An insurer is responsible for pre-tender defence costs

An insurer is responsible for pre-tender defence costs absent an identifiable prejudice arising from the late notice of the claim.

Insurance law – Commercial general liability insurance – Policies and insurance contracts – Duty to defend – Notice – Late reporting – Imperfect compliance vs. non-compliance with policy – Statutory provisions – Apportionment of defence costs – Conflict of laws – Choice of law

Lloyd’s Underwriters v. Blue Mountain Log Sales Ltd., [2015] B.C.J. No. 783, April 22, 2015, British Columbia Supreme Court, T.M. McEwan J.

The insurer petitioner sought a declaration on whether it was required to cover pre-tender defence costs.  The insured respondents did not give notice of claims under the policy until almost two years after litigation first arose.  When the claims were first made, the insured did not recognize they might trigger coverage under the policies issued by the insurer.

The court considered the two lines of cases regarding notice provisions in commercial general liability policies.  The first line supports the principle that the insurer is on risk from the time the cause of action arises and the implications of late notice is considered as a question of prejudice to the insurer due to the lapse of time.  The second line stands for the idea that notice is a condition precedent to the assumption of risk and coverage does not exist for the cost of defending a claim until the insurer has been provided with notice of the claim.

In this case, there was no allegation of prejudice due to late notice of the claims.  The failure to give notice was due to inadvertence on the part of the insured.  The court concluded the weight of Canadian jurisprudence is that the breach of a notice provision should be treated as imperfect compliance, rather than non-compliance, and so it is subject from denial of coverage or forfeiture. The court rejected the petitioner’s application for the declaration that it had no liability for pre-tender defence costs. The court did not determine the insurer’s actual exposure to defence costs.

This case was digested by Djuna M. Field and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at dfield@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com.

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