Insureds’ claims for indemnity under insurance policies were barred because of the previous appraisal process under Statutory Condition 11 and Section 128 of the Insurance Act.
Insurance law – Policies and insurance contracts – Multi-peril policy – Property insurance – Damages – Statutory conditions – Mandatory appraisal – Bad faith – Limitation of actions – Contractual limitation periods
DK Manufacturing Group Ltd. (c.o.b. D.K.M.G.) v. Co-operators General Insurance Co.,  O.J. No. 3291, 2016 ONSC 3983, Ontario Superior Court of Justice, June 20, 2016, D.G. Stinson J.
The insureds were related companies. One insured imported home furnishings from suppliers in Asia and sold them to other wholesalers and retailers in Canada and leased warehouse space from the other insured.
Following a minor fire which broke out in the warehouse, the premises experienced extensive damage due to the running of the sprinkler system, which disrupted the insureds’ business. The insureds had separate multi-peril insurance policies with the insurer.
The insureds retained a professional adjusting firm to help them deal with the loss and to represent them in their dealings with the insurer. The insureds ultimately filed proofs of loss which were significantly more than the insurer was prepared to pay. In order to resolve the claims, the insurer invoked the appraisal process contemplated by Statutory Condition 11 of the policies and s. 128 of the Insurance Act. The insurer and the insureds participated in two appraisal processes. The insureds were unhappy with the outcome of the appraisal process and the sums awarded and brought claims against the insurer in which they alleged they were not bound by the appraisals and the insurer failed to act in good faith in adjusting the claims.
The insurer brought a motion for summary judgment in each action asserting that the insureds had no further claims under the policies because they were adjudicated and paid pursuant to the appraisal processes. The insurer also relied on a contractual limitation period of one year.
The Court ultimately concluded that the insureds’ claims for payment of further monies under the insurance policies could not be pursued by litigation since they were resolved through the appraisal process. However, the Court found that the insureds’ claims based on an alleged breach of the insurer to act in good faith were neither barred by the appraisal process nor by any applicable limitation period.
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