In Lloyd’s Underwriters v. Blue Mountain Log Sales, Blue Mountain, which was insured by Lloyd’s, was named as a defendant in a law suit in Washington State. Blue Mountain did not realize that the law suit might trigger coverage under its insurance policies and did not tender its defence to Lloyd’s until almost two years after the litigation first arose and during that period, defence costs were incurred.
Lloyd’s applied for a declaration that it had no liability for pre‑tender defence costs and relied upon standard CGL policy provisions which included:
“Upon the happening of an accident or occurrence which may give rise to a claim hereunder, the Insured shall give notice thereof as soon as practicable …”
“The Insured shall not, accept at his own cost, voluntarily make any payment, assume any obligation or incur any expenses …”
Lloyd’s argued that the failure of Blue Mountain to give timely notice is a breach of a condition precedent that triggers Lloyd’s responsibility under the policies and that defence costs incurred before the notice fall outside that responsibility.
Mr. Justice McEwan noted that Lloyd’s did not allege any prejudice due to late notice and he noted the relief from forfeiture provisions in both the B.C. Insurance Act and the B.C. Law and Equity Act. He decided that in the absence of prejudice, Blue Mountain could be relieved from the negative consequences asserted by Lloyd’s and he concluded that Lloyd’s could not avoid pre‑tender defence costs on the basis of Blue Mountain’s failure to give more timely notice.