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Rule regarding consideration of the reasonable expectation of the parties

This book was written by Michael Dew, a Vancouver lawyer who practices civil litigation, including representing persons who have been denied coverage under property insurance policies, or liability insurance policies. If you have been denied insurance coverage and require assistance with making a claim against your insurer call Michael at 604 895 3160.
The Supreme Court of Canada has confirmed that the courts should consider the reasonable expectations of the parties when interpreting ambiguous insurance policies:
Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction…  For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties… so long as such an interpretation can be supported by the text of the policy. Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded… 
(Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 22-24, citations omitted).
Without pronouncing on the reach of this doctrine, it is settled that where the policy is ambiguous, the courts should consider the reasonable expectations of the parties…
(Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252 at 271).
Certain wording in older decisions, including of the Supreme Court of Canada, indicated that the reasonable expectations principle applied even absent ambiguity in the contract:
[T]he normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract.  Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted.  Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties.  Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result. It is trite to observe that an interpretation of an ambiguous contractual provision which would render the endeavour on the part of the insured to obtain insurance protection nugatory, should be avoided. …
(Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 SCR 888 at 901, emphasis added).
However, the more modern view appears to be that the reasonable expectations of the parties are only considered where there is ambiguity:
The reasonable expectations of the parties are difficult to ascertain other than by examining the terms of the contract and the surrounding circumstances. Unlike in the United States, the current state of the law in Canada appears to be that the reasonable expectations of the parties is a tool to find the proper interpretation of an insured policy when there is an ambiguity. In the United States there is, at least in some jurisdictions, a free-standing reasonable expectations doctrine that allows the insured’s reasonable expectations of coverage to trump otherwise clear contractual language.
[T]he Supreme Court of Canada has declined opportunities since Weston Ornamental to apply the reasonable expectations doctrine in the absence of an ambiguity…
(Corbould v. BCAA Insurance Corporation, 2010 BCSC 153 at para. 99 and 103).
In Turpin v. The Manufacturers Life Insurance Company, 2013 BCCA 282 the British Columbia Court of Appeal found that the terms of a travel insurance policy were unambiguous, and that there was no coverage due to plaintiff having a pre-existing condition. The court rejected the reasonable expectations doctrine as a basis for imposing coverage:
I have some doubt as to the broad approach to reasonable expectations and nullification of coverage suggested in the Ontario decisions. I agree with the insurer the preponderance of authority indicates these principles will only apply to assist in construing an ambiguity. The Supreme Court of Canada has repeatedly and consistently affirmed that the reasonable expectations of the parties only become relevant if the provisions of an insurance contract are ambiguous.
[N]ullification of coverage and the reasonable expectations of the parties are not doctrinal concepts, but simply interpretive aids to be invoked in the face of ambiguity, and directed to a resolution that favours the insured. It is not necessary to express a definitive view on this point, however, because even if these concepts were operative here, I am satisfied the trial judge erred in finding the facts supported coverage for the Turpins.
(Turpin v. The Manufacturers Life Insurance Company, 2013 BCCA 282 at para. 42 - 45).