Insurance policies of all types require
insured persons or organizations, including charities and
not-for-profits, to notify their insurer of claims or potential
claims. These notice requirements are contained in insurance
policy wordings and must be followed. The failure to put
an insurer on notice of a claim or even a potential claim
may lead to the insurer denying coverage under the policy.
The denial of coverage would result in the insured being
required to defend a lawsuit and pay a judgment without
any contribution from the insurer. The Ontario Superior
Court of Justice decision in Peel Law Association v Royal
highlights the importance of complying with the claim
notice provisions in insurance policies. As will be discussed
in this Bulletin, this decision shows why charities and
not-for –profits must understand their coverage and duties
under insurance policies, and give notice of a claim or
a potential claim without delay to their broker or insurer.
Two Human Rights Tribunal of Ontario
(“HRTO”) proceedings alleging unlawful discrimination were
brought against the Peel Law Association (“Peel”).
The first proceeding was commenced in July 2008 and the
second was commenced in January 2009. Both proceedings were
related and consolidated by the HRTO. Peel retained legal
counsel for the proceedings in August 2008, but did not
put its insurer, Royal Insurance (“Royal”), on notice of
the claim at that time. Peel defended the proceeding before
the HRTO. After a hearing, the HRTO found that Peel had
engaged in unlawful discrimination, and was ordered to pay
damages in the amount of $4,000. Peel appealed the HRTO
decision to the Divisional Court, which quashed the HRTO
decision. The complainants then appealed that decision to
the Court of Appeal. The complainants’ appeal was allowed
and the decision of the HRTO was restored.
After all these proceedings were completed, Peel had incurred
in excess of $116,889.41 in legal defence costs.
Peel only notified the claims department
of Royal of the proceeding by formal written notice on December
23, 2010. This formal notification date was well after the
HRTO proceeding had been commenced, and after the date of
the HRTO decision released on December 3, 2010.
The reason put forward by Peel for the late formal written
notice was that Peel “had not turned their mind to insurance
coverage for the HRTO proceedings.”
Peel commenced an application seeking orders requiring Royal
to provide coverage and reimburse Peel’s legal defence costs
or alternatively, for damages for breach of the insurance
Peel’s insurance policy covered claims
that were made against it and its directors for “wrongful
acts”, which appear to have included unlawful discrimination
When the policy period commenced in October,
2007, Peel was sent a letter from its insurance broker that
described the “claims made” policy, and the obligation to
report potential and actual claims in a timely manner. The
letter also made reference to the notice section of the
policy, which explicitly stated that Peel must provide the
insurer with written notice and a description of the circumstances
of any claim no later than thirty days after the policy
period expires. In addition, the policy also stated that
Peel must not agree to settle a claim, incur defence costs
or admit liability without Royal’s prior consent.
D. DID PEEL PROVIDE
The parties disputed whether Peel complied
with the notice provision in the policy. According to Royal,
notice is only effective when sent to the broker or claims
office. However, the insurance renewal application form
completed in October 2008 requested information about “changes
in legal counsel”, to which Peel replied that it had retained
counsel in the HRTO proceeding. Peel asserted that it complied
with the notice requirement when it stated on this application
that it had retained legal counsel with respect to the HRTO
proceeding. In response, Royal argued that the renewal application
was only considered a “go forward”
document asking about material changes, which was sent to
the underwriting department, not the claims department.
Therefore, it took the position that this was not proper
notice of the claim under the policy.
The court agreed with Royal’s position,
finding that Peel had no intention to report a claim at
the time the renewal application was completed. The court
also accepted the evidence from Royal that the renewal application
would not have come to the attention of the claims department.
Peel also argued that neither Royal nor
the broker followed up on the information provided in the
renewal application. However, the court stated that brokers
and insurers are not obligated to inquire whether an insured
wants to make a claim, as it is the insured’s decision whether
or not to submit a claim and involve the insurer. Further,
in regards to Peel’s renewal application, a partner at the
broker had contacted Peel to inquire about the HRTO matter,
but Peel advised him that it would pay any settlement costs
itself. This response was considered by the court as evidence
that Peel’s intention was to not report a claim.
E. PREJUDICE TO THE INSURER?
The purpose of insurance policy notice
provisions is to allow the insurer the opportunity to protect
its interests, (as well as the insured’s interests) when
a claim is made or threatened to be made. Courts have recognized
that delays in reporting claims may cause the insurer prejudice
to these interests, which justify a denial of coverage.
As a result of Peel’s late notice, Royal did not have the
opportunity to assess liability, investigate the matter,
negotiate a settlement, and retain counsel to defend the
HRTO proceeding. The court determined that these lost opportunities
prejudiced the insurer, and therefore, the denial of coverage
was upheld. For these reasons, the court also held that
Peel should not be relieved from the consequences of its
late notice by an order granting “relief from forfeiture”
pursuant to s. 129 of the Insurance Act.
The Peel decision, demonstrates
that is important for an insured (including charities and
not –for –profits) to provide its insurer with proper notice
of a claim or a potential claim in a timely manner, and
as specified in the insurance policy. Insureds should also
carefully review the insurance policy and be aware of the
terms and conditions of their coverage. If there is doubt
as to whether there is or is not coverage, the best practice
is to report the claim. Otherwise, any non-compliance may
be viewed as prejudicial to the insurer and coverage may
be denied. Furthermore, an insured should not engage in
any settlement discussions without first submitting a claim
under the policy.