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Insurance - Notice of Claim. 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 denies insurance coverage due to late claim-filing after statutory law has changed:[13] The central issue in this case is whether Mr. Furtado forfeited coverage under the Directors and Officers insurance policy because he failed to provide timely notice of the claim to the Insurer.
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[52] As noted above, the central issues are the interpretation of the Suspension Clause and whether the delay in giving written notice of the investigation leading to the Claims constituted imperfect compliance with a term of the Policy or non-compliance with a condition precedent to coverage, thereby foreclosing the availability of relief from forfeiture.
[53] In order to understand the meaning of the Policy provisions and their effect, I will outline the distinctive characteristics of claims-made and reported policies and compare and contrast them with occurrence policies. ....
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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. . Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here the court addresses 'pre-tender defence costs' - which are "defence costs incurred by an insured prior to providing notice of a claim to its insurer" - and a defendant's attempt to have such costs covered by the insurers under the 'relief from forfeiture' doctrine:(3) Pre-Tender Defence Costs
[144] The third issue relates to the application judge’s conclusion that Loblaw was entitled to relief from forfeiture of pre-tender defence costs from AIG and RSA. Pre-tender defence costs are defence costs incurred by an insured prior to providing notice of a claim to its insurer, in this case AIG and RSA. Consistent with its position before the application judge, RSA did not advance any independent argument or submissions in its factum on this issue but included it as a ground of appeal and adopted the submissions made by counsel for AIG. Accordingly, RSA will be bound by the analysis and result relating to AIG.
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(d) Standard of Review
[169] The parties agree that whether relief from forfeiture is available for pre-tender defence costs as a matter of law is subject to a correctness standard. Otherwise, the question of whether to grant such relief in the circumstances is generally a discretionary decision entitled to deference: Monk, at para. 78.
(e) Analysis of Pre-Tender Defence Costs
[170] Loblaw’s admitted failures were twofold. First, it failed to provide notice of the B.C. Government Action to AIG and RSA in a timely manner as required under the primary policies of insurance. Second, it incurred defence costs contrary to the voluntary payments provision found in the policies.
[171] The purpose that animates the notice provision is to enable an insurer to conduct an investigation and mitigate damages: Gordon G. Hilliker, Liability Insurance Law in Canada, 7th ed. (Toronto: LexisNexis Canada, 2020), at p. 57; Sovereign General Insurance Co. v. Walker, 2011 ONCA 597, 107 O.R. (3d) 225, at para. 35.[16] An insurer also has the right to control the defence of an insured claim and this includes the right to appoint defence counsel: Brockton (Municipality) v. Frank Cowan Co. (2002), 2002 CanLII 7392 (ON CA), 57 O.R. (3d) 447 (C.A.), at para. 31. The right to control the defence and to appoint defence counsel flows from the insurer’s obligation to indemnify: Zurich of Canada v. Renaud & Jacob, 1996 CanLII 5801 (QC CA), [1996] R.J.Q. 2160 (C.A.), at p. 2168; Brockton, at para. 31. In Brockton, the insurer was not obliged to pay for independent counsel hired by the insured without the insurer’s consent.
[172] Given that the insurer controls the defence and appoints counsel, it follows that the insurer is also required to pay for all reasonable costs that have been incurred at the insurer’s request: Brockton, at para. 54.
[173] Although independent from the notice provision, the voluntary payments provision complements the notice provision.
[174] Loblaw sought to impose an obligation on AIG and RSA to pay its defence costs incurred prior to notice and in contravention of the voluntary payments provision and it relied on relief from forfeiture to do so.
[175] Relief from forfeiture 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: Kozel, at para. 28. It is an equitable and discretionary remedy. Relief from forfeiture is granted sparingly and the party seeking the relief bears the onus of proof: Ontario (Attorney General) v. 8477 Darlington Crescent, 2011 ONCA 363, 279 O.A.C. 268, at para. 87.
[176] As I have explained, in Ontario, relief from forfeiture is governed by s. 98 of the CJA and in the insurance context also by s. 129 of the Insurance Act.
[177] Section 98 of the CJA provides that a “court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.”
[178] Section 129 of the Insurance Act 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.] [179] In Kozel, LaForme J.A. reasoned, at para. 58, that s. 98 was available to relieve against relatively minor, good faith breaches of a policy that occurred before a loss took place rather than afterwards. Relief from forfeiture under s. 98 of the CJA was granted, for example, where there was a mistaken failure to renew a driver’s licence prior to an accident contrary to the terms of the statutory automobile insurance policy.
[180] He noted that in contrast, s. 129 of the Insurance Act addresses proof of loss and non-compliance with the insurance policy after a loss has occurred. In Monk, at para. 79, Brown J.A. stated that s. 98 “generally” applies to pre-loss issues. For the purposes of this appeal, any distinction between s. 98 of the CJA and s. 129 of the Insurance Act is immaterial. This is because, as I will subsequently explain, on the facts of this case, there was no forfeiture.
[181] The purpose that animates relief from forfeiture in insurance cases was described by McLachlin J. (as she then was) in Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778, at p. 783: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. [182] In that decision, the Supreme Court held that Saskatchewan’s relief from forfeiture provision equivalent to s. 129 of Ontario’s Insurance Act empowered a court to relieve against forfeiture where there has been imperfect compliance with: (i) a statutory condition as to proof of loss to be given by the insured; or (ii) another matter or thing required to be done or omitted by the insured with respect to the loss. Failure to give notice within the time prescribed generally amounted to imperfect compliance. McLachlin J. explained that a court had power to relieve for imperfect compliance as opposed to non-compliance and likened the distinction between the two to a breach of a term of a contract and breach of a condition precedent or condition.
[183] Furthermore, the Saskatchewan section applied to both statutory conditions and contractual provisions. As relief from forfeiture is required only where there has been a breach of contract, it must derogate from contractual arrangements if it is to have any effect. McLachlin J. stated that this broad interpretation was appropriate given that the section was remedial legislation.
[184] The question in this part of the appeal is whether relief from forfeiture is an argument that was available to Loblaw. As mentioned, relying on Blue Mountain, AIG submits that relief from forfeiture may be available for the obligation to indemnify, but absent proper notification of the claim, AIG owed no obligation to Loblaw as notice is a precondition to the triggering of a duty to defend. Furthermore, it argues that relief from forfeiture will not apply to override the contractual provision contained in the AIG policy that prohibits an insured from voluntarily incurring any costs or liabilities except at its own expense.
[185] Although the application judge relied on Monk, that case concerned whether relief from forfeiture ought to be granted in respect of late notice for indemnity coverage under a homeowner’s policy, not whether it could be granted. In Monk, the trial judge found that relief from forfeiture was available but declined to order it based on his findings regarding prejudice, disparity and the insured’s unreasonable conduct. On appeal, this court upheld his determination.
[186] The precise issue in Blue Mountain was who should bear responsibility for the pre-tender defence costs incurred by the insureds before they gave the insurer notice of the claim. The insurer accepted that it owed a duty to defend once it received notice and assumed the defence. In addition, like AIG in the case under appeal, the insurer did not take issue with the legal defence steps already taken or with the defence counsel who was already acting. Like AIG, the insurer in Blue Mountain refused to pay the pre-tender costs that had been incurred prior to notice, which amounted to $588,000.
[187] The insurance policy in Blue Mountain contained: (i) a notice clause requiring the insureds to give the insurer prompt notice of litigation; (ii) a cooperation clause mandating the insureds’ cooperation with the insurer; and (iii) a voluntary payment clause that precluded the insureds from incurring expenses related to the claim without the insurer’s consent.
[188] The Court of Appeal for B.C. concluded that 1) the duty to defend arose on demand or notice, and 2) there had been no forfeiture of coverage because, although the insureds had breached the notice provision, the insurer had waived that breach and complied with its obligations to provide indemnification and a defence. Moreover, the pre-tender costs were incurred before the duty to defend arose and, under the voluntary payment clause, the insurer had no obligation to reimburse the insureds for these costs. The voluntary payment clause operated independently of the notice provision. The court rejected the insured’s argument that the court could adjust the voluntary payment clause.
[189] I agree with the Court of Appeal for B.C. that the duty to defend arises on demand or notice. Otherwise, the insurer may have no knowledge of the claim it is obligated to defend or opportunity to exercise its contractual rights respecting this defence or other policy conditions and exclusions. Indeed, Loblaw does not argue to the contrary.
[190] In ING Insurance Co. of Canada v. Federated Insurance Co. of Canada (2005), 2005 CanLII 14308 (ON CA), 75 O.R. (3d) 457 (C.A.), at para. 27, this court affirmed that a duty to defend arises only when the insurer is given notice of the claim:The language of the policies ... dictate that a duty to defend will arise only where notice of a claim is given. An insurer can hardly have a duty to defend a claim of which it has had no notice. [191] Although it was a case regarding contribution between insurers, the same principle applies here.
[192] On receipt of notice, AIG did not reject the contract. Rather, it reserved its rights and stated that liability did not attach until the SIR had been exhausted as provided for in the policy. It also sought copies of pleadings on an ongoing basis and an update on settlement discussions. These steps amounted to an acceptance of the contract.
[193] Here, AIG was actively seeking to enforce its contract, including the independent voluntary payment, SIR, and exclusion provisions. Furthermore, in oral submissions, counsel for AIG acknowledged that the SIR would be reduced by the approximately $220,000 in pre-tender costs. In these circumstances, there was no forfeiture and the application judge erred in concluding otherwise.
[194] This situation is different from those where an insurer on receiving late notice rejects the contract and refuses to defend and to pay pre-tender costs. In GFL Infrastructure Group, the insurers were found to have wrongfully denied a duty to defend and were ordered to reimburse pre-notice defence costs. That case did not deal specifically with relief from forfeiture. In contrast, where the insurer has acknowledged its duty to defend and indemnify going forward subject to exhaustion of its SIR, there is nothing left to relieve against. Moreover, the voluntary payments clause, which operates as an independent commitment, simply reflects the parties’ contract. There is no forfeiture and relief from forfeiture is therefore not engaged.
[195] In sum, I agree with AIG and RSA that Loblaw was not entitled to relief from forfeiture in this case. As such, I would allow the appeal on this issue. However, as conceded by AIG, Loblaw is entitled to deduct its pre-tender costs from the SIR that must be exhausted or paid under its policy. In the event that the trial of the issue described in paragraph 13 of the judgment of the application judge determines that the SIR has already been exhausted, the pre-tender costs will be for Loblaw’s own account. This order and direction apply equally to RSA and the deductible under its policy.
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