Sophisticated parties will be deemed to have knowledge of common insurance terms

Parties are presumed to be acquainted with statutory definitions of a common insurance term for the purposes of contractual interpretation where the parties are engaged in the insurance industry. In interpreting an insurance contract, the Court will consider the plain meaning of the phrase in the context of the agreement as a whole and in light of the factual matrix that existed at the time of the parties, including the relevant facts that the parties are taken to have known.

National Home Warranty Programs Ltd. v. Wylie-Crump Ltd., [2012] B.C.J. No. 2011, September 28, 2012, British Columbia Supreme Court, D.J. Dardi J.

Two insurance brokers entered into an agreement whereby the defendant broker agreed to provide the plaintiff broker access to home warranty insurance underwritten by a particular insurance company. In exchange, the plaintiff broker agreed to pay a brokerage fee of 7.5% of the “gross written premiums”. A dispute arose over the amount of the brokerage fee stipulated under the contract.

The Court was required to determine whether the term “gross written premiums” in the agreement encompasses the total amount of enrolment fees the plaintiff broker collected from its clients or whether this term was limited to the portion of the fees that the plaintiff broker described as registration fees.  The plaintiff broker argued the registration fee was the only portion properly considered a “premium”.

The pivotal question was whether, “in the context of the factual matrix that existed at the time the parties entered into the agreement, what would an objective and reasonable bystander, in the circumstances of the parties, understand “premium” to mean?” (para. 60).  As both parties were authorized “warranty providers”, the brokers were assumed to be acquainted with the statutory definition of the word “premium” when entering into the contract. The definitions in the Insurance Act are intended to inform the interpretation of an insurance contract. There was nothing in the text or scheme of the agreement to suggest the parties had intended to limit the ordinary meaning of the phrase, thus the parties must have intended the phrase to mean the total payment the insured would pay to the insurer to obtain coverage.

The Court agreed with the defendant broker and held the phrase “gross written premiums” in the agreement encompassed all of the consideration provided by the insured in exchange for coverage.

This case was digested by Djuna M. Field and edited by David W. Pilley of Harper Grey LLP.

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