Our lawyers have worked through the maze of complex litigation and coverage issues, managed the class action juggernaut, and represented employees of insurers that come under attack by plaintiff`s litigation. Some of the problems we face are front page news, most are not. They are all problems that are important to our clients, and to us.
The Court of Appeal has determined that an Insurer is not required to provide a justification for its request that a claimant attend an examination under oath under section 33 of the SABS.
In Aviva Insurance Company of Canada v. McKeown et. al., Aviva requested that six claimants attend EUOs. The claimants denied Aviva’s request and demanded that Aviva provide a “reason” in the sense of a “justification” for its request that they attend EUOs. Aviva brought an application in the Superior Court for a declaration that a justification was not required to compel a claimant to attend an EUO.
The application judge dismissed the application and found that an Insurer must provide a “justification” to compel a claimant to attend an EUO. Aviva appealed.
Ultimately, the Ontario Court of Appeal found that a “justification” is not necessary. Justice Juriansz found that the object of the Act and the intention of the legislature leads to the conclusion that section 33(4)3 does not require an Insurer to include in its notice to a claimant a justification for its request to attend an EUO. Justice Juriansz endorsed that the legislative objectives in creating the EUO were to reduce insurance costs, address fraud and increase accountability within the system, and rejected the application judge’s reasoning that the use of EUOs might result in an increase in the overall costs of the system. Furthermore, requiring Insurers to provide justification for EUOs was noted to be not in keeping with the non-adversarial process intended by the legislature.
Reviewing section 33(4)3 in the context of the scheme of the Act and the regulations, the Court also noted the following in favour of a “no justification” approach to EUOs:
Requiring an Insurer to provide a “justification” in its request for an EUO is not in keeping with the cooperative approach to information sharing throughout the SABS;
Other provisions (including section 44, which allows Insurers to require a claimant be examined by a health professional) require requests by insurers to be “reasonably necessary, which is in contrast to section 33;
The requirement to provide notice of the “reason or reasons for the examination” is included in section 33(4) and is not included as one of the qualifications in section 33(2);
There is no redundancy between the requirement for reasons under section 33(4)3 and the scope of examination under section 33(4)4;
Reading an additional requirement to provide notice of justification is not necessary to promote fairness in the scheme which already addresses potential abuse of EUOs by Insurers; and
FSCO has not interpreted the provision to require notice of a “justification” for an EUO.
Brokers negligence and the standard of care is front and center in the recent Nova Scotia Court of Appeal decision in Marsh Canada Ltd. V. Grafton. In Marsh, the insured corporation sustained extensive fire damage to one of its building and sought indemnity from its insurer, Lloyds of London. Over many years, there was a misapprehension about the profile of the property. It was not ‘sprinklered and of masonry construction’ although the insured over many years had represented that it was.
The insured corporation had a number of properties that were subject to various insurance arrangements and a number of different people were responsible over the years for managing the insurance issues for the corporation. The misstatement about the building being equipped with a sprinkler system and of masonry construction stemmed from a 2003 application for insurance and was not an intentional misstatement.
When fire destroyed the property in 2007, the insurer became aware of the true profile of the building and denied coverage. The insured sued both the insurer and the broker on the theory that the standard of care of the broker required it to do more due diligence to ensure that the information on the application was accurate.
At trial, the court held that the broker was liable. Ironically, because of the ‘complexity’ of the insured’s holdings and the different people in the organization responsible for insurance arrangements, the trial judge concluded that the broker should have been alive to the fact that the information coming from the insured may not be accurate. Indeed, the trial judge thought that the broker should have inquired as to whether inspections had been done on the property to ensure information was accurately recorded (specifically regarding whether it was sprinklered and of masonry construction) and if not the broker should have recommended inspections be done.
The Court of Appeal overturned the trial judges ruling, noting that the broker was responsible only to make appropriate inquiries to determine the kinds of coverage required of the insured and to advise of the appropriate options available that would satisfy the needs of the insured.
Although this decision will give brokers reason to breathe a sigh of relief, it underscores the importance of robust and well documented communications between broker and insured evidencing that the above issues have been properly addressed.
Neil is a Partner of Samis+Company. Neil focuses exclusively on insurance-related litigation. He has handled a broad range of matters before the Ontario Superior Court of Justice and the Financial Services Commission of Ontario, as well as advocating on behalf of his clients in private arbitrations.
The Court of Appeal has brought some clarity to time limits for appraisals under the Insurance Act.
In 56 King Inc. v. Aviva, the plaintiff commenced a claim against its Insurer seeking coverage for damage to commercial property arising from a windstorm, as well as damages for breach of the Insurer’s duty of good faith in handling the claim.
The Statement of Claim was issued in February 2014. Sometime in late December or early January 2016, the Insurer admitted coverage. Three weeks later, the Insurer elected an appraisal under Section 128 of the Insurance Act. The plaintiff rejected the appraisal on the basis that it was too late and because the bad faith claim could not proceed by appraisal. The Insurer brought a motion to determine whether an appraisal should be ordered.
In short, Justice Lofchik granted the Insurer’s motion. Justice Lofchik emphasized that the appraisal wording in Section 128 of the Insurance Act is mandatory and that the appraisal process must be continually available, noting no timeline that an election for appraisal must be made by. Justice Lofchik also found the appraisal did not prevent the plaintiff’s from having the issue of bad faith determined at trial.
The plaintiff appealed the motion judge’s finding as follows:
The motion judge did not have jurisdiction to make the order because the matter must be brought by application and not by motion;
The two-year delay prior to the demand for appraisal is a bar to an appraisal; and
The effect of the motion judge’s decision is to bifurcate the trial.
The Court of Appeal rejected all submissions and found for the Insurer.
Importantly, with respect to delay, the Court stated the legislation signals a decided preference for appraisal, but the language of Section 128 does give the Court discretion to curb abuse. In the case at hand, the Court found no abuse on the part of the Insurer, noting the appraisal was requested within three weeks of the Insurer’s admission of coverage.
This Court of Appeal decision is distinguished from prior decisions of the Court which dismissed Insurer’s requests for appraisal due to the requests being brought too late. (see 1633092 Ontario Ltd. and Ouellette Estate v. North Waterloo Farmers Mutual Insurance Company)
It remains to be seen what will be considered “abuse” such that a Court will find an insurer is out of time for an appraisal.