The discoverability principle should be read into a policy of indemnity insurance. The one year limitation period for submitting a claim does not begin until the insured has sufficient knowledge of the material facts to put him or her on notice of a possible claim.

07. January 2005 0

Stuart Estate v. Royal and Sun Alliance Insurance Co. of Canada, [2005] N.S.J. No. 6, Nova Scotia Court of Appeal

This was an appeal of a decision of MacDonald A.C.J.S.C. requiring that the insurer, Royal & Sun Alliance Insurance Company (“Royal & Sun Alliance”) pay the costs of remediating contaminated soil on an insured’s property. The insured was an elderly widow who lived alone in the family home following her husband’s death. A smell of oil became apparent in the basement of her house in 1984. In 1998, when the widow moved out of the house and the house was prepared for sale, a massive amount of oil contamination was discovered in the basement. The insured denied that it was liable for payment of benefits under the homeowners policy on the basis that the claim was statute-barred since the insured first noticed the smell of oil in 1984 and did not commence a claim until 1998. MacDonald A.C.J.S.C. determined that the discoverability principle could be read into a contract of indemnity insurance, and that the limitation period did not commence until 1998 because the true extent of the loss arising from the incident could not be quantified until 1998.

For purposes of the appeal, Royal & Sun Alliance accepted that the discoverability rule applied to the contract of indemnity insurance. However, Royal & Sun Alliance argued that the trial judge erred by requiring the insured to know the extent of the oil contamination before the time limit would commence. The Court of Appeal noted that it is accepted law that once a claimant knows that some damage has occurred, the exact extent of the damage may not be known for an action to accrue (Peixeiro v. Haberman, [1997] 3 S.C.R. 549). The court noted that the amount of knowledge necessary to trigger the running of time must be determined by the trial judge applying the contractual wording in the insurance contract and the discoverability principle to the facts found. In the insurance policy, a “situation”, a “loss”, and “damage” must mean soil contamination giving rise to a claim. If it were otherwise, knowledge that a drop or two of oil had dripped on the ground would require notice of loss to be given to the insurer. Suspicion in and of itself is not sufficient to constitute discovery of a material fact; however, this is an issue that should be considered by the trial judge along with the other facts.

As the insured did not actually know that she had a soil contamination problem until 1998, the question for the judge was whether, with reasonable diligence, the insured ought to have known that the soil was contaminated. The judge’s conclusion that the claimant was reasonably diligent in her handling of the matter involved the application of a legal standard of the discoverability principle to the facts. The Court of Appeal could not find a palpable and overriding error on this finding and upheld the decision of the trial judge.

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