On June 4, 2010, the Supreme Court of British Columbia issued its ruling in the case of Economical Mutual Insurance Company v. Aviva Insurance Company of Canada, 2010 BCSC 783. The case could have significant impact on insurers of strata corporations established under the British Columbia Strata Property Act (“SPA”). It confirms that, while Section 155 of the Strata Property Act effectively makes an owner, tenant or occupant of a strata unit a named insured under the Strata Corporation’s insurance policy, the extent of any coverage provided to that person is determined by the policy wording in any given case.
The facts of the case are as follows. Economical provided personal liability insurance to Mr. Rattan, who owned a townhouse which was part of Strata Plan LMS 3927 (the “Strata”). The Strata was insured by Aviva, under a policy which contained a standard Commercial General Liability wording. On March 30, 2008, Mr. Rattan held a social gathering at his house. Following the gathering, one of Mr. Rattan’s guests allegedly drove away intoxicated and caused a motor vehicle accident. The persons injured in the accident brought three separate actions in the BC Supreme Court against several defendants, including Mr. Rattan’s guest and Mr. Rattan himself (the “MVA Actions”). The MVA Actions are currently pending. The allegations against Mr. Rattan in the MVA Actions are that he was negligent because he failed to supervise the amount of alcohol that his guest was served and consumed at the gathering, i.e. what is commonly known as a “social host liability” claim.
Economical brought an application for a declaration that the Strata’s insurance policy with Aviva provided liability coverage to Mr. Rattan with respect to the MVA Actions and sought to have Aviva assume the defence and indemnity of Mr. Rattan. Aviva did not dispute that, by virtue of section 155 of the SPA, Mr. Rattan was a named insured under the Strata’s policy, and that accordingly certain coverage was afforded to him. However, Aviva opposed Economical’s application on the grounds that the Strata’s policy provided liability coverage to Mr. Rattan “but only with respect to the conduct of a business of which [he is] the sole owner”, as stated in the “Who is an Insured” section of the Strata’s policy.
In response, Economical argued that section 155 of the SPA extends liability coverage to Mr. Rattan regardless of the Strata’s policy’s “Who is an Insured” section. Since section 155 of the SPA deems Mr. Rattan to be a “named insured” “despite the terms of the Strata’s policy”, Economical argued that the “Who is an Insured” section does not come into play to limit the coverage afforded to Mr. Rattan. The Court agreed with Aviva’s position and dismissed the application. The decision was primarily based on the Court’s finding that “the contract of insurance cannot be varied or amended to ensure that it complies with the SPA. The policy provides only the coverage that the insurer has agreed to provide.” Since the “Who is an Insured” section of the Strata’s policy restricted coverage to Mr. Rattan to be “only with respect to the conduct of a business of which [he is] a sole owner” and the MVA Actions all alleged negligence at Mr. Rattan’s social gathering unrelated to any business, the Court found that there was no coverage under the Strata’s Policy for Mr. Rattan with respect to the MVA Actions.
The outcome of this case carries potentially far-reaching consequences for insurers of strata corporations in British Columbia. If Economical’s position were to be accepted, insurers of strata corporations would also effectively become personal liability insurers of all strata members as well as tenants and occupants, by operation of section 155 of the SPA. From the practical standpoint, such breadth of coverage would likely require a comprehensive review of risk assessment and policy wordings for strata corporations. It is likely that this would have a significant impact on strata corporations’ insurance premiums. On the other hand, BC Supreme Court’s decision, as it currently stands, maintains the principle that it is the wording of an insurance policy that determines what is the scope of the coverage, and that the provisions of the SPA do not automatically extend liability coverage to all tenants and owners under their strata corporation’s insurance policy.
Prepared by former director, William G. Neen & former associate, Marko Vojvodic