Every week, Bell Temple LLP selects and reports on interesting and relevant decisions from the Ontario Superior Court of Justice, Ontario Court of Appeal, and Supreme Court of Canada.
This week’s case reports are written by Devon McIntyre
Furtado v. Lloyd’s Underwriters, 2023 ONSC 5803
This recent decision from the Superior Court concerns the difference between “imperfect compliance” with an insurance policy and “non-compliance with a condition precedent to coverage” in the context of an Application for relief from forfeiture.
The Applicant was the directing mind of a real estate development business and was the insured under series of director and officers’ liability policies issued by the Respondent. The Applicant made a claim for, amongst things, defence costs related to Ontario Securities Commission (“OSC”) proceedings that he was involved in. The Respondent denied the Applicant’s claim on the basis that he failed to provide proper notice during his policy period which the Applicant said was a condition precedent to coverage being available.
The Applicant held a series of policies issued by the Respondent. The policies were “claims-made” policies which require that a claim be made during the policy period in order for coverage to be available. The Applicant first learned that he was being investigated by the OSC in March 2019, during one of the policy periods. Through his long-time counsel, the Applicant responded to a number of summons’ issued by the OSC between May 2019 and June 2021. The Applicant first provided notice of the claim to his insurance broker in February 2022, who in turn advised in the Respondent in July 2022. The Respondent subsequently denied coverage.
A question arose as to when the Applicant was actually required to notify the Respondent, as the policies that had been issued to him contained a clause that served to temporarily suspend notice requirements during a regulatory investigation which included a prohibition on communicating with third parties. This clause required the Applicant to notify the Respondent “as soon as practicable thereafter.”
The summons’ served on the Applicant were made under s. 11 of the Securities Act, which prohibited him from disclosing any information about the investigation to anyone other than his counsel, however an amendment to the Securities Act in 2020 allowed the Applicant to notify his insurer, and correspondence directed to the Applicant after this amendment came into effect specifically cited the change. As a result, the Court determined that there was had been no suspension of the Applicant’s notice requirements in place for at least a year prior to the time notice was given.
The questions before the Court then became: a) was relief from forfeiture was available? and; b) if it was available, should it be granted?
In reaching a decision, Justice Akbarali provided an overview of the history of relief from forfeiture in the insurance context, and adopted the threshold test set out by the Court of Appeal in Kozel v. The Personal Insurance Company, (2014 ONCA 130). He pointed out that relief from forfeiture is an equitable and discretionary remedy, and that “the determination of whether a breach is imperfect compliance or non-compliance with a condition precedent “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.”
The Court went on to note that a finding of non-compliance with a condition precedent should be applied narrowly and only in rare cases where the breach is substantial and prejudices the insurer. The argued that “to find the delay in notifying [the Respondent] is only imperfect compliance is to rewrite the bargain the parties had made. The bargain the respondent contracted for was to have notice as early as possible, of particular import in a claims-made policy where, for example, an insurer would take an accounting reserve for losses it might have to pay out.”
Justice Akbarali accepted this argument writing “In my view, when notice comes around a year after it is required in a claims-made policy where notice is a condition of coverage, the delay causes prejudice to the insurer.”
Having determined that the Applicant’s breach was a substantial one that had caused prejudice to the Respondent, it was found that the breach was non-compliance with a condition precedent and not imperfect compliance, and that relief from forfeiture was therefore not available.
