A Duty to Defend: Interpreting ambiguous insurance policies

Case: Tien Lung Taekwon-Do Club v Lloyd’s Underwriters, 2015 ABCA 46

If the language of an insurance policy is ambiguous, and general rules of contract construction do not aid in its interpretation, the Court must interpret the policy against the insurer.

In the above case, the respondents owned a taekwon-do club. While participating in a match, an individual was injured and filed a statement of claim against the club, alleging it should be held vicariously liable.

The insurer refused to defend the claim on the basis of an exclusion clause. The clause read that the policy does not apply to: Any Bodily Injury caused or contributed by any Insured to any participant and/or any Bodily Injury caused or contributed by any participant in a match or practice in regards to Category 4 Sports unless specified in the Declarations.

The chambers judge ruled that the clause did not apply as the declarations page overrode the exclusions, and reasonably contemplated that matches and practices were to be covered under the policy. The insurer was obliged to defend the action.

The issue on appeal was whether the language of the exclusion clause vitiated the insurer’s duty to defend.

The standard of review to interpret a contract is reasonableness. The Court of Appeal reviewed the exclusion clause and found that it did not appear to be standard form language. Interpretation of the clause required deference per Sattva Capital Corp., however the Court found that the chambers judge had correctly stated and applied the relevant legal principles and correctly interpreted the policy.

The Court stated that if language of the policy is ambiguous, it must be interpreted according to general rules of contract construction (reasonable expectation of parties, avoiding unrealistic results, ensuring similar policies are construed consistently). Failing that, the policy must be interpreted according to the longstanding doctrine of contra proferentem – meaning, against the insurer as the stronger bargaining party and author of the policy in issue.

In the result, the respondents were only required to show that there was an alternative reasonable interpretation of the policy, supported by the text and the parties’ reasonable expectations. The Court upheld the chambers judge’s ruling and affirmed that the insurer was obliged to defend.

Batter Up: Judicial Replacement of a Labour Arbitrator’s Award

Telus Communications Inc. v. Telecommunications Workers Union, 2014 ABCA 199, is a recent Alberta Court of Appeal decision addressing the just cause termination of an employee, the amount of deference that a reviewing court must give to a labour arbitration decision, and the issue of when a reviewing court may replace a labour arbitrator’s award.

In the case, the Alberta Court of Appeal dismissed an appeal from a Queen’s Bench decision (2013 ABQB 355) quashing a labour arbitration award and resulting remedy.

The decision concerned a Telus employee who asked for a day off to play in a slo-pitch tournament. His request was denied due to staffing concerns. Shortly before his shift began on the requested day, he informed his manager via text message that he could not attend work due to unforeseen circumstances. The manager went to the ball park later that morning and found the employee pitching.

At a subsequent investigative meeting, the employee initially said that he was ill. When questioned further, he admitted to being at the ball park, but stated that he was able to manage his symptoms there (which he could not have done at a customer’s home). He asserted that he was at the park to watch, not play. He later said that he was only pitching, not batting.

Telus ultimately terminated the employee. The Union grieved the termination.

The arbitrator found that the employee’s account of his illness and his explanation of being able to manage his illness at the ball park was plausible, and that Telus had no evidence that he was not sick. Though the employee’s lies about playing ball were misguided and demonstrative of bad judgment, he was remorseful, and his lies did not have significant impact. The arbitrator did not see sufficient reason to conclude that the trust between Telus and the employee could not be re-established if he were reinstated, so the arbitrator substituted a one-month suspension for the termination.

On judicial review, Justice J.T. McCarthy quashed the arbitrator’s conclusion and upheld the employee’s termination.

Writing for the majority, Justices O’Ferrall and Veldhuis of the Court of Appeal recognized that, generally, a reviewing court must afford deference to an arbitration award under a collective agreement and review it on a standard of reasonableness. If the court determines that the arbitrator’s decision was unreasonable, the matter must in theory be sent back for a re-hearing. However, the court has discretion to not do so where the facts lead to only one reasonable result.

The majority agreed with the reviewing justice that it was unreasonable for the arbitrator to require Telus to prove that the employee was sick. The arbitrator erred in not considering all available evidence and by not conducting a thorough assessment of the employee’s credibility. Further, the arbitrator’s finding that the employee’s conduct did not have significant impact was not supported by the evidence, given that the employee himself acknowledged that his trust relationship with Telus had been broken and that his actions negatively impacted customer service. Reinstatement was an unreasonable remedy, as it failed to consider relevant factors such as Telus’ evidence that its trust relationship with the employee was irreparably damaged. Termination was the only reasonable outcome.

Consequently, the majority concluded that the reviewing justice was correct in overturning the arbitrator’s decision and upholding the employee’s termination.

“Like or Unlike” – Facebook, better than a police line-up?

In R v Mohamed, 2014 ABCA 398, photographs obtained from Facebook were shown to an eye witness in attempts to identify the shooter in a crime. At the time of the crime, the eye witness did not know the accused. However, after providing a description to a friend, the witness was presented with photographs obtained from Facebook showing a group of men fitting a similar description.  The eye witness identified the accused as being present in two of those photographs.

The trial judge awarded this method of identification significant weight, as it “demonstrate[d] the consciously serious and spontaneous nature of the identification from a group of men, all similar in description with similar features”. Further, the trial judge observed this process had similar characteristics to that of a police lineup.

The Court of Appeal ruled that although the process was similar to a police lineup, it arose spontaneously and was more akin to a real life identification. It compared the situation to that where an eye witness did not know the accused at the time of the crime, but later identifies the accused on the street after having their attention drawn to him.

While the friends who provided the photographs did not recall the same amount of descriptive detail provided by the eye witness relating to the individual’s appearance, the substance of their descriptions was largely consistent with the eye witness’ description and original recollection provided to the police. The Court stated that absolute uniformity and consistency in every detail provided by witnesses is highly unlikely and unnecessary.

It is the role of the trial judge to assess and determine the degree of reliability of presented evidence. The description provided by the eye witness was consistent with the appearance of the accused in the photo. As such, there was no palpable or overriding error by the trial judge in accepting the Facebook identification as evidence.

You Think You Have Issues…

Appellate courts often raise issues and pose questions to parties before or during oral argument. While these interjections can rattle seasoned litigators and may pose strategic problems, the Supreme Court of Canada in R v. Mian, 2014 SCC 54 affirmed that an appellate court has jurisdiction to raise any issue that does not suggest bias.

But there is a limit to an appellate court’s discretion. If an issue raised by the court was neither raised by the parties nor grounded in any issue raised by the parties and provides a new basis for reviewing the decision under appeal, then it is a new issue.

So, there are ‘new issues’ and there are ‘not new issues’. Appellate courts are free to raise not new issues while new issues should rarely be raised. How can we distinguish a not new issue from a new issue?

The distinction between not new and new issues can be seen in the two issues raised by the Alberta Court of Appeal in R v Mian:

1) What is a question of law on an appeal from an acquittal?

2) What are the limits of cross-examination and consequences of exceeding the limits?

The Alberta Court of Appeal granted the appeal in Mian on the basis of the second issue, that the trial judge erred in relying on an impermissible cross-examination.

The Supreme Court of Canada ruled that the first question was not a new issue because as a question of jurisdiction it simply goes to the “backdrop of litigation” (paras 34 and 61). As such, the appeal court was free to raise the issue.

In contrast, the second question was a new issue because it provided a new basis to review the decision, it was not raised by the parties nor grounded in any of the issues raised by the parties.

As a new issue, the Alberta Court of Appeal should have only raised it if the court had good reason to believe that failure to raise the issue would risk an injustice. The Supreme Court of Canada found that an injustice was not at risk because the trial judge’s decision did not rely on the impugned cross-examination. And, even if the testimony was relied upon, it would not made a material difference. And finally, the cross-examination was not objected to at the time (paras 64 – 66). Since the issue would not have changed the result, the court should not have raised the issue in the first place.

Complicating matters of course is that the Alberta Court of Appeal must have thought it had a good reason to believe that there was a risk to injustice since they overturned the trial judge’s decision on that very basis.

The upshot is that if an appeal court raises an issue that is a bona fide new issue then the appeal court must have “good reason” to believe that failure to raise the issue would risk an injustice. Short of that, the court should not exercise its discretion. Lastly, whether or not the court in fact had “good reason” is itself reviewable.