Insurance policies offer policy-holders security: the policy-holder pays a premium and in return the insurer agrees to cover the risks outlined in the policy. This coverage is not however automatic. In fact, failure of the insured to notify the insurer of any loss which may give rise to an indemnity in a timely manner can result in the forfeiture of the right to compensation1. In order to ensure coverage and increase security, it is therefore crucial that the insured provide notice of any potential claim immediately upon becoming aware of it2.
The risk associated with failing to disclose a notice of loss in a timely manner was recently highlighted in the case of Rosenstein c. Guarantee Company of North America3. In the Rosenstein case, the Superior Court of Québec denied the insureds’ application for coverage on this basis. The Court found that the insurer was entitled to rely on a notification provision in the insurance policy in order to deny coverage. As a result, the insureds were held personally liable for hefty damages in a defamation lawsuit.
The defamation case arose from proceedings first instituted by the insureds in 2005, in the name of their son, against the son’s school teacher on the grounds that the teacher humiliated and intimidated their son in front of his classmates. The school teacher and the insureds settled their dispute out of court and a condition of their agreement was that the dispute remain confidential. However, immediately after notifying the judge of their intention to discontinue proceedings, the insureds exited the courtroom, approached the media and publicly made defamatory comments that tarnished the school teacher’s reputation. These comments were televised and broadcasted across Canada.
As a result of this public statement, the school teacher filed a lawsuit against the insureds for damages to her reputation and for the violation of the confidentiality clause of the agreement. She was awarded in excess of $234,000 in damages by the Superior Court in July 2010. This judgement was confirmed by the Court of Appeal of Québec and the Supreme Court of Canada dismissed the insureds’ application for leave to appeal. The award was later successfully increased to $1.4 million.
It was only in July 2012 that the insureds notified their insurer of the court order against them. In September 2012, following the insurer’s refusal to cover said damages in accordance with the insurance policy, the insureds instituted proceedings against their insurer.
After analyzing the clauses of the insurance policy, the Superior Court outlined the paramount importance of notifying the insurer of any loss which may give rise to an indemnity the moment the insured becomes aware of it. The court stated that the insurer suffered a severe prejudice due to the late notice of loss, as the insurer was unable to:
- assign a claim adjuster;
- conduct an investigation;
- hire counsel;
- evaluate the possibility of a settlement conference;
- retain other experts;
- minimize legal costs etc.
The Superior Court held that the prejudice was irreparable at this stage of the proceedings and therefore allowed the insurer to invoke the clause under which all rights to compensation are forfeited by the insured when he fails to notify the insurer of any loss which may give rise to an indemnity as soon as he becomes aware of it.
The rationale for imposing a sense of urgency on the insured, it has been found, is to avoid the insurer being at the mercy of the insured and to allow for prompt investigation4. As a result, any insured wishing to take advantage of coverage under an insurance policy must be sure to file a notice of loss promptly, or risk a finding that the insurer is justified in refusing to provide coverage under the policy.