Claims (December 01, 2008)

SUPREME COURT DISALLOWS POLICY EXCLUSION FOR “FAULTY DESIGN”

The Supreme Court of Canada has ordered a group of property insurers to cover the costs related to a damaged tunnel-boring machine under an all-risk policy that contains an exclusion for ‘faulty design.’

In Canadian National Railway Co. v Royal and SunAlliance Insurance Co. of Canada, a panel of four Supreme Court of Canada judges (with three dissenting) rejected the validity of a policy exclusion for “faulty design” and ordered a group of six insurers to pay the CNR of nearly Cdn$30 million, plus Cdn$1.15 million in costs.

In 1993, CNR was building a railway tunnel under the St. Clair River between Sarnia, Ont. and Port Huron, Michigan, using a state-of-the-art tunnel-boring machine.

The Supreme Court found that although the design of the machine “proved in the result to be defective,” it “was not ‘improper’ or ‘faulty’ according to the state of the art at the time the design was finalized.”

It thus overturned the Ontario Court of Appeal, which ruled that a design must “‘take into account,’ ‘accommodate,’ ‘provide for’ and ‘withstand’ all foreseeable risks however unlikely or remote.”

IBC VOTES TO MOVE FORWARD WITH THE REINTRODUCTION OF HCAI AFTER SUMMER OF 2009

The Insurance Bureau of Canada (IBC) has approved plans to move forward with the re-introduction of the Health Claims for Auto Insurance (HCAI) electronic data-exchange system, although re-introduction will not happen before testing begins in the summer of 2009.

HCAI, a Cdn$20-million electronic claims system, was suspended in April 2008 after users reported problems using the system. It is intended to link participants involved in Ontario’s auto insurance system, including insurers, health care providers and the provincial government.

“In order to ensure that HCAI is re-introduced only under the highest standards of quality control, third-party audits will be performed at several points as part of the remediation process, and the system will undergo stringent stress testing prior to re-launch,” the IBC said in a Nov. 24, 2008 letter to stakeholders.

“For insurers and/or health care facilities that require an environment for testing and training purposes, such an environment will be made available well in advance of the re-introduction of the live system. This test environment should be available sometime during the summer of 2009.”