Goodbye Statutory Condition 14:
Limitations Act Amendment Places
in Doubt the One Year Limitation in
All-Risk Property Policies.
M ICHAEL DOERKSEN
OUR
INSURANCE
LAWYERS
CALGARY
MICHAEL CASEY Q.C.
JEAN VAN DER LEE Q.C.
DAN DOWNE
DOREEN SAUNDERSON
ANNE WALLIS
TODD KATHOL
BARBARA BOECKX
RAY WONG
JIM DOYLE
JUSTIN DENIS
TRISHA GIZEN
MATTHEW JAMES
EDMONTON
DANIEL CARROLL
BRIAN VAIL
SHARON STEFANYK
KEVIN FETH
CHRISTINE PRATT
PETER GIBSON
RANDAL CARLSON
GEOFF HOPE
TIM PATTERSON
JEREMIAH KOWALCHUK
A newly proclaimed amendment to section 7 of the Alberta Limitations Act (the
“Act”) changes (or clarifies) the law in force in this Province with respect to
agreements to abridge limitation periods. This amendment gives rise to a concern
for those involved in adjusting insurance losses with respect to the one year limitation
period set out in all-risk property insurance policies, including policies of homeowner
insurance, commercial all-risk property insurance and course of construction
insurance.
The Provincial Government issued the Proclamation March 15, 2006 which brings
the new provision into force on April 1, 2006. The current provision in section 7 only
addresses extending limitation periods by agreement and provides as follows:
7 Subject to section 9, if an agreement expressly provides for the
extension of a limitation period provided by this Act, the limitation
period is altered in accordance with the agreement.
The amendment changes section 7 to read as follows:
7 (1) Subject to section 9, if an agreement expressly provides for
the extension of a limitation period provided by this Act, the limitation
period is altered in accordance with the agreement.
(2)
An agreement that purports to provide for the reduction
of a limitation period provided by this Act is not valid.
The limitation for claiming against an insurer under a contract governed by the Fire
Insurance sub-part of the Insurance Act is set at one year by Statutory Condition
14 (section 549 of the Insurance Act), which provides:
ACTION 14 Every action or proceeding against the insurer for the
recovery of any claim under or by virtue of this contract shall be
absolutely barred unless commenced within one year next after the
loss or damage occurs.
All-risk policy forms commonly include Statutory Condition 14 along with wording
intended to make it apply as a policy condition with respect to insured perils other
than fire.
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The Limitations Act section 2(4)(b) provides that the Act does not apply where the
claimant seeks an order “… the granting of which is subject to a limitation provision
in any other enactment of the Province…”. Given that section 549 provides that
the Statutory Conditions are “… deemed to be part of every contract [of fire insurance]
in force in Alberta…” the question arises whether Statutory Condition 14 is “[a]n
agreement that purports to provide for the reduction of a limitation period provided
by this Act…” and therefore void under section 7(2) of the Act or whether it is “a
limitation provision in any other enactment of the Province…” and therefore outside
of the Act pursuant to section 2(4)(b).
Alberta Court of Appeal decisions in the past have held that Statutory Condition 14
in an all-risk policy applies with the force of statute when the peril that arises is fire,
Limitations Act Amendment
but not when the peril that arises is other than fire. In
the latter situation the cases have held that Statutory
Condition 14 can apply by agreement where the
wording clearly shows that intention: Canadian Home
Assurance Company v. Genuine Auto Services Ltd.
(1990), 2 C.C.L.I. (2d) 103 (C.A.), Tri-Service Machine
Ltd. v. United States Fire Insurance Co. (1994), 149
A.R. 379 (C.A.), Andrews v General Assurance Co.
of Canada (1995), 165 A.R. 65 (C.A.).
Most recently, in Fenrich v Wawanesa Mutual
Insurance Company 2005 ABCA 199, the Court of
Appeal confirmed that the use of the Statutory
Conditions with respect to risks other than fire in allrisk insurance is a matter of agreement and as such
is subject to the provisions of the Act. The Court of
Appeal also hinted that the continuing authority of its
earlier decisions may be in doubt in the wake of the
Supreme Court of Canada’s decision in KP Pacific
Holdings Ltd. v. Guardian Insurance Co. of Canada
[2003] 1 S.C.R. 433. In that case the loss in issue
was fire damage to the insured’s hotel. Considering
the British Columbia insurance statute, the Supreme
Court held that an all-risk property policy was
governed not by the Fire Insurance part but by the
general Insurance Contracts part of the statute,
regardless of what peril arises causing the loss:
“The comprehensive policy at issue on
this appeal cannot be shoehorned into
the Part 5 fire insurance section
without contrived reconstruction and
anomalous consequences. It simply
does not fit. Consequently, it cannot
be said that the Legislature intended
the Fire Insurance provisions to
govern. It follows that comprehensive
policies are governed by Part 2, which
is of general application.”
The insurance statute regimes of Alberta and British
Columbia are similar enough that it is likely that the
Supreme Court’s reasoning in KP Pacific Holdings
will eventually be applied to the law of Alberta. If that
happens the result will be that, regardless of the peril
that actually arises causing an insured loss, an insurer
under an all-risk property policy cannot rely on
Statutory Condition 14 and the one year limitation
contained therein, the condition having neither
statutory nor contractual force.
The amendment in sec 7(2) of the Act is only effective
as of April 1, 2006. However, an insured may still
argue, with respect to a claim the limitation on which
is governed by the law in effect prior to April 1, 2006,
that the Act does not allow the use of Statutory
Condition 14 as a policy condition shortening the
limitation period. The Alberta Law Reform Institute
(ALRI) has expressed its view that, by only expressly
allowing limitations to be extended, section 7 in its
pre-amendment form implicitly forbids abridging
limitation periods. The Court of Appeal made note of
this position in Fenrich but did not have to decide
whether or not it is correct. If the ALRI is correct, the
addition of section 7(2) to the Act merely clarifies the
law without changing it.
In short, while the Alberta courts have yet to pronounce
on this issue in the wake of KP Pacific Holdings and
the new section 7(2) of the Act, we anticipate the law
in force in Alberta taking the following direction:
(1) Where a property insurance policy in issue is a
true fire insurance policy, it is governed by the Fire
Insurance sub-part of the Insurance Act and the one
year limitation in Statutory Condition 14 applies with
statutory force.
(2) Where the insurance policy is an all-risk policy of
whatever sort, regardless of whether the peril causing
the loss is fire, the policy is not governed by the Fire
Insurance sub-part for any purpose and any
agreement recorded in the policy applying Statutory
Condition 14 is invalid. The applicable limitation will
then be that of two years from the date of reasonable
discoverability as set out in section 3(1) of the
Limitations Act.
(3) It is unclear whether section 7(2) changes the law
in Alberta or merely clarifies it. It is possible that
agreements to abridge limitations periods were
prohibited in Alberta ever since the Limitations Act
came into force.
Michael Doerksen is an associate in our Calgary office. His practice is in legal research with an
emphasis on insurance coverage issues.
DISCLAIMER
this article should not be interpreted as providing legal advice. Consult your legal adviser
before acting on any of the information contained in it. Questions, comments, suggestions and address updates are most
appreciated and should be directed to the author:
Michael Doerksen 403-232-1752
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