What constitutes a claim for the purposes of the definition of “claim” under a policy of insurance is determined according to an objective test in light of the reality of what the third party communicated to the insured by words or conduct. This does not always require a specific threat of legal proceedings. In this case, a reasonable insured, in the context of the complaint, would have concluded that the complainant intended to hold the insured liable when he simply stated that the insured should cover his costs.

[2014] N.S.J. No. 330

2014 NSCA 69

Nova Scotia Court of Appeal

L.L. Oland, D.P.S. Farrar and P. Bryson JJ.A.

June 25, 2014

The issue in this case was whether a letter of complaint constituted a claim, as defined in the policy, which had been first made before the policy took effect.

The insured was being sued in the underlying action for professional misconduct relating to the alleged failure to disclose a water issue discovered subsequent to the purchase of a residential property. The property was purchased in April 2005 and in July 2005 the purchaser made a complaint to the provincial real estate commission in which he stated, “I think the realtor should cover the cost that I’m going to have to pay to get water”. The complaint was known to the insured, but was not reported to their insurer.

The insured later switched insurers. The new policy ran from January 2009 to January 2011 and provided coverage for liability for any wrongful act provided that the claim was first made against the insured during the policy period. The policy defined a claim as including a written demand for damages or non-monetary relief against an insured for a wrongful act committed by the insured. The policy contained an exclusion to the effect that the insurer was not liable for a claim already known to the insured. The underlying action was commenced in September 2009 and the insurer denied coverage.

The insured brought a successful application for coverage before a chambers judge. On appeal, the court held that the standard of review was correctness as the issue was strictly a policy interpretation, with no facts in dispute. The court then looked to Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] S.C.J. No. 10, and held that the test with respect to whether a claim had been made is an objective one in light of the reality of what the third party communicated to the insured by words and conduct. According to the court, this does not always require a specific threat of legal proceedings. On this basis, the court held that the trial judge erred in considering anything other than the substance of the complaint. The complaint met the definition of a claim under the policy and a reasonable insured would have concluded from the complaint that the purchaser intended to hold the insured liable. Accordingly, the complaint was first made before the policy came into effect and was outside of coverage.