What jurisdiction's laws apply to an insurance policy?
In some cases, the answer is obvious. If an insurer and policyholder are both located in one province, the policy is issued in that province and the loss occurs in the same province, then there is a very good chance that that province’s laws will apply to the interpretation of the insurance policy. Further, if the policy has an express governing law clause providing for a specific jurisdiction’s laws to apply, then the policy will very likely be interpreted in accordance with the law that is stipulated. The answer also depends, in part, on the type of insurance policy. For life, accident and sickness insurance, most provinces have legislation that provides that the law of the province in which the policyholder or person insured resides will govern the insurance policy.
However, the answer is less obvious when one or some combination of the following exist: (1) an insurer has multiple branches throughout the world; (2) there is a subscription policy, with insurers located in various jurisdictions; (3) the policyholder has multiple locations in various jurisdictions covered by the same policy; (4) the policy holder has multiple subsidiaries in different jurisdictions covered under one policy; or (5) losses occur in different or multiple jurisdictions.
Governing Law Factors
This case of Commonwealth Insurance Co. (“Commonwealth”) v. Canadian Imperial Bank of Commerce (“CIBC”)  O.J. 1167 (S.C.J.) dealt with these issues. In this case, CIBC had an all-risk insurance policy providing coverage to its location in the World Trade Centre in New York. The collapse of the World Trade Centre on September 11, 2001 caused extensive damage to CIBC’s New York offices. Commonwealth was one of the excess insurers on the policy. The policy did not contain a governing law clause.
In reaching its conclusion, the court first looked to section 123 of the Ontario Insurance Act, which contained the following provision:
Where the subject-matter of a contract of insurance is property in Ontario or an insurable interest of a person resident in Ontario, the contract of insurance, if signed, countersigned, issued or delivered in Ontario or committed to the post office of to any carrier, messenger or agent to be delivered or handed over to the insured or the insured’s assign or agent in Ontario shall be deemed to evidence a contract made therein, and the contract shall be construed according to the law thereof, and all money payable under the contract shall be paid at the office of the chief officer of agent in Ontario of the insurer in lawful money of Canada.
The court found that the requirements of this section were met.
The court based its conclusion on the fact that CIBC is a resident of Ontario and the policy was issued and delivered in Ontario. In particular, the policy was prepared in Ontario by CIBC’s broker at its head office in Toronto and was delivered by the broker to the CIBC head office in Toronto. Further, all the insurers who were parties to the policy, except Commonwealth, subscribed to the policy at their offices in Toronto. Commonwealth subscribed to the policy at its head office in Vancouver.
The court also found that even under the common law test, the laws of Ontario would govern, as Ontario is the jurisdiction with the closest and most real connection to the policy. The court also noted that the policy amounts and limits were expressed in Canadian dollars.
The common law provides that the governing law of an insurance policy will be that jurisdiction that has the closest and most substantial connection to the insurance policy. A court will make its determination based upon the specific facts of each case. However, a court will generally consider the following factors:
1. The location and residence of the parties;
2. The national character of the corporation, and where its principal place of business is situated;
3. The place where the contract is made and the place where it is to be performed;
4. The style in which the contract is drafted, as for instance, whether the language is appropriate to one system of law, but inappropriate to another;
5. The fact that a certain stipulation is valid under one law but void under another;
6. The economic connection of the contract with some other transaction;
7. The nature of the subject matter or its location;
8. The head office of the insurance company, whose activities may range over many countries; and
9. Any other factor that serves to localize the contract.
In some exceptional cases, the court will recognize that more than one jurisdiction’s law will apply to the insurance policy, as was the case in British Columbia case of Re Pope & Talbot Ltd.  I.L.R. I-4922 (B.C. S.C.).
That case concerned directors and officers liability policies issued to Pope & Talbot Inc. (“PTI”) and its subsidiaries. PTI was incorporated in the State of Delaware and had its corporate headquarters in Portland, Oregon. It also had an office in Delaware. The majority of the head office functions were carried out at the Portland office. Coverage was sought under the policies to deal with wage claims by former employees of Pope Talbot Ltd. (“PTL”), a Canadian subsidiary of PTI.
At the time the policies were issued, the bulk of PTI operations were located in British Columbia and were owned and operated by the subsidiary, PTL.
The insurers were various U.S. companies with head offices located in different states in the U.S. The policies were issued from their various state locations. None of the insurers were registered in British Columbia, nor did they carry out business in British Columbia or elsewhere in Canada. The premiums charged on the policies were in U.S. dollars. There was no governing law clause in the policies. The policies themselves were connected to nine jurisdictions.
The court determined that when no express choice of law is made in the policy, courts should see if the proper law of the policy can be inferred from the circumstances, or failing this, determine the system of law that has the closest and most substantial connection with the subject matter.
The court found that this was an exceptional case, and that the language of the policy made it clear that the principle of dÃ©peÃ§age (a principle that recognizes more than one proper law of a contract) applies. The court found that each of the insurance policies expressly provided for the application of different legal regimes to different matters and issues.
The Court found that the parties intended the proper law to be determined in connection with the substance of the claim made (including the relief sought) or matter at issue. The court considered the following factors:
1. Where the policy was made;
2. The form of the policy;
3. Where the parties operations were located;
4. The subject matter of the contract;
5. Where claims might be expected to arise;
and determined that the policies had the closest and most substantial connection with British Columbia. In particular, the court found that the wage claims by prior employees had no equivalent in Oregon and most claims were expected to arise from the Canadian operations. It was thus reasonable for the parties to expect that the law of British Columbia would apply to the claims flowing out of the Canadian operations.
In order to avoid a dispute over which jurisdiction’s law governs an insurance policy, brokers and policyholders should consider inserting directly into their policy of insurance a clause that expressly stipulates the jurisdiction of choice.
Michael Foulds is a lawyer at the Theall Group LLP. He has acted for both insurers and policyholders in coverage disputes, including claims arising out of personal injury and property damage.
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the June 2011 edition of Canadian Insurance Top Broker magazine.