Boyce v. The Co-Operators Insurance Company, 2013 ONCA 298 (Agreement to Shorten, s. 22)

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The Ontario Court of Appeal recently released its decision in Boyce v. The Co-Operators Insurance Company, 2013 ONCA 298, which highlights how important it is for contracts that shorten the relevant limitation period under section 22 of the Limitations Act, 2002 to have clear language.

This caseconcerned a contractual limitation period contained in an insurance policy; however, the case has general application to other types of business agreements that attempts to shorten a limitation period.  In Boyce, the owners of a fashion boutique suffered loss as a result of a foul odour in their business premises.  They sued their insurer more than a year after suffering the underlying loss, seeking indemnification for the loss.  The insurance contract contained a one-year limitation period for bringing an action.  The relevant provision states as follows:

Every action or proceeding against the insurer for recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year* next after the loss or damage occurs.

*Two years in province of Manitoba and Yukon Territory.

The Court of Appeal gave effect to the contractual limitation period and dismissed the insured’s claim.  The Court of Appeal concluded that when faced with a contractual term that purports to shorten a statutory limitation period, the court must consider whether that provision in “clear language” describes:

  1. a limitation period;
  2. identifies the scope of the application of that limitation period; and
  3. excludes the operation of other limitation periods.

 A term in a contract which meets the above requirements will be sufficient for section 22 purposes, assuming that it meets the other requirements specifically identified in section 22:

  1. the agreement to shorten the limitation period is a “Business Agreement”, defined in the Limitations Act, 2002 as an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002, and;
  2. the agreement was made either before January 1, 2004, or after October 19, 2006.

The Court of Appeal rejected the framework proposed by the motions judge that would have imposed additional requirements to enforcement.  Those requirements were:

(i) specific reference to the statutory limitation period;

(ii) clear and unequivocal language that the parties were intending to vary the statutory protection;

(iii) a provision clearly alerting the insured that they were foregoing a statutory right to a longer limitation period; and

(iv) be signed by the person(s) foregoing such a right in order to make clear that he or she understands the forfeiture of that statutory right.

The decision in Boyce is a significant one which gives effect to the legislative intention to permit the shortening of limitation periods in business agreements.  This may be a good time for insurers and other parties to a contract to ensure they describe any shortening of the applicable limitation period using clear language.