Failure to report a loss under a claims-report based policy within the time limit expressed in the wording of the policy will disentitle the insured to insurance coverage for that loss. An insured is not entitled to relief from forfeiture for failure to report a loss under a claims-based policy.

Strata Plan VR414 v. Colyvan Pacific Real Estate Management Services Ltd., [2005] B.C.J. No. 2818, British Columbia Provincial Court

Underwriters Members of Lloyd’s, London (“Lloyds”) provided professional liability insurance to Colyvan Pacific Real Estate Management Services Ltd. (“Colyvan”). Colyvan became aware of a claim as defined in the insurance policy on December 6, 2002, when it received a demand letter from Strata Plan VR414 (“the Strata”). On August 8, 2003, the Strata brought an action against Colyvan. Colyvan’s policy with Lloyd’s expired on September 1, 2003. Colyvan did not report the claim to Lloyd’s until January 15, 2004. Colyvan provided no reason for the delay in reporting the loss to Lloyd’s. Lloyd’s denied coverage for the claim on the basis that they were not provided notice of the claim until after the time prescribed by for reporting a loss in the policy, and after the policy expired.

The insurance policy stated that in the event of a claim or an action, the insured must see to it that the insurer is notified of any claim as soon as practicable and while the policy is in force. Failure to comply with this condition will result in the claim being denied, unless the insured did not have knowledge of the claim or the circumstances giving rise to it.

Colyvan issued a third party notice against Lloyd’s for entitlement to insurance proceeds. Colyvan then settled the claim with the Strata for $5,177. Colyvan proceeded with its action against Lloyd’s. Lloyd’s took the position that the policy in place was not an occurrence-based policy (where the occurrence of an event triggers the coverage), but rather a claims reported based policy (where the reporting of the claim triggers coverage). Colyvan admitted that it did not comply with the terms of the policy, but argued that s. 10 of the Insurance Act, R.S.B.C. 1996, c. 226 provided it with an entitlement to relief against forfeiture of the policy. S. 10 of the Insurance Act states:

If there has been imperfect compliance with the statutory condition as to the proof of loss to be given by the insurer or other matter or thing required to be done or omitted by the insured with respect to the loss, and consequent forfeiture or avoidance of the insurance in whole or in part, … and the court deems it inequitable that the insurance should be forfeited or avoided on that ground or terminated the court may, on terms it deems just, relieve against the forfeiture or avoidance …

Colyvan argued that Lloyd’s was not prejudiced by the imperfect compliance as they did not end up assuming any risk that was not contracted for in the insurance policy. Colyvan further argued that the statutory conditions against relief against forfeiture are part of the insurance contract.

Senniw Prov. Ct. J. noted that the Supreme Court of Canada in Falk Brothers Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778 decided that relief from forfeiture extends to contractual as well as statutory conditions. Therefore, the critical issue was whether the policy could be characterized as a claims-reported or an occurrence-based policy. An explanation of the difference between the two polices is provided in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252.

Colyvan argued that the availability of relief from forfeiture in the late reporting of a claim under a claims-reported policy is supported by 312630 British Columbia Ltd. v. Alta Surety Company, 10 B.C.L.R. (3d) 84 (B.C.C.A.). In that case, Mr. Justice Lambert referred to Falk Bros. and stated that giving notice out of time constituted imperfect compliance as opposed to non-compliance, and therefore statutory relief against forfeiture was available. In deciding whether or not to exercise discretion to relieve against forfeiture, Lambert J.A. noted that the most important factor was whether the surety had suffered prejudice. Since, in 31260 British Columbia Ltd., the insurer had suffered no actual prejudice by the late notice, the insured was entitled to relief from forfeiture.

Senniw Prov. Ct. J., commented that the Court of Appeal in 312630 British Columbia Ltd. concluded that although notice and referral to the insurance company was required with respect to making an insurance claim, the notice provision in the policy was not part of the legal crystallization of the claim. Therefore, 312630 British Columbia Ltd. was not dealing with the reporting of a claim within the policy period of a claims-reported policy, but rather a step to be taken with respect to obtaining compensation for a loss, which was analogous to an occurrence based policy. Senniw Prov. Ct. J. felt that the case at bar was more analogous to Stuart v. Hutchins et al, [1998] O.J. No. 3672 (O.C.A.) in which the Ontario Court of Appeal distinguished occurrence type insurance policies from claims-triggering policies, noting that unlike an occurrence type policy, the notice requirements in claims-triggering policies formed an integral part of the event triggering coverage, transforming a failure to report a claim from imperfect compliance with an insurance contract to non-compliance.

In analysing section 10 of the Insurance Act, Senniw Prov. Ct. J. noted that the purpose of allowing relief from forfeiture is to prevent hardship to the insured where there is no prejudice to the insurers; that is, to remedy a situation where loss of insurance would be inequitable. A condition precedent for forfeiture is that the insured has made imperfect compliance with the insurance policy. In the case at bar, the failure to report the claim under the conditions of the insurance policy constituted non-compliance, and as such, the insured was not entitled to coverage. Senniw Prov. Ct. J. dismissed the claim.

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