Court File and Parties

COURT FILE NO.: CV-22-95

DATE: 2022-12-29

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CHRISTINE SEARLES AND DARRELL SEARLES, APPLICANTS

AND

ECONOMICAL INSURANCE, RESPONDENT

BEFORE: The Honourable Mr. Justice Pierre E. Roger

COUNSEL: Bronwyn Martin, Counsel for the Applicants Eric Zadro, Counsel for the Respondent

HEARD: December 8 and 19, 2022, with requested written submissions provided on December 20, 2022

Reasons for Decision

Roger J.

Overview

[1] The applicants seek a declaration that the respondent, Economical Insurance, now Definity Insurance Company, is required to reimburse them for their legal costs and for the amounts they paid to settle the Kingston legal action no. CV-13-414-SR (“the action”), despite the applicants providing notice of this action to Economical almost seven years after the action was started.

[2] Economical does not dispute that the applicants would have been entitled to a defence and may have been entitled to indemnity had prompt notice of the action been provided. This was confirmed by Economical via emails to the applicants in October 2020, and it was repeated during oral submissions. In other words, Economical would have defended the action had it not contested the promptness of the notice. However, because of the late notice, Economical denied coverage and refused to defend the applicants, arguing that the delay breached the policy’s prompt notice and immediate cooperation conditions and that relief from forfeiture is not available because of the prejudice to Economical resulting from the late notice.

[3] It is not in dispute that:

• Economical provided a home insurance policy to the applicants (“the policy”).
• The policy was in effect during the relevant period of time (2011).
• The policy insured the applicants’ home.
• The applicants sold their home on September 9, 2011, a time when the policy was in force or applicable to provide available defence and indemnity.
• The applicants were then sued by the purchasers of their home in the action for damages arising out of alleged defective renovations to the applicants’ home that the applicants performed or oversaw and for black mould allegedly present throughout the premises.
• The action was issued or started on August 16, 2013.
• The action was defended by the applicants, via their lawyers at the time, on September 30, 2013.
• Affidavits of documents were exchanged and examinations for discovery were completed in the action by 2015.
• pleadings, affidavits of documents, documents, and expert reports exchanged between the parties, and transcripts of examinations conducted are available for inspection by Economical (which it chose not to inspect, relying on its argument that the policy had been breached because of the late notice), these include: pictures of the applicants’ home prior to the sale to the plaintiffs and of the mould alleged by the plaintiffs, purchase and sale documents, Cambridge Materials Limited report of October 2014, Redka Construction home inspection report of August 2011, repair estimate of Redka Construction of September 2011, mould remediation report of Redka of November 2011, home inspection report of Hawkeye of April 2012, Pinchin microbiology report of April 2012 and mould assessment of July 2013, and Cambridge report of October 2014.
• Following examinations for discovery, the defendants in the action, who are the applicants in this application, offered to settle the action for $20,000, which offer was not accepted by the plaintiffs.
• In August 2018, the plaintiffs in the action discontinued their claim against the co-defendant realtor who had acted for the applicants on the sale of their home.
• In October 2018, the plaintiffs in the action sold the home to a third party.
• In February 2020, the defendants changed lawyers.
• On May 6, 2020, the plaintiff’s amended the statement of claim in the action, including increasing their damages, which was consented to or not opposed by the defendants/applicants – an amended statement of defence was filed raising a limitation defence.
• On June 26, 2020, during a pre-trial conference in the action, the pre-trial judge suggested that insurance coverage might be available to the defendants/applicants.
• A second pre-trial conference was scheduled for August 11, 2020 (I do not know if it proceeded).
• On July 6, 2020, the applicants put Economical on notice for the first time of the action, almost seven years after the action was issued, and requested coverage.
• On August 13, 2020, Economical denied coverage, alleging that the applicants had breached the policy’s notice and cooperation conditions, and Economical did not take part or participate in the action.
• On October 6, 2021, the action settled, without any admission of liability and with no involvement by Economical, in exchange for a payment by the defendants/applicants to the plaintiffs of $47,500, and releases were exchanged.
• The defendants/applicants incurred $56,578.60 in legal fees and disbursements to defend the action and $4,500 on an unsuccessful security for costs motion, for a total spent on the action of $108,578.60.
• Of the $56,578.60 spent in legal fees and disbursements, $30,308.22 are post-tender defence costs (meaning that $30,308.22 were incurred by the applicants after they gave notice to Economical or after July 6, 2020, and $26,270.38 are pre-tender defence costs).
• The defendants/applicants’ prior lawyers did not inform them that their home may include coverage for the action, and they learned this for the first time at the pre-trial conference of June 26, 2020.
• The policy provided coverage for the home, for the applicants’ legal liability to pay compensatory damages for bodily injury or property damage.
• The policy provides that Economical has a duty to defend any action alleging a claim that would come within coverage.
• Economical does not dispute that but for the late notice the action would have triggered a duty to defend the action.

Issues

[4] The principal issue on this application is whether relief from forfeiture should be granted to the applicants. This raises other issues including the availability of pre-tender defence costs (costs incurred before notice was provided to Economical) via relief from forfeiture despite wording in the policy that the insurer will only pay for lawyers that it selected and that any voluntary payment by the insured is made at the insured’s cost.

Analysis

[5] The policy states that Economical has the right and duty to defend any action alleging a claim that comes within coverage. Under the policy, Economical has the right to “select legal counsel, investigate, negotiate and settle” any such claim, subject to the provision that it “will only pay the legal counsel that we select”.

[6] Coverage in the policy is also subject to the following limitation:

Notice of Accident or Occurrence: When an accident or occurrence takes place, you must promptly give us notice (in writing if required). The notice must include:

1. your name and policy number;
2. the time, place and circumstances of the accident;
3. the names and addresses of witnesses and potential claimants.

Cooperation: You are required to:

1. help us obtain witnesses, information and evidence about the accident and cooperate with us in any legal action if we ask you;
2. immediately send us everything received in writing concerning the claim including legal documents.

Unauthorized Settlements – Coverage E: You shall not, except at your cost, voluntarily make any payment, assume any obligations or incur expenses, other than first aid expenses necessary at the time of the accident.

[7] Marcoux v. Halifax Fire Insurance Co., 1948 CanLII 41 (SCC), [1948] S.C.R. 278, at p. 282, provides that notice conditions in insurance policies are meant to allow the insurance company to investigate immediately, to check the facts, to inquire about the names of witnesses, which later may not be found, and not to be at the mercy of the claimant. It further provides that this is a protection justly claimed in the contract, and of which the insured cannot deprive his insurer with impunity.

[8] The applicants rely upon Aitken v. Unifund Assurance Co., 2012 ONCA 641, 112 O.R. (3d) 391, at paras. 41-42, but the facts of this case are different from those in Aitken. In Aitken, the court found that the insureds did not breach the policy because they acted promptly to report a claim as soon as they learned that the plaintiffs intended to amend their pleadings to add a claim for negligence. Aitken can be distinguished on a number of grounds, including that: the insurer was notified within about one year of the action being issued; until the amendment the pleadings would not have triggered coverage; and “immediately upon discovering those additional allegations” that triggered coverage the insured advised its insurer (Aitken, at para. 54). The situation is different here. The applicants also rely on Poplawski v. McGrimmon, 2010 ONSC 108, 100 O.R. (3d) 458, but that case focuses on the duty to defend, not on relief from forfeiture.

[9] The applicants argue that “promptly” is not defined in the policy, and further that the policy does not provide that breaching a condition can result in a loss of coverage. They point out, correctly, that when interpreting an insurance policy, coverage provisions must be interpreted broadly, and exclusions must be interpreted narrowly. Nonetheless, these arguments are not convincing.

[10] Indeed, the ordinary meaning of “promptly” refers to something that is done without delay or immediately. Moreover, this policy contains similar wording to that in the policy in Monk v. Farmers’ Mutual Insurance Company (Lindsay), 2019 ONCA 616, 92 B.L.R. (5th) 1, at para. 75, where such a breach of condition was successfully alleged. As well, the policy provides that insurance is provided “subject to the terms and conditions set out” and that “You shall not bring suit against us until you have fully complied with all the terms of this policy”. See Svia v. Northbridge, 2019 ONSC 7479, which has similar wording and no specific mention that upon a breach of notice coverage will be forfeited. Finally, it is well established that these notice and cooperation conditions cannot be breached with impunity: see Marcoux.

[11] Consequently, when I consider the evidence, a reporting delay of almost seven years, during which the applicants defended the action through to the pre-trial stage, falls short of prompt notice. It also falls short of the applicants’ obligation to cooperate with Economical by immediately providing everything received concerning the claim. This is a breach of the policy’s “Notice of Accident or Occurrence” and “Cooperation” conditions.

[12] Economical does not dispute that the policy breaches outlined above constitute imperfect compliance. Indeed, in Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778, at para. 19, the Supreme Court concludes that the failure to give timely notice of a claim is imperfect compliance, which opens the door to the availability of relief from forfeiture.

[13] The parties further agree that both s. 129 of the Insurance Act, R.S.O. 1990, c. I.8, and s. 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43, are applicable. This brings us to deciding whether relief from forfeiture should be granted to the applicants.

[14] Prior to deciding that issue, I deal firstly with the sub-issue raised by Economical of deciding whether or how relief from forfeiture applies to defence costs incurred prior to notice of the claim being given to the insurer, in this case to Economical by the applicants.

[15] In Lloyd’s Underwriters v. Blue Mountain Log Sales Ltd., 2016 BCCA 352, at paras. 34-35, 38, and in HMQ v. AIG Insurance, 2019 ONSC 2964, at para. 20, the court indicates that a liability insurer is not required to indemnify the insured for legal expenses incurred before the date that notice was tendered. These decisions provide that the insurer’s contractual duty to defend the insured is only triggered when notice is given of a claim. Economical argues that this is reinforced by “voluntary payment” clauses in the policy which limit the insurer’s obligation to pay only those expenses to which it has consented and not those which are voluntarily incurred by the insured, and by clauses providing that the insurer has the right to select and instruct the lawyer.

[16] In support of its arguments, Economical makes reference to para. 20 of HMQ v. AIG, where the court states:

Ontario and other appellate courts have consistently held that, until notice or “tender” is received, where a voluntary payment wording or notice wording so states, a liability insurer only covers approved expenses, so any pre-tender defence costs incurred voluntarily or before such notice is given are payable by the insured or in the case of a shared obligation, another earlier responding insurer.

[17] Therefore, Economical argues, an insured or in this case the applicants would not forfeit expenses which an insurer, Economical, has no contractual obligation to pay. They argue that it follows that relief from forfeiture is not available for such pre-tender defence costs and they make reference to Lloyd’s Underwriters at paras. 34, 38, 41-47, 54-61; HMQ v. AIG, at para. 20; Brockton (Municipality) v. Frank Cowan Co. (2002), 2002 CanLII 7392 (ON CA), 57 O.R. (3d) 447 (C.A.), at paras. 31-41 and 54, and Markham v. AIG, 2019 ONSC 4977, at para. 32.

[18] I appreciate Economical pointing out a recent Ontario decision which arrives at a different result: see Loblaw Companies Ltd v. Royal & Sun Alliance Ins., 2022 ONSC 449, at paras. 112-120. However, I disagree with their arguments that Loblaw is inapplicable because of its distinguishable facts. On the contrary, despite the factual differences, I find the reasoning in Loblaw compelling and applicable to the circumstances of this case.

[19] Lloyd’s Underwriters v. Blue Mountain Log Sales Ltd concludes that the right and duty to defend, under such a policy, arise from the time that notice of the claim is provided to the insurer (at para. 38, see also Brockton at para. 54, HMQ v. AIG at para. 20, and Markham v. AIG at para. 32). It then conducts an analysis of the availability of relief from forfeiture. It references s. 13 of the BC Insurance Act (it could also have referenced s. 24 of the BC Law and Equity Act) and Falk Bros. Industries Ltd v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778. It reviews American jurisprudence and points to a distinction between repudiation cases (para. 56 – where because of the late notice the insurer denies coverage and defence, thus leaving it’s insured no choice but to defend on its own) and implementation cases (para. 57 – where despite late notice the insurer waives the breach of notice and nonetheless “honours the essential bargain” by providing coverage and defence on a go forward basis).

[20] The facts in Lloyd’s Underwriters are akin to what the court in that decision refers to as an “implementation case”. Indeed, in Lloyd’s Underwriters, Lloyd’s received notice of a 2012 action in 2014, but nonetheless agreed to provide a defence from the date of notice, arguing only that pre-tender defence costs of about $588,000 were not covered. The court agreed, holding that relief from forfeiture was not available to pre-tender defence costs because its “prerequisites were not present” (para. 61).

[21] It seems clear from the reasoning in Lloyd’s Underwriters that this resulted from Lloyd’s having forgiven or waived the breach of the notice clause and having implemented its obligation to provide coverage and defence going forward. The court accepted Lloyd’s argument that by Lloyd’s waiving the breach, there was no breach, and therefore no forfeiture of insurance – the missing prerequisites.

[22] This distinguishes Lloyd’s Underwriters from the facts of this case. In this case, Economical has not waived the breach. Rather, the facts in this case are akin to what is described in Lloyd’s Underwriters as a repudiation case, where pre-tender defence costs would be included under the cited American jurisprudence on the basis that the insurer breached the “essential bargain” by denying coverage and defence, leaving no choice to the insured. On its own reasoning, Lloyd’s Underwriters is therefore distinguishable from the circumstances of this case because if one applies the reasoning in Lloyd’s Underwriters , the “prerequisites” to relief from forfeiture are present in this case.

[23] The other cases relied upon by Economical on this point are also distinguishable because in these other cases, relief from forfeiture was not argued. Brockton does not involve imperfect compliance with a statutory or contractual condition, but rather an insured concerned with a potential conflict and whether it could retain another law firm. HMQ v. AIG also involved a potential conflict and the selection of counsel, AIG accepted its duty to defend going forward, and relief against forfeiture was not argued. Markham v. AIG similarly is a conflict and scope of duty to defend case where relief against forfeiture was not argued and where the insurer did not deny coverage and its duty to defend going forward.

[24] Consequently, theses other cases relied upon by Economical do not address whether pre-tender defence costs which would not be covered because they were incurred in breach of a contractual or statutory condition such as voluntarily or before notice was provided to the insurer may be subject to relief from forfeiture.

[25] Moreover, respectfully, the reasoning in Lloyd’s Underwriters seems to ignore the purpose of relieving from forfeiture. While it is true that what is not covered by a policy of insurance cannot be forfeited, this statement oversimplifies the analysis because it ignores the reasons for the absence of coverage and thereby does not address what is really at issue. What is really at issue in circumstances where a lack of coverage results from some imperfect compliance with a statutory or contractual condition, is whether the hardship resulting from the imperfect compliance should be relieved against. This is well addressed by applying the principles and analysis relevant to determining whether relief from forfeiture should be granted.

[26] Relief from forfeiture is equitable in nature and discretionary. It refers to the power of the court to protect a person against the loss of an interest or a right because of a failure to perform a covenant or condition. It is also rooted in statutes in Ontario and other provinces.

[27] As indicated in Falk Bros.:

The purpose of allowing relief from forfeiture in insurance cases 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. This purpose is consistent with interpreting s. 109 as permitting the court to grant relief from contractual as well as statutory conditions.

[28] Relief from forfeiture is applicable when there has been imperfect compliance with a contractual or statutory condition which would otherwise result in a loss of insurance proceeds. An insurer forgiving or waiving the breach of a notice condition, as for example in Lloyd’s Underwriters, does not erase the fact that: (1) the insured imperfectly complied with the notice provision, (2) prior to giving notice the insured may have incurred legal costs, and (3) these legal costs could have been covered had the insured complied with the applicable contractual or statutory conditions. Imperfect compliance with a statutory or contractual condition that results in a potential hardship is what relief against forfeiture is meant to address. Its three-part test provides a contextual analysis to decide when it is, or when it is not, just to do so. For example, relief against forfeiture for pre-tender defence costs would likely not be available to an insured who acted unreasonably or in circumstances where the insurer was prejudice. This seems fairer than, as in Lloyd’s Underwriters, leaving it to the insurer to decide whether it will waive the breach of the condition and nonetheless assume coverage and defence costs going forward, because waiving the breach does not address whether the forfeiture that results from the imperfect compliance should be relieved against.

[29] Consequently, I follow Loblaw and find that relief from forfeiture is applicable to pre-tender defence costs.

[30] This brings us back to the main issue to be decided, whether relief from forfeiture should be granted to the applicants.

[31] In Ontario, s. 129 of the Insurance Act gives the court the power to grant relief from forfeiture arising from “imperfect compliance with a … matter or thing required to be done or omitted by the insured with respect to the loss…” As well, s. 98 of the Courts of Justice Act is broader and provides that a court may grant relief from forfeiture on such terms as are just. It is agreed that both sections are applicable to the facts of this case.

[32] As stated above, the purpose of relief from forfeiture is to prevent hardship despite a failure to comply with a condition where leniency in respect of strict compliance will not result in prejudice to the insurer: see Falk Bros. Industries Ltd v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778.

[33] It is not disputed that in exercising its discretion, a court must consider three factors: see Kozel v. Personal Insurance Co., 2014 ONCA 130, 119 O.R. (3d) 55, at paras. 29, 33, 41, 50, and Monk, at paras. 79, 95-96:

• the conduct of the insured,
• the gravity of the breach, and
• the disparity between the value of the property forfeited and the damage caused by the breach.

[34] The onus is on the insured, in this case the applicants, to show that relief from forfeiture should be granted. This requires the applicants to show that their conduct was reasonable, that the breach was not grave, and that there is disparity between the value of the property forfeited and the damage caused by the breach.

[35] Not all three factors are required to be established. Rather, as this is a discretionary exercise, the court must weight all relevant circumstances to arrive at what is just in the circumstances considering the evidence on these three factors.

[36] The conduct of the insured is focused on whether the insured acted reasonably considering relevant facts, including the nature of the breach, what caused it, and what, if anything, the insured attempted to do about it, see Kozel, at para. 61. Unreasonable conduct, or wilful conduct by an insured could be quite an obstacle to surmount because relief from forfeiture is equitable in nature.

[37] The gravity factor includes consideration of the severity of the breach and its impact on the insurer’s contractual rights, including any prejudice caused by the breach: see Monk, at paras. 95-96; and Svia v. Northbridge, 2019 ONSC 7459, 99 C.C.L.I. (5th) 310, at para. 56, aff’d 2020 ONCA 684.

[38] Prejudice may result from the insurer’s inability to investigate the claim. It may also arise from the insurer’s inability to: protect its interests; exercise its right to direct and control the applicants’ defence; retain counsel of its choice; effect an early settlement, potentially avoiding unnecessary legal expenses; secure the testimony of witnesses; and participate in pre-trial discovery: see Ideal Roofing Co. v. Royal & Sun Alliance Insurance Co. of Canada (2006), 2006 CanLII 37264 (ON SC), 43 C.C.L.I. (4th) 80 (Ont. S.C.), at para. 9.

[39] As stated in Monk, at para. 104, the “disparity” factor requires a kind of proportionality analysis which involves comparing the disparity between the loss of coverage and the extent of the damage caused by the insured’s breach. In Lambert v. Khan, 2016 ONSC 103, at para. 84, the court explains:

The loss of coverage is of course a constant in every relief from forfeiture case. The issue this criterion is getting at is whether the loss to the insurer has in some way been aggravated by the failing for which the plaintiff seeks relief and if so to what degree (in relation to the lost coverage).

[40] For example, if the insurer might reasonably have been able to reduce the indemnifiable losses through early involvement, this weighs against the insured: see Svia v. Nothbridge, at paras. 69-71, although that case is factually different as it involved a default judgment and a more detailed affidavit addressing prejudice.

[41] Economical argues that whether an alternative avenue for compensation is available for the applicants, including by way of a strong prima facie claim for professional negligence against a legal advisor, may be a relevant factor to assess this disparity. They reference Cervo v Raimondo (2006), 2006 CanLII 37119 (ON CA), 83 O.R. (3d) 205 (C.A.), at paras 62-66, where the Ontario Court of Appeal agreed with the motion judge’s reliance on this factor. However, that conclusion by the Court of Appeal was premised on the strength of the evidence before the motion judge. The Court of Appeal said, at para. 66, that the motion judge was entitled to reach that conclusion “on the evidence before her”. This seems consistent with a more recent decision of the Court of Appeal, albeit on a different topic, that of setting aside an administrative dismissal, where the court said that considering whether such a claim is available might be unhelpful speculation about the potential success of such a lawsuit, and that it should not inform the court’s analysis: see Finlay v. Van Paassen, 2010 ONCA 204, 101 O.R. (3d) 390, at para. 32.

[42] Considering the above, on the limited evidentiary record available on this application, I do not have the evidence required to sufficiently assess the merits of any such action against the applicants’ former lawyers. Consequently, in the circumstances of this case, I do not consider this possibility to be a factor that I should or can consider.

[43] Economical does not dispute that the applicants have met their onus of establishing the first factor. They admit that the applicants’ delay in reporting was inadvertent and that their conduct was reasonable. What is contested are the second and third factors outlined above.

[44] On the second factor, I find that the applicants have not met their onus of establishing that the breach was not grave. In the circumstances of this case, a delay of almost seven years is grave. Indeed, the facts of this case give rise to evidence of prejudice which the applicants have not sufficiently explained, including:

• Economical was deprived of its right to select counsel for essentially all steps in the litigation of this matter, up to the pre-trial conference.
• The applicants’ home was sold to a third party in 2018, which complicated the possibility of an inspection after notice was given in July 2020.
• More importantly, even if an inspection of the home could have been arranged after notice was provided, the specific nature of the claims made in the pleadings gives me no reason to assume anything other than the length of the delay, from August 2013 to July 2020, makes it improbable that by July 2020 the alleged damages had not been sufficiently remediated to render the applicants’ home no longer in any comparable condition, such that an inspection or assessment by experts, including to respond to the two outstanding reports, would not have been a productive exercise.
• Economical was deprived of its right to investigate this loss by retaining its preferred adjusters and experts, and by July 2020 the applicants’ home had been with a third party for some time and, as indicated above, had most likely been remediated, limiting the usefulness of any such investigation and assessment once notice was provided.
• A co-defendant, the applicants’ real estate agent, was released without Economical’s involvement in 2018, the terms of this settlement have apparently been lost, and some of the claims made in the amended statement of claim could have involved the agent.
• Not all expert reports were responded to by the applicants, and it would have been difficult if not impossible for Economical to respond to these reports in 2020 (two reports appear not to have been responded to).
• Consent to the May 6, 2020, amendments to the statement of claim were given by the applicants without the involvement of Economical and without sufficient explanation of why this was consented to when some of the amendments may have been opposed.
• Economical has been unable to protect its interest by reserving its rights to deny indemnity for proven claims not covered by the policy.

[45] On the third factor, the applicants stand to forfeit a considerable amount, almost $110,000: $61,078 in legal costs to defend the action and $47,500 paid to the plaintiff to settle the action in October 2021. On the other hand, up until July 2020 when it received notice, Economical was deprived of the ability to exercise its contractual rights of attempting to limit those losses, and because of the specific nature of the allegations made in the action, it is now difficult to precisely assess how its losses were aggravated by the applicants’ imperfect compliance with the notice and cooperation conditions.

[46] The onus is on the applicants. The nature of the claims and allegations made in the pleadings make this quite a specific case when assessing how the losses of Economical were aggravated by the applicants’ imperfect compliance. In the circumstances of this case, considering the nature of the allegations made in the action, it is not reasonable, after such a lengthy delay, to require a party affected by prejudice, as outlined above, to show precisely how it might have acted differently at every juncture. Without the benefit of perfect hindsight, this would be impossible over six years after the action was started when the home has been sold to a third party and is most certainly no longer in the same condition. It is axiomatic that the litigation priorities of an insurance company may be different from those of its insured, explaining why liability insurance provides the insurer the right to defend covered claims. In the circumstances of this case, the limited evidence filed on this application about the availability of documents, pictures, reports, and transcripts is not sufficient to address the above. Similarly, whether previous counsel competently defended the action cannot sufficiently be assessed for this to assist the applicants.

[47] The onus is on the applicants and on the evidence before me, when assessing the third factor, the applicants have not sufficiently established that legal costs and indemnity were not aggravated by their late notice. For example, with regards to indemnity, depending on the facts proven at trial, potential exclusions that I am unable to sufficiently assess with the evidence filed on this application include:

• intentional acts, for whatever proven damages arose from fraud rather than negligence;
• damage by “fungi and spores”, applicable to the allegations of “widespread mould” damage; and
• damage to personal property or fixtures resulting from work done by the insured applicable to allegations relating to a defective furnace and deck.

[48] The first factor favours the applicants. However, the second and third factors favour the respondent. When I assess all the evidence and weigh all three factors, for the reasons outlined above, I arrive at the conclusion that the applicants have not met their onus of establishing that they are entitled to relief from forfeiture.

[49] The facts in this case are different from a decision relied upon by the applicants, City of Kelowna v. Royal Insurance Company of Canada, 1992 CanLII 858 (BC SC), 1992 B.C.J. no 147. In that case, the court found it difficult to point to any circumstances of prejudice and the city was successful at trial. As well, another distinguishing feature, in that case the insurer would, in any event, have denied coverage at the outset.

Conclusion

[50] On the facts of this case, I conclude that:

• the applicants have breached the insurance policy’s notice of accident or occurrence and cooperation conditions;
• these policy breaches represent imperfect compliance;
• relief from forfeiture may be argued, it may also be argued for the applicants’ legal costs incurred before the date the applicants provided notice of their claim to Economical;
• however, relief from forfeiture is not available to the applicants.

[51] As a result, this application is dismissed.

[52] The parties have reached an agreement on the issue of the costs of this application. I thank them for their efforts and for the excellence of their respective materials and submissions. An order may issue dismissing this application with costs payable to the respondent in the amount agreed upon between the parties.

Pierre E. Roger J.

Released: December 29, 2022

COURT FILE NO.: CV-22-95

DATE: 2022-12-29

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

CHRISTINE SEARLES AND DARRELL SEARLES

Applicants

– and –

ECONOMICAL INSURANCE

Respondent

reasons for decision

Pierre E. Roger J.

Released: December 29, 2022