Court File and Parties

COURT FILE NO.: CV-19-960000 DATE: 2021 02 11

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: CRD Construction Ltd. and Rob Leshuk Applicants

v.

Aviva Insurance Company of Canada and Economical Mutual Insurance Company Respondents

BEFORE: Bloom, J.

COUNSEL: Robert Kennaley, for the Applicants Murray Stieber and Michael Connolly, for the Respondent, Aviva Insurance Company of Canada Pearl Rombis, for the Respondent, Economical Mutual Insurance Company

HEARD: March 2, 2020 and December 16, 2020

Endorsement

I. Introduction

1In the Application at bar the Applicants seek an order declaring that the Respondents or one of them must defend the Applicants on a Counterclaim. The Applicants further seek an order that the Respondents or one of them must reimburse the Applicants for legal fees, including disbursements, on a full indemnity basis incurred in defense of the Counterclaim from the date the Respondents were put on notice of the Counterclaim; the amount of the reimbursement sought is to be agreed upon or subject of further directions if there is no agreement.

II. Procedural Background and Undisputed Facts

2The Applicants were insured under third party liability policies of insurance issued by the Respondents. The policies were occurrence-based, meaning that coverage was given provided that the damage alleged arose during the coverage period.

3The Applicant, CRD, was a contractor in the construction field. It commenced an action against a client, TNS, for over $400,000 for money owing on a construction contract. The Statement of Claim was issued on January 24, 2014.

4On February 28, 2014 TNS issued a Statement of Defense and Counterclaim, claiming damages of $1,500.000 against CRD, and the Applicant, Leshuk, one of the principals of CRD, based on alleged construction deficiencies. The Statement of Defense and Counterclaim was served some time before April 7, 2014.

5By April 7, 2016 the limitation period expired for CRD to claim against subcontractors and others in relation to the subject of the Counterclaim.

6The Aviva policy covered the period December 12, 2012 to December 12, 2013. The Economical policy covered the period December 12, 2013 to December 12, 2014.

7CRD set the action down for trial before conducting examinations for discovery. On December 17, 2019 CRD was successful on a motion for leave to conduct examinations for discovery of TNS.

8Economical was first informed of the Counterclaim on or about October 20, 2017, and Aviva was first notified of it on or about November 16, 2017.

9The relevant terms of the contracts of insurance applicable to this matter are set out in the below chart:

AVIVA’S RELEVANT CGL POLICY CONDITIONS

ECONOMICAL’S RELEVANT CGL POLICY CONDITIONS

5. Duties in the event of occurrence, offence, claim or action (Applicable to all Coverages except Coverage F) (a) You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim. To the extent possible, notice should include: (1) How, when and where the “occurrence” or offense took place; (2) The names and addresses of any injured persons and witnesses; and (3) The nature and location of any injury or damage arising out of the “occurrence” or offense. (b) If a claim is made or “action” is brought against any insured, you must: (1) Immediately record the specifics of the claim or “action” and the date received; and (2) Notify us as soon as practicable (c) You and any other involved insured must: (1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or “action”; (2) Authorize us to obtain records and other information; (3) Cooperate with us in the investigation or settlement of the claim or defense against the “action”; and (4) Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply. (d) No insured will, except at that Insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense without our consent.

6. Transfer of rights of recovery against others to us If the insured has rights to recover all or part of any payment we have made under this coverage form, those rights are transferred to us. The insured must do nothing after loss to impair them. At our request, the insured will bring “action” or transfer those rights to us and help us enforce them.

7. Duties In the Event of Occurrence, Claim or Action. a. You must see to it that we are notified promptly of an "occurrence" which may result in a claim. Notice should include:

1. How, when and where the "occurrence" took place; and
2. The names and addresses of any injured persons and of witnesses. b. If a claim is made or "action" is brought against any insured, you must see to it that we receive prompt written notice of the claim or "action". c. You and any other involved insured must:
3. Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "action";
4. Authorize us to obtain records and other information;
5. Cooperate with us in the investigation, settlement or defence of the claim or "action"; and
6. Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may also apply. d. No insured will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.

13. Transfer of Rights of Recovery Against Others to Us. If the insured has rights to recover all or part of any payment we have made under this form, those rights are transferred to us. The insured must do nothing after loss to impair them. At our request, the insured will bring "action" or transfer those rights to us and help us enforce them.

10CRD commenced an action against its former counsel on the Counterclaim on or about December 21, 2018 in which it alleges negligence for failure to give notice to the insurers of the Counterclaim and for failure to claim against the subcontractors.

III. Governing Legal Principles

11A number of principles are relevant to an analysis of the case at bar.

A. The Duty to Defend

12While counsel for Economical asserted at the end of oral argument that the case before me was not “a duty to defend case” and that, if it had been, different procedural rules would have applied, the case proceeded without any argument about the application of such rules. I will address the duty to defend here and in my analysis on the basis of the materials and submissions put before me by the parties.

13In Cadillac Fairview Corporation v. Oadkridge Landscape-Contractors et al., 2010 ONSC 4535 at para. 2 Justice Ramsay discussed the duty to defend:

[2] From the authoritative jurisprudence of the Supreme Court of Canada, which is reiterated and explained by the Court of Appeal in Halifax Insurance Company of Canada v. Innopex Ltd. (2004), 72 O.R. (3d) 522, [2004] O.J. No. 4178 (C.A.), I take the following:

(a) A duty to defend arises when an insurance policy provides for coverage against liability and a claim is made which, if proven, would subject the insured to liability.

(b) The duty to defend is broader than the duty to indemnify. The duty to indemnify only arises if the claim is proven.

(c) As a result, the duty to defend is determined as a preliminary matter, while the duty to indemnify is decided at the conclusion of the underlying litigation.

(d) The duty to defend is determined by the insurance policy, the pleadings and any documents to which the pleadings refer and [page799] on which they rely. Any other evidence is inadmissible, apart from expert evidence which might be admissible to explain the technical meaning of the terms in the insurance policy.

(e) It is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim falling within the policy may succeed will suffice. The duty to defend is confined to the defence of claims which may be argued to fall under the policy. The widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy.

(f) Since the duty to defend arises when the underlying complaint alleges any facts that might fall within the coverage of the policy, what really matters is not the labels used by the plaintiff, but the true nature of the claim.

B. Waiver

14The Applicants rely both on common law and statutory waiver.

15The statutory provision governing waiver is s. 131(1)(a) of the Insurance Act; the current provision went into force on July 1, 2016 and provides:

131 (1) The obligation of an insured to comply with a requirement under a contract is excused to the extent that,

(a) the insurer has given notice in writing that the insured’s compliance with the requirement is excused in whole or in part, subject to the terms specified in the notice, if any;

16In Bradfield v. Royal Sun Alliance Insurance Co. of Canada, 2019 ONCA 800, [2019] O.J. No. 5047 (Ont. C.A.) Justice Thorburn for the Court at paras. 30 to 41 discussed both common law waiver, and statutory waiver under s. 131(1)(a):

30 Waiver and promissory estoppel are closely related: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, at para. 18.

31 The principle underlying both doctrines is that a party should not be allowed to resile from a choice when it would be unfair to the other party to do so. Both require "knowledge" of the policy breach: Economical Insurance Group v. Fleming (2009), 89 O.R. (3d) 68, at para. 31, aff'd 2009 ONCA 112, 69 C.C.L.I. (4th) 185, and Rosenblood Estate v. Law Society of Upper Canada (1989), 37 C.C.L.I. 142 (Ont. H.C.) at para. 53, aff'd , 16 C.C.L.I. (2d) 226 (Ont. C.A.).

32 Waiver will be found where:

“the party waiving had (1) full knowledge of the deficiency that might be relied upon; and (2) the unequivocal and conscious intention to relinquish the right to rely on the contract or obligation. The creation of such a stringent test reflects the fact that no consideration moves from the party in whose favour a waiver operates. An overly broad interpretation of waiver would undermine the requirement of contractual consideration”: Saskatchewan River Bungalows, at para. 20, and Economical Insurance Group, at para. 31.

33 Knowledge can be inferred from conduct, but "that conduct must give evidence of an unequivocal intention to abandon rights known to the party waiving the right": Canadian Federation of Students/Fédération canadienne des étudiant(e)s v. Cape Breton University Students' Union, 2015 ONSC 4093, at para. 129.

34 In Logel Estate v. Wawanesa Mutual Insurance Company, [2008] I.L.R. I-4744 (Ont. S.C.), the insurer elected to defend the claim after receiving the accident report and the pathology report for a single car collision leading to a death: aff'd 2009 ONCA 252, 70 C.C.L.I. (4th) 188. Those reports contained the evidence of the status of the insured's licence and her physical condition. In Logel, the trial judge concluded at para. 21:

"that upon receipt they must have had knowledge of the facts including the status of Ms. Logel's licence and her physical condition, which gave rise to the exclusion of coverage. If they did not appreciate the significance of these facts they should have, before they elected to defend." [Emphasis added.]

35 In Logel, all facts necessary to establish knowledge were within the possession of the insurer. The insurer simply did not appreciate the significance of the facts before it elected to defend. In the face of this information, the court held that the insurer waived the breach by obtaining all the necessary information to enable it to be aware of a policy breach and deciding to defend the claim.

36 In this case, RSA knew Devecseri had an M2 licence and it was a breach of the policy to consume any alcohol before driving.

37 However, it is agreed that RSA had no actual knowledge that Devecseri breached the policy by consuming alcohol before driving until 2009.

38 Second, unlike Logel, knowledge of a policy breach could not be imputed, as RSA did not have all of the material facts from which to determine there was a policy breach. This was not a case where RSA failed to appreciate the significance of information; it did not have information that Devecseri had been drinking and had thereby breached the terms of the policy.

39 Third, there is no evidence to support Bradfield's assertion that RSA knew of the policy breach but chose not to take possession of the information. No legal authority was proffered to support Bradfield's assertion that an insurer must obtain the coroner's report. It is also agreed that, although information as to the blood alcohol content was in the coroner's report, there is no evidence that RSA knew that information was contained in the coroner's report and knowing that, chose not to get the coroner's report. On the contrary, had RSA obtained the report, it would not have expended monies conducting further investigation and defending the claim.

40 Lastly, there was no written waiver of the breach on the part of RSA, as required by s. 131(1) of the Insurance Act, to demonstrate a clear intention to waive the policy breach.

41 For these reasons, it was not correct to conclude that RSA waived its right to refuse coverage for breach of the terms of the insurance policy.

C. Relief From Forfeiture

17S. 98 of the Courts of Justice Act provides:

98 A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.

18In Kozel v. Personal Insurance Co., 2014 ONCA 130 at paras. 29, 30, 34, 39, 40 to 45, 47, 50, 51, 54, 61, 67, and 69 Justice LaForme for the Court comprehensively and with discussion of relevant case law set out the principles governing the application of s. 98 in the context of insurance law:

[29] The remedy of relief against forfeiture is equitable in nature and purely discretionary: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, [1994] S.C.J. No. 59, at p. 504 S.C.R….

[30] In insurance cases, the purpose of the remedy "is to prevent hardship to beneficiaries where there has been a failure to comply with a condition for receipt of insurance proceeds and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer": Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778, [1989] S.C.J. No. 97, at p. 783 S.C.R. [page63]

[34] Courts have interpreted Stuart as having decided that s. 98 has no application to instances of non-compliance with a condition precedent. 1 Indeed, in this case, the application judge based his holding that s. 98 relief was not available solely on the fact that the respondent's breach here is one of non-compliance with a condition precedent to coverage. At para. 43 of his [page64]reasons, he noted that Stuart is authority for the principle that relief cannot be granted under the powers conferred by s. 98 for a breach of a fundamental term or condition precedent of a contract.

[39] There are two threshold questions to resolve before undertaking the three-part analysis in Saskatchewan River Bungalows to determine whether the court should exercise its discretion to grant relief from forfeiture. First, does the breach in this case constitute imperfect compliance with a policy term or non-compliance with a condition precedent to coverage?...

(a) Does the breach here constitute imperfect compliance with a policy term or non-compliance with a condition precedent to coverage?

[40] The difference between imperfect compliance and non-compliance is crucial for the purposes of the relief against forfeiture analysis. If the respondent's breach of statutory condition 4(1) is imperfect compliance with a policy term, relief against forfeiture under s. 98 of the CJA is available. If, however, the breach amounts to non-compliance with a condition precedent, the court cannot award relief under s. 98: Stuart, at p. 333 O.R.

[41] As McLachlin J. (as she then was) explained in Falk Bros., at p. 784 S.C.R., the distinction between imperfect compliance and non-compliance "is akin to the distinction between breach of a term of the contract and breach of a condition precedent". However, in the context of relief from forfeiture, the imperfect compliance/non-compliance analysis does not engage with the contracts jurisprudence on conditions precedent. Rather, the focus is on whether the breach of the term is serious or substantial. Where the term is incidental, its breach is deemed to be imperfect compliance; where the provision is fundamental or integral, its breach is cast as non-compliance with a condition precedent.

[42] In Falk Bros., the issue was whether the claimant's failure to give notice of his claim to the insurer within the prescribed period precluded an award of relief against forfeiture under s. 109 of the Saskatchewan Insurance Act, R.S.S. 1978, c. S-26. Reviewing the case law, McLachlin J. observed, at pp. 784-85 S.C.R., that the failure to give timely notice of a claim has been viewed as imperfect compliance, while failure to institute an action within the prescribed time period has been viewed as non-compliance, or breach of a condition precedent.

[43] McLachlin J. concluded that a failure to give notice of a claim within the relevant period is imperfect compliance, firstly because it is a "less serious breach" than failing to bring an action in a timely manner, and secondly because it pertains to proof of loss. In my view, this second reason has no application to our case, because unlike s. 109 of the Saskatchewan Insurance Act, s. 98 of the CJA does not limit relief to cases of imperfect compliance with a condition as to the proof of loss.

[44] Likewise, in Stuart, the import of the relevant contract provision -- and accordingly, the scale of the breach -- was an important factor in determining whether the breach constituted imperfect compliance or non-compliance with a condition precedent. At p. 332 O.R., Moldaver J.A. held that the failure of the [page66]broker to report the claim within the policy period amounted to non-compliance with a condition precedent to coverage, rather than imperfect compliance with a term of the policy. He stressed the conceptual difference between "occurrence" policies and "claims-made and reported" policies. In these latter policies, the notice provision is "integral".

[45] Finally, this court addressed the imperfect compliance/ non-compliance distinction in Canadian Newspapers Co. v. Kansa General Insurance Co. (1996), 30 O.R. (3d) 257, [1996] O.J. No. 3054 (C.A.). In that case, a newspaper publisher entered into a corporate insurance policy with the insurer, which provided, among other things, that the publisher had a duty to co-operate with the insurer. This court held that the publisher could not succeed on its claim for relief against forfeiture because its breach of the duty of co-operation was "substantial". In doing so, Weiler J.A. made the following observations, at p. 281 O.R.:

In Travellers Indemnity Co. v. Sumner Co. (1960), 27 D.L.R. (2d) 562 (N.B. C.A.)], the court held that, although a breach of the insured's duty of co-operation could qualify as imperfect compliance, an insurer could deny coverage or refuse to defend if the lack of co-operation was "substantial". West J.A. held, at p. 565, that "[n]o inconsequential or trifling breach of such obligation should serve to exonerate the insurer from his contractual liabilities under the policy." The liability in that case arose out of a motor vehicle accident. The breach complained of by the insurer was the insured's failure to promptly notify the insurer of a drink the insured had taken shortly before the accident. The insured informed the insurer of this drink before he was examined for discovery and, at trial, the judge found that the insured was not intoxicated at the time of the accident. The court of appeal held that this inconsequential breach should not serve to allow the insurer to refuse to indemnify the insured.

The breach complained of in the present appeal is a "substantial" breach of the insured's duty of co-operation and of the insurer's right to defend the action. [The publisher] failed to report on the progress of the litigation, to convey offers to settle, to inform [the insurer] of the theory of the defence and to advise that the action had proceeded to trial until after the trial had begun. This breach is more than mere "imperfect compliance" it is a substantial breach of the policy and on this basis alone [the publisher] is not entitled to claim relief from forfeiture.

[47] In light of the above, my view is that in this case, the respondent's breach of statutory condition 4(1) is not non-compliance with a condition precedent. There are no grounds to [page67]believe that 4(1) is a fundamental term or that the respondent's breach of it was of a fundamental nature. While the provision is a condition in name, the appellant pointed to no language in the contract stressing that the insurance coverage was conditioned on the claimant being authorized to drive. This fact renders our case different than the facts in Stuart, where plain language in the contract identified the relevant contractual term as a condition precedent. Neither was the respondent's breach here a fundamental one. Had the respondent's violation of statutory condition 4(1) been more substantial -- for example, if she had been drinking heavily prior to driving -- she may have been barred from obtaining relief from forfeiture. This case, however, involves a relatively minor breach.

[50] In light of Marche, I believe the decision in Stuart should be given a narrow application. A court should find that an insured's breach constitutes non-compliance with a condition precedent only in rare cases where the breach is substantial and prejudices the insurer. In all other instances, the breach will be deemed imperfect compliance, and relief against forfeiture will be available.

[51] This holding does not upset the balance in the existing relief against forfeiture jurisprudence, because an insured must still make three showings -- that his or her conduct was reasonable, that the breach was not grave, and that there is a disparity between the value of the property forfeited and the damage caused by the breach -- in order to prevail.

[54] It is worth repeating that courts are to interpret relief from forfeiture provisions broadly. In Falk Bros., McLachlin J. noted, at pp. 782-83 S.C.R., that:

The first consideration is that s. 109 is a remedial section and as such should be given an appropriately broad interpretation. In Minto Construction Ltd. v. Gerling Global General Insurance Co. (1978), 86 D.L.R. (3d) 147, citing Canadian Equipment Sales & Service Co. v. Continental Insurance Co. (1975), 59 D.L.R. (3d) 333 (Ont. C.A.), MacKinnon J.A. noted at p. 151 that the equivalent Ontario "section is 'an ameliorating clause', and [that] it should be given a fair, large and liberal interpretation".

[61] As Doherty J.A. explained in 8477 Darlington Crescent, at para. 89, the first factor of the analysis "requires an examination of the reasonableness of the 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" (emphasis added). The scope of the reasonableness analysis was also discussed by Osborne J.A. in Williams Estate v. Paul Revere Life Insurance Co. (1997), 34 O.R. (3d) 161, [1997] O.J. No. 2773 (C.A.), at p. 175 O.R.:

The reasonableness test requires consideration of the nature of the breach, what caused it and what, if anything, the insured attempted to do about it. [page70]All of the circumstances, including those that go to explain the act or omission that caused the lapse (forfeiture) of the policy, should be taken into account. It is only by considering the relevant background that the reasonableness of the insured's conduct can be realistically considered.

[67] The second factor is the gravity of the breach. This inquiry "looks both at the nature of the breach itself and the impact of that breach on the contractual rights of the other party": 8477 Darlington Crescent, at para. 91. If, for example, the forfeiture provision operated as a means of securing the payment required under a lease, the fact that the breaching [page71]party had paid all the amounts owing could obviate the need to resort to forfeiture and support a claim for relief.

[69] The third factor is the disparity between the value of the property forfeited and the damage caused by the breach. This factor entails "a kind of proportionality analysis": 8477 Darlington Crescent, at para. 92. In an insurance case, this inquiry involves comparison of the disparity between the loss of coverage and the extent of the damage caused by the insured's breach.

19In Monk v. Farmers’ Mutual Insurance Company (Lindsay), 2019 ONCA 616 at para. 82 Justice Brown for the Court elaborated on the first factor in the tripartite relief from forfeiture test:

82 The reasonableness part of the test requires a court to consider the nature of the breach, what caused it and what, if anything, the insured attempted to do about it. One circumstance is whether the conduct of the defaulting party was "willful". All of the circumstances, including those that go to explain the act or omission that caused the lapse or forfeiture of the policy, should be taken into account. It is only by considering the relevant background that the reasonableness of the insured's conduct can be realistically considered: Williams Estate v. Paul Revere Life Insurance Co. (1997), 34 O.R. (3d) 161 (C.A.), at p. 175; 1497777 Ontario Inc. v. Leon's Furniture Ltd. (2003), 67 O.R. (3d) 206 (C.A.), leave to appeal refused, [2003] S.C.C.A. No. 506, at para. 72.

IV. Arguments of the Parties

A. Arguments of the Applicants

20The Applicants argue that Economical waived any applicable breach of the policy either at common law or under s. 131(1)(a) of the Insurance Act as regards the duty to defend them, as distinct from the duty to indemnify them. The Applicants argue that Economical had sufficient knowledge of the terms breached when it was notified of the Counterclaim to make the waiver it did, even if it did not realize the consequences of the waiver.

21Further, as an alternative argument against Economical and as against Aviva, the Applicants argue that they are entitled to relief from forfeiture under s. 98 of the Courts of Justice Act; again the Applicants emphasize that the issue is relief from forfeiture in the context of the duty to defend not the duty to indemnify.

B. Arguments of Economical

22Economical argues that there was no waiver of the breach of policy terms, because it lacked actual knowledge of the breaches when it received notice of the Counterclaim; specifically, it lacked knowledge of the fact that limitation periods had expired barring action against subcontractors and consultants by way of third party claims or claims over, and lacked knowledge of how far the Counterclaim had progressed. Further, Economical argues that it did not make unequivocal waiver; rather it made waiver subject to a reservation of rights.

23Economical also argues that the breaches of terms were of a fundamental condition or fundamental conditions or of a condition precedent or conditions precedent; and, consequently, constituted non-compliance with the policy of insurance rendering relief from forfeiture unavailable. Additionally, Economical argues that, even if relief from forfeiture were available, the tripartite test for it was not fulfilled. In asserting that the test was not fulfilled Economical relies heavily on the contention that the conduct of the Applicants was unreasonable in that they intentionally did not notify Economical of the Counterclaim on a timely basis.

C. Arguments of Aviva

24Aviva argues that relief from forfeiture is not available, because the breaches of policy terms constituted non-compliance with the policy in view of their substantial nature. Alternatively, Aviva argues that, with respect to the test for relief from forfeiture, if it applies, the Applicants have not proven entitlement. In that regard, Aviva emphasizes that the conduct of the Applicants was unreasonable, since they have not explained satisfactorily why notice of the Counterclaim was given so late to the insurer; instead, Aviva notes, the Applicants were using a privately retained lawyer to defend against the Counterclaim.

25Aviva argues that the Applicants’ conduct was also unreasonable, because they did not make third party claims or cross-claims against contractors or assist when TNS moved to add defendants.

26Further, in respect of the tripartite test for relief from forfeiture, Aviva argues that the conduct of the Applicants caused it to lose its right to defend against the Counterclaim properly and to settle at an early stage. Aviva argues that its exposure to indemnifying the Applicants was increased, because its ability to defend against the Counterclaim was hampered by the conduct of the Applicants.

27Finally, Aviva argues that, as regards the third factor in the tripartite test, the only risk to the Applicants is the cost of their defense against the Counterclaim.

V. Analysis

A. The Issue of Waiver by Economical

28The question of waiver turns, in my view, on the effect of a reservation of rights letter dated June 1, 2018 from Economical to CRD, and the acceptance of it by the Applicants in writing on June 8, 2018. I find that that letter and its acceptance by the Applicants constitute a waiver in relation to the duty to defend, both at common law and under s. 131(1)(a) of the Insurance Act, of breach by the Applicants of any terms of the insurance policy; those terms are set out in the chart reproduced above.

29Economical had received notice of the Counterclaim from CRD on October 18, 2017. They acknowledged receipt from CRD of a copy of the Counterclaim in a letter of Peter Neufeld dated January 4, 2018.

30The letter of June 1, 2018 was signed for Economical by Larry Schoch, Specialist Casualty, and accepted for CRD by its Treasurer and by the Applicant, Leshuk. In the letter Economical acknowledged receipt of the Counterclaim; acknowledged that it has “carefully reviewed” the Counterclaim; states that it “is prepared to treat the pleadings as alleging facts which, if proven, may fall within coverage”; raises coverage concerns requiring it to reserve rights regarding indemnity; subject to the reservation of rights proposed to appoint counsel to defend the Applicants; and refers to particular terms of the insurance policy governing work done for CRD by subcontractors.

31I am cognizant of the principles governing waiver set out above. I find that the letter of June 1, 2018, coupled with the acceptance, clearly waived, in relation to the duty to defend, both at common law and under s. 131(1)(a) any of the provisions of the policy set out in the above chart which may have been breached. Economical clearly was aware that late notice was in issue and that third party or cross-claims against subcontractors were a possible concern. Economical was aware of any breaches of the policy and relinquished the right to rely on those breaches in relation to the duty to defend; the letter waived the breaches at common law as regards the duty to defend, while reserving Economical’s rights in relation to the duty to indemnify. Further, waiver under s. 131(1)(a) was completed by those same factors and because the waiver was written, in the form of the letter.

32Economical complains essentially of the consequences of its waiver. However, the fact that it did not appreciate all of those consequences when it gave the waiver, does not vitiate the waiver. It had from January 4, 2018 until the beginning of June of 2018 to consider those consequences, having acknowledged receipt of the Counterclaim on January 4, 2018.

[33] Economical relies on the following penultimate paragraph of its letter of June 1, 2018 as negating waiver:

The Economical's coverage assessment is based on information presently available to it. The Economical expressly reserves the right to modify or supplement its coverage position based on additional information.

34In my view in the context of the letter which specifically reserves the right to deny the duty to indemnify, while accepting the duty to defend, it would be incorrect and unfair to construe this ambiguous language as negating the waiver otherwise effected by the letter.

B. Relief from Forfeiture

35I am now going to address the question of relief from forfeiture as it applies to the Aviva policy, and as it would apply to the Economical policy, assuming that I am incorrect in my analysis of waiver.

36I find on the basis of the principles set out above that the conduct of the Applicants constituted non-compliance in relation to the duty of cooperation in the two insurance policies; and imperfect compliance in relation to the duty of timely notification of the claim. In any event, I also find that the Applicants have not discharged their onus to prove on the basis of the tripartite test entitlement to relief from forfeiture, to the extent it would be available. In that regard I rely on the first factor; the Applicants have not demonstrated that their conduct was reasonable. I will now explicate those conclusions.

37I am guided in my analysis of the issue of whether there was non-compliance with a condition precedent of the policy or imperfect compliance with a term, by the principles set out above. Additionally, I have found additional guidance in a review of several of the authorities discussed in the case law upon which I relied.

38In Stuart v. Hutchins, [1998] O.J. No. 3672 (Ont.C.A.) at paras. 12, 13, 35, 36, and 37 Justice Moldaver for the Court discusses the distinction between occurrence-based policies of insurance such as the ones in the case at bar, and claims-based policies, in the context of the issue under consideration:

12 In order to appreciate the central issue, it is first necessary to understand the defining characteristics of "claims-made and reported" contracts of insurance and the policy considerations which led to their inception.

13 "Claims-made and reported" policies are to be distinguished from "occurrence" policies. Much has been written about the defining characteristics of each 2 and there is no need to belabour the subject. A useful discussion of the origin and distinguishing features of the two types of policies is found in Pacific Employers Ins. Co. v. Superior Court (1990), 270 Cal. Rptr. 779 at 783 & 784:

Occurrence policies were developed to provide coverage for damage caused by collision, fire, war, and other identifiable events (Zuckerman v. National Union Fire Insurance Company (1985) 100 N.J. 304, 495 A.2d 395, 398-399.) Because the occurrence of these events was relatively easy to ascertain, the insurer was able to "conduct a prompt investigation of the incident and make an early assessment of related injuries and damages with the result that actuarial considerations permitted relative certainty in estimating loss ratios, establishing reserves, and fixing premium rates." (Stine v. Continental Cas. Co. (1984) 419 Mich. 89, 349 N.W. 2d 127, 131.) The automobile liability policies in Campbell, Abrams and Billington were classic occurrence policies [221 Cal.App.3d 1358] where coverage attached once the "occurrence" took place even though the claim was not made for some time thereafter. Notice provisions contained in such occurrence policies were "included to aid the insurer in investigating, settling, and defending claims", not as a definition of coverage. (Zuckerman v. National Union Fire Insurance Company, supra, 495 A.2d at p. 406.) "[T]he requirement of notice in such policies is subsidiary to the event that invokes coverage, and the conditions related to giving notice should be liberally and practically construed." (Ibid.) (FN2)

All professional liability policies were at one time "occurrence" policies. (See Kroll, The Professional Liability Policy "Claims Made" (1978) 13 Forum 842.) Underwriters soon realized, however, that "occurrence" policies were unrealistic in the context of professional malpractice because the injury and the negligence that caused it were often not discoverable until years after the delictual act or omission. In an effort to reduce their exposure to an unpredictable and lengthy "tail" of lawsuits filed years after the occurrence they agreed to protect against, underwriters shifted to the "claims-made" policy. (Id. at p. 845) This type of policy differed materially from an "occurrence" policy in several aspects. Most notably, it was transmittal of notice of the claim to the insurer which was the event that invoked coverage. [Emphasis added.]

35 In concluding as I have, that Re/Max cannot avail itself of s. 129, I have not ignored the views expressed by McLachlin J. in Falk Bros., supra, regarding the failure to meet a time requirement and when such failure will be considered imperfect compliance as opposed to non-compliance. In particular, I am mindful of the fact that at p. 242, after reviewing the authorities and relevant policy considerations, McLachlin J. held"that the failure to give notice of claim within the prescribed time period constitutes imperfect compliance rather than non-compliance ..."

36 In coming to this conclusion, McLachlin J. accepted the distinction identified in the case law between failure to give notice of claim in a timely fashion and failure to institute an action within the prescribed time period. At p. 241, she observed:

The case law has generally treated failure to give notice of claim in a timely fashion as imperfect compliance whereas failure to institute an action within the prescribed time period has been viewed as non-compliance, or breach of a condition precedent. Thus, courts have generally been willing to consider granting relief from forfeiture where notice of claim has been delayed: Canadian Equipment Sales & Service Co. Ltd. v. Continental Ins. Co., supra; Minto Construction Ltd. v. Gerling Global Gen. Ins. Co., supra; Moxness v. Saskatchewan Government Ins. Office, [1977] 3 W.W.R. 393, [1977] I.L.R. 1-886 (Sask. Dist. Ct.); Kallos v. Saskatchewan Government Ins., supra; North Lethbridge Garage Ltd. v. Continental Casualty Co., [1930] 2 D.L.R. 835, [1930] 1 W.W.R. 491, 24 Alta. L.R. 390 (Alta. C.A.); see also Dashchuk Lumber Ltd. v. Proman Projects Ltd., supra.

On the other hand, cases in which failure to meet a time requirement has been held to be non-compliance rather than imperfect compliance have largely been cases in which the time period was for the commencement of an action rather than for the giving of notice: D.S. Ashe Trucking Ltd. v. Dominion Ins. Corp. (1966), 56 D.L.R. (2d) 730, 55 W.W.R. 321 (B.C.C.A.); National Juice Co. Ltd. v. Dominion Ins. Co. (1977), 81 D.L.R. (3d) 606, 18 O.R. (2d) 10, [1978] I.L.R. line 1-935 (Ont. C.A.).

37 Much as Falk Bros., supra, might appear to assist Re/Max, upon closer scrutiny it does not. A review of the authorities cited by McLachlin J. for the proposition that "failure to give notice of claim in a timely fashion constitutes imperfect compliance" reveals that the insurance policies in question were all of the "occurrence" type. Unlike the case at hand, the notice requirement in those policies did not form an integral part of the event triggering coverage. That distinction is crucial because, in my opinion, it has the effect of transforming Re/Max's failure to give notice from one of imperfect compliance to non-compliance.

39Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co. (as quoted above in Kozel, supra) read with the benefit of the analysis in Stuart v. Hutchins, supra makes clear that failure to give notice in the context of an occurrence-based policy of insurance is normally imperfect compliance.

40In Canadian Newspapers Co. v. Kansa General Insurance Co. (1996), 30 O.R. (3d) 257 (Ont.C.A.) Justice Weiler on behalf of the Court discusses the issue of non-compliance in the context of the duty of an insured to cooperate with the insurer and the consequence of that breach of duty on the insurer’s duty to defend. She recognized that a substantial breach of the duty of cooperation could be non-compliance making relief from forfeiture unavailable.

41In the case at bar referring to the above chart the terms relating to the duty of timely notification of a claim were 4. a., b., and c.1) in the Economical policy and 5(a), (b), and (c) (1) in the Aviva policy. They were breached by the Applicants, since, although the Counterclaim was served before April 7, 2014, Economical was not notified of the Counterclaim until October 18, 2017 and Aviva was not notified until on or about November 16, 2017. However, based on the principles I have reviewed, in the context of the two occurrence-based policies, the breaches constituted imperfect compliance and relief from forfeiture is available.

[42] In the case at bar the terms setting out the duty of cooperation in the Economical policy were:

You and any other involved insured must:

3. Co-operate with us in the investigation, settlement or defense of the claim or “action”.

[43] In the Aviva policy the terms setting out the duty of cooperation were:

You and any other involved insured must:

(3) Cooperate with us in the investigation or settlement of the claim or defense against the “action”.

44Both sets of terms setting out the duty of cooperation were breached by the actions of the Applicants. They did so by, without consulting with the insurer, retaining their own counsel to defend against the Counterclaim, allowing the limitation periods for third party claims and cross-claims against subcontractors and consultants to expire, and not supporting the motion of TNS to add defendants to the Counterclaim (against which added defendants claims over could have been made). Those breaches, in my view, constituted non-compliance based on the principles I have set out. Accordingly, relief from forfeiture is not available in relation to those breaches.

45Assuming that relief from forfeiture is available in relation to both the breaches of the duty of timely notification and the duty of cooperation, I find that the Applicants have not discharged their onus to prove entitlement based on the tripartite test. Specifically, their case founders on the first step, the reasonableness requirement.

46Their explanation for the three and one half year delay in notifying the insurers of a large Counterclaim, for using their own counsel to defend it, and for not protecting the insurers’ ability to third party or claim over against others, was that their lawyer on the Counterclaim never told them to notify the insurers of the Counterclaim. That evidence came from John Donato, President of CRD. In my view, that evidence leaves unanswered too many questions to discharge the onus which lies on the Applicants. The issue is not simply one of law as to whether reliance on a lawyer’s advice would provide a basis for finding reasonable conduct. The Applicants should have set out evidence as to what their state of knowledge was regarding the existence of the policies of insurance and as to the potential application of the policies to the Counterclaim, as to what their actions were in relation to the potential coverage by the policies, and as to why those actions were taken as regards that potential coverage. There was even no explanation as to why there was a sudden change of heart to report the Counterclaim after three and one-half years.

47Accordingly, I find that the Applicants have not discharged their onus to prove entitlement to forfeiture for want of evidence to prove that their conduct was reasonable.

VI. Order

48Therefore, I order that Economical defend the Applicants on the Counterclaim; and that Economical reimburse the Applicants for legal fees, including disbursements, on a full indemnity basis, incurred in the defense of the Counterclaim from October 18, 2017 onward. The amount of the reimbursement is to be agreed upon by the Applicants and Economical, failing which they may seek directions from this Court.

49The Application is dismissed as against Aviva.

VII. Costs

50I will receive written submissions as to costs of no more than three pages, excluding a bill of costs. The Applicants will serve and file their submissions within 14 days of release of these reasons; and the Respondents will serve and file their submissions within 14 days from service upon them of the Applicants’ submissions. There shall be no reply.

Bloom, J.