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INSURANCE CONTRACT - Interpretation - Terms

Wednesday, February 07, 2018 @ 8:42 AM  

Lexis Advance® Quicklaw®
Appeal by the defendant insurers, Equinox Global and Lloyd's Underwriters, from the dismissal of their motion for a stay of the action by the plaintiff insured, Trade Finance Solutions. The insured provided financing and trade credit to small and medium sized businesses. It advanced funds in exchange for assignment of their receivables. To mitigate the possibility of unpaid receivables, it obtained trade credit insurance from the defendant insurers. The insurers' base policy included a provision that any disputes arising from the contract were to be resolved through arbitration. The documents forwarded to the insured referenced but did not include the base policy. The insured made several claims for loss under the policy. The insurers identified a number of concerns related to the claim and made requests for further information. The insured viewed the response as an attempt to frustrate the claims process and it commenced an action for losses under the policy. The insurers sought a stay of the insured's action based on the arbitration provision in the base policy. The insured argued that the endorsements provided for a right of action to recover disputed amounts. The motion judge dismissed the application finding that the contract, read as a whole, provided for alternative methods of proceeding, by action or by arbitration, and that to conclude otherwise would render completely ineffective the endorsement of the portion related to the action against the insurer. The insurers appealed, arguing that the judge did not apply the correct principles of contractual interpretation nor the correct legal test for a stay.

HELD: Appeal allowed. The action was stayed, and the matter was referred to arbitration in London, England. When the insurance policy was interpreted objectively, in a manner that gave meaning to all of its terms, mandatory arbitration in London, England was agreed to by the parties as the sole method of dispute resolution. The action against insurer clause was actually a service of suit clause, which simply defined the circumstances under which the insurer would accept service of the suit. Furthermore, the action against insurer enforcement did not conflict with the mandatory arbitration clause as there were civil actions available to the insurer, including actions to determine jurisdiction and to enforce arbitral awards and appeals of arbitral awards. In addition, Ontario had chosen to adopt the UNCITRAL Model Law on International Commercial Arbitration. Under UNCITRAL, before an action was brought in a matter that was subject to an arbitration agreement, the Court was to refer the matter to arbitration if it was arguable that the arbitration agreement was binding on the parties and the claims at issue fell within the scope of the agreement.

Trade Finance Solutions Inc. v. Equinox Global Ltd., [2018] O.J. No. 113, Ontario Court of Appeal, D.H. Doherty, H.S. LaForme and B. Miller JJ.A., January 11, 2018. Digest No. TLD-Feb52018005