The Injured & The Restless: Principles Of Contractual Interpretation Leave Insured With An Uphill Battle For Mattress Coverage

Interpreting Contracts

The general principles of contractual interpretation require a decision-maker to read the contract before them as a whole, giving the words used their ordinary and grammatical meaning, in a manner consistent with the surrounding circumstances known to the parties at the time of formation of the contract. While remaining faithful to the actual language of a contract and without deviating from those words, the decision-maker may consider surrounding circumstances (often called the "factual matrix") to aid in contractual interpretation.

Standard Form Contracts Are Unique

These principles are set out by the Supreme Court of Canada (the "Supreme Court") in Creston Moly Corp v Sattva Capital Corp,1 and they apply broadly. However, subsequent to Sattva, courts disagreed on whether the interpretive principles articulated in that decision also applied to standard form contracts—some appellate courts said they did, some said they did not. As a result, two years later, the Supreme Court clarified in Ledcor Construction Ltd v Northbridge Indemnity Insurance Co2 that standard form contracts (e.g. insurance contracts) are unique and must be treated as an exception to the general principles from Sattva. The Court in Ledcor observed that the interpretation of standard form contracts has precedential value, since the same language will appear in similarly worded contracts across jurisdictions, and there is no meaningful factual matrix that is specific to the parties that could assist with the interpretation process.

Interpreting Insurance Contracts

As such, insurance contracts have their own unique set of interpretive principles that differ in meaningful ways from the general principles of contractual interpretation applicable at large. The principles that apply to insurance contracts were summarized by the Supreme Court in Progressive Homes Ltd v Lombard General Insurance Co of Canada:3

When the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole. Where the language of the policy is ambiguous, the court 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; 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; and strive to ensure...