was no need for the trial judge to look to the reasonable expectations of the parties to determine if there was coverage for the claim.

The court further clarified that, in cases where it is appropriate to refer to the reasonable expectations of the parties, the test for the reasonableness is objective. Therefore, the subjective expectations of a particular plaintiff are not relevant.

The court concludes by stating that:

[47]… I cannot agree that, because a travel insurance policy clearly excludes coverage for pre-existing medical conditions, coverage is nullified.  This is a reasonable and predictable exclusion, insurance remains in place under the policy for many other medical risks and emergencies, as well as for other exigencies encountered during travel.

This decision is a welcome clarification of insurance policy interpretation and may signal a move away from the recent reliance on the reasonable expectations of the parties to support a claim for coverage under an insurance policy.

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