Party Paper:
The Effect of Suspension of Insurance
Coverage under the Emergencies Act
Prepared by: Mario Fiorino & Varshni Skantharajah
Submitting Party: Insurance Bureau of Canada
Note to Reader
Pursuant to Rules 11-14 of the Commission’s Policy Phase Rules of Practice and
Procedure, Parties with standing may submit discussion, research or policy papers
(“Party Papers”). The Commissioner
Any views expressed in a Commissioned Paper are those of the author(s) and do not
necessarily reflect the views of the Commissioner. Statements of fact contained in a
Commissioned Paper do not necessarily represent the Commissioner’s views. The
Commissioner’s findings of fact are based on the evidence presented during the
Commission’s hearings.
1
Party Paper: The Effect of Suspension of Insurance Coverage under the Emergencies Act
Introduction
The Insurance Bureau of Canada (IBC) was formed in 1964 and is the national trade association
for Canada’s private (non-government) property and casualty insurers. Since its formation, IBC
has been the principal voice of private property and casualty insurance companies in Canada,
acting as a liaison between insurers and the federal, provincial and municipal governments,
consumer groups and the media. IBC’s member companies account for approximately 90% of the
private automobile, home, and business insurance written in Canada.
On February 14, 2022, the Canadian government invoked the Emergencies Act, RSC, 1985, c. 22
(4
th
Supp.) (the “Act”), in response to the “Freedom Convoy” protests. By invoking the Act, the
Canadian government declared a public order emergency, and subsequently issued the
Emergency Economic Measures Order which, among other things, required insurers to cease
providing insurance coverage for any vehicle involved in the Freedom Convoy.
This paper will provide a cursory overview of the insurance regime in Canada, and will discuss the
public policy justifications that underpin insurance law in Canada. This paper will also discuss the
practical difficulties relating to the federal government’s invocation of the Emergencies Act, and
will provide recommendations intended to support the Commission’s enquiry as it fulfils its
mandate to conduct a policy review of the legislative and regulatory framework at issue.
Automobile Insurance in Canada: An Overview
While federal, provincial, and territorial governments all have jurisdiction to legislate in the field
of insurance to some extent, these orders of government govern different “spheres” of
regulation. The federal government’s authority is limited to matters of federal incorporation and
solvency,
1
while provinces and territories have exclusive authority to “legislate with respect to
insurance contracts and the market conduct operations of the insurance industry” within the
province, as it relates to non-marine insurance.
2
This exclusive authority is granted to the
provinces by s.92(13) of the Constitution Act, 1982, which grants exclusive jurisdiction over
“property and civil rights”.
3
It is settled law that property and casualty insurance falls within this
area of jurisdiction.
4
In some provinces, certain automobile insurance products are provided
exclusively by a provincial government body,
5
while other provinces allow private insurance
companies to provide all forms of automobile insurance.
6
Regardless of the method by which
1
Denis Boivin, Insurance Law, 2
nd
ed (Toronto: Irwin Law Inc., 2015) at 59 [Boivin].
2
Barbara Billingsley, General Principles of Canadian Insurance Law, 3
rd
ed (Toronto: LexisNexis Canada Inc., 2020)
at 6 [Billingsley].
3
Constitution Act, 1982, being Schedule B to the Canada Act 182 (UK), 1982, c 11 at s.92(13).
4
Citizens Insurance Co. of Canada v Parsons, [1881] UKPC 49
5
British Columbia, Manitoba, Saskatchewan, Quebec
6
Ontario, Alberta, Newfoundland, New Brunswick, Nova Scotia, P.E.I.
2
insurance is provided, automobile insurance is mandatory in every province and territory in
Canada.
7
Automobile insurance in Canada consists of 3 elements: third party liability coverage, no fault
injury benefits, and coverage for loss or damage to a vehicle (property damage). While no fault
benefits and property damage coverage are intended to protect a policyholder/insured(s) under
the insurance contract, third party liability coverage is also intended to protect those who have
been injured or have suffered a loss as a result of the fault of an insured person. These “third-
parties” are so named because they are not a party to the insurance contract, and therefore have
no privity of contract, and yet they benefit from the coverage provided for in the insurance
contract.
The insurance contract is no ordinary contract. While it contains elements of an ordinary
contract, such as consideration in the form of an insurance premium or an undertaking to
indemnify, it is also subject to many principles that are unique to insurance law. These principles
include the duty of utmost good faith, which is a mutual duty that imposes obligations on both
the insured and the insurer, as well as the principle that insurance is to be treated as a form of
consumer protection. The impact of these principles will be discussed further below. The
uniqueness of the insurance contract is especially clear in the context of auto insurance liability.
In this context, the relationship between insurers and insureds is not a strictly contractual
relationship, but a relationship grounded in a regulatory framework that has been imposed on
the parties.
8
The Public Nature of Automobile Insurance: Compensation for Injured Parties
As noted above, the insurance contract does not merely benefit the policyholder or insureds. It
is commonly understood that automobile insurance, at its most fundamental, is a social
protection mechanism which spreads the risk of financial loss amongst multiple participants
(policyholders).
9, 10
As such, the insurance contract protects even those who are not a party to
the contract, and those who do not have insurance coverage themselves. The public nature of
insurance is only fulfilled when parties are compensated after suffering a loss. In order to ensure
that this public function is achieved, insurance (and especially automobile insurance) is heavily
regulated at the provincial and territorial level (with significant variation in the various provincial
and territorial frameworks); this results in legislative provisions that allow an injured person to
7
See, for example, Compulsory Automobile Insurance Act, RSO 1990, c. C.25.
8
Boivin, supra note 1 at 7.
9
Billingsley, supra note 2 at 1.
10
The International Association for the Study of Insurance Economics, “The Social and Economic Value of
Insurance” (2012).
3
pursue a claim, not only against a tortfeasor, but also against the insurer of the tortfeasor
directly.
11
The public nature of automobile insurance across Canada means that it is not just a shield for a
policyholder, but also a sword that gives injured parties access to a reliable compensation fund.
12
This is especially true for liability insurance, which exists for the benefit of society, and not just
for the insured. This is clear when considering that third-party claims may succeed even despite
a contractual default by the policyholder, such as a late payment of premiums.
13,14
In fact,
legislation has also determined that, even in the case of criminal conduct by an insured, a third-
party may still have recourse to seek compensation.
15
Professor Denis Boivin described the
important function of third-party liability insurance as follows:
“Third-party claimants are the very essence of liability insurance. Coverage
exists because of them, and they are most impacted by the absence of
coverage. When an insurer refuses to defend an insured, or refuses to pay a
judgment rendered against him, the real loser is not the contracting party.
Unless the insured is wealthy, he would not have faced a civil action but for the
existence of liability insurance. The real loser is the claimant. For injured
parties, liability insurance is often the only source of reasonably accessible
compensation.”
16
The importance of third-party liability coverage in the protection of innocent victims is also
reflected in legislative enactments such as the statutory requirement for auto insurance in all
provinces
17
and statutory minimums in insurance coverage.
18
Claims Administration and Underwriting of Insurance Policies: Consequences on Innocent
Third-Parties
In light of the public nature of automobile insurance, it is clear that the suspension of automobile
insurance coverage as a result of the behaviour of an insured will have consequences, not only
to the insureds themselves, but also on innocent third-parties who would have benefited from
the existence of insurance coverage.
The clearest example of innocent third parties that will bear the consequences of suspended
insurance coverage can be found in the residents of Ottawa themselves, especially those
11
Craig Brown, Introduction to Canadian Insurance Law, 4
th
ed (Toronto: LexisNexis Inc., 2018) at 6 [Brown].
12
Boivin, supra note 1 at 44.
13
Brown, supra note 11 at 6.
14
Insurance Act, RSO 1990, c. I. 8 at s.258.
15
Boivin, supra note 1 at 336.
16
Boivin, supra note 1 at 45.
17
See, for example, Compulsory Automobile Insurance Act, RSO 1990, c. C.25.
18
See, for example, Insurance Act, RSO 1990, c. I. 8 at s.251.
4
residents and businesses involved in the class action lawsuit currently being pursued against the
Freedom Convoy organizers and members. It is clear from the testimony given during the
Commission hearing that residents and businesses in Ottawa may well be pursuing claims for
pain and suffering, as well as a loss of income. The extent of these claims cannot yet be
quantified, and may not be known until at least February 2024, after which time such claims will
be barred by the expiry of the statutory limitation period. The Emergency Economic Measures
Order could raise complex factual and legal determinations as to whether or not insurance
coverage will be available to respond to these alleged losses.
Implementation and Operational Issues Arising from the Order and Regulations
In addition to the public policy concerns relating to injured parties and innocent victims,
consideration should also be given to the practical difficulties of the emergency order, as it relates
to the rule of law.
The Emergency Economic Measures Order
19
imposed various duties on insurers, including duties
to suspend the insurance policies of vehicles being used in a public assembly, to cease providing
any further insurance policies whatsoever (automobile insurance or otherwise) to “designated
persons”, and to cease making any payments whatsoever (in respect of insurance claims or
otherwise) to “designated persons”.
Insurers were faced with practical obstacles in applying the Emergency Order. Namely, the
identification of “designated persons” and vehicles involved in the “Freedom Convoy” fell to
insurers. In identifying these vehicles, reference may be made to s.2(1) of the Emergency
Measures Regulations, which defines a “public assembly” as an assembly that “may reasonably
be expected to lead to a breach of the peace” by disrupting the movement of persons or goods,
seriously interfering with trade, interfering with the functioning of critical infrastructure, or
support the threat or use of acts of serious violence, while in identifying these persons, reference
may be made to s.1 of the Regulations, defining them as “any individual or entity that is engaged,
directly or indirectly, in an activity prohibited by” the Regulations; these definitions are notably
broad and perhaps, in practical application, indeterminate.
20
As noted by several members of the
police forces who testified during the hearing in this matter, identifying the vehicles that were
involved in the “Freedom Convoy” was no easy feat, and the City of Ottawa itself hesitated to
issue tickets to vehicles as it was unclear which vehicles were and were not actually part of the
“Freedom Convoy”, and the task of identifying designated persons was similarly no easy feat.
19
Emergency Economic Measures Order (SOR/2022-22)
20
Ibid at s.1, 2(1) and 2(2).
5
Use of Insurance as a Tool for Law Enforcement
Pronouncing on the permissibility of property and casualty insurance policies in order to address
public order emergencies is both unnecessary and ineffective in light of the existing measures
that exist to deter the exploitation of those insurance contracts.
The integrity of insurance funds are protected by the principle of fortuity – that the losses
covered occur randomly, and do not arise as a result of the deliberate actions of a claimant.
21
Insurance contracts are built to not respond to non-fortuitous losses by denying such claims on
the basis of the terms of the insurance contract and legislative provisions. This principle ensures
that only a tortfeasor that deliberately intended to take advantage of the insurance contract is
not able to do so.
Insurance contracts are also founded on the principle of indemnity – coverage of a loss is
intended to put the claimant back in the position that they were prior to the loss, and not to pay
any more or any less than the loss actually sustained.
22
Unlike other financial services, a claimant
cannot profit from an insurance contract.
Insurance contracts also benefit from the principle of criminal forfeiture. This allows insurance
companies to void any contractual obligations to a policyholder who has engaged in criminal
activity for the purpose of taking advantage of the insurance contract. Here, as well, legislatures
and the courts have expressly drawn limits to the extent of the criminal forfeiture rule. The rule
cannot be relied upon if the insured did not intend to cause loss or damage, for example.
23
The
rule also cannot be relied upon to deny entirely payment of insurance proceeds to innocent third-
parties.
24, 25
As such, even where payment of insurance proceeds is prohibited by public policy
concerns (for example, where completion of the insurance contract would violate social or moral
values, such as where the policyholders have been found to be engaged in criminal activity), the
Supreme Court of Canada has been clear that this does not prevent payment of insurance
proceeds to innocent third-parties who did not participate in and who did not benefit from the
criminal acts.
26
To use insurance contracts alongside other financial services as a method of law enforcement is
especially ineffective considering the differences between insurance contracts and other
financial services. The property and casualty insurance industry, while providing a financial
service, differs significantly from other financial service providers, such as banks and life insurers.
Unlike banks and life insurers, property and casualty insurers are not in the business of financial
intermediation. Instead, as mentioned above, they are solely in the business of intermediating
21
Brown, supra note 11 at 5.
22
Brown, supra note 11 at 4.
23
Billingsley, supra note 2 at 178.
24
Billingsley, supra note 2 at 173.
25
Billingsley, supra note 2 at 179-180.
26
Billingsley, supra note 2 at 173.
6
risk, and take on a great deal of risk themselves in order to fulfil this function.
27
Their purpose is
not to make funds and assets available to insureds at will, but rather to indemnify claimants for
losses suffered. This distinction is especially clear when considering the Proceeds of Crime (Money
Laundering) and Terrorist Financing Act, SC 2000, c. 17 (“the PC Act”), which does not apply to
property and casualty insurers. Under the PC Act, property and casualty insurers are not required
to report to FINTRAC, as a result of the comparatively low risk of property and casualty insurers
being utilized as part of a money laundering scheme. In addition, mutual dependency, or the
reciprocal duty of utmost good faith that exists in an insurance contract, distinguishes insurance
contracts from other commercial transactions.
28
Both in the formation and the performance of
the insurance contract, the parties to the insurance contract depend on each other to meet a
minimum standard of behaviour.
29
Recommendations
In light of the above, we would recommend that the Commission consider the following:
1. Recognize a distinction between P&C insurance and other financial services, especially
with respect to addressing public order emergencies;
2. The public policy underlying automobile insurance, particularly as it relates to
compensation for innocent third-parties; and
3. The public policy underlying general liability insurance as it relates to compensation for
innocent third-parties.
Mario Fiorino, B.A., LL.B., M. Ed.
VP Legal and General Counsel
Insurance Bureau of Canada
Varshni Skantharajah, B.A, J.D., LL.M.
Legal Counsel
Insurance Bureau of Canada
27
Coopers & Lybrand, “The Property/Casualty Insurance Industry”, Task Force on the Future of the Canadian
Financial Services Sector (1998), online: (https://publications.gc.ca/collections/Collection/F21-6-1998-15E.pdf
28
Boivin, supra note 1 at 40.
29
Boivin, supra note 1 at 41.
