Peel Law Association v. Royal & Sun Alliance Insurance Company of Canada et al.

[Indexed as: Peel Law Assn. v. Royal & Sun Alliance Insurance Co. of Canada]

Ontario Reports

Ontario Superior Court of Justice,

Donohue J.

April 24, 2013

116 O.R. (3d) 312 | 2013 ONSC 2312

Case Summary

Insurance — Liability insurance — Notice of claim — Insured incurring costs in defending Human Rights Tribunal proceeding but not making claim within policy period as it did not believe that it had coverage for those costs — Insured indicating on renewal application within policy period that it had retained outside counsel to represent it in proceedings before tribunal — That information not amounting to notice of claim — Insurer not having duty to ask insured to submit claim after receiving information of proceedings before tribunal in renewal application — Insurer prejudiced by late notice of claim — Relief against forfeiture for failure to give notice not available in "claims made and reported" policies — Insurer having no duty to defend or indemnify insured.

The applicant incurred costs in defending a Human Rights Tribunal proceeding against it, but did not make a formal claim under its insurance policy within the policy period because it did not then believe that it had coverage for those costs. The president of the applicant completed a renewal application within the policy period, and in answer to a question about changes since the last application, stated that the applicant had retained outside counsel to represent it in an action brought before the Human Rights Tribunal. The respondent insurer did not make any inquires as to the circumstances surrounding the action. The applicant ultimately made a formal claim in respect of the tribunal proceedings. The respondent denied coverage as the policy was a "claims made and reported" policy and notice was not given within the policy period. The applicant applied to have the respondent reimburse its defence costs and, alternatively, sought damages for breach of contract.

Held, the application should be dismissed.

The reference to the tribunal proceedings in the renewal application did not amount to notice of a claim to the respondent. No effective claim for the tribunal proceedings was made within the policy period. The respondent did not have a duty to follow up by asking the applicant to submit a claim after receiving the [page313] renewal application with information of the tribunal proceedings. It is not incumbent on an insurer to make inquiries of its insured as to whether there are valid claims; it is incumbent on the insured to make the claim by giving notice. The respondent was prejudiced by the late notice, as the proceedings were handled by the applicant's counsel through mediation, judgment and filing for judicial review before that notice was given, depriving the respondent of the early opportunity to investigate the incident, settle the matter without the involvement of lawyers or retain its own counsel. As a result, relief from forfeiture under s. 129 of the Insurance Act, R.S.O. 1990, c. I.8 would not be appropriate. In any event, relief from forfeiture for failure to give notice is not available in "claims made and reported" policies such as this one. The notice requirement is an integral part of the event triggering coverage in such policies. The respondent had no obligation to defend or indemnify the applicant.

Cases referred to

Brockton (Municipality) v. Frank Cowan Co. (2002), 2002 7392 (ON CA), 57 O.R. (3d) 447, [2002] O.J. No. 20, 154 O.A.C. 125, 34 C.C.L.I. (3d) 1, [2002] I.L.R. I-4097, 110 A.C.W.S. (3d) 914 (C.A.); Fine's Flowers Ltd. v. General Accident Assurance Co. of Canada (1977), 1977 1182 (ON CA), 17 O.R. (2d) 529, [1977] O.J. No. 2435, 81 D.L.R. (3d) 139, 2 B.L.R. 257, [1978] I.L.R. Â1-937 at 894, [1977] 2 A.C.W.S. 1022 (C.A.); Ideal Roofing Co. v. Royal & Sun Alliance Insurance Co., [2006] O.J. No. 4409, 43 C.C.L.I. (4th) 80, 2006 37264, 152 A.C.W.S. (3d) 817 (S.C.J.); Onex Corp. v. American Home Assurance Co., [2011] O.J. No. 3031, 2011 ONSC 1142, [2011] I.L.R. I-5166, 98 C.C.L.I. (4th) 228 (S.C.J.); Stuart v. Hutchins (1998), 1998 7163 (ON CA), 40 O.R. (3d) 321, [1998] O.J. No. 3672, 164 D.L.R. (4th) 67, 113 O.A.C. 12, 6 C.C.L.I. (3d) 100, [1999] I.L.R. I-3619, 82 A.C.W.S. (3d) 782 (C.A.)

Statutes referred to

Insurance Act, R.S.O. 1990, c. I.8, s. 129

APPLICATION by the insured for an order that the insurer provide coverage or for damages for breach of contract.

R.V. Andal, for applicant.

L. Phillips-Smith, for respondent Royal Insurance.

A. Mercer, for respondent Jones Brown Insurance Brokers.

Endorsement of DONOHUE J.: —

Issue

[1] PLA [Peel Law Association] seeks to have the respondent insurer provide coverage and reimburse PLA's defence costs incurred and indemnify them. In the alternative, they seek damages from the respondents for breach of contract for the defence costs and liability incurred by the PLA.

[2] The respondents submit the policy was a "claims made and reported" policy and notice was not given within the policy period. [page314]

The Claim

[3] As a result of an incident on May 16, 2008, a Human Rights Tribunal of Ontario ("HRTO") proceeding was brought against the PLA on July 24, 2008. On January 7, 2009, a second HRTO proceeding was brought against the PLA. The two proceedings were consolidated.

[4] The PLA promptly retained counsel to respond to both HRTO proceedings. Their counsel filed a response to the first claim on August 20, 2008. The matters were heard by the HRTO in December 2010. The PLA were ordered to pay $4,000 in damages. The PLA appealed to the Divisional Court, which quashed the HRTO decision. The proceedings were appealed to the Court of Appeal. The appeal was heard in December 2012.

[5] PLA's defence costs have exceeded $116,889.41.

The Policy

[6] The policy covered the PLA for claims made against them for "Wrongful Acts". It was a "claims made and reported" policy. The policy period was October 23, 2007 to October 23, 2008. The insured organization name was "Peel Law Association".

[7] The policy was sent to the PLA by letter dated October 18, 2007, with a covering letter from the respondent broker, Jones Brown Insurance Brokers & Consultants ("broker"), stating: "Please be advised that this is a CLAIMS MADE policy, which requires that all claims against, or incidents, which arise, that may result in a claim during the policy period must be reported in writing as soon as practicable. Special attention must be given prior to expiry to ensure that all incidents, which may give rise to a claim and all actual claims, are reported prior to the expiry date of the policy. We ask that you review Section C -- Notice on page 6 of the policy."

[8] Section C is titled "Notice". It states, "The Insureds shall, as a condition precedent to their rights under the Policy, give to the Insurer written notice of any Claim, with full details, as soon as practicable but in no event later than thirty (30) days following the termination of the Policy Period."

[9] It further states, "Any such notice of circumstances shall include a description of the circumstances, the nature of the alleged Wrongful Act, the nature of the alleged or potential damage, the names of actual or potential claimants and Insureds involved, and the manner in which the Insureds first became aware of the circumstances."

[10] Page 2 of the policy has a section entitled "DEFENCE, SETTLEMENT AND COOPERATION". It states, "The Insureds agree [page315] not to settle or offer to settle any Claim, incur any Defence Costs or otherwise assume any contractual obligation or admit any liability with respect to any Claim without the Insurer's prior written consent, which shall not be unreasonably withheld. The Insurer shall not be liable for . . . any settlement, Defence Costs, assumed obligation or admission to which the Insurer has not consented" (emphasis in original).

The Disputed Notice

[11] The PLA's position is that they substantially complied with the notice provision in the policy.

[12] The PLA president completed a renewal application on October 16, 2008, which was within the policy period.

[13] In answer to the question, "since completion of the last application have there been any changes in the following areas . . . Outside Legal Counsel", she wrote, "PLA retained Toronto solicitor Andrew Pinto to represent it in an action brought before the Ontario Human Rights Tribunal. Only the Association is a named defendant, not any of the officers or directors."

[14] This renewal application was sent to the broker for the policy which the PLA sought for the following year's policy period. The insurer described it as a "go forward" document and not relevant to the current policy year.

[15] I note this form does not inquire whether there are any claims made. It asks only for material changes. This form was promptly forwarded by the broker to the insurer's underwriting department.

[16] The insurer's underwriter did not make any inquiries as to the circumstances surrounding the action referred to in the renewal application as it did not refer to a reported "claim" and was therefore not relevant to the risk.

[17] The evidence is that the insurer's underwriting department, although at the same address as the insurer's claims department, operates separately and do not share communications. I cannot find that information provided to the insurer's underwriting department constitutes notice to the insurer's claims department when it has not been shown that it would reasonably come to the notice of the claims department.

[18] The PLA's evidence was that they were not aware a claim could be submitted for the HRTO proceeding because the directors were not named personally. As a result, even though the questionnaire was completed as described above, the PLA did not intend [to] report a claim on behalf of the PLA.

[19] Furthermore, it is the PLA's evidence that if they had known that they had coverage, they would have reported a claim [page316] and requested coverage. They had not turned their mind to insurance coverage for the HRTO proceedings.

[20] As a result, I find that the response to the question in the renewal policy was not notice of a claim.

[21] The PLA's evidence is that after submitting the renewal application there was no expectation that an adjuster would be appointed to defend the HRTO claims.

[22] The PLA admits that no formal claim for the HRTO proceedings was made before December 23, 2010, when their counsel wrote his inquiry.

[23] The decision of Onex Corp. v. American Home Assurance Co., [2011] O.J. No. 3031, 2011 ONSC 1142 (S.C.J.) considered the sufficiency of notice of a claim. Citing American authorities on point, Justice Pattillo held that an objective test should be applied having regard to the wording of the policy (see para. 136).

[24] As the test is an objective one, Justice Pattillo found that the "intention" of the insured was not relevant.

[25] In my view, it may be preferable to consider that the intention of the insured is not determinative but actually may be relevant to the determination whether the insured communicated their notice of a claim.

[26] In the Onex case, the court found that the insured's letter clearly set forth, both on its face and in its content, the reasons why the insured should anticipate a claim.

Elements of Notice

[27] The insurer admits that a notice is effective if sent to the broker or to the claims office address in the policy. The insurer agreed that the insured does not have to demand a defence for the policy to trigger coverage and the duty to defend. The insurer agreed that the notice does not have to be in a particular form and is not rejected on the basis of incomplete information.

[28] In this matter, the PLA did not consider the renewal application to be a claim at the time and neither did the broker. The information on the renewal form answers a question of material change. I see nothing in it that amounts to communication of a claim to the insurer. It reads rather that the insured is handling some proceedings using counsel of their choice.

[29] The purpose of giving notice is so that the insurer can promptly start to investigate, set reserves and defend the claim. The policy makes it the obligation of the insured to report a claim or even a potential claim.

[30] On a plain reading of the policy, and the evidence of the PLA and the respondents, there was no effective claim made by the PLA for the HRTO proceedings within the policy period. [page317]

[31] All the evidence and argument by the PLA was directed at the first HRTO proceeding of July 24, 2008. There was no evidence or argument to support any kind of notice of a claim for the second HRTO proceeding of January 7, 2009, which was subject to the following year's "claims made and reported" policy.

Inquiry by the Broker or Insurer

[32] The PLA complains that neither the broker nor the insurer followed up by asking the PLA to submit a claim after receiving the renewal application with information of the HRTO proceedings.

[33] The PLA did not provide any evidentiary, contractual, legislative, or legal basis that would support an insurer's duty or responsibility to detect the presence of a claim or ferret out potential claims. It is the insured that has the facts available to it and is in the position to determine whether or not to make a claim based on those facts.

[34] The PLA pointed to the seminal decision of Fine's Flowers regarding a broker's duty (Fine's Flowers Ltd. v. General Accident Assurance Co. of Canada (1977), 1977 1182 (ON CA), 17 O.R. (2d) 529, [1977] O.J. No. 2435 (C.A.)). That case, however, stands for the broker's obligation to make inquiries of the insured's needs to ensure they sell the insured's appropriate coverage. The broker takes on the responsibility of assessing the foreseeable risks and insuring his client against them. The decision does not stand for the proposition that the broker is obligated to make inquiries on whether someone wants to make a claim or not.

[35] I accept that in various circumstances for various reasons, insureds may choose not to report claims and to handle them themselves. They are allowed to do so. It can prejudice them, however, if they later change their minds and seek coverage under their insurance policies. Late reporting, as here, has negative consequences.

[36] The PLA notes the insurer's deponent, Mr. Stewart's, evidence. He is a claims consultant with the respondent insurer. He deposed that, if he had been provided with information as set out in the renewal policy, he would have inquired further. As a claims consultant, it is not surprising that he would have sought out further information. The difficulty here is that no information regarding the HRTO proceedings ever reached the claims department.

[37] It is not incumbent on the insurer to make enquiries of the insured as to whether there are valid claims, but it is incumbent on the insured to make the claim by giving notice. [page318]

[38] The PLA did not write to the insurer saying they wished to make a claim; they did not inquire whether they could claim; they did not forward a copy of the HRTO pleadings to the broker; they only answered a question on their renewal that they had hired counsel on some action brought before the tribunal.

[39] The evidence of Bob Richardson, a partner at the broker, is telling. He was assisting with the renewal application of the PLA when the broker was seeking competing quotes for the 2009 policy. A potential insurer inquired about a note in the PLA's financial statements about "ongoing litigation".

[40] Mr. Richardson contacted the PLA and was advised that the litigation was a Human Rights Tribunal matter. He was told that it "was not an insurance issue". He was advised that the insured had hired counsel and would pay any settlement themselves. He confirmed this information in an office e-mail that day, October 7, 2009.

[41] I accept this evidence as Mr. Richardson's evidence is entirely consistent with the PLA's intention not to report a claim and no actions being taken to report. Mr. Richardson's evidence also supports the finding that the insurer did not have reason to believe a claim was made.

[42] Had that call been made a year earlier by the insurer making inquiries following the renewal notice, it is reasonable to infer that the answer would have been the same, that the litigation was not an insurance issue, and that the association was handling it themselves.

Prejudice to the Insurer

[43] The insurance policy states that the insurer has the right and duty to defend. Counsel for the insurer emphasized the insurer's right to defend.

[44] These proceedings were handled by the applicants' counsel through mediation, judgment and filing for judicial review before notice was given to the insurer.

[45] Justice Kealey, in Ideal Roofing Co. v. Royal & Sun Alliance Insurance Co., [2006] O.J. No. 4409, 2006 37264 (S.C.J.), at para. 9, cited Couch on Insurance for a number of illustrations deemed sufficient prejudice to avoid coverage:

1. The insurer was prevented from protecting its interests in the case.

2. Failure to provide notice of suit constituted prejudice as a matter of law.

3. The entry of adverse judgment against insured deprived insurer of all opportunity to defend.

4. The delay precluded insurer's investigation of claim. [page319]

5. The delay precluded an opportunity to effect an early settlement.

6. The delay precluded insurer's participation in pretrial discovery proceedings.

7. During the delay, the insured essentially admitted liability in pretrial proceedings.

[46] The evidence here is that the insurer was deprived by this late notice of making a proper assessment of liability and in setting reserves. It lost the early opportunity to investigate the incident. It lost the early opportunity to settle the matter without the involvement of lawyers. It lost the opportunity to retain their own counsel.

[47] I accept that these lost opportunities have prejudiced the insurer. This is particularly so in light of the high cost of the litigation and the modest tribunal orders granted.

[48] I accept that the late notice of the HRTO claims resulted in actual prejudice to the insurer on these facts.

Relief from Forfeiture

[49] If the court finds that the notice was not complied with, the PLA seeks relief from forfeiture by s. 129 of the Insurance Act, R.S.O. 1990, c. I.8. This grants the court power to relieve against forfeiture where there has been imperfect compliance with notice of a claim and the court considers it inequitable.

[50] In light of my finding that the insurer has been prejudiced on these facts, I would not find it appropriate to grant relief against forfeiture.

[51] In any event, it has been clarified by the Court of Appeal in Stuart v. Hutchins (1998), 1998 7163 (ON CA), 40 O.R. (3d) 321, [1998] O.J. No. 3672 (C.A.), at p. 9 (QL), that relief from forfeiture for failure to give notice is not available in "claims made and reported" policies such as this one. The notice requirement was considered an integral part of the event triggering coverage in such policies (see p. 11 (QL)).

[52] The notice is a condition precedent to coverage in such "claims made and reported" contracts. Failure to give the timely notice is non-compliance with the contract. It cannot be excused.

Defence Costs

[53] The policy sets out the insurer's right to defend the claim.

[54] The Court of Appeal in Brockton (Municipality) v. Frank Cowan Co. (2002), 2002 7392 (ON CA), 57 O.R. (3d) 447, [2002] O.J. No. 20 (C.A.) found that the insurer did not have to pay for legal costs incurred without their consent. The court stated, "The insurance contract makes this clear. It provides that it is the role of the [page320] insurer to investigate and defend claims covered by the policy and it is the role of the insured to assist in that regard. It is the insurer which conducts the defence. This includes the appointment of defence counsel. Indeed this right of the insurer to control the defence can be seen as being in return for its obligation to pay a proper claim" (see para. 31).

[55] In the circumstances here, the insurer was given no choice in the appointment of counsel or the handling of the defence contrary to the policy. They are not liable therefore for those costs.

Final Decision

[56] I find there was no notice given to the broker or the insurer of the claim within the policy period as required by the policy.

[57] I find that that the applicants are not entitled to relief from forfeiture.

[58] I find that the insurer has no duty to defend, reimburse and/or indemnify the PLA of this claim due to the late notice.

[59] I find no duty by the broker which has been breached such that damages would flow.

[60] I dismiss the application.

Costs

[61] If the parties cannot agree on costs, I ask for the respondents' written submissions of three pages or less, plus any applicable offers to settle, within 30 days. The applicant is to forward written submissions of three pages or less, plus any applicable offers to settle, within 14 days thereafter.

Application dismissed.

End of Document