The Ontario Court of Appeal held that commencing a lawsuit to enforce an insurance claim becomes “appropriate” as soon as it is legally possible under the policy to do so and not a later date when the insurer denies the claim.  

Nasr Hospitality Services Inc. v. Intact Insurance, 2018 ONCA 725, per Brown J.A.

Facts + Issues

This is the appeal from the trial decision reported in the April 2018 edition of Defence + Indemnity. The respondent, Nasr Hospitality Services Inc. owned commercial premises in Niagara Falls (the Premises) from which it intended to operate a restaurant. The Premises was insured through a commercial insurance issued by the appellant, Intact Insurance. 

On January 31, 2013, Nasr discovered water damage to the Premises caused by a ruptured bathroom pipe and called a broker, who immediately reported the water damage to Intact. Intact assigned a company to attend and report to any damage and Nasr signed a work authorization for emergency repairs to begin. 

On February 14, 2013, Intact issued a $20,000 cheque to Nasr for business interruption, representing a two month loss in rent for March and April 2013. On April 17, 2013, Intact informed Nasr it had requested the issuance of a second $20,000 cheque representing rent for May and June. On May 2, 2013, a $2,000 cheque was issued in respect of “hydro”. The parties engaged in settlement discussions and on May 13, 2013, Intact made an offer of $65,000 to Nasr. 

On July 22, 2013, Intact informed Nasr that its investigation revealed possible violations of the insurance policy which could lead Intact to denying further coverage for any portion of the loss. The investigation determined that Nasr had never obtained a licence to operate a restaurant and that from September 12, 2012, until the date of loss no business was operating at the premises, nor was there a tenant. Intact rejected the proof of loss and denied any further claims due to policy violations. The letter concluded by specifying that if Nasr wished to protect its right to make a claim under the policy it was required to begin legal proceedings against the Intact before the two year period from the date of loss expired. 

Nasr issued its Statement of Claim on April 22, 2015. Intact denied the claim in part on the basis of the Policy violations, but also pleaded that the claim was statute-barred.

The Limitations Act 2002, S.O. 2002, (the Act), c. 24, Sched. B governed the question of when a claim is “discovered” so as to start the limitation period running:

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

1. the day on which the person with the claim first knew,
    
   1. that the injury, loss or damage had occurred,
       
   2. that the injury, loss or damage was caused by or contributed to by an act or omission,
       
   3. that the act or omission was that of the person against whom the claim is made, and
       
   4. 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
       
2. 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).

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

The motion judge proceeded on the basis of two “assumptions”. These assumptions were that Nasr’s cause of action arose on February 1, 2013 (the day after it discovered the loss), and that this was also the date that it knew of the matters described in ss. 5(1)(a)(i)-(iii). 
The motion judge found that the presumption that Nasr should have known about the claim on February 1, 2013 as per section 5(2) was rebutted and the action was not statute-barred by virtue of section 5(1)(a)(iv) of the Act, dealing with “appropriate means”. Without deciding whether the cause of action was ripe on Feb. 1, 2013, the motion judge rejected Intact’s argument, holding that Nasr’s action for breach of contract would have been premature prior to Intact repudiating its obligation to indemnify on July 22, 2013. 

Intact appealed, arguing that under the “appropriate means” element of the Act Nasr’s cause of action arose on Feb. 1, 2013.

The issues on appeal were:

1. Did the motion judge err in finding that Nasr knew or ought to have known of the matters set out in ss. 5(1)(a)(i)-(iii) of the Act on February 1, 2013? 
    
2. Did the motion judge err in finding that the respondent did not know, nor ought it to have known that a proceeding would be an “appropriate means” element of the discoverability test under s.5(1)(a)(iv) of the Act to seek a remedy until July 2013?

HELD: For the insurer; appeal allowed and claim summarily dismissed. 

The Court found that it was proper for the motion judge to conduct his analysis on the basis that Nasr knew or ought to have known the matters set out in ss. 5(1)(a)(i) – (iii) of the Act on the day after Nasr had reported to loss to its insurer.

1. The Court found that the parties’ agreement as to the fact that Nasr’s cause of action for breach of the insurance contract had arisen on February 1, 2013, constituted an admission of that fact. Moreover, the Court had held in Markel Insurance Company of Canada v. ING Insurance Company of Canada, 2012 ONCA 218 (Markel Insurance) and Schmitz v. Lombard General Insurance Company of Canada, 2014 ONCA 88 that for the purposes of s. 5(1)(a)(ii) and (iii) of the Act, a party claiming indemnification under or in respect of a policy of insurance knew there was a loss caused by an omission of the insurer the day after the request or claim for indemnification was made.
    
2. It was found that the motion judge erred in ignoring the effect of the Nasr’s concession that there was no issue of promissory estoppel. The concession operated in this case to make the day Nasr knew or ought to have known an action was an appropriate means to remedy the loss the day of the loss, namely February 1, 2013.

The Court held that the motion judge erred in finding that the insured did not know, nor ought it to have known that a proceeding would be an “appropriate means” to seek its remedy under s.5(1)(a)(iv) until July 2013 when the insurer denied coverage. 

1. The Court held that the meaning of “appropriate” in s. 5(1)(a)(iv) has been confined to “legally appropriate”. In Markel Insurance, and in 407 ETR Concession Company Limited v. Day, 2016 ONCA 709 the Court found that “legally appropriate” signified that a plaintiff could not claim it was appropriate to delay the start of the limitation period for tactical reasons, or in circumstances that would later require the court to decide when settlement discussions had become fruitless. 
    
2. The Court found that although the motion judge had not expressly addressed s. 5(2) of the Act, he had taken the view that Nasr had displaced the presumption that a person with a claim knows of the act or omission on the day it takes place. To do so, the motion judge had relied on the negotiations between the two parties and on the three payments made by Intact. 

COMMENTARY

Alberta’s Limitations Act, RSA 2000, c L-12, carries a similar discoverability provision in section 3. However, there is no appropriateness factor in the Alberta legislation, as such.  However, the two-year basic limitation period begins to run when the claimant knows, or ought to know, that the injury had occurred, that it is attributable to the defendant, and that “assuming liability on the part of the defendant warrants bringing a proceeding” (s. 3(1)(a)). Is Ontario’s “appropriateness” standard analogous to Alberta’s “warrants bringing a proceeding” standard?

The Ontario Courts’ main focus was “appropriateness”.  The motion judge held that the insured’s commencement of an action was not the “appropriate” means to seek a remedy until the insurer had denied the claim. However, the Ontario Court of Appeal held that an action on the claim became appropriate as soon as a covered claim had occurred and become discovered.

It remains to be seen how the Alberta Courts will go regarding the “warrants bringing a proceeding” standard. They may consider that it does not “warrant bringing a proceeding” until the insurer denies coverage. On the other hand, they may consider that the “warrants bringing a proceeding” standard is the same as Ontario’s “appropriateness” standard, i.e. holding that bringing a proceeding is warranted as soon as it is legally possible to do so.