Imagine an Ontario homeowner walks into your office asking whether she has a case against her insurance company relating to a fire that destroyed her home. After taking just over a year to investigate the cause of the fire and catalogue the home's contents, the insurer has denied the claim. Your client is in a panic after reading this provision in her policy under a heading called "Statutory Conditions":

14. Action
Every action or proceeding against the Insurer for the recovery of a claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.

Is it too late to commence the action?

To the client, and even to many lawyers, the answer would seem to be an obvious yes. This view would only be strengthened upon learning that the above words are indeed one of the Statutory Conditions found in Part IV ("Fire Insurance") of the Insurance Act, which Part states that these conditions "shall be deemed to be part of every contract in force in Ontario".

So should the insured simply walk away from her claim? Fortunately for both of you, no.

In fact, the actual limitation period is likely that prescribed by the Limitations Act, 2002i.e. two years from the date the claim was or ought to have been discovered, meaning the limitation period would be two years, not one, and would start with the denial, not the fire. Incredibly, this issue remains undecided in Ontario law, but the better argument in the author's view is that the one-year limitation period is unenforceable.

As it happens, Part IV of the Insurance Act despite being called "Fire Insurance" and despite purporting to apply to policies of fire insurance is not likely to apply to home insurance policies. The Part was enacted when fire insurance was sold as a standalone product, and recent lower court decisions have held the Part has no application to modern multi-peril policies such as those for home insurance.1

As such, the limitation period in Statutory Condition 14 likely has no application by operation of statute. But what of the insurer's attempt to import this limitation into the insurance policy? Does it have effect by way of contract?

Fortunately for your client, no. While s. 22 of the Limitations Act, 2002 does allow parties to shorten the two-year limitation period by agreement, such arrangements are only permissible in the case of a "business agreement", which is defined as "an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002". As homeowners purchasing home insurance are considered consumers under the latter act, a home insurance policy is not a business agreement, and thus the parties cannot agree to shorten the limitation period.2 There is thus a good argument the limitation period in the insurance policy is unenforceable despite its clear terms.

This confusing state of affairs is to put it mildly less than ideal, particularly given these policies are marketed to and relied upon by unsophisticated members of the public, and are intended to offer "peace of mind". A number of other jurisdictions in Canada have modernized their property insurance statutes and one can only hope Ontario will follow suit in the near future.

Footnotes

1. See e.g. Dumitrascu v. State Farm Fire and Casualty Co., 2014 ONSC 2224, para. 9. See also KP Pacific Holdings Ltd v. Guardian Insurance Co. of Canada, 2003 SCC 25. Note, however, the Ontario Court of Appeal recently noted in obiter comments that it had yet to decide this question one way or the other: Douglas v. Stan Fergusson Fuels Ltd., 2018 ONCA 192.

2. Boyce v. Co-operators General Insurance Co., [2013] O.J. No. 2568 (C.A.)).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.