When determining whether a claim has been made under an
insurance policy, substance trumps form. Such was the ruling in a
recent Nova Scotia Court of Appeal case, Hants Realty Ltd v
Travelers Guarantee Co. of Canada, 2014 NSCA 69.
The issue before the Court was whether a complaint filed with
the Nova Scotia Real Estate Commission (the "Commission")
constituted a "claim" as defined in Hants Realty
Ltd.'s professional errors and omissions policy.
The facts of the case were straightforward. An agent of Hants
Realty Ltd. acted in the sale of a property in 2005. The purchaser
experienced issues with getting running water to the property and
filed a complaint with the Commission. The complaint stated, in
The realtor...did not disclose to me
any info stating that I would run out of water.
I am now thousands of dollars in the
hole trying to get water.
I think the realtor should
cover the cost that I'm going to have to pay to get
Hants Realty Ltd. received a copy of the complaint but did not
report it to its (then) professional liability insurer. Several
years later, the purchaser commenced legal action against Hants
Realty Ltd. alleging that $50,000 had been spent trying to get
water to the property, which was now essentially valueless.
Hants Realty Ltd.'s insurer at the time the action was
commenced took the position that it had no duty to defend. The
insurer's view was that the 2005 complaint to the Commission
constituted a "claim" and that the policy specifically
limited coverage to "claims" that were first
made during the policy period.
The policy defined "claim" as a "written demand
for damages or non monetary relief...against an Insured for a
Wrongful Act committed by the Insured."
What Constitutes a "Claim"?
The Court of Appeal agreed that the 2005 complaint to the
Commission constituted a "claim". In reaching this
conclusion, the Court cited several leading cases on the meaning of
"claim", which stand for the proposition that substance
rather than form is determinative when considering the definition
of "claim," that regard must be given to the reality of
what the third party was communicating1, and that a
claim is simply a communication of a third party's intention to
hold the insured responsible for damages.
With these common law principles informing its analysis, the
Court then turned to the definition of "claim" in the
policy and found that the 2005 complaint satisfied each element.
While the complaint was informal and somewhat unspecific, it was in
writing, it identified a wrongful act committed by the insured, and
it demanded damages.
The insured argued that a complaint filed with a regulatory body
with no jurisdiction to award damages was incapable of satisfying
the common law and definitional requirement for a "claim"
to demand "damages". The Court disagreed holding that the
substance of the claim did, in fact, contemplate
Both insureds and insurers should note that when considering the
definition of "claim," the applicable test is an
objective one. According to the Court of Appeal, Hants Realty Ltd.
ought reasonably to have known that the phrase "...I think the
realtor should cover the cost that I'm going to have to pay to
get water here" was an indication of the Pattens'
intention to hold the agent (and thereby Hants Realty Ltd.) liable.
It did not matter that the insured's did not conceive of the
complaint as a written demand for damages; the subjective beliefs
of Hants Realty Ltd. or its agent regarding the complaint were not
Substance trumps form. Unless prescribed in the policy, a claim
need not be detailed or formal. A simple communication of a third
party's intention to hold the insured responsible for damages
may constitute a claim.
De-emphasis on formality in combination with an objective
standard makes for a relatively low threshold for establishing a
claim at common law.
1. Reid Crowther & Partners Ltd. v Simcoe &
Erie General Insurance Co.,  1 SCR 252.
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