In most provinces, insurers seeking to terminate policies must comply with Statutory Condition 5 “Termination of Insurance”. This is part of the legislatively imposed term in the contract between insurer and insured. Statutory Condition 5 provides:
Termination of insurance
5.(1) The contract may be terminated
(a) by the insurer giving to the insured 15 days' notice of termination by registered mail or 5 days' written notice of termination personally delivered, or
(b) by the insured at any time on request.
(4) The 15 day period referred to in subparagraph (1) (a) of this condition starts to run on the day the registered letter or notification of it is delivered to the insured's postal address.
The duration of insurance contracts are usually fixed by their terms. If the insurer decides that it wants out of a contract earlier it can ask the customer to agree (in return for repayment of some portion of the premium). If the customer does not agree, an insurance contract may also be terminated by one of the parties following the above procedure.
A recent British Columbia Supreme Court case is instructive regarding terminating the policy early. Square One Insurance Services Inc. in Bejm v. Square One Insurance Services Inc., 2021 BCSC 1513 placed and then purportedly terminated tenant insurance coverage. While applying for such coverage, Square One’s online application stated: “[t]o complete this insurance transaction, you must acknowledge and agree that: … The first $50 of this premium is non-refundable.” The tenant and would-be insured, Boguslaw Bejm, responded, “I agree.” Following the application, the Mutual Fire Insurance Company of British Columbia issued a policy.
Mr. Bejm later found the withdrawal of the initial premium amount to be unfair and unjustified. This amount comprised three months premium billed in advance, totaling $54.18. He demanded that Square One change its policies, and that he would cancel his policy in exchange. After receiving an email from Mr. Bejm stating this, a supervisor at Square One indicated in a reply email that the relationship between Mr. Bejm and Square One had become “tenuous”. The supervisor made an offer to Mr. Bejm, via an email sent at 3:38PM on December 23, 2019. If he authorized the cancellation of the policy, Square One would refund his premiums (other than the prorated amount for coverage to date). That offer was open until 5:00 p.m. on December 23. Hence, it was on the table for less than 90 minutes. When the supervisor did not receive a response from by 5:00 p.m., she wrote to the plaintiff and indicated that Square One and Mutual Fire were cancelling the policy and that coverage would terminate effective January 17, 2020.
Also on December 23, Square One sent a registered letter to the plaintiff with notice of the cancellation. The letter stated that the termination would be effective on the later of January 17, 2020, or 15 business days following the date on which the letter was delivered. On January 15, Square One sent a further letter indicating that Mr. Bejm’s policy had not been cancelled for any reason relating to dishonesty, failure to pay premium, or other negative possibilities.
Mr. Bejm says that he did not see the email offer until after it had expired. He said that the email itself was a termination notice that did not provide him with the requisite notice. Finally, he argued that the short-fuse nature of the offer establishes that Square One was acting with malice and that Statutory Condition 5 was not met because: (i) Square One did not give 15 days’ notice, (ii) the December 23 email offer constituted termination of the policy without notice, (iii) he did not authorize the termination, and (iv) an insurer must have some basis, or reason, to terminate coverage. Mr. Bejm sued Square One for breach of the insurance contract, breach of BC’s Insurance Act, defamation, as well as for privacy breaches.
But the Court found that Square One’s email offer met the notification requirements of Statutory Condition 5. Square One’s email offered to allow Mr. Bejm to cancel the policy. It further advised that if he did not cancel the policy, the insurer would do so. By definition, the court noted some correspondence must go to the insured to notify the insured that the policy is cancelled. That correspondence must advise of the date that coverage will terminate. Statutory Condition 5 “does not provide that the insured has a say in the process.” Square One had notified Mr. Bejm that Mutual Fire was canceling the policy and that coverage would be terminated in January. Even if the email offer did not meet the 15 day requirement, the Court found that termination of the coverage would have been delayed 15 days after receipt of the January 15 letter. Hence, being correct on this point would only garner the plaintiff an extra two weeks of coverage.
Statutory Condition 5 reflects a relatively unique feature of insurance contracts which allows for unilateral termination by either of the parties. According to one interpretation of its provisions:
I conclude, therefore, that the law is that it is open to either party of a contract of insurance containing a statutory condition such as the one referred to, to cancel the coverage, unilaterally, arbitrarily or even capriciously, without reason stated, or even existing, provided that such cancellation be carried out strictly within the terms of the condition in question.
The insurer does not need to provide any basis or reasoning for terminating the policy. As well, the registered letter or personally delivered written notice will meet the formal requirement of Statutory Condition 5 by itself. By following this procedure, the insurer will not be in breach of the policy or the Act.
Should you have any questions with respect to this bulletin, or if you would like more detailed information, please contact the Brownlee LLP Insurance practice team.