Don’t wait nine years to give your insurer notice of a claim

Insurance law – Commercial general liability insurance – Terms of policy – Breach of policy – Relief against forfeiture – Limitation of actions – Insurer – Rights, duties and liabilities

SVIA Homes Ltd. v. Northbridge General Insurance Corp., [2019] O.J. No. 6514, 2019 ONSC 7459, Ontario Superior Court of Justice, December 18, 2019, W.S. Chalmers J.

The plaintiff/applicant was the owner and developer of a nine-townhouse subdivision project. The insured/defendant was retained to supply and install the sewer system at the project. Following completion, it was determined that the sewers were not working properly. In 2008, the plaintiff brought an action against the insured and others for the cost to repair the sewer and for damages caused by the faulty sewer. The insured did not provide notice of the claim to its insurer, rather it retained its own counsel and defended the action. Three years later the insured ceased operations. Its counsel was removed as solicitor of record and its defence struck.

The insurer was first provided with notice of the claim in 2017. Counsel for the plaintiff wrote to the insurer and provided a copy of the claim. The insurer denied coverage. The insurer took the position that its insured was in breach of the policy because it failed to provide prompt notice of the action.

The plaintiff settled the 2008 action against all the defendants except the general contractor, another company and the insured. Default judgment was granted against one of the non-settling defendants and the insured. The plaintiff took steps to enforce the judgment against the insured but was unsuccessful.

The plaintiff brought an application against the insurer pursuant to s. 132 of the Insurance Act which allows a judgment-creditor to bring a direct action against the insurer of the judgment-debtor to recover the amount of an unsatisfied judgment. In a s. 132 proceeding, the judgment-creditor is in no better position than the insured and is subject to the same policy terms and conditions. The insurer argued that coverage was forfeited because the insured breached the policy condition to provide prompt notice. The plaintiff argued it was entitled to relief from forfeiture.

The court concluded the insured breached a condition of the policy requiring prompt notice. The insurer did not receive notice until nine years after the 2008 action was served on the insured. There was no evidence that the insured’s failure to provide timely notice was reasonable. The breach was significant and resulted in prejudice to the insurer because it lost the opportunity to carry out a timely investigation and pursue a claim for contribution and indemnity within the limitation period. The plaintiff was not entitled to relief from forfeiture.

This case was digested by Cameron B. Elder, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Cameron B. Elder at celder@harpergrey.com.

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