First Presented at the CBA-OBA Professional Development Program: Fast Out of the Gate: An Insurance Law Primer
Statutory conditions contained within the policy, relief from forfeiture, and limitation period issues, are examples of special considerations when dealing with first party claims.
I. Statutory Conditions
Statutory conditions are conditions set forth in a policy that must be met by the insurer and insured. Reading statutory conditions within the Insurance Act of Ontario, and the regulations passed thereunder could admittedly be sleep-inducing. However, these provisions, and the insurance contract itself, require familiarity and careful attention, as they could have significant implications on a claim.
First, statutory conditions shall be deemed to be part of every contract in force in Ontario and shall be printed on every policy, in accordance with section 148 (1) of the Insurance Act of Ontario, R.S.O. 1990, c. I.8, as amended. No variation or addition to any statutory condition is binding on an insured.
Section 8 of OAP 1 of the Ontario Automobile Policy (OAP 1), contains statutory conditions that must be included in an automobile policy. These conditions highlight the rights and responsibilities of the insured and insurer.
Some examples of statutory conditions are:
Insured claimants often prematurely sue their insurer, before proceeding with necessary steps. One such example where this may arise is the appraisal requirement pursuant to statutory condition 11 of section 148 of the Insurance Act.
The appraisal process can be found in section 128 of the Insurance Act. Aninsured and the insurer are to each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.
An insurer could stay an insured's action if appraisal mechanisms under the Insurance Act are not used properly.
In Greer v. Co-operators General Insurance Co.,1 the Court granted the Co-operators' motion to stay the plaintiff's action and Co-operators obtained an order appointing an appraiser and requiring the plaintiff to comply with the requirements of section 148 of the Insurance Act.
However, a stay could be denied where there are questions other than valuation which remain at issue between the parties and that are not properly the subject of the appraisal process contemplated by the Insurance Act. This occurred in a fire loss claim, Bnei Akiva Schools v. Sovereign General Insurance Co.,2 where coverage for the losses was not admitted. The Court distinguished Bnei from Greer, since in Greer only valuation of the plaintiff's losses was disputed and coverage for losses was admitted.
(b) Material Change
What happens when circumstances change once the policy is already in place? Depending on the importance of this change, it may be deemed a 'material change in circumstances'. Many policies contain a definition of a 'material change' and it is important to note that definitions are not always remain uniform. For instance, in an insurance policy for Long Term Disability coverage, a 'material change in circumstances' may include a change in an insured's medical condition, such as a new diagnosis or a change in severity of an existing illness.
Most policies will stipulate that such 'material changes' must be reported to the insurer as soon as possible or the policy will be avoided.
(c) Proof of Loss
A key statutory condition is the completion and delivery of the Proof of Loss.
Section 136 of the Insurance Act requires a claimant to file a Proof of Loss, containing prescribed information and verified by a statutory declaration. This requirement must be met before any insured may commence an action for money payable under a contract of insurance. However, this condition cannot be raised (as a bar to a claim) if this requirement is waived by the insurer. Section 131 of the Insurance Act provides that no term or condition of a policy is waived by the insurer "unless the waiver is stated in writing and signed by a person authorized for that purpose by the insurer." Section 135(2) of the Insurance Act provides that an insurer cannot rely on the proof of loss requirement as a defence to an action on a contract of insurance absent the timely provision to the insured of forms upon which to make the Proof of Loss.
The Court of Appeal in O'Byrne v. Farmers' Mutual Insurance Co.3 found that a waiver had taken place by an independent adjuster, who, by way of letter, advised the insured that completion of a Proof of Loss would not be required. The trial judge rejected the insurer's argument that waiver could not be relied upon because it had not been pleaded by the plaintiffs. Although he was of the view that waiver should have been pleaded, the trial judge concluded that it was clear throughout the trial that the respondents relied upon waiver.
The Court of Appeal highlighted that the failure to plead the absence of a Proof of Loss until several years into the action was relevant to the question of relief from forfeiture, rather than as a form of waiver.
The Court of Appeal also noted that section 129 of the Insurance Act, permitted the court to grant relief from forfeiture in the event of an insured's imperfect compliance with a statutory condition as to the Proof of Loss.
II. Relief from Forfeiture
Another special consideration is the possibility for an insured to obtain relief from forfeiture. Relief from forfeiture was defined by the Ontario Court of Appeal as "the power of a court to protect a person against the loss of an interest or a right because of failure to perform a covenant or condition in an agreement or contract."4
Section 98 of Courts of Justice Act (CJA) and sections 129 and 328 of the Insurance Act allow a court to grant relief from forfeiture.
Relief against penalties
98. A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.
Relief from forfeiture
129. 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.
Relief from forfeiture
328. Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or another 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, or there has been a termination of the policy by a notice that was not received by the insured because of the insured's absence from the address to which the notice was addressed, and the court considers it inequitable that the insurance should be forfeited or on that ground, or terminated, the court, on terms it considers just, may,
- relieve against the forfeiture or avoidance; or
- if the application for relief is made within 90 days of the date of the mailing of the notice of termination, relieve against the termination.
Section 129 is included in Part III of the Insurance Act which covers insurance contracts in general. Section 328 applies to accident and sickness insurance. Despite the fact that the Insurance Act provides its own relief from forfeiture, section 98 of the CJA has also been held to apply to insurance contracts.5
Relief from forfeiture is a remedial section and must be interpreted broadly. It is considered both an equitable and a discretionary remedy.
Prior to granting relief from forfeiture, the following threshold question must be answered: does the breach in this case constitute imperfect compliance with a policy term or non-compliance with a condition precedent to coverage? If the term is incidental, then the breach is deemed to be imperfect compliance whereas if the provision is fundamental or integral, the breach is considered as non-compliance with a condition precedent.6
The Ontario Court of Appeal also held that an insured's breach constitutes non-compliance with a condition precedent only in rare circumstances where the breach is substantial and prejudices the insurer.7 If the insured's breach is imperfect compliance with a term of the policy, then relief from forfeiture under section 98 of the CJA is available. However, if the breach amounts to non-compliance with a condition precedent, the court cannot award relief under section 98.8 For further information regarding this issue, we recommend the reading of the Ontario Court of Appeal case of Kozel v. The Personal Insurance Company.
Recently, in Dubé v. RBC Life Insurance Company, the Ontario Court of Appeal9 confirmed the following three components that the court must consider:
- The conduct of the insured:
- This requires an "examination of the reasonableness of a breaching party's conduct as it relates to all facets of the contractual relationship, including the breach in issue and the aftermath of the breach."10
- The gravity of the breach; and
- The disparity between the value of
the property forfeited and the damage caused by the breach:
- This is a proportionality test where the court must determine whether, if relief from forfeiture is granted, that the prejudice of the insurer outweighs the prejudice of the insured if it not be granted.
We also invite you to review the ample case law from the Supreme Court of Canada and Ontario Court of Appeal regarding relief from forfeiture.
III. Limitation Periods
The third and final special consideration we will discuss is the issue of the limitation period. While section 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, sets out the basic limitation period of two years, different limitation periods may be applicable.
One of the fundamental questions when viewing a first party claim is whether or not the contract of insurance at issue is a "business agreement" as defined in s. 22(6) of the Limitations Act, 2002. A "business agreement" under the Limitations Act is defined as an agreement made by parties none of which is a consumer as defined in the Consumer Protection Act, 2002.11 The importance of whether you're dealing with a business contract is the exception to the two year limitation period found in section 22(5) under Limitations Act, 2002, for business agreements made on or after October 19, 2006. Specifically, if the subject matter of the insurance contract relates to business purposes, then a one-year limitation period could apply if the language in the policy sets out this limitation period and adopts the wording of or is similar to the statutory condition.
This was set out in the Court of Appeal decision in Boyce v. The Cooperators General Insurance Company.12 The plaintiffs were clothing store-ownersin this case, and discovered a foul odour emanating from the entrance area of the store. There was closure of the business for some time, clean-up costs were incurred, and a great deal of inventory could not be salvaged. Essentially, the insurance policy in Boyce was determined to be a "business agreement" as neither party was a "consumer." As such, the Limitations Act permitted the parties to contract for a shorter limitation period than two years.
In contrast, in Thompson v. Sun Life Assurance Co. of Canada,13 the Ontario Court of Appeal engaged in a similar analysis regarding long term disability benefits claim in order to find that a one year limitation period was not applicable. The Court of Appeal highlighted section 22 of the Limitations Act, and that no finding was made by the motion judge as to whether the policy was a "business agreement" within the meaning of s. 22(5) of the Act.
Discoverability is often raised in defence of a limitations argument. Discoverability was considered by Justice Lalonde in 2069190 Ontario Inc. v. Economical Mutual Insurance Group.14 In that case, the plaintiff's property was stolen on or around October 7, 2006. The plaintiff advised his broker immediately and his counsel followed up periodically. After hearing nothing, he commenced an action on March 16, 2009.
The plaintiff argued that the insurance company did not reject the claim until after the limitation period had expired, and therefore, it would be unfair to apply the one or two year limitation period based on the date of the accident. He argued that the limitation period should run from the time the claim was rejected and not from the date the loss occurred. Justice Lalonde held that the loss occurred on the date of the theft and found that the plaintiff's claim was therefore statute barred.
Discoverability was also raised by Lombard General Insurance in the Ontario Court of Appeal decision, Schmitz v. Lombard General Insurance Co. of Canada.15 In this case, the plaintiff, Schmitz, was struck by a car driven by Bakonyi in 2006. At that time, Schmitz was insured under a Lombard policy which provided for $2,000,000 coverage against the risk that the limits of a tortfeasor's automobile insurance may not be sufficient to indemnify Schmitz for his losses arising out of an automobile accident. Schmitz sued Bakonyi for damages in excess of $1,000,000 in June 2007. Bakonyi's coverage was limited to $1,000,000. As such, Schmitz brought an action against Lombard for indemnity under the OPCF 44R for those amounts owing in excess of $1,000,000, up to the $2,000,000 limit on the Lombard policy. Lombard argued that the one year limitation period and definition of discoverability in section 17 of the OPCF-44 (Family Protection Endorsement) applied rather than section 4 and 5 of the Limitations Act. That is, Lombard said that Schmitz had to start his action within one year after Schmitz knew or ought to have known that the quantum of claims by the plaintiffs would exceed the $1,000,000 limit on the Bakonyi policy, not the two years provided under the Limitations Act, and not applying the discoverability definition of section 5 of the Limitations Act.
The Court of Appeal for Ontario held that the limitation period for underinsurance claims under the OPCF 44R is two years, the discoverability definition under the Limitations Act applies and it start the day after demand for indemnity was made. Furthermore, the limitation period starts the day after the demand for indemnity was made, and that demand can be made before judgment is rendered in the action against the tortfeasor.
Go to Pleadings - Part 6
1  OJ No 3118 (Ont. S.C.J).
2 2016 CarswellOnt 502, 2016 ONSC 383.
3 2014 CarswellOnt 9412.
4 Kozel v. The Personal Insurance Company, 2014 ONCA 130 at para 28 [Kozel].
5 Ibid, Kozel at para 58.
6 Ibid, Kozel at para 41.
7 Ibid, Kozel at para 50.
8 Ibid, Kozel at para 33.
9 Dube v. RBC Life Insurance Company, 2015 ONCA 641.
10 Ontario (Attorney General) v. McDougall, 2011 ONCA 363 at para 89.
11 A "consumer" in the Consumer Protection Act is defined as "an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes."
12 2013 ONCA 298.
13 2015 CarswellOnt 3230.
14 2009 CanLII 68824 (ON SC).
15 2014 CarswellOnt 1177.
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.