The Court of Appeal dismissed an appeal from an order holding that the two year limitation period for bringing a claim against one's own insurer under an underinsured motorist endorsement starts to run when the insured first makes a claim for compensation under the endorsement.

[2014] O.J. No. 531

2014 ONCA 88

Ontario Court of Appeal

A. Hoy A.C.J.O., E.A. Cronk and G.J. Epstein JJ.A.

February 4, 2014

This was an appeal from an order holding that the two year limitation period for bringing a claim against one's own insurer under an underinsured motorist endorsement starts to run when the insured first makes a claim for compensation under the endorsement.

The respondents were injured in a motor vehicle accident on July 19, 2006. At the time the respondents were insured under a policy of automobile insurance issued by the Lombard General Insurance Company of Canada ("Lombard") which included an optional endorsement for underinsured motorist coverage to a maximum of $2,000,000 (the "Endorsement"). The driver of the other vehicle involved in the accident had a policy of insurance with limits of $1,000,000. In June 2007, the respondents sued the other driver for damages in excess of $1,000,000 and because this was in excess of the limits of other driver's policy, brought an action against Lombard for coverage under the Endorsement.

The relevant provisions of the Endorsement and the Limitations Act were as follows:

10 Section 17 of the OPCF 44R, the section dealing with the limitation period, provides:

Every action or proceeding against the insurer for recovery under this change form shall be commenced within 12 months of the date that the eligible claimant or his or her representative knew or ought to have known that the quantum of claims with respect to an insured person exceed the minimum limits for motor vehicle liability insurance in the jurisdiction in which the accident occurred, but this requirement is not a bar to an action which is commenced within 2 years of the date of the accident.

12 The relevant sections of the Act relate to the basic limitation period, discoverability and agreements to vary or exclude the statutory limitation period. They are:

Basic Limitation Period

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

Discovery

5. (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Agreements

22. (1) A limitation period under this Act applies despite any agreement to vary or exclude it, subject only to the exceptions in subsections (2) to (6).

Exception

(2) A limitation period under this Act may be varied or excluded by an agreement made before January 1, 2004.

Lombard advanced two arguments in support of its position that the limitation period began to run when the respondents knew or ought to have known that the quantum of their claims exceeded $1,000,000.

First, Lombard argued that s. 22 only invalidated agreements varying or excluding the length of the limitation period and the discoverability provisions of the Endorsement remained in effect. The Court of Appeal rejected this argument, holding that "the limitation period must be determined by interpreting 'discovered' as defined by the Limitations Act." In this case, once a claim for indemnity under the Endorsement was asserted, Lombard was under a legal obligation to respond to it and the respondents suffered a loss from the moment the insurer failed to satisfy that obligation. The loss occurred once Lombard failed to satisfy the claim the day after the demand was made.

Lombard’s second argument was that a proper interpretation of s. 5 of the Limitations Act led to the conclusion that that the limitation period for claims of this sort starts to run once the claimant has accumulated a body of evidence that would permit the claimant a reasonable chance that the claim will exceed the policy limits and it makes no sense for the limitation period to run from the time a demand is made, as this cannot be done until after completion of the underlying trial. The Court of Appeal rejected this argument, noting that the claimant can make a demand for indemnification at any time and need not wait for the outcome of the trial. In the result, the appeal was dismissed.