CANADA Law and Practice Contributed by: Chris McKibbin, Avi Sharabi, Alex Valova and Douglas Treilhard, Stieber Berlach LLP
2. Jurisdiction and Choice of Law 2.1 Choice of Law in Insurance Contracts The governing law of insurance contracts is deter- mined in accordance with ordinary Canadian conflict- of-laws principles. In the absence of an express choice-of-law clause, courts generally seek to identify the jurisdiction with the closest and most substantial connection to the contract, having regard to factors such as: • the location of the insured risk; • the residence or place of business of the parties; • the place where the policy was issued or negoti- ated; and • the jurisdiction in which premiums were paid and claims are administered. Courts generally respect party autonomy in both insurance and reinsurance contracts. In sophisticated commercial transactions, particularly in the reinsur- ance, marine, energy, aviation, financial lines and large commercial risk markets, courts will ordinarily enforce express governing-law clauses and related jurisdiction or arbitration provisions. The position differs in consumer and mandatory insur- ance regimes. Certain provincial insurance statutes impose mandatory rules that contracts cannot dis- place and may limit the practical effect of a govern- ing-law clause. This is particularly true in automobile insurance, which is subject to comprehensive provin- cial regulation and mandatory statutory requirements. In practice, disputes over governing law arise rela- tively infrequently in domestic insurance litigation because most Canadian insurance policies are issued to risks located in a single province and are governed by that province’s insurance legislation. Choice-of- law issues are more common in reinsurance disputes, multinational insurance programmes, layered insur- ance towers and claims involving risks, insureds or losses spanning multiple jurisdictions. 2.2 Jurisdiction and Forum Selection Canadian courts generally uphold jurisdiction clauses in insurance contracts, particularly when they appear
1.3 Dispute Resolution Strategy and Outcomes
Canadian insurers and insureds generally attempt to resolve disputes through early coverage analysis and negotiation before resorting to formal proceedings. Coverage disputes involving discrete questions of policy interpretation (such as the application of exclu- sions, notice provisions or limits of liability) are fre- quently suited to early resolution through negotiated settlements or applications for declaratory relief. By contrast, disputes involving complex factual issues, allegations of lack of good faith, construction defects, large property losses or multi-party liability claims are more likely to proceed through litigation. Insurers and insureds commonly seek an early deter- mination of threshold coverage issues where doing so may eliminate or narrow the scope of the dispute. Applications for declaratory relief remain a frequently used mechanism, particularly in duty-to-defend dis- putes and cases turning primarily on policy wording. Mediation plays a significant role in resolving insur- ance disputes in Canada. In Ontario, mandatory mediation programmes apply to many civil actions and even where mediation is not mandatory, it is rou - tinely employed in insurance litigation. The prospect of substantial discovery costs, expert evidence and adverse costs awards provides a strong incentive for parties to explore settlement opportunities before trial. The chosen strategy can significantly affect outcomes and costs. Early resolution typically reduces legal expenses, management time and business disruption while allowing parties to manage risk more predict- ably. However, where disputes concern novel policy language, emerging risks, competing insurers or sub- stantial financial exposure, parties may be prepared to pursue formal proceedings to obtain judicial guidance. Overall, although the vast majority of insurance dis- putes settle before trial, formal proceedings continue to play a significant role in clarifying policy wording and shaping market practice, even as mediation and negotiated resolution remain the predominant means of resolving disputes.
44 I NSURANCE L I T IGATI O N 2026
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