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Insurance - Relief from Forfeiture
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. Monk v. Farmers’ Mutual Insurance Company (Lindsay)
In Monk v. Farmers’ Mutual Insurance Company (Lindsay) (Ont CA, 2019) the Court of Appeal considered several issues regarding relief of forfeiture in an insurance case:[76] Ms. Monk sought relief from forfeiture pursuant to s. 129 of the Insurance Act, R.S.O. 1990, c. I.8, which states:Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just. [77] The purpose of allowing relief from forfeiture in insurance cases is to prevent hardship to policy beneficiaries where there has been a failure to comply with a condition for receipt of insurance proceeds and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer: Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778, at p. 783.
[78] The power to grant relief from forfeiture is a discretionary one. An appellate court is not at liberty to substitute its own discretion for that already exercised by the judge of first instance. Appellate interference requires the appellant to demonstrate that the judge below: exercised his or her discretion on a wrong principle of law; failed to take into consideration a major element of the case; disregarded, misapprehended or failed to appreciate relevant evidence; or made a finding or drew an inference not reasonably supported by the evidence: Cervo v. State Farm Mutual Automobile Insurance Co. (2006), 2006 CanLII 37119 (ON CA), 83 O.R. (3d) 205 (C.A.), at paras. 56, 79 and 80.
[79] The principles regarding relief from forfeiture in the circumstances of a claim under an insurance policy were canvassed at length by this court in Kozel v. The Personal Insurance Company, 2014 ONCA 130 (CanLII), 119 O.R. (3d) 55. Kozel summarized the principles as follows:(i) Relief from forfeiture under s. 129 of the Insurance Act is available where there has been “imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss”, thereby restricting the availability of the section to instances of imperfect compliance with terms of a policy after a loss: at para. 58;
(ii) Relief from forfeiture pursuant to s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, is available to contracts regulated by the Insurance Act: at para. 57;
(iii) CJA s. 98 generally operates where the breach of the policy occurred before the loss took place: at para. 58;
(iv) Although relief under the Insurance Act s. 129 and CJA s. 98 are not available where the breach consists of non-compliance with a condition precedent to coverage, a court should find that an insured’s breach “constitutes noncompliance with a condition precedent only in rare cases where the breach is substantial and prejudices the insurer. In all other instances, the breach will be deemed imperfect compliance, and relief against forfeiture will be available”: at paras. 33 and 50;
(v) Where relief from forfeiture is available, an insured “must still make three showings – that his or her conduct was reasonable, that the breach was not grave, and that there is a disparity between the value of the property forfeited and the damage caused by the breach – in order to prevail”: at paras. 51 and 59. This three-element test often is referred to as the “Saskatchewan River” or “Liscumb” test, from two of the cases in which it was articulated, Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490 and Liscumb v. Provenzano (1985), 1985 CanLII 2051 (ON SC), 51 O.R. (2d) 129, at p. 137, affirmed (1986), 1986 CanLII 2595 (ON CA), 55 O.R. (2d) 404n (C.A.). .....
[82] The reasonableness part of the test requires a court to consider the nature of the breach, what caused it and what, if anything, the insured attempted to do about it. One circumstance is whether the conduct of the defaulting party was “willful”. All of the circumstances, including those that go to explain the act or omission that caused the lapse or forfeiture of the policy, should be taken into account. It is only by considering the relevant background that the reasonableness of the insured's conduct can be realistically considered: Williams Estate v. Paul Revere Life Insurance Co. (1997), 1997 CanLII 1418 (ON CA), 34 O.R. (3d) 161 (C.A.), at p. 175; 1497777 Ontario Inc. v. Leon’s Furniture Ltd. (2003), 2003 CanLII 50106 (ON CA), 67 O.R. (3d) 206 (C.A.), leave to appeal refused, [2003] S.C.C.A. No. 506, at para. 72.
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[88] Some case law suggests that an insured must establish each of the three elements of the Saskatchewan River/Liscumb test to obtain relief from forfeiture. For example, in Williams Estate v. Paul Revere Life Insurance Co., Osborne J.A. stated, at p. 175:It is clear from Saskatchewan River Bungalows Ltd. that to succeed in obtaining relief from forfeiture, the insured must pass all three parts of the Liscumb test. Major J. did not balance the Liscumb factors. At least with respect to the Liscumb reasonableness requirement, he proceeded on a "one strike and you're out" basis. He held that the applicant, having failed the reasonable conduct test, could not get relief from forfeiture. See also: Koutcherenko v. Queensway Homes Inc., 2013 ONSC 3350 (CanLII) (Div. Ct.), at para. 21.
[89] Other cases have limited their analysis of a claim for relief from forfeiture to the reasonableness of the claimant’s conduct without expressly stating whether all three elements of the test must be met: Saskatchewan River, at p. 505; Kozel, at para. 68; Day Estate v. Pandurevic, 2008 ONCA 266 (CanLII), 61 C.C.L.I. (4th) 50, leave to appeal to SCC refused, 256 O.A.C. 391n, at para. 4.
[90] More recently, this court in Scicluna v. Solstice Two Limited, 2018 ONCA 176 (CanLII), at para. 29, did not accept that a claimant must satisfy each of the three elements of the Saskatchewan River test in order to obtain relief from forfeiture. However, the Scicluna decision did not refer to the earlier decision of this court in Paul Revere, which took a different view.
[91] Although Saskatchewan River could be read as leaving the point unresolved, I think the better view is that expressed in the Scicluna case. I reach that conclusion because in Saskatchewan River the Supreme Court drew upon the decision of the House of Lords in Shiloh Spinners Ltd. v. Harding, [1973] A.C. 691 (H.L.), in which that court reaffirmed the right of courts of equity “in appropriate and limited cases” to relieve against forfeiture for breach of covenant or condition: at p. 723. The House of Lords stated, at pp. 723-724:The word “appropriate” involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach. (emphasis added) [92] In Saskatchewan River, the Supreme Court of Canada closely followed Shiloh Spinners’ formulation of the test for relief from forfeiture stating, at para. 32:The power to grant relief against forfeiture is an equitable remedy and is purely discretionary. The factors to be considered by the Court in the exercise of its discretion are the conduct of the applicant, the gravity of the breaches, and the disparity between the value of the property forfeited and the damage caused by the breach. (emphasis added) [93] Reading Saskatchewan River together with Shiloh Spinners, two points emerge. First, the three-element test for relief from forfeiture requires a court to consider and balance all three elements to determine whether equitable relief should be granted: see also, Snell’s Principles of Equity (32nd ed., 2010), at p. 419. Second, the examination of the reasonableness of the breaching party’s conduct lies at the heart of the relief from forfeiture analysis. A party whose conduct is not seen as reasonable will face great difficulty in obtaining relief from forfeiture: Ontario (Attorney General) v. McDougall, 2011 ONCA 363 (CanLII), at para. 90. . Dams v. TD Home and Auto Insurance Company
In Dams v. TD Home and Auto Insurance Company (Ont CA, 2016) the Court of Appeal discussed the application of the s.129 Insurance Act relief from forfeiture provisions, which can operate to relieve an insured from the consequences of non-compliance with statutory requirements for making a claim:[15] The starting point for the analysis is the decision of the Supreme Court of Canada in Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778. In that case, Elance Steel Fabricating Co. claimed against a surety company under a bond on account of a debt due from Falk Bros. Elance gave notice of its claim 28 days after the expiry of the notice period specified in the bond. The case required the Supreme Court to interpret a section in The Saskatchewan Insurance Act, R.S.S. 1978, c. S-26, identical in language to s. 129 of the Ontario Insurance Act.
[16] The Supreme Court observed, at p. 782, that sections like s. 129 are remedial in nature and “as such should be given an appropriately broad interpretation”. The purpose of allowing relief from forfeiture in insurance cases “is to prevent hardship to beneficiaries where there has been a failure to comply with a condition for receipt of insurance proceeds and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer”: at p. 783. However, the court’s power under provisions like s. 129 only extends to cases “of such statutory conditions as to proof of loss or other matters or things that are required to be done or omitted with respect to the loss”: at p. 786.
[17] The court then addressed the question of whether the failure to give notice of a claim under an insurance policy amounted to “imperfect compliance with a statutory condition as to the proof of loss”, in which case relief under the statutory provision would be available, or whether it was non-compliance or breach of a condition precedent, in which case there could be no relief. It concluded, at pp. 785-786, that the failure to give notice of a claim in a timely fashion constitutes “imperfect compliance with a statutory condition as to the proof of loss” and falls within the terms of the relief provision. By contrast, the failure to institute an action within the prescribed time period would be a more serious breach, akin to non-compliance. Because Elance’s failure to give notice of its claim within the prescribed time constituted imperfect compliance rather than non-compliance, Elance was eligible to claim relief from forfeiture.
[18] In the years following Falk Bros., this court has re-affirmed on several occasions that the discretion possessed by a court under s. 129 of the Insurance Act is limited only to those policy conditions – statutory or contractual – that relate to proof of loss: Williams v. York Fire & Casualty Insurance Co., 2007 ONCA 479 (CanLII), 86 O.R. (3d) 241, at para. 33; Kozel v. The Personal Insurance Company, 2014 ONCA 130 (CanLII), 119 O.R. (3d) 55, at para. 35. The court’s power under s. 129 concerns things or matters required to be done in relation to the loss – i.e. to instances of imperfect compliance with the terms of a policy after a loss has occurred: Williams, at para. 33; Kozel, at para. 58.
[19] TD Home argues that the reporting requirements contained in s. 3 of the Regulation are akin to conditions precedent in the nature of limitation periods, because s. 8(1) of the Regulation provides that no person can bring an action to recover an amount under the contract of insurance “unless the requirements of this Schedule with respect to the claim have been complied with.”
[20] I am not persuaded by this argument, for two reasons. First, the decision of the Supreme Court in Falk Bros. stands squarely against it. The reporting requirements contained in s. 3 of the Schedule are functionally similar to the notice of claim requirement at issue in Falk Bros. Both operate with the view of providing the insurer with timely information about the loss so that it can investigate the matter, if it so choses. The nature of Mr. Dams’s failure to comply in the present case clearly falls within the class of cases covered by the statutory language in s. 129 – i.e. a statutory condition as to the proof of loss to be given to the insured or other matter or thing required to be done omitted by the insured with respect to the loss.[1]
[21] Second, to assess the effect of s. 8(1) of the Schedule on the availability of relief under s. 129 of the Insurance Act, the Schedule must be read in its entirety. Section 8(1) applies to all the requirements of the Schedule concerning uninsured automobile coverage. In addition to the reporting requirements imposed by s. 3, the Schedule also requires a person entitled to make a claim to give notice of the claim and to provide a proof of claim: s. 6. To accept the interpretation of s. 8(1) advanced by TD Home would result in that section of the Schedule precluding relief from forfeiture for imperfect compliance with the obligation to provide a proof of loss, a matter for which s. 129 specifically affords relief from forfeiture. Such an interpretation of the Schedule would run counter to the very purpose of the statutory provision. In my view, such an untenable interpretation signals that s. 8(1) of the Schedule does not transform all the requirements imposed on a claimant by the Schedule into conditions precedent to a claim for which relief from forfeiture is not available. Instead, s. 8(1) must be read in the light of s. 129 of the Insurance Act and the principles set down by the Supreme Court in the Falk Bros. case. When so read, relief from forfeiture under s. 129 of the Insurance Act is available where a claimant has failed to meet the time periods for the reporting requirements set out in s. 3 of the Schedule.
[22] Consequently, the trial judge did not err in holding that Mr. Dams was entitled to claim relief from forfeiture under s. 129 of the Insurance Act in respect of his failure to make a report to the police and to provide an accident statement to TD Home within the times stipulated by s. 3 of the Schedule. Since TD Home limited its argument to the jurisdiction of the trial judge to grant relief from forfeiture and did not contend that the trial judge had failed to look at all relevant factors when considering whether to grant relief from forfeiture, the conclusion that the trial judge could grant relief from forfeiture under s. 129 disposes of this part of the appeal. . Kozel v. The Personal Insurance Company
In Kozel v. The Personal Insurance Company (Ont CA, 2014) the court engaged in an extended discussion of the law of relief from forfeiture in an insurance context. It considered the interaction between the two statutory relief from forfeiture provisions contained in the Insurance Act [s.129] and the Courts of Justice Act (CJA) [s.98]. It concluded that the general relief from forfeiture provision in the CJA continued to have application to insurance cases in some situations:(2) Relief from forfeiture
[28] Relief from forfeiture simply refers to the power of a court to protect a person against the loss of an interest or a right because of a failure to perform a covenant or condition in an agreement or contract.
[29] The remedy of relief against forfeiture is equitable in nature and purely discretionary: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490, at p. 504. Its origin and purpose was briefly reviewed by Doherty J.A. in Ontario (Attorney General) v. 8477 Darlington Crescent, 2011 ONCA 363 (CanLII), 2011 ONCA 363, 333 D.L.R. (4th) 326, at paras. 86-87:Courts of equity have always had the power to relieve against the forfeiture of property consequent upon a breach of contract. That power is now expressed in various statutes dealing with specific kinds of contracts (e.g., contracts of insurance, leases) and has been given more general expression in s. 98 of the [CJA]. … The power is predicated on the existence of circumstances in which enforcing a contractual right of forfeiture, although consistent with the terms of the contract, visits an inequitable consequence on the party that breached the contract. Relief from forfeiture is particularly appropriate where the interests of the party seeking enforcement by forfeiture can be fully vindicated without resort to forfeiture. Relief from forfeiture is granted sparingly and the party seeking the relief bears the onus of making the case for it. [Citations omitted.] [30] In insurance cases, the purpose of the remedy “is to prevent hardship to beneficiaries where there has been a failure to comply with a condition for receipt of insurance proceeds and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer”: Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778, at p. 783.
[31] In exercising its discretion to grant relief from forfeiture, a court must consider three factors: (i) the conduct of the applicant, (ii) the gravity of the breach, and (iii) the disparity between the value of the property forfeited and the damage caused by the breach: Saskatchewan River Bungalows, at p. 504.
[32] This appeal considers statutory provisions found in s. 98 of the CJA and s. 129 of the Insurance Act. Under s. 98, “A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.” In contrast to this broad language, s. 129 provides:Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just. [Emphasis added.] [33] In Stuart v. Hutchins 1998 CanLII 7163 (ON CA), (1998), 40 O.R. (3d) 321 (C.A.), this court addressed the scope of both of these statutory provisions. Citing Falk Bros., Moldaver J.A. (as he then was) explained, at pp. 327-28, that where an insured’s breach constitutes imperfect compliance with a policy term, relief under s. 129 remains available. However, a breach that consists of non-compliance with a condition precedent to coverage forecloses the availability of relief against forfeiture under s. 129. Without deciding whether s. 98 could be invoked in the circumstances of the case, Moldaver J.A. rejected, at p. 333, the possibility of its application on the same grounds: namely, that even if s. 98 was available, its reach could not extend beyond that of s. 129 to relieve against forfeiture in the case of a breach amounting to non-compliance with a condition precedent to coverage.
[34] Courts have interpreted Stuart as having decided that s. 98 has no application to instances of non-compliance with a condition precedent.[1] Indeed, in this case, the application judge based his holding that s. 98 relief was not available solely on the fact that the respondent’s breach here is one of non-compliance with a condition precedent to coverage. At para. 43 of his reasons, he noted that Stuart is authority for the principle that relief cannot be granted under the powers conferred by s. 98 for a breach of a fundamental term or condition precedent of a contract.
[35] The respondent properly concedes that s. 129 of the Insurance Act cannot provide relief here. That provision does not give judges a broad discretion to "grant relief from forfeiture" generally where the conditions of an insurance policy are breached. Rather, the court's power under s. 129 is a narrow one pertaining only to those policy conditions – statutory or contractual – that relate to proof of loss. It does not apply generally to all policy conditions: Williams v. York Fire & Casualty Insurance Co., 2007 ONCA 479 (CanLII), 2007 ONCA 479, at paras. 33 and 35.
[36] The respondent argues that this might be the appropriate case in which to grant relief under s. 98 of the CJA. She argues that holding for the insurance company would expose her personal assets and allow the company to enjoy a large and unwarranted windfall.
[37] The brief submissions made by the appellant on the merits of the application of s. 98 were specific: authorization to drive is a condition precedent to coverage. That is, as the law is currently drafted, statutory condition 4(1) is a fundamental provision of an automobile insurance contract. And, until the legislature says otherwise, this court cannot grant relief against forfeiture. There was no explanation as to why statutory condition 4(1) is “fundamental”, nor was this court directed to any authorities in support of this argument.
[38] In light of this and the current state of the law described above in Stuart and Williams, I propose to examine whether the breach here – the failure to hold a valid driver’s license, in violation of statutory condition 4(1) – constitutes imperfect compliance with a policy term, rather than non-compliance with a condition precedent, and whether the respondent may be entitled to relief under s. 98.
[39] There are two threshold questions to resolve before undertaking the three-part analysis in Saskatchewan River Bungalows to determine whether the court should exercise its discretion to grant relief from forfeiture. First, does the breach in this case constitute imperfect compliance with a policy term or non-compliance with a condition precedent to coverage? Second, is relief available under s. 98 of the CJA despite the existence of a specific relief against forfeiture provision in the Insurance Act?
(a) Does the breach here constitute imperfect compliance with a policy term or non-compliance with a condition precedent to coverage?
[40] The difference between imperfect compliance and non-compliance is crucial for the purposes of the relief against forfeiture analysis. If the respondent’s breach of statutory condition is 4(1) is imperfect compliance with a policy term, relief against forfeiture under s. 98 of the CJA is available. If, however, the breach amounts to non-compliance with a condition precedent, the court cannot award relief under s. 98: Stuart, at p. 333.
[41] As McLachlin J. (as she then was) explained in Falk Bros., at p. 784, the distinction between imperfect compliance and non-compliance “is akin to the distinction between breach of a term of the contract and breach of a condition precedent.” However, in the context of relief from forfeiture, the imperfect compliance/non-compliance analysis does not engage with the contracts jurisprudence on conditions precedent. Rather, the focus is on whether the breach of the term is serious or substantial. Where the term is incidental, its breach is deemed to be imperfect compliance; where the provision is fundamental or integral, its breach is cast as non-compliance with a condition precedent.
[42] In Falk Bros., the issue was whether the claimant’s failure to give notice of his claim to the insurer within the prescribed period precluded an award of relief against forfeiture under s. 109 of the Saskatchewan Insurance Act, R.S.S. 1978, c. S-26. Reviewing the case law, McLachlin J. observed, at pp. 784-85, that the failure to give timely notice of a claim has been viewed as imperfect compliance, while failure to institute an action within the prescribed time period has been viewed as non-compliance, or breach of a condition precedent.
[43] McLachlin J. concluded that a failure to give notice of a claim within the relevant period is imperfect compliance, firstly because it is a “less serious breach” than failing to bring an action in a timely manner, and secondly because it pertains to proof of loss. In my view, this second reason has no application to our case, because unlike s. 109 of the Saskatchewan Insurance Act, s. 98 of the CJA does not limit relief to cases of imperfect compliance with a condition as to the proof of loss.
[44] Likewise, in Stuart, the import of the relevant contract provision – and accordingly, the scale of the breach – was an important factor in determining whether the breach constituted imperfect compliance or non-compliance with a condition precedent. At p. 332, Moldaver J.A. held that the failure of the broker to report the claim within the policy period amounted to non-compliance with a condition precedent to coverage, rather than imperfect compliance with a term of the policy. He stressed the conceptual difference between “occurrence” policies and “claims-made and reported” policies. In these latter policies, the notice provision is “integral”.
[45] Finally, this court addressed the imperfect compliance/non-compliance distinction in Canadian Newspapers Co. v. Kansa General Insurance Co. 1996 CanLII 2482 (ON CA), (1996),30 O.R. (3d) 257. In that case, a newspaper publisher entered into a corporate insurance policy with the insurer, which provided, among other things, that the publisher had a duty to co-operate with the insurer. This court held that the publisher could not succeed on its claim for relief against forfeiture because its breach of the duty of co-operation was “substantial”. In doing so, Weiler J.A. made the following observations, at p. 281:In Travellers Indemnity Co. v. Sumner Co. [(1960), 27 D.L.R. (2d) 562 (N.B. C.A.)], the court held that, although a breach of the insured's duty of co-operation could qualify as imperfect compliance, an insurer could deny coverage or refuse to defend if the lack of co-operation was “substantial”. West J.A. held, at p. 565, that “[n]o inconsequential or trifling breach of such obligation should serve to exonerate the insurer from his contractual liabilities under the policy.” The liability in that case arose out of a motor vehicle accident. The breach complained of by the insurer was the insured's failure to promptly notify the insurer of a drink the insured had taken shortly before the accident. The insured informed the insurer of this drink before he was examined for discovery and, at trial, the judge found that the insured was not intoxicated at the time of the accident. The court of appeal held that this inconsequential breach should not serve to allow the insurer to refuse to indemnify the insured.
The breach complained of in the present appeal is a “substantial” breach of the insured's duty of co-operation and of the insurer's right to defend the action. [The publisher] failed to report on the progress of the litigation, to convey offers to settle, to inform [the insurer] of the theory of the defence and to advise that the action had proceeded to trial until after the trial had begun. This breach is more than mere “imperfect compliance,” it is a substantial breach of the policy and on this basis alone [the publisher] is not entitled to claim relief from forfeiture. [46] In Colliers McClocklin Real Estate Corp. v. Lloyd’s Underwriters, 2004 SKCA 66 (CanLII), 2004 SKCA 66, 10 C.C.L.I. (4th) 1, at para. 28, the Saskatchewan Court of Appeal followed Canadian Newspapers, emphasizing that the proper inquiry is whether the relevant contract provision is a fundamental term, and whether its breach is a fundamental breach.
[47] In light of the above, my view is that in this case, the respondent’s breach of statutory condition 4(1) is not non-compliance with a condition precedent.
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