An Insured under a claims-made policy (“Brelih”) was unsuccessful in obtaining a declaration that his errors and omissions Insurer owed a duty to defend where the Court held that proper notice of the potential claim was not provided within the policy period

Brelih v. St. Paul Companies Inc., [2006] O.J. No. 1369, Ontario Superior Court of Justice

In March/April 2004, Brelih received an email correspondence from solicitors retained by Joseph and Jaques Bitton indicating that the Bittons were considering commencing an action against Brelih. Brelih believed that the Bittons were simply attempting to avoid payment of a portion of the commission due on a real estate transaction and, after some delay, became convinced that the Bittons were not pursuing the action. As a result, they did not report the matter to St. Paul, their errors and omissions insurer at the time.

On June 17, 2005, the Bittons commenced action against Brelih. Brelih reported the claim to his new insurer, Lloyd’s. The Lloyd’s policy had commenced on September 1, 2004. Lloyd’s denied coverage on the basis that all of the events giving rise to the claim occurred before the inception of the Lloyd’s policy and that Brelih had been aware of the potential claim before the Lloyd’s policy commenced. Brelih then reported the matter to St. Paul which denied coverage on the basis that the claim was reported outside the St. Paul policy period.

The Court reviewed the policies at issue and noted that both policies were “claims-made” policies and not “occurrence-based” policies. Condition number 3 of the St. Paul policy required the Insured to provide written notice to the Insurer as soon as practicable of any claim or any circumstances likely to give rise to a claim under the policy. The Court found that the event triggering coverage was notice and that the provision of notice was a condition precedent to the availability of rights under the Policy. Saving provisions relating to deficiencies in notice that were contained in the Policy did not apply, as these saving provisions required that the deficiency in notice be corrected either during the policy period or during the renewal of the policy. No such attempts were made by Brelih during the St. Paul policy period and, consequently, there was no coverage available under that policy.

The Court also rejected Brelih’s argument that it was not reasonably foreseeable as of the inception date of the Lloyd’s policy on September 1, 2004 that the email correspondence from the solicitor for the Bittons in March/April 2004 would result in the claim against the applicants in June 2005. The Court held that Brelih’s belief that these communications were an attempt to avoid the payment of commission rather than provide notice of a potential lawsuit was subject to an objective test. Applying this test to the circumstances of this case, the Court held that where an Insured receives communication from a solicitor alleging acts that caused damage and raised the prospect of a lawsuit, it was reasonably foreseeable that this would result in a claim. As a result, the Court found Lloyds had no obligation to provide coverage under its policy.

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