What general rules, requirements and procedures govern the filing of insurance claims?

Most insurance policies will dictate when and how the insured must provide notice of a loss or claim to the insurer. For certain types of insurance, notice requirements are set out in statute. In other cases, the policy dictates when notice and/or proof of loss must be given, as well as the required content of the proof of loss. Where there has been imperfect compliance with a provision regarding notice or proof of loss, relief from forfeiture may be available pursuant to statute. The chances of obtaining relief from forfeiture in large part depend on how significant the failure to comply is, whether the insured acted reasonably and the extent of prejudice to the insurer.

Where there are statutory or contractual requirements regarding notice and/or proof of loss, an insured may be precluded from bringing legal proceedings against an insurer unless and until it has satisfied those requirements.

Time bar

What is the time bar for filing claims?

Statutory provisions in each province establish time limits for the commencement of legal proceedings arising from disputes, including disputes under insurance policies. There are both limitation periods prescribed by statute for specific types of insurance policies, and also general limitation periods that apply to all disputes. Where there is no specific prescribed limitation period for the policy in question, the general Limitations Act of the province will apply. In some circumstances insurance policies will contain clauses that impose their own time limits for filing claims. Whether such time limits will supersede those found in statute will depend on the wording of both the clause and the statutory provision in the given jurisdiction.

Denial of claim

On what grounds can the (re)insurer deny coverage?

An insurer may deny coverage for any of the following reasons:

  • the claimant does not come within the definition of ‘insured’ in the policy;
  • the claim or the loss falls outside of the insuring agreement;
  • the claim is for a loss that falls within a policy exclusion;
  • the insured has breached a material condition of the policy and thus has forfeited coverage;
  • the insured lacks an insurable interest in the subject matter of the insurance;
  • the insured made a material misrepresentation in its application for coverage, or failed to disclose a material matter, thus entitling the insurer to void the policy;
  • fraud on the part of the insured in respect of the claim or the proof of loss; or
  • the claim exceeds the policy limits.

What rules and procedures govern the insured’s challenge of the denial of a claim?

An insured whose claim has been denied, and who is unable to persuade the insurer to reverse its position, may commence a legal proceeding against the insurer. If the policy provides for arbitration of disputes, the proceeding will commence with a notice of arbitration. If there is no arbitration clause, the proceeding will typically begin with the issuance of an originating process in the provincial superior court. The originating process (known as a statement of claim in most provinces) will be served on the insurer, who will then serve and file a statement of defence to the claim. The statement of claim sets out the material facts upon which the plaintiff relies as well as the nature of the relief claimed. The statement of defence contains the defendant’s version of the facts and any affirmative defences. The plaintiff may submit a reply, and then typically, the proceeding (known as an action) will then proceed through production of documents by each side, out-of-court examinations for discovery, mediation and then, barring a settlement, trial. If the insurer is of the opinion that other parties should share in liability to the plaintiff, may be liable to the insurer for an independent claim for relief or should be bound by a determination of an issue arising between the insured and the insurer, the insurer may commence a third-party claim (if such other party is not already a party to the action) or a crossclaim (if such other party is already a party to the action); in most circumstances a third-party claim will proceed in tandem with the main action and will be tried together with, or immediately after, the main action.

In some cases involving a liability policy, there may be a preliminary issue as to whether the insurer is under a duty to defend the insured against claims in an underlying action. In such cases, the insured may bring a motion within the action to have that issue summarily determined, or may bring a separate proceeding (known in some provinces as an ‘application’) for that purpose. The issue of the duty to defend lends itself in many cases to summary determination because the duty is determined based on whether the pleadings in the underlying action allege acts or omissions that fall within the policy coverage, and generally speaking extrinsic evidence (outside of documents that are referred to in the pleadings) is not admissible. Summary proceedings may also be employed to determine issues of allocation of defence costs among multiple insurers or between insured and insurer (eg, where there is coverage under policies over a period of years involving multiple insurers or years in which the insured did not have coverage).

Third-party actions

On what grounds can a third party file a claim directly with the (re)insurer?

A third party can claim against an insurer where the insured has made a valid assignment to the third party of its right to indemnity under the policy, or of the policy proceeds. Notice of the assignment must be given to the insurer. Any assignment is ‘subject to the equities’, meaning that the assignee has no greater rights under the policy than did the assignor.

In certain cases, for example in commercial liability policies, third parties will be given status as ‘additional insureds’ under the policy, and they may claim against the insurer (often the claim must go in through the named insured) to the extent their losses are covered. In other cases, such as with property insurance policies, the policy may provide that in the event of loss the proceeds will be payable to the mortgagee of the property, and that the mortgagee may sue for the proceeds. In policies of personal insurance such as life insurance, the insured will designate a beneficiary who, it follows, would have a right to claim directly against the insurer under the policy.

All Canadian provinces have provisions in their insurance statutes that permit persons who have judgment against an insured for injury or damage to persons or property, in cases where the judgment debtor’s liability policy would have covered them for the judgment, to bring proceedings directly against the insurer.

Punitive damages

Are punitive damages insurable?

This is an unsettled area of law in Canada. Some courts have relied upon public policy considerations to refuse to extend coverage to punitive damages whereas others have declined to do so. The consensus in the case law is that coverage for punitive damages will depend on the specific terms of the insurance policy in question. Where a commercial general liability policy covers compensatory damages alone, the policy will likely be interpreted as not including coverage against punitive damages. However, there may be coverage for punitive damages where the policy is more broadly worded. Many directors’ and officers’ policies will expressly cover punitive damages. Other types of policies will expressly exclude them.


What regime governs (re)insurers’ subrogation rights?

Insurers who have paid insureds under an insurance policy for loss may sue, in the name of the insured, third parties against whom the insured has a legally enforceable right to recover the loss. Insurers may be subrogated to claims in tort or in contract. The insurer steps into the insured’s shoes, which means that it can have no greater right against the third party than does the insured. The insurer may only subrogate once the insured has been fully indemnified for its loss; nevertheless, courts have permitted insurers who have been sued for coverage by their insureds to commence third party claims against alleged tortfeasors who have caused loss to the insured. With respect to certain types of coverage, subrogation rules have been modified by statute. Policies may also contain waivers of rights of subrogation against certain types of persons, or courts may interpret policies as implicitly containing such waivers.

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