Supreme Court of Canada
Leepo v. Western Assurance, [1973] S.C.R. 171
Date: 1972-10-18
Leepo Machine Products Limited (Plaintiff) Appellant;
and
The Western Assurance Company, Union Insurance Society of Canton Limited, Royal Insurance Company Limited, The Canada Accident and Fire Assurance Company, and The Northern Assurance Company Limited (Defendants) Respondents.
1972: March 16, 17; 1972: October 18.
Present: Judson, Ritchie, Hall, Spence and Laskin JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Insurance—Fire—Value reporting policy—Erroneous report of value—Clerical error—Corrected report sent to insurers after loss but within prescribed period—Whether insured entitled to recover on basis of corrected value.
The appellant manufacturing company was the insured under a subscription policy issued on behalf of five insurers and covering the stock or inventory of the appellant at three locations by way of value reporting insurance. The present case concerned one of the locations at which a fire occurred, resulting in a loss of $170,741. At the time of the fire the limit of liability on stock at that location was $100,000. The question in this appeal was whether the insured was entitled to recover to the full limit of the liability on the basis of an attributed inventory value report of $140,000 or the lesser sum of $36,658 (in each case, under a formula as provided for in cl. 10 of the policy) on the basis of an actually reported inventory value of $40,000.
At trial it was found that the appellant was entitled to the larger sum. The appellant had made an error in the last monthly value report before the loss and much later a corrected report of values was sent to the insurers. The trial judge held that the policy terms did not preclude the late filing, after loss, of an inventory value report, especially to correct, as here, an honest mistake resulting from error in stenographic transcription. The majority of the Court of Appeal held that the terms of the policy, and in par-
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ticular cl. 10, governed and bound the appellants to the inventory actually reported.
Held (Judson and Ritchie JJ. dissenting): The appeal should be allowed.
Per Hall, Spence and Laskin JJ.: Having regard to the intent expressed in cl. 5 to insure total actual value (up to the limit of liability) and to the 30-day period allowed under cl. 9 for the monthly report of such value, which is followed by a provision for taking the last report of value before loss if the insured has not filed reports “as above required” (i.e. within the 30-day period) the following full reporting or so-called honesty cl. 10 could not be read as precluding an insured from bringing a corrected value to the insurers’ attention within that period (as was the case here) where there is documentary proof that that value was recorded for submission to the insurers before loss, and through innocent stenographic error was not correctly given. Clause 10 must be related to cls. 5 and 9 in this respect and the whole read contra proferentem.
Proof of the clerical error and of the circumstances attending it placed this case on the same footing as a case where the insurers are aware of or do not dispute the clerical error. For them, in such a state of the facts, to seek to rely on a literal application of cl. 10 would be to deny the good faith which underlies their insurance obligation. This is impermissible.
Per Judson and Ritchie JJ., dissenting: An insured under a value reporting policy cannot correct his mistake after a loss has occurred so as to collect from the insurance company the amount that he would have recovered had his monthly report of value been correct. Nothing can justify a correction after loss.
[Alaska Foods, Inc. v. American Manufacturer’s Mutual Ins. Co. (1971), 482 P. 2d 842; Michigan Millers Mut. Fire Ins. Co. v. Grange Oil Co. (1949), 175 F. 2d 540, applied.]
APPEAL from a judgment of the Court of Appeal for Ontario, allowing an appeal from a
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judgment of Osler J. Appeal allowed, Judson and Ritchie JJ. dissenting.
G.R. Dryden and R.B. Moldaver, for the plaintiff, appellant.
B.V. Elliot, Q.C., and J.D. Holding, for the defendants, respondents.
The judgment of Judson and Ritchie JJ. was delivered by
JUDSON J. (dissenting)—My opinion is that an insured under a value reporting policy cannot correct his mistake after a loss has occurred so as to collect from the insurance company the amount that he would have recovered had his monthly report of value been correct. This type of policy is a recent introduction into Canada. The only Canadian case, Bobrowski v. Canadian Fire Insurance Co., does not touch the point in question here. There is no English experience with this kind of policy but we were referred to a number of reported cases from the United States, mostly from a number of Circuit Courts of Appeal, where this very problem has been considered, and in my opinion the weight of authority there strongly supports the conclusion that an erroneous report as to value cannot be rectified, reformed or corrected after loss.
The purpose of this type of insurance has been clearly stated. It is to provide an insured whose inventory is subject to fluctuation only that amount of insurance which he requires from time to time at a cost commensurate with his actual needs. It is designed to afford complete coverage, within the stated limits of the policy, but to avoid the cost of maintaining insurance in excess of the value of the inventory on hand. This policy is obviously to the advantage of the insured over a policy for a specific amount of insurance for which the premium is charged on the amount of insurance named in the policy although the value of the property at risk may be substantially lower from time to time during the currency of the contract.
This purpose is achieved through monthly reports of value, and is entirely within the con-
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trol of the insured. He may make no reports of values in which case he recovers a fixed percentage of the policy limits. If he fails to file a report for a given month, the limit of liability in the event of loss will be based on the last previous report filed. Although the policy provides that the insured shall report actual values of insured property, and the purpose is to provide complete coverage if the insured wants it, no forfeiture results from under-reporting of values; the amounts of insurance and premium are both reduced, and the insured becomes a co‑insurer and will have proportionately less coverage and proportionately smaller premium to pay. Thus, within the maximum limits of the policy, the insured, by filing reports, is able to fix the amount of premium and the extent of the liability of the insurer.
If an insured files an erroneous report, the insurer’s potential liability becomes an actual fixed liability upon the occurrence of fire. An insured who purchases a fixed amount of insurance cannot successfully seek through correction, rectification or reformation the enlargement of the coverage upon the ground that he intended to obtain full coverage but failed to do so because of clerical error on his part in valuing his property. The relief sought in the case at bar is no different. This insured is asking the Court to correct its negligent acts for its own benefit, and to the detriment of the company, after the loss has occurred and the respective rights and liabilities of the parties have become fixed by the terms of the contract and by the monthly reports filed pursuant to and incorporated by reference in the contract. The insured is seeking to burden the insurer with its own alleged inadvertence and mistake, by increasing the liability of the insurer beyond the limit of liability for the loss imposed under the policy.
This has been the conclusion reached in the five following cases in the United States to which we were referred:
1. Standard Lumber Co. v. Travelers Indemnity Co.;
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2. Rolane Sportswear Inc., v. United States Fidelity & Guaranty Co.;
3. Peters v. Great American Ins. Co.;
4. Camilla Feed Mills Inc. v. St. Paul Fire & Marine Ins. Co.;
5. Silver Fox Co., Inc. v. New York Indemnity Co.
There is no possibility of distinguishing these cases on the facts from the one before us now. They deal with bookkeeping errors, wrong information given by a subordinate, failure to include recent purchases in the inventory valuation, a valuation based on a mere guess, and a valuation of $1,000 where a valuation of $11,000 was intended.
The only case to the contrary effect is Alaska Foods, Inc. v. American Manufacturers Mutual Ins. Co., where the stated valuation was $2,500 rather than $25,000. This case is out of line with all the others and I would not adopt its reasoning. Nor do I think that any support is found for this decision in Michigan Millers Mut. Fire Ins. Co. v. Grange Oil Co. In this case the inventory was correctly reported. The mistake was in overstating the amount of non‑provisional (specific) insurance carried. The distinction between the two was noted in the Peters case, at p. 780, and it is clear that if the inventory had been under-reported, there would not have been a full recovery.
The decision in Michigan Millers Mutual Fire Ins. Co. v. Grange Oil Co., 9 Cir., 175 F. 2d 540, upon which the insured relies, is not inconsistent with this conclusion. In that case the insured in making a monthly report of value under a policy of the provisional stock type overstated the amount of his non-provisional (specific) insurance, and it was held that the company was liable for the difference between the amount of the loss and the actual rather than the reported amount of the specific insurance in force. The policy in that case, however, as appears from an examination of the opinion and of the record, was materially different from the policy in suit. It pro-
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vided that in ascertaining the liability of the company in case of loss the amount of the non-provisional insurance was to be deducted from the value of the property insured, and that if the insured had reported less than the actual value of the merchandise in his periodic reports, this difference should also be deducted from the amount of the loss; but there was no provision in the policy which required the deduction of the reported as distinguished from the actual amount of non-provisional insurance held by the policyholder. The policy in the instant case, on the other hand, very clearly requires that in computing the loss not only the reported value of the merchandise but also the reported amount of specific insurance must be taken into account.
The terms of the policy dealing with provisional premium, provisional amount clause and the premium adjustment clause do not enable a revaluation of the inventory after loss. It is the duty of the insured to report full value but the provisional premium is calculated at 65 per cent of the amount actually reported and adjustments are made at the end of the year, again on the amounts actually reported. Nothing can justify a correction after loss. The full reporting clause is clear. It reads:
Full Reporting Clause—In case of loss, liability hereunder shall not exceed that proportion of such loss which the last reported value filed prior to the loss for the location where the loss occurs bears to the total actual value of said property at that location on the date for which such report is made.
I would dismiss the appeal with costs.
The judgment of Hall, Spence and Laskin JJ. was delivered by
LASKIN J.—The appellant manufacturing company was the insured under a subscription policy issued on behalf of five insurers and covering the stock or inventory of the appellant at three locations by way of value reporting insurance. The present case concerns one of the locations at
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which a fire occurred on June 16, 1965, resulting in a loss of $170,741. At the time of the fire the limit of liability on stock at that location was $100,000. The question in this appeal is whether the insured is entitled to recover to the full limit of the liability on the basis of an attributed inventory value report of $140,000 or the lesser sum of $36,658 (in each case, under a formula hereinafter referred to) on the basis of an actually reported inventory value of $40,000.
Osler J., before whom the case was tried, found that the appellant was entitled to the larger sum. He came to that conclusion on the facts and on the law applicable to marine insurance which he adapted to the policy in force in this case. His findings of fact were based on crediting the evidence of Podolsky, the appellant’s president and manager, that (1) he had intended to report an inventory value of $140,000 as of May 31, 1965; (2) that he had actually pencilled in that sum on a sheet of the monthly reporting form as was his practice; (3) that he then, in accordance with his practice, turned the form over to his secretary to complete by typing in the pencilled sums of inventory value for each location, the respective limits of liability and the date; (4) that the secretary had by mistake typed in $40,000 for the particular location; (5) that Podolsky then signed the completed form without detecting the error and it was sent on to the insurers; and (6) that it was shortly after the fire when loss adjustment was taken up with the insurers’ agent that the error was discovered. Much later a corrected report of values was sent to the insurers, and the trial judge held, on his view of the law, that the policy terms did not preclude the late filing, after loss, of an inventory value report, especially to correct, as here, an honest mistake resulting from error in stenographic transcription.
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The Court of Appeal did not disagree with the foregoing findings of fact but the majority (Aylesworth and MacKay JJ. A.) held that the terms of the policy, and in particular clause 10, governed and bound the appellant to the inventory value actually reported. Brooke J.A. in dissent rejected the trial judge’s analogical reliance on the marine insurance cases but affirmed his judgment on the ground that the terms of the policy involved a duty of the insured to report total actual values, and hence to correct honest errors (whether discoverable by the insured or after permitted inspection by the insurers) either before or after loss; and unless estopped (and there was no estoppel here), the insured was entitled to recover on the corrected values, especially in the case of the error here which was obvious even to the insurers’ agent.
In this Court, the respondent insurers sought to attack the findings of fact in favour of the appellant and, in that connection, the credibility of Podolsky. The Court indicated at the conclusion of this portion of respondent counsel’s argument that it would not disturb the findings when they had been made after careful consideration, with full appreciation of the critical issue of credibility, and had been accepted by the Court of Appeal. This left for consideration the legal question whether in value reporting insurance, having regard to the policy terms, an honest error resulting from a typing mistake of the insured’s stenographer, can be corrected after loss so as to support recovery on the corrected value basis when the insurers had not changed position in reliance on the erroneous report of value.
This is a new issue in this Court and in this country. The first resort is, of course, to the terms of the policy. The purpose of a value reporting policy is to enable an insured to have the premiums related to fluctuating inventory values and yet be covered to 100 per cent of the value at
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any time up to a stated limit of liability. This is accomplished by issuing the policy on an annual basis, with a provisional premium based upon a percentage (in this case 65 per cent) of the annual premium computed on the stated limit of liability, but subject to adjustment at the end of the policy period on the basis of the average of the monthly reported values of the inventory upon which the insurance is carried at a specified location. The insurers are protected by being entitled to rely on the monthly reported values of the inventory, if regularly made, or on the last reported value. Until the premium is finally fixed at the end of the year on the basis of the average of the monthly reported values, both the premium and the coverage are provisional according to the amount of the provisional premium; but these provisions are subject to the value reporting clauses. The year-end adjustment could reveal an overpayment of premium, entitling the insured to a refund of the excess, or an underpayment, obliging it to make up the difference.
The relevant terms of the policy are clauses 4, 5, 9, 10, 11 and 12 of the value reporting endorsement, and they read as follows:
(4) Provisional Premium—The total provisional premium shall be 65% of the sum of the annual premiums at each location listed, computed on the stated limit of liability and the rate applying at each location, or $100 per account, whichever is the greater, and the provisional premium for this policy shall be its proportion of the foregoing premium.
(5) Provisional Amount Clause—The amount of insurance provided for hereunder is provisional and is the amount on which the deposit premium is based, it being the intent of this insurance subject to the limit(s) of liability to insure hereunder the total actual value of the property described herein. Any loss in excess of the limit(s) stated in this contract shall be borne by the Insured to the extent of such excess, notwithstanding the requirement that premium is to be adjusted on the basis of total values reported.
(9) Value Reporting Clause—It is a condition of this policy that the Insured shall report to this Insurer in writing not later than thirty days after the last day of each month, the exact location of all the
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property covered hereunder and the total actual value of such property at each location on the last day of each month. At the time of any loss, if the Insured has failed to file with this Insurer reports of values as above required, this policy, subject otherwise to all its terms and conditions, shall cover only at the location(s) and for not more than this Insurer’s percentage of the amounts included in the last report of values filed in writing prior to the loss; and further if such delinquent report is the first report of values herein required to be filed, this policy shall cover only at the respective location(s) specifically named herein and for not more than this Insurer’s percentage of 65% of the applicable limit(s) of liability.
(10) Full Reporting Clause—In case of loss, liability hereunder shall not exceed that proportion of such loss which the last reported value filed prior to the loss for the location where the loss occurs bears to the total actual value of said property at that location on the date for which such report is made.
Except as provided in Value Reporting Clause, liability for loss occurring at any location acquired since the last report shall not exceed that proportion which the last reported values filed prior to the loss for all locations bears to the total actual values at such locations on the date for which such report is made.
If this policy is a renewal, continuation or replacement of a previous policy with this Insurer the provisions of Clauses 9 and 10 apply to reports filed or required to be filed whether such reports pertain to the current or preceding insurance year.
(11) Premium Adjustment Clause—The premium named in this policy is provisional only. The actual premium consideration for the liability assumed hereunder shall be determined, at the expiration of this policy, by application of the following formula:
“A” An average of the total values reported at each location shall be made, and if the premium on such average values at the rate applying at each location herein provided exceeds the provisional premium, the Insured shall pay an additional premium for such excess. If such premium is less than the provisional premium, the Insurer shall refund to the Insured any excess paid. In the event of any report not being made within the period stipulated in the Value Reporting Clause, then for the purpose of adjustment of premium only hereon, an amount representing the sum of the limits
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of liability at all locations shall be taken as the value at risk on the day fixed for ascertaining the values.
“B” In consideration of the insurance not being reduced by the amount of any loss the Insured shall pay the appropriate extra premium on the amount of the loss from the date thereof to the date of the expiry of the period of insurance. Such extra premium may be deducted from the payment of the said loss.
“C” It is a further condition of this policy, anything to the contrary notwithstanding, that the total final adjusted premium as provided in this clause shall in no event be less than $100 per account.
(12) Verification of Values—This Insurer or its duly appointed representative shall be permitted at all reasonable times during the term of this policy, or within a year after its expiration, to inspect the property covered hereunder and to examine the Insured’s books, records and such policies as relate to any property covered hereunder. This inspection and/or examination shall not waive nor in any manner affect any of the terms or conditions of this policy.
This case, on the findings of fact, is not one of deliberate falsification of the inventory value for May, 1965; nor is it one where the insured has reported a value which he intended to report and, after a fire loss, has sought to correct the value by reason of after-discovered error in calculating the value; nor is it one where, before the fire, the insured learned that he had under-reported and yet failed to correct the erroneous statement of value. It is a case of innocent error, with objective proof made that the value upon which indemnity is claimed was the value that the insured purported to give and would have given if his secretary‑stenographer had accurately typed in the insured’s figures. If, then, on the construction of the policy and on the law applicable thereto, they admit of any situations where a loss is payable on the basis of a corrected valuation made after the loss is suffered, the present case must be within them, if it be not the only such situation.
The Court of Appeal majority found it unnecessary, in reaching its conclusion, to do more than
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refer to clause 10 and to apply literally its stipulation that “in case of loss, liability...shall not exceed that proportion of such loss which the last reported value filed prior to the loss...bears to the total actual value...” (the italicizing is mine). The evidence shows that even at $140,000 the insured had undervalued the inventory which was actually on the premises at the time of the fire (albeit the fire occurred some two weeks into the month succeeding that for which the insured purported to report $140,000). The value of the inventory at the time of the fire was $186,309, and the formula of recovery (up to the limit of $100,000) would be either 140,000 / 186,309 X $170,741, amounting to $128,312 or 40,000 / 186,309 X $170,741, 186,309 amounting to $36,658. What Aylesworth J.A. for the majority pointed out was that the insured (through Podolsky) brought upon itself the consequence to which it objected, by failing to carry out its reporting obligation under clause 9; and, consequently, it could not be relieved of this unilateral mistake. No question of prejudice to or detrimental reliance by the insurers appeared to be material to this conclusion; nor was consideration given to the other terms of the policy, or even to the character of value reporting insurance.
I think it important to dwell on the character of this type of insurance in relation to the issue in question here because there is no suggestion that the error of the insured, if considered to be a violation of the value reporting endorsement, either increased the risk or contributed to the loss which occurred; and none of the statutory conditions of the policy proper, nor any of the insuring clauses thereof were affected by any conduct of the insured. What gives value reporting insurance its particular character are its provisional premium and coverage clauses which look to the end of the policy year for a determination or settlement of premium liability and consequent coverage of inventory. It is from this viewpoint that Brooke
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J.A. arrived at his conclusion in support of the judgment at trial.
There are, in my opinion, two questions to be considered. First, do the terms of the value reporting endorsement, taken together as they must be, require the literal reading of clause 10 which was given by the majority opinion in the Court of Appeal? Second, if they do, or if clause 10 is to be taken alone and read literally, is there an ameliorating principle applicable in this type of insurance against the taking of unfair advantage of an insured, and if so, is this principle properly applicable to the innocent error made in this case?
Clauses 9 and 10 of the value reporting endorsement must be taken in the context provided by clauses 5 and 11 as well as that provided by them alone. Under clauses 5 and 11, the amount of insurance is provisional as is the premium until adjustment at the end of the policy year. When clause 5 declares that it is “the intent of this insurance subject to the limit of liability to insure…the total actual value of the property described herein”, it appears to me that taken in relation to the value reporting provisions of clause 9 and the premium adjustment terms of clause 11, an insured is entitled before loss to correct, certainly within the prescribed thirty-day period, any error in a monthly report of value, whether the error be an overstatement or an understatement of the value. Since the premium is provisional only until the year-end adjustment, a correction made within the thirty-day period given for reporting, and, indeed, at any time while the policy is in force without loss occurring must be acceptable and accepted. The insurers have the privilege under clause 12 of making their own inspection and examination, and the fact that this clause states that “this...shall not waive nor in any manner affect any of the terms or conditions of this policy” is of no consequence on the point under discussion.
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In this connection, I do not accept the submission of counsel for the respondent insurers that an insured is under no obligation to pay additional premium if there was an error by way of undervalue in the monthly reporting. It would only be so if the insurers did not insist upon it on discovery of the error. They are, of course, protected by the provisions of clauses 9 and 10 respecting the basis upon which liability for loss is fixed, and in that respect may have made it unnecessary for them to insist on correction of undervaluation. Both clauses 5 and 9, in association with clause 12, entitle the insurers to insist on actual value reporting if they are so moved.
There is another point that emerges from an examination of clause 9, and especially of its opening words “it is a condition of this policy…”. A reading of the whole clause makes it clear that it qualifies the insured’s right to recover for the whole value of the inventory at time of loss (up to the limit of liability) unless it has made the required monthly report of value that it seeks to rely on at time of loss; failing that, the last or latest report of value filed prior to loss is to be the basis of loss adjustment. No question arises therefore under clause 9 of termination by the insurers for failure of an insured to file a monthly report. The policy contains the usual statutory condition for cancellation by the insurers or by the insured, but this was not invoked in the present case.
I have no doubt that under the terms of the value reporting endorsement the general rule is that an insured’s loss must be measured by the latest monthly report of value submitted before loss. This is because the chief purpose of the endorsement is to protect the insurers where there has been undervaluing by the insured; and the protection resides in holding the insured to its valuation. It follows that no such practice can be admitted here as prevails in marine insurance under which post-loss correction of values in a floating policy may be made if there is proof of a bona fide error: see Marine Insurance Act, R.S.O. 1970, c. 260, s. 30(3). The Court of Appeal was unanimous on this point, and I agree with it. The respondents would, however, as I
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understood their submission, apply the general rule aforesaid to a situation where they themselves (or their agents) were aware of a bona fide error in the under-reporting of inventory value; the fact that they were aware of the insured’s unilateral mistake would not, on their view of the terms of the policy, disentitle them to enforce literal application.
It appears to me that such a case, if presented, would be one of attempting to take unconscionable advantage of an innocent mistake which a Court would be entitled to rebuff. The policy underlying the general rule above stated, that of putting the burden on an insured to report inventory value accurately and to avoid possibly fraudulent practices upon insurers which would be almost beyond detection if reported inventory values could as a rule be corrected after loss, would not be violated if in the postulated situation an insurer was held liable on the basis of a value known to it to be the correct one, albeit incorrectly reported by reason of innocent error.
Is the present case any different in principle? I approach this question by examining first a range of American cases that were cited by counsel. The only reported Canadian case on the type of insurance involved herein is of no assistance because it was one where the insured failed to file any report of value, and it was held that recovery for loss must be limited to 50 per cent of the limit of liability as provided by the policy. In coming to this conclusion, the Manitoba Court of Appeal, whose judgment was affirmed by this Court without extended reasons, rejected an argument that the clause limiting liability as aforesaid if no reports of value were filed should be construed as a penalty clause and enforcement refused: see Bobrowski v. Canadian Fire Insurance Co.
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Turning to the American cases, a representative line, of which two are hereinafter cited, holds that where an insured has filed a report of value which was followed by a loss and it then discovered an innocent error in the report which, in the result, undervalued the inventory, it was precluded by the “honesty” clause (which is clause 10 in the present case) from asserting a different value than that reported: see Rolane Sportswear Inc. v. United States Fidelity & Guarantee Co.; Standard Lumber Co. v. Travelers Indemnity Co. These are in accord with the general rule which I expressed above.
This line of cases does not, however, touch the point in issue here which concerns not an undervaluing, within the sense of the general rule that I have expressed above, but rather a clerical error in transposing an expressed valuation. Alaska Foods, Inc. v. American Manufacturer’s Mutual Ins. Co. is directly in point. There it was held that under a value reporting policy which permitted an insured to file value reports late, an innocent clerical error in the last report of value filed before loss should be corrected in insured’s favour when the insurer did not dispute the fact that the undervalue was the result of a clerical error. That case has a similarity to the present one in that it appears that the insured’s copy of the erroneous value report had the figure of $2,500, which was actually reported, lined through and replaced with $25,000, the value intended and thought to have been reported.
The principle upon which the Alaska Foods case proceeds appears to me to have been exemplified earlier in Michigan Millers Mutual Fire Ins. Co. v. Grange Oil Co. The obligation in that case was to report monthly the value of the inventory less any specific insurance carried, and through error a larger amount of specific insur-
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ance was mentioned than was actually carried so that an undervaluation of the inventory resulted. Correction was permitted in part by reason of the terms of the contract, relating the coverage to the actual rather than to the reported amount of specific insurance, but also in part because proof was readily available of the amount of specific insurance without any taint of fraud in offering it. I note that this issue was among those that arose in Peters v. Great American Ins. Co., and was treated differently. I prefer the position taken in the Michigan Millers case on this point.
In all the cases cited the concern of the Courts to protect insurers against fraudulent schemes of deliberate undervaluation was common. The difference in the results in those cases was not based on any difference in the policy that should guide the Courts in dealing with attempted post-loss corrections of undervaluations of inventory. They merely reflected a difference in their fact situations; on the one hand, undervaluation simpliciter, and on the other, clerical error in transferring an expressed valuation to the reporting form. In the latter case but not in the former, there is that certainty in the fact of and innocent character of the clerical error as to make it safe to act upon the proof thereof that is made, where this can be done without prejudice to the insurers (apart, of course, from the quantum of its liability).
The present case, on its facts, provides that certainty, and I do not see any difference in principle between it and the postulated case of an insurer, which is aware of an error before loss, seeking to shield itself behind the literal words of the policy notwithstanding its awareness. To permit the insured to rely upon the inventory value actually recorded by it for submission to the insurers is not to engage the law relating to rectification or reformation of contracts. What is involved is performance under an insurance contract, and an issue of proof of that performance to satisfy the terms of the contract, without violating the policy which underlies it.
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The considerations canvassed in these reasons lead me to the following conclusions. Having regard to the intent expressed in clause 5 to insure total actual value (up to the limit of liability) and to the thirty-day period allowed under clause 9 for the monthly report of such value, which is followed by a provision for taking the last report of value before loss if the insured has not filed reports “as above required” (i.e. within the thirty-day period), I cannot read the following full reporting or so-called honesty clause 10 as precluding an insured from bringing a corrected value to the insurers’ attention within that period (as was the case here) where there is documentary proof that that value was recorded for submission to the insurers before loss, and through innocent stenographic error was not correctly given. Clause 10 must be related to clauses 5 and 9 in this respect and the whole read contra proferentem.
Putting the matter another way, proof of the clerical error and of the circumstances attending it places this case on the same footing as a case where the insurers are aware of or do not dispute the clerical error. For them, in such a state of the facts, to seek to rely on a literal application of clause 10 would be to deny the good faith which underlies their insurance obligation. This is impermissible.
Accordingly, I would allow the appeal, set aside the order of the Court of Appeal and restore the judgment of Osler J. in favour of the appellant. It should also have its costs in the Court of Appeal and in this Court.
Appeal allowed with costs, JUDSON and RITCHIE JJ. dissenting.
Solicitors for the plaintiff, appellant: Levinter, Dryden, Bliss, Maxwell, Levitt & Hart, Toronto.
Solicitors for the defendants, respondents: Borden, Elliot, Kelley & Palmer, Toronto.
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