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Insurance - Claims-Made (and Reported). Kestenberg Siegal Lipkus LLP v. Royal & Sun Alliance Insurance Company of Canada
In Kestenberg Siegal Lipkus LLP v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Ontario Court of Appeal explains 'claims-made' as opposed to 'claims-made and reported' (and 'claims-made') insurance policies:(i) The difference between occurrence-based, claims made, and claims made and reported insurance policies
[20] As context for the issues raised in this appeal, it is helpful to understand the different types of coverage available under liability insurance policies. The different types of policies determine what event or events trigger coverage under the policy.
[21] The occurrence-based approach focuses on the timing of the negligent act and damage. In an “occurrence” policy, the occurrence of a negligent act giving rise to damage or loss during the policy period triggers coverage: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 23; Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 CanLII 150 (SCC), [1993] 1 S.C.R. 252, at p. 260; Stuart, at pp. 326-27.
[22] Purely occurrence-based policies led to difficulties for insurers in areas where the damage from a negligent act may not be immediately apparent, such as professional liability in medical or legal services. They can lead to “long-tail” liability where claims are made long after a policy has expired. In addition, developments in the law and science may make it difficult for insurers to estimate potential liability arising from claims made many years in the future. Finally, where an insured has changed insurers various times, occurrence-based policies can result in disputes over which insurance company is liable for coverage where the timing of the negligence is unclear or where it was of an ongoing nature: Jesuit Fathers, at para. 24; Reid Crowther, at pp. 262-64; Stuart, at pp. 326-27.[3]
[23] As a result, policies based on the timing of a claim were developed. “Claims made” policies are more affordable, since there is no possibility of claims arising after the end of the policy period; however, they provide more limited coverage: Jesuit Fathers, at para. 25; Reid Crowther, at p. 264.
[24] Claims made policies focus on when the claim is made by a third party. Under a claims made policy, the making of the claim against the insured during the policy period triggers coverage: Jesuit Fathers, at para. 23; Stuart, at p. 328; Reid Crowther, at pp. 260-61.
[25] A “claims made and reported” policy provides more restricted coverage than a claims made policy. Under a claims made and reported policy, coverage is only triggered if both the making of a claim against the insured and the reporting of the claim to the insurer occur within the policy period: Reid Crowther, at pp. 265-66; Stuart, at pp. 326-27. In other words, the making of the claim alone is insufficient to trigger coverage under a claims made and reported policy. It must be combined with the insured reporting the claim to the insurer during the policy period.
[26] These distinctions are not arbitrary. As Moldaver J.A. (as he then was) explained in Stuart, under a claims made and reported policy, the insured contracts for coverage of claims that are reported during the term of the policy. This affects the price of the policy. To require the insurer to cover a claim under a claims made and reported policy that was not reported to the insurer during the term of the policy would “distort the plain meaning of the contract and require the insurer to provide coverage for an event outside the scope of the policy … for which it had received no remuneration”: Stuart, at p. 329; see also Reid Crowther, at pp. 265-66.
[27] While labels such as “claims made” or “claims made and reported” can be useful conceptual tools, ultimately the meaning of an insurance contract is a question of contractual interpretation based on the wording of the particular policy. Indeed, some policies are hybrids with elements of the different types of policies: see, for example Jesuit Fathers, at paras. 19, 23; Reid Crowther, at p. 261. As the Supreme Court cautioned in Reid Crowther, at pp. 261-62:The essential is not the label one places on the policy, but what the policy says. The courts must in each case look to the particular wording of the particular policy, rather than simply attempt to pigeonhole the policy at issue into one category or the other. . Furtado v. Underwriter
In Furtado v. Underwriter (Ont CA, 2024) the Ontario Court of Appeal dismisses an insurer's appeal, here "denying him coverage, or relief from forfeiture under his Directors and Officers insurance policy".
Here the court distinguishes between a 'claims-made and reported policy' and an 'occurence policy':II. The Difference Between Occurrence and Claims-Made and Reported Policies
[56] This Policy is a form of claims-made and reported policy. It differs from occurrence policies in several important respects.
[57] As the Supreme Court of Canada described in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 CanLII 150 (SCC), [1993] 1 S.C.R. 252, at p. 260: “Every insurance policy must provide a mechanism for determining the claims for which the insurer is liable in a temporal sense.”
[58] In occurrence policies, “[i]f the negligent act giving rise to the damages occurred during the policy period, the insurer is required to indemnify the insured for any damages arising from it regardless of when the actual claim is made”: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 23.
[59] The triggering event for occurrence policies is whether the occurrence took place within the policy period, not whether notice of the claim was given during the policy period. Occurrence policies therefore provide coverage for incidents that took place during the policy period, regardless of when the claim is brought: see e.g., Reid Crowther, at pp. 260, 262-63. For example, where an accident occurs within the policy period, the damage or loss is covered regardless of when the claim is brought.
[60] Claims-made policies on the other hand, focus on when the claim is made against the insured, not when the negligent or injurious occurrence took place. As such, “[i]f a claim is made by a third party during the policy period, the insurer is required to indemnify regardless of when the negligent act giving rise to the claim occurred”: Jesuit Fathers, at para. 23.
[61] In Reid Crowther, at pp. 262 and 264, the Supreme Court of Canada described the development of claims-made policies this way:Although there is evidence of "claims‑made" and hybrid policies having been utilized to at least some extent for decades in Canada, and as far back as the first half of this century in the United States, "claims‑made" and hybrid policies have come into widespread use in the liability insurance industry only within the past 25 years or so in the United States, and apparently somewhat more recently in Canada. The expanded utilization of "claims‑made" and hybrid policies was resorted to by insurance companies in response to serious problems that had developed in the use of "occurrence" policies. These problems were rooted in the "long‑tail" nature of liability claims against some types of insureds.
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The "claims‑made" type of policy was seen (as were hybrid policies) as a means of providing liability insurance at reasonable rates while avoiding the problems associated with the "long-tail" nature of "occurrence" policies. The date at which a claim was made would be easier to ascertain than the date at which an "occurrence" happened, and more importantly, insurers would be better able to project the likely level of claims that would be payable under liability insurance policies.
But "claims‑made" and hybrid policies (the latter in particular), while increasing predictability for insurers and reducing premiums to insureds, exact their price—the price of diminished coverage. [Emphasis added.] [62] Finally, claims-made and reported policies make coverage subject to two conditions precedent: that the claim be both made and reported to the insurer during the policy period.
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[79] LaForme J.A. noted the conceptual difference between “occurrence” policies and “claims-made and reported” policies and distinguished Stuart on the basis that in Stuart, “plain language in the contract identified the relevant contractual term as a condition precedent”: at paras. 44, 47. He went on to comment, at paras. 48 and 50, that “[g]oing forward, this court’s strict holding in Stuart should be applied narrowly” and that “[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.” I read those comments not as suggesting that the Stuart reasoning should be abandoned in favour of a broader test, but as confining the application of Stuart to contractual provisions like those contained in claims-made and reported policies that contain clear language identifying the provision as a condition that must be met to trigger coverage.
[80] In sum, where the wording of a claims-made and reported policy makes clear that the making and reporting of a claim are the triggering events for coverage, the failure to comply with a notice provision constitutes non-compliance with an essential condition of coverage such that there can be no relief from forfeiture. To decide otherwise “would be to distort the plain meaning of the contract and require the insurer to provide coverage for an event outside the scope of the policy which it had not agreed to cover and for which it had received no remuneration”: Stuart, at p. 329. As stated in Stuart, at p. 329, this would be akin to allowing coverage in an occurrence policy where the accident took place after the policy period.
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