General Principles of Insurance Policy Interpretation

Simpson Wigle Law LLP v. Lawyers' Professional Indemnity Company, 2014 ONCA 492:

[54]       As the application judge noted at para. 21 of his reasons, the Supreme Court of Canada recently reiterated the general principles governing the interpretation of insurance policies in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] S.C.R. 245, at paras. 22-24.   These principles can be summarized as follows:

The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to that language, reading the policy as a whole. 

Where the language of the policy is ambiguous, general rules of contract construction apply.  The courts 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.  The courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the parties' contemplation at the time the policy was concluded.  Courts should strive to ensure that similar insurance policies are construed consistently.

When the rules of contract construction fail to resolve the ambiguity, courts will construe the policy contra proferentem – against the insurer.  This means that coverage provisions are interpreted broadly, and exclusion clauses narrowly.