Stewart v. Lloyd’s Underwriters
Page 13
[125] While I recognize, as argued by Mr. Stewart’s counsel, that [West
Van] addresses special costs and not contractual damages under Hadley v.
Baxendale, the comments in West Van are instructive with respect to whether
a contractual term (in that case, to pay special costs) should be implied.
[126] The Court of Appeal stated:
[96]
It is difficult from the authorities to understand the principled
basis upon which the full indemnity or cost awards have been made
against insurers. In Reed, the court suggests that an award of
solicitor-and-client costs is justified on a contractual basis. What is
troubling about that analysis is that the insurance contract in the case
at bar is silent in regard to the cost of enforcing coverage. The
contract is limited to the cost of defending an underlying action
against an insured. The Economical policies contain the following
provisions: … [contractual terms deleted.]
[99]
The amounts that the insurer has agreed to pay are clearly set
out in the policy. The insurer agrees to pay the costs to defend until
the limits of the policy are exhausted. The language in the policy
cannot be extended to cover legal fees and expenses the insured may
incur in attempting to enforce its contractual right to coverage.
[100] There is in the context of the insuring agreement no basis to
imply a term that the insurer will pay special costs if it unsuccessfully
resists a claim under the policy. In M.J.B. Enterprises Ltd. v. Defence
Construction (1951), [1999] 1 S.C.R. 619, the Supreme Court of
Canada set out the principles governing implied terms:
[27]
The second argument of the appellant is that there is
an implied term in Contract A such that the lowest compliant
bid must be accepted. The general principles for finding an
implied contractual term were outlined by this Court in
Canadian Pacific Hotels Ltd. v. Bank of Montreal, [1987] 1
S.C.R. 711. Le Dain J., for the majority, held that terms may
be implied in a contract: (1) based on custom or usage; (2) as
the legal incidents of a particular class or kind of contract; or
(3) based on the presumed intention of the parties where the
implied term must be necessary “to give business efficacy to a
contract or as otherwise meeting the ‘officious bystander’ test
as a term which the parties would say, if questioned, that they
had obviously assumed” (p. 775). See also Wallace v. United
Grain Growers Ltd., [1997] 3 S.C.R. 701, at para. 137, per
McLachlin J., and Machtinger v. HOJ Industries Ltd., [1992] 1
S.C.R. 986, at p. 1008, per McLachlin J.
…
[101] There is no custom in the insurance industry by which insurers
are expected to pay the full indemnity costs of a claimant enforcing
coverage. An implied term is not necessary to give business efficacy
to the contract. The terms of the contract are meticulously drafted.
The contract sets out in precise detail what is and what is not covered.
If the parties intended that the insurer would pay the costs of