Insurance Policy vs. Insurance Contract

In Van Huizen v. Trisura Guarantee Insurance Company, 2020 ONCA 222, the Ontario Court of Appeal stated that, although the words “insurance policy” and “insurance contract” are often used interchangeably, there are important distinctions, and conflating the two can cause considerable confusion.

No legal obligations are created by the mere existence of a written insurance policy. An insurance policy is simply a recitation of terms and conditions which do not attach to a particular person, item or interest.

By contrast, an insurance contract creates contractual obligations between the parties. The formation of insurance contracts is governed by the law of contracts. There must be offer and acceptance, and agreement on all material terms, including the premium, the nature and duration of the risk to be covered, and the extent of liability.

An insurance policy may evidence the existence of an insurance contract because parties will often agree, as part of their contract, to be bound by the terms and conditions as set out in the policy.

Further, the Court of Appeal indicated that, when an insurer uses a standard policy, it may issue a certificate of insurance as proof of the underlying contract on the terms set out in the policy. However, an insurance policy or certificate of insurance is only the instrument. It evidences the existence of the insurance contract by which the parties have agreed to be bound.

In summary, while an insurance policy sets out the terms that may govern the relationship between the parties to an insurance contract, it is the contract that gives rise to legal consequences and must be the subject of interpretation for the purposes of determining the parties’ rights and obligations.