Date: Wed, 29 Sep 2004 01:21:49 –0400

From: David Cheifetz

Subject: Contract Query

Jason,

This isn't quite what you're asking (I think) but the Ontario Court of Appeal has recently exhumed a proposition that some would think radical - which is that Ontario courts have the power to read out of any insurance policy a provision (it's usually an exclusion) which the court concludes negates the purpose for which the insurance was purchased - even where there's no ambiguity whatsoever in the policy wording and even where there's no evidence that the policy terms are other than what the insurer and insured agreed in.

In the context of your question 1, I suppose that could be seen as implying, into the contract, as a principle of law, a term that all exclusions will not restrict the coverage grant beyond some unknown amount.

Essentially, what happens is that the court nullifies (or severs) the offending clause.

The most recent restatement of that proposition at the Ont CA appellate level is in Zurich Ins. Co. v. 686234 Ont. Ltd (2002) 62 O.R. (3d) 447 (C.A.), leave to appeal to SCC denied [2003] S.C.C.A. No. 33. The proposition is based on a questionable 1981 decision of the Ontario CA, Weston Ornamental Iron Works Ltd. v. Continental Insurance Co [1981] O.J. No. 78, [1981] I.L.R. 1-1430 (CA). Weston Ornamental, curiously enough, vanished from the Ont. CA's reported lexicon between 1981 and 2002. It's also based on a misquotation of a passage in the SCC decision in Consolidated Bathurst which seems to have started in Weston Ornamental.

If the proposition is relevant to your question, then consider that, as it's being applied in Ontario, it's inconsistent with binding Supreme Court of Canada law on (1) rectification, (2) novation (3) severance (4) mistake, but no court has seen fit to mention that. By inconsistent, I mean that if the insured tried to argue any of those doctrines as the basis for avoiding the effect of the unambiguous exclusion, the insured would be told the evidence doesn't support the application of any of those doctrines.

David Cheifetz
Bennett Best Burn LLP
Toronto, Canada
416-362-3400

----- Original Message -----
From: "Jason Neyers"
Sent: Tuesday, September 28, 2004 1:46 PM
Subject: ODG: Contract Query

Dear Colleagues:

I would be interested in your answers to the following questions:

1) Can you think of any classic/recurring situations where terms have been implied into a contract on the basis that such terms were "a necessary incident" of that particular type of contract?

2) Are such terms excludable by the parties if they insist that what they are trying to create is that particular type of contract? For example, could one say that "I wish to sell" but that "I do not promise title" or "I promise to insure" but that "I do not promise to indemnify"? . Would the resultant contract be one of sale/insurance?

Any thoughts that people had would be welcome.

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