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Insurance - Relief from Forfeiture (3). Stewart v. Bay of Quinte Mutual Insurance Co.
In Stewart v. Bay of Quinte Mutual Insurance Co. (Ont CA, 2024) the Ontario Court of Appeal dismissed a property insurance appeal, here where the appellant alleges that the insurer paid "considerably less than the value of items that [were] lost in the fire".
Here the court considered Insurance Act 'relief from forfeiture':[10] The trial judge furthermore found that the estate was entitled to relief from forfeiture for any imperfect compliance under s. 129 of the Act. Applying the principles set out in Monk v. Farmers Mutual Insurance Company (Lindsay), 2019 ONCA 616, at paras. 77 and 79, the trial judge found that Mr. Lynch’s conduct was reasonable and the breach of the statutory condition was not grave. .... . Kerk-Courtney v. Security National Insurance Company (TD General Insurance Company)
In Kerk-Courtney v. Security National Insurance Company (TD General Insurance Company) (Ont CA, 2024) the Ontario Court of Appeal considered Insurance Act 'relief from forfeiture':[63] In the event of a finding of a breach of the notice requirement, the appellants argue they should be granted relief against forfeiture under 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. [64] The appellants acknowledge that relief from forfeiture is discretionary. They argue, however, that the late notice constituted “imperfect compliance” as opposed to non-compliance with the Policy, and that they were not acting in bad faith.
[65] In Pinder Estate v. Farmers Mutual Insurance Company (Lindsay), 2020 ONCA 413, 3 C.C.L.I. (6th) 8, at para. 122, this court affirmed that relief from forfeiture requires the consideration of three factors: 1) the reasonableness of the insured’s conduct; 2) the gravity of the breach; and 3) the disparity, if any, between the value of the property forfeited and the damages caused by the breach. The court emphasized that, in particular, the reasonableness of the insured’s conduct lies at the heart of the relief from forfeiture analysis and that a party whose conduct is not seen as reasonable will face great difficulty in obtaining relief from forfeiture, relying on Monk v. Farmers’ Mutual Insurance Company (Lindsay), 2019 ONCA 616, 92 B.L.R. (5th) 1, at para. 93. . 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 considered the availability of 'relief from forfeiture', here turning on the type of insurance policy involved:(ii) The principles governing availability of relief from forfeiture
[28] Section 129 of the Insurance Act, R.S.O. 1990, c. I.8, provides as follows: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. [29] The jurisprudence under s. 129 of the Insurance Act draws a distinction between non-compliance with a condition precedent to coverage and imperfect compliance with a term of a policy after coverage has been triggered. Relief from forfeiture is available where coverage has been triggered but the insured fails to comply with a term of the policy. Relief from forfeiture is not available where an insured has not complied with a condition precedent to coverage: Stuart, at p. 327-28; Kozel, at para. 40.
[30] The distinctions between types of insurance policies discussed above take on importance in determining whether relief from forfeiture is available. If coverage has been triggered, for example by a negligent act and damages having occurred under an occurrence-based policy, a subsequent failure by an insured to comply with a policy term will be imperfect compliance and relief from forfeiture may be available.[4] By contrast, where coverage has not been triggered, relief from forfeiture will not be available. The leading cases explaining this distinction are this court’s decisions in Stuart and Kozel.
[31] Stuart involved a negligence claim against a listing real estate agent. After purchasing a property, the purchaser discovered that the well on the premises was not capable of providing safe and sufficient water for household use. The purchaser notified the listing real estate agent of her potential claim against the agent for having misrepresented the suitability of the well during the term of the agent’s professional liability policy. However, the agent did not report the potential claim to its insurer until approximately six weeks after the end of the policy period: Stuart, at p. 323.
[32] The agent’s professional liability policy provided coverage for claims made and reported during the policy period. The policy also contained a provision extending coverage for potential claims for any wrongful act committed prior to or during the policy period, provided the agent reported such potential claims to the insurer during the policy period.
[33] In Stuart, this court interpreted the relevant provisions of the insurance policy and found that it was a claims made and reported policy. The court held that failure to report a claim or potential claim during the policy period of a claims made and reported policy was non-compliance with a condition precedent to coverage. As a result, relief from forfeiture was not available. Under a claims made and reported policy, claims are only covered where they are reported to the insurer during the policy period. This is the bargain struck between the insured and the insurer under a claims made and reported policy. The failure to report the claim during the policy period means there is no coverage under the policy. It is not open to a court to excuse the insured’s failure to report the claim during the policy period, as that would rewrite the contract and provide coverage that was not part of the policy and that was not paid for. This is so whether or not the insurer suffered prejudice as a result of the failure to report the claim during the policy period: Stuart, at pp. 327‑31.
[34] The appellants argue that the holding in Stuart – that relief from forfeiture is not available under a claims made and reported policy where an insured fails to report the claim within the term of the policy – has been limited by this court’s decision in Kozel. The appellants argue that relief from forfeiture is available in all insurance cases unless the breach of condition is both substantial and prejudices the insurer. I do not agree.
[35] In Kozel, the insured injured a motorcyclist in a motor vehicle collision. At the time of the collision, the insured’s driver’s licence was expired. The expired licence was due to oversight by the insured in failing to renew her licence on or before her birthday (she had no difficulty renewing it following the collision). The expired licence meant the insured was in breach of a statutory condition of her motor vehicle insurance policy. One of the issues before this court was whether relief from forfeiture was available: Kozel, at paras. 1-9 and 11.
[36] This court held in Kozel that the insured was entitled to relief from forfeiture. The court in Kozel maintained the central distinction in Stuart between non-compliance with a condition precedent to coverage (for which relief from forfeiture is not available) and imperfect compliance with a term of a policy (for which relief from forfeiture is available). In Kozel, the court found that the insured’s breach of the statutory condition that she be licenced was imperfect compliance with a term of the policy, rather than non-compliance with a condition precedent to coverage: at paras. 33-35 and 38-47. This conclusion in Kozel was based on interpreting the language of the insurance contract (including the statutory term) and not on an analysis of whether there was prejudice to the insurer (at para. 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. There are no grounds to believe that 4(1) is a fundamental term or that the respondent’s breach of it was of a fundamental nature. While the provision is a condition in name, the appellant pointed to no language in the contract stressing that the insurance coverage was conditioned on the claimant being authorized to drive. This fact renders our case different than the facts in Stuart, where plain language in the contract identified the relevant contractual term as a condition precedent. Neither was the respondent’s breach here a fundamental one. Had the respondent’s violation of statutory condition 4(1) been more substantial – for example, if she had been drinking heavily prior to driving – she may have been barred from obtaining relief from forfeiture. This case, however, involves a relatively minor breach. [Emphasis added.] [37] Because the court found that failure to comply with the statutory term of the contract requiring licencing was imperfect compliance with a policy term rather than non-compliance with a condition precedent to coverage, the court found that relief from forfeiture was available.
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[38] The appellants rely on the following statement at para. 50 of Kozel to argue that the court should find that an insured’s breach of a term in an insurance policy constitutes non-compliance with a condition precedent to coverage only where the breach prejudices the insurer:In light of Marche, I believe the decision in Stuart should be given a narrow application. A court should find that an insured’s breach constitutes non-compliance 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. [39] I disagree with the appellants’ submission that Kozel limits the holding in Stuart that under a claims made and reported policy, relief from forfeiture is not available where an insured fails to report a claim within the policy period – a condition precedent to coverage. Nothing in Kozel alters the application of the holding in Stuart that reporting within the policy period is a condition precedent to coverage under claims made and reported policies. In particular, I note two aspects of Kozel that make clear that it does not undermine the central holding in Stuart.
[40] First, Kozel maintains the distinction in Stuart between non-compliance with a condition precedent to coverage and imperfect compliance with a term of a policy (at paras. 40-41 and 44):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[5] 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 O.R.
As McLachlin J. (as she then was) explained in Falk Bros., at p. 784 S.C.R., 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. [Emphasis added.] [41] Second, Kozel clearly holds that Stuart was correctly decided in its central holding that under claims made and reported policies, the requirement to report a claim within the policy period is a condition precedent to coverage. This is clear from para. 44 of Kozel, where LaForme J.A. explains why the requirement to report the claim within the policy period was a condition precedent to coverage in Stuart: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 O.R., 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”. [42] Reading Stuart and Kozel together, the statement in Kozel that Stuart should be given “narrow application” cannot be read as abandoning the distinction in Stuart between failure to comply with a condition precedent to coverage and imperfect compliance with a term of a policy in favour of a broader test. Rather, Kozel recognizes that the principles in Stuart apply to contractual provisions that contain clear language identifying a condition that must be met to trigger coverage – such as those contained in claims made and reported policies. Where coverage has not been triggered, relief from forfeiture is not available. This court recently reached the same conclusion in Furtado v. Lloyd’s Underwriters, 2024 ONCA 579, at paras. 76-80; see also Lavoie v. T.A. McGill Mortgage Services Inc., 2014 ONCA 257, 119 O.R. (3d) 651, at para. 42; and Dams v. TD Home and Auto Insurance Co., 2016 ONCA 4, 129 O.R. (3d) 226, at footnote 1.
[43] Thus, the holding in Stuart – that under a claims made and reported policy, failure to report a claim during the policy period is non-compliance with a condition precedent to coverage and not imperfect compliance with a policy term and thus relief from forfeiture is not available – remains undisturbed by Kozel. Accordingly, I reject the appellants’ submission that under claims made and reported policies, relief from forfeiture is available where an insured fails to report the claim to the insurer within the policy period, if the insured can establish that the breach of the reporting requirement was not substantial and there is no prejudice to the insurer. If the Second Excess Policy is a claims made and reported policy – and thus, reporting is a trigger to coverage – relief from forfeiture is not available in this case.
[44] Before turning to the interpretation of the Second Excess Policy, I address the appellants’ argument based on McNish and McNish v. American Home Assurance Co. (1989), 1989 CanLII 4047 (ON SC), 68 O.R. (2d) 365 (H.C.J.), affirmed (1991), 5 C.C.L.I. (2d) 222 (C.A.). The appellants argue that McNish stands for the proposition that terms in a policy about the timing of reporting a claim to the insurer are not conditions precedent to coverage. As a result, according to the appellants, relief from forfeiture is available where an insured fails to comply with a reporting provision.
[45] The appellants’ reliance on McNish is misplaced. As this court explained in Stuart, the policy at issue in McNish was a claims made policy. The only trigger to coverage in McNish was the making of a claim during the policy period. Although the policy in McNish contained a clause requiring the insured to promptly notify the insurer upon learning of an event that may give rise to a claim, there was no express requirement in the policy that notice be given within the policy period. As such, in McNish, notice during the policy period was not “an integral part of the event triggering coverage”. In other words, in the absence of a term requiring the reporting of a claim within the policy period, failure to comply with the prompt reporting term was imperfect compliance with a term of the policy, rather than non-compliance with a condition precedent to coverage: Stuart, at pp. 328-29.
[46] I agree with the respondents that the jurisprudence supports the conclusion that notice clauses requiring reporting “as soon as practicable” or “promptly” have typically been held to be terms of a policy that apply after coverage has been triggered, and not conditions precedent to coverage. As a result, reporting to an insurer that may be characterized as not being prompt has been held to be imperfect compliance with a term of a policy in the absence of a requirement that the claim be reported during the policy term: McNish; see also Qualiglass Holdings Inc. v. Zurich Indemnity Company of Canada, 2004 ABQB 577, 368 A.R. 171, at paras. 65-76 and 78-85. By contrast, where a policy contains a term that claims must be reported during the policy period, courts have held that reporting during the policy period is a condition precedent to coverage: Stuart; Qualiglass, at para. 80. This is the essence of a claims made and reported policy. It only provides coverage for claims both made and reported during the policy period. Having said this, each case turns on the wording of the particular policy.
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[58] The appellants argue that clause D, requiring that claims be reported to the insurer “during the policy period”, is not a condition precedent to coverage because it is not contained in the insuring agreement clause of the Second Excess Policy. The appellants rely on Stuart for this proposition. I disagree with this argument for two reasons.
[59] First, Stuart does not support the proposition that a claims made and reported requirement must be contained in the coverage clause/insuring agreement for it to be a condition precedent to coverage. Rather, it supports the proposition also set out in Jesuit Fathers and Reid Crowther that a court must interpret the insurance policy as a whole, and ordinary principles of contractual interpretation apply in the absence of ambiguity.
[60] It is true that the policy at issue in Stuart included a reporting requirement in the coverage clause; however, that was not the clause considered by this court. Rather, the reporting requirement that the court considered in Stuart was contained in the “Special Reporting Clause”. The Special Reporting Clause was the provision in the contract that covered potential claims (as distinct from actual claims, which were addressed in the coverage clause of the policy). The Special Reporting Clause required written notice to the insurer of the potential claim during the policy period (or extended reporting period, if purchased): Stuart, at pp. 325-26 and 330‑31. This court nonetheless held that the policy in Stuart was a claims made and reported policy.
[61] Similarly, in Furtado, while the Director and Officer liability policy included a reporting requirement in the coverage clause itself, the reporting requirement that the court construed as a coverage trigger was, like Stuart, found in the notice of circumstance clause which required written notice of potential claims during the policy period. In Furtado, the notice of circumstance clause was contained in the General Conditions of that policy: Furtado at paras. 83-84 and 91. As in Stuart, this court held that the policy was a claims made and reported policy.
[62] Thus, both Stuart and Furtado support the proposition that a policy can be construed as a claims made and reported policy even if the reporting requirement is not contained in the coverage clause itself.
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(iv) Relief from forfeiture is not available because the Second Excess Policy is a claims made and reported policy
[68] In light of my conclusion that reporting the claim to the insurer during the policy period is a condition precedent to coverage under the Second Excess Policy, the application judge was correct in concluding that relief from forfeiture was not available.
[69] The appellants failed to report the claim to the respondent during the policy period. Because reporting the claim during the policy period was a condition precedent to coverage, coverage was not triggered. This was a breach of a condition precedent to coverage and not imperfect compliance with policy terms after the triggering of coverage. In accordance with Stuart, because the failure to report the claim to the respondent was a failure to comply with a condition precedent to coverage, relief from forfeiture is not available.
[70] There is no unfairness to the appellants from this result. As this court held in Stuart, under claims made and reported policies the requirement of reporting the claim to the insurer during the policy period is central to the bargain struck between the insured and the insurer. In exchange for lower premiums, coverage is only triggered if the claim is reported during the policy period. As this court noted in Stuart, excusing reporting outside the policy period under a claims made and reported policy would rewrite the policy to cover a non-covered claim. This is because the bargain struck by the parties did not include coverage for claims that are not reported to the insurer during the policy period.
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