In a recent Ontario Court of Appeal decision, Furtado v. Lloyd's Underwriters,1 the court upheld the lower court's ruling and denied the appellant's request for relief from forfeiture due to non-compliance with the notice requirement in a claims-made policy.
Background
The Appellant, Oscar Furtado, was the directing mind of Go-To Developments Holdings Inc. ("Go-To"). Mr. Furtado was covered under a Directors and Officers Insurance Policy ("the Policy") issued by the Respondent insurer, Lloyd's Underwriters ("Lloyd's"). The Policy was a claims-made policy. The policy required that claims be both made and reported to the insurer by the insured during the policy period, a common requirement in this type of policy.
In March 2019, the Ontario Securities Commission ("OSC") began an inquiry into Go-To's business activities. In May 2019, Mr. Furtado was summoned to an examination by the OSC. At this time, section 16(1) of the Securities Act prevented Mr. Furtado from disclosing the nature or the content of the investigation to anyone except his counsel. The Policy also specified that Mr. Furtado was not required to report an investigation to Lloyd's while he was legally barred from doing so ("the Suspension Clause"). Consequently, Mr. Furtado did not inform the Insurer about the investigation.
In December 2019, a new section 16(1.1) of the Securities Act was enacted, permitting the disclosure of the investigation to the Insurer. Mr. Furtado was made aware of the legislative change in February 2021, but did not report the investigation to the Insurer. In December 2021, the OSC commenced an application against Mr. Furtado, Go-To, and its affiliated entities alleging breaches of the Securities Act and sought the appointment of a receiver. In March 2022, the OSC commenced a receivership application and an enforcement proceeding against Mr. Furtado and the Go-To entities.
Mr. Furtado first reported the claims to the Insurer in February and March 2022. Lloyd's subsequently denied coverage in September 2022.
The Application Decision
The application judge held that Mr. Furtado breached the notice provisions of the Policy and that the equitable doctrine of relief from forfeiture was not applicable in the circumstances. The application judge held that pursuant to the Policy's "suspension clause" he was not required to notify Lloyd's of an investigation while he was prevented from doing so by law. However, Mr. Furtado was informed that he could notify Lloyd's of the OSC investigation in February 2021, but he did not act with reasonable promptness and did not report to Lloyd's until one year later.
The application judge held that this was a breach of the notice provisions of the claims-made policy which constituted non-compliance with a condition precedent to coverage rather than imperfect compliance with a policy term. As such, Mr. Furtado was not entitled to relief from forfeiture.
The Court of Appeal Decision
The Court of Appeal upheld the lower court's decision that the failure to report the claims constituted non-compliance with the Policy and Mr. Furtado was not entitled to coverage or relief from forfeiture.
The court first highlighted the differences between occurrence and claims-made policies. Occurrence based policies cover incidents that take place within the policy period, and are not dependent on notice of the claim being made during the policy period. In contrast, claims-made policies provide coverage based on the condition that claims are both made against the insured and reported to the insurer during the policy period.
Courts have discretion to grant relief from forfeiture under either section 129 of the Insurance Act or section 98 of the Courts of Justice Act. The court clarified the differences between the two provisions. Section 129 of the Insurance Act applies only to policy conditions related to proof of loss, while section 98 of the Courts of Justice Act confers a general and broad power to grant relief against forfeiture. Both provisions apply only when the breach constitutes imperfect compliance, rather than non-compliance with a policy term.
When a policy clearly stipulates that a claim must be made and reported to the insurer to trigger coverage, failure to comply with the obligation constitutes non-compliance with an essential condition. In this case, the Policy explicitly required giving written notice as a condition precedent to the coverage. Mr. Furtado did not report the claim to Lloyd's until February 2022, nearly three years after the OSC began its investigations, over two years after the law changed permitting him to advise his insurer of the investigation in December 2019, and one year after he became aware that he was permitted by law to report the investigation to Lloyd's. The obligation to report was clearly breached, and therefore, relief from forfeiture was not available to Mr. Furtado.
The timing of the insured's obligation to report claims remains an issue, particularly when they are initially prohibited by law but later allowed to disclose information due to legislative changes. In this case, the Securities Act was amended in December 2019 to allow such disclosure to the insurer, and Mr. Furtado was advised of the change in February 2021. Despite this, Mr. Furtado did not report the claim to the Insurer until February 2022. The court found that Mr. Furtado's continued failure to report the claim after learning of the legislative change constituted clear non-compliance with the reporting requirement.
However, the court did not resolve whether the reporting obligation arose when the legislation was amended in December 2019 or when Mr. Furtado became aware of the change in February 2021. On the facts of the case it was not necessary for this to be addressed. The court simply stated that:
In my view, once the law changed to permit Mr. Furtado to inform the Insurer (and thereby trigger coverage for a claim), and certainly after he was specifically advised of this fact in February 2021, notice of the circumstance had to be given in order to trigger coverage for any Claims arising therefrom.
Mr. Furtado's failure to report the circumstance to the Insurer when the law permitted him to do so, and at the very least when he was informed of his ability to do so in February 2021, meant that any claim arising from the circumstance could not be treated as reported within the Policy period.
Takeaways
The Furtado decision helpfully summarizes the relevant legal principles relating to claims made versus occurrence policies and relief from forfeiture. The Court of Appeal reinforced the importance of adhering to the reporting requirement under claims-made policies.
However, if a policy does not explicitly make it clear that making and reporting claims is a condition precedent to coverage, relief against forfeiture may be available to the insured. For insurance companies, it is crucial to clearly define all conditions precedent in policies in order to rely on them, as the insurer was able to do in this case. For policyholders, those with claims-made policies should ensure that claims are reported promptly to their insurer.
Footnotes
1 Furtado v. Lloyd's Underwriters, 2024 ONCA 579 [Furtado].
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