An insurer was not entitled to rely on a contractual limitation period shortening the statutory limitation period because the wording for when the limitation period commenced was not clear. The limitation period did not start to run until after the appeals process had been exhausted.

[2014] O.J. No. 1090

2014 ONSC 1523

Ontario Superior Court of Justice

M.G. Ellies J.

March 7, 2014

An insurer applied to dismiss an insured's claim under a group insurance policy on the basis that the action was commenced after the limitation period had expired.

On May 15, 2008, the insured applied for long term disability benefits. The policy provided for an elimination period and so benefits were not payable from the insurer until September 12, 2008. On December 4, 2008, the insurer declined the claim on the basis that the information provided was not sufficient and advised the insured on how to appeal the decision. From December 4, 2008 onwards, the insured and the insurer went through the appeal process until the final appeal on February 24, 2011. The insured commenced an action on February 21, 2012.

The insurer and the insured disputed the applicable limitation period and when the limitation period commenced. Ontario's Limitation Act provides for a default limitation of two years commencing the day the claim was discovered. The Act limits the ability of contractually shortening limitation periods. The court held the policy fit within the "business agreement" exception to the prohibition against contracting out of the Act because the contract was entered into by the insured's employer and the insurer. It then went on to consider whether the policy met the requirements to shorten a statutory limitation period, namely whether the provision describes the limitation period in “clear language”.

The policy booklet stated that no legal action could be brought more than one year after the date the insurer received the insured's claim forms. However, the actual policy stated that no legal action could be brought more than one year after the end of the time period in which proof of the claim is required. The booklet tied the limitation period to receipt of the forms, whereas the policy tied the limitation period to proof of the claim. The court held that the contrasting limitation periods in the booklet and the policy created ambiguity as to when the limitation period began to run. As the limitation clause did not state the limitation period in clear language, the insurer had failed to validly contract out of the statutory limitation period and the two year limitation period under the Act applied.

The court dismissed the insurer's argument that the limitation period commenced when it had first denied coverage on December 4, 2008 and held the statutory limitation period did not begin to run until February 24, 2011. In doing so, the court relied on the wording of the policy and the wording of the denial letters to the insured to conclude that there had not been a clear denial of the claim until the final appeal. Accordingly, the claim was brought within the limitation period.