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Insurance - Relief From Forfeiture (2). 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 canvasses some insurance 'relief from forfeiture' cases:IV. The Legal Principles Regarding Relief from Forfeiture
[68] In Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778, McLachlin J. (as she then was) noted the distinction to be drawn between imperfect compliance and non-compliance with a condition of coverage and that relief from forfeiture was available only for “imperfect compliance”. She stated, at p. 784, that: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. If the breach is of a condition, that is, it amounts to non-compliance, no relief [from forfeiture] is available. [69] In Stuart, Moldaver J.A. (as he then was) noted that, although relief from forfeiture was granted in Falk:A review of the authorities cited by McLachlin J. for the proposition that "failure to give notice of claim in a timely fashion constitutes imperfect compliance" reveals that the insurance policies in question were all of the "occurrence" type. Unlike the case at hand, the notice requirement in those policies did not form an integral part of the event triggering coverage. That distinction is crucial because, in my opinion, it has the effect of transforming Re/Max's failure to give notice from one of imperfect compliance to non-compliance. [Emphasis added.] [70] In the claims-made and reported policy in Stuart, the insuring agreement clause expressly contained the two triggers to coverage: a claim had to be made during the policy period, and it had to be reported to the insurer during the policy period. It stated:To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages resulting from any claim or claims first made against the Insured and reported in writing to the Company during the Policy Period for any Wrongful Act of the Insured or of any other person for whose actions the Insured is legally responsible, but only if such Wrongful Act occurs during or prior to the Policy Period and solely in rendering or failing to render professional services for others for a fee as a Real Estate Salesperson or Real Estate Broker. [Emphasis added.] [71] Because no “claim” had been asserted within the policy period in Stuart, the court was not interpreting the insuring agreement clause. The focus of the analysis in Stuart was instead on the “notice of occurrence” provision in the Special Provisions section of the policy. The Special Reporting Clause provided for an extension of coverage with respect to occurrences that may reasonably be expected to give rise to a claim:4. SPECIAL REPORTING CLAUSE
If during the Policy Period or during the extended reporting period (if the right is exercised by the Insured in accordance with Provision 5), the Insured shall become aware of any occurrence which may reasonably be expected to give rise to a claim against the Insured for a Wrongful Act which first occurs during or prior to the Policy Period, and provided the Insured gives written notice to the Company during the Policy Period or the extended reporting period (if applicable) of the nature of the occurrence and specifics of the possible Wrongful Act, any claim which is subsequently made against the Insured arising out of such Wrongful Act shall be treated as a claim made during the Policy Period. [Emphasis added.] [72] The Special Provisions section also contained a notice clause:3. LOSS PROVISIONS
The Insured shall, as a condition precedent to the availability of the rights provided under this policy, give written notice to the Company as soon as practicable during the Policy Period, or during the extended reporting period (if applicable), of any claim made against the Insured. [Emphasis added.] [73] Moldaver J.A. recognized that “relief from forfeiture may be granted under a ‘claims-made’ policy in appropriate cases,” citing as an example McNish v. American Home Assurance Co. (1989), 1989 CanLII 4047 (ON SC), 68 O.R. (2d) 365 (H.C.), aff’d (1991), 5 C.C.L.I. (2d) 222 (Ont. C.A.) where the reporting requirement was not a condition of coverage. The critical question however, was whether, according to the specific terms of the policy, the breach of the Special Reporting Clause constituted imperfect compliance with a term of the policy, or non-compliance with a condition precedent to coverage.
[74] Moldaver J.A. held that the wording of that Clause was clear that the requirement to provide the insurer with notice of the potential claim during the policy period was a condition of coverage: pp. 330-31. Relief from forfeiture was not available because the failure to provide written notice of the potential claim during the policy period was not imperfect compliance; it was “non-compliance with a condition precedent to coverage.” He held at p. 330 that, “[t]rite though it may be, an insurer has the right to limit coverage in a policy issued by it and when it does so, the plain language of the limitation must be respected.”
[75] Mr. Furtado claims however, that the application judge erred in not following the more recent ruling and possibly broader approach of this court in Kozel.
[76] In Kozel, the insured was involved in a traffic accident while driving with an expired licence and did not renew her licence until after the accident. She breached a statutory condition of her insurance policy not to drive or operate an automobile unless authorized by law to do so. She brought an application seeking coverage. LaForme J.A. noted, at paras. 37 and 47, that although the insurer took the position that authorization to drive was a condition precedent to coverage, there was nothing in the policy stressing that the insurance coverage was conditioned on the claimant being authorized to drive. As he observed, at para. 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 4(1) is imperfect compliance with a policy term, relief against forfeiture under s. 98 of the [Courts of Justice Act] 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. [Emphasis added.] [77] He observed, at para. 44, that in Stuart, 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. [78] Accordingly, there can be no relief from forfeiture where there is an obligation on the insured to satisfy claims-made and reported conditions before the obligation to provide coverage arises. This is different from occurrence policies where the breach of a condition affects a pre-existing obligation on the part of the insurer to provide coverage.
[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. . 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 cites the Insurance Act 'relief from forfeiture' provision:[63] Section 129 of the Insurance Act, R.S.O. 1990, c. I.8, provides that: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. [64] The court's power under s. 129 however, applies only to those policy conditions – statutory or contractual – that relate to proof of loss: Kozel, at para. 35 and Williams v. York Fire & Casualty Insurance Co., 2007 ONCA 479, 86 O.R. (3d) 241, at para. 33. In particular, in Dams v. TD Home and Auto Insurance Co., 2016 ONCA 4, 129 O.R. (3d) 226 at para. 18, this court held that 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”. As such, it does not apply in this case.
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[66] Forfeiture is defined in Black's Law Dictionary, 11th ed. (Saint Paul: Thomson Reuters, 2019) as: "The loss of a right, privilege, or property because of a crime, breach of obligation, or neglect of duty." Similarly, the Concise Oxford English Dictionary, 12th ed. (New York: Oxford University Press, 2011) defines "forfeit" as "lose or be deprived of (property or a right or privilege) as a penalty for wrongdoing" or "lose or give up as a necessary consequence". . 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. . Shwaluk v. HSBC Bank of Canada
In Shwaluk v. HSBC Bank of Canada (Ont CA, 2023) the Court of Appeal considered the frequently-present tension between amending pleadings and adding new claims which might be limitation-barred:
(2) Did the motion judge err in concluding the request for relief from forfeiture was statute-barred?
[45] An amendment that adds a new claim may be refused on the basis that it creates non-compensable prejudice to the responding party if the limitation period for advancing the claim has expired: Klassen v. Beausoleil, 2019 ONCA 407, 34 C.P.C. (8th) 180, at paras. 26-27.
[46] However, an amendment is not an assertion of a new claim if it merely pleads an alternative claim for relief arising from the same facts already alleged, different legal conclusions drawn from the same facts, particulars of an allegation already pleaded, or additional facts upon which the original right of action is based. In making the assessment of whether a new claim is advanced, the original pleading is to be read generously, with some allowance for drafting deficiencies: Klassen, at paras. 29-30.
[47] The motion judge tied her finding that Ms. Shwaluk’s request for relief from forfeiture was a new statute-barred claim directly to her view that an admission had been withdrawn. She stated:I find that the amendments sought by [Ms. Shwaluk] are an attempt to include new claims and allegations. By withdrawing her admission that she had not filed an LTD claim in her reply, [Ms. Shwaluk] is statute-barred from now asserting relief from forfeiture on new facts that had not been previously pled and were not previously disclosed or alleged. They do not arise from the same facts already admitted and pled, and to permit the amendments proposed would result in fundamentally different claims than those originally pleaded. [48] Ms. Shwaluk makes two arguments in opposition to this conclusion. First, she argues that a request for relief from forfeiture is not a “claim” within the meaning of the Limitations Act and is never subject to the two-year limitation period that the motion judge apparently applied.[3]
[49] Second, Ms. Shwaluk argues that, even if a request for relief from forfeiture is a “claim” under the Limitations Act, the request is not a new claim that is statute-barred. In her submission, the amendments are “factually intertwined with the existing allegations and can reasonably be viewed as falling within the four corners of the existing claim and reply. Similarly, the pleading of relief from forfeiture is an alternative claim for relief arising out of the same facts previously pleaded”.
[50] It is not necessary to decide whether relief from forfeiture can ever be considered a “claim” within the meaning of the Limitations Act. Even if a request for relief from forfeiture is a “claim”, here it is not a new claim within the meaning of Klassen. The motion judge’s view to the contrary was tainted by her incorrect finding that an admission was being withdrawn in favour of new facts and positions not previously advanced. Viewed from the correct perspective, the facts asserted in the amendments are particulars of alleged facts in the original pleadings, read generously; relief from forfeiture is the legal conclusion alleged to flow from those facts, including the factual admission which continues.
[51] The original statement of claim referred to Ms. Shwaluk’s request for STD and LTD benefits and asserted the failure to pay both was unreasonable and unjustified in light of facts, documents, and information provided or available to Sun Life. The proposed amendments assert that the information provided or available to Sun Life by June 2015 in connection with STD benefits was sufficient information regarding LTD benefits and included notice that both STD and LTD benefits were being sought, so Sun Life was not prejudiced by the failure to file an LTD benefits application/proof of claim by December 2015. This is a particularized version of the facts already alleged.
[52] Considered more generally, Ms. Shwaluk’s original statement of claim and reply alleged that her claim to payment under the policy should be allowed, given the facts, even though she had not timely filed an application/proof of loss for LTD benefits. Sun Life was always facing a lawsuit that was premised on that position. Relief from forfeiture may in some cases be granted even if not expressly raised at trial, where the facts warrant it: MacIvor v. Pitney Bowes Inc., 2018 ONCA 381, 143 O.R. (3d) 633, at paras. 28-29, leave to appeal refused, [2018] S.C.C.A. No. 223. Relief from forfeiture, which is expressly requested in Ms. Shwaluk’s proposed amendments, is a legal conclusion that she seeks in order to give effect to her originally advanced position.
[53] In light of my conclusion that the request for relief from forfeiture in the amended pleadings is not a new claim, such a request is not statute-barred. Sun Life will not suffer non-compensable prejudice from the amendments. Accordingly, leave to amend should have been granted.
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