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Is There Coverage for a Cancelled Policy?

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In this recent 2019 summary judgment decision of the Ontario Superior Court in Dawson v. Co-operators General Insurance Company, the Court had to decide whether there was coverage for property damage due to fire, to a property that had not been insured for eight years!  Yes – you read that correctly – no insurance for eight years.

This summary judgment motion spanned two years and four attendances. Although it seems pretty matter of fact, the resulting decision needed an extensive timeline and analysis of the methodology employed in cancelling the policy.  The insurer, The Co-Operators, took the position that the policy was cancelled for non-payment of the premium.  In addition to the allegations of negligence as against The Co-operators, the allegations were that its broker, the James Blackwell Agency, was negligent and The Co-operators was vicariously responsible for the negligence of the broker for failing to maintain coverage on this property.  The Plaintiff had two properties insured with The Co-operators, and after the cancellation in 2007 of the Barrie property, he continued to pay premiums for his Innisfil property until 2010.

The Defendant’s position was:

  1. by the time of the fire in March, 2015, there was no relationship with the Plaintiff that would give rise to a duty of care;
  2. that the Plaintiff was given actual notice by The Co-operators and its agent that he did not have coverage with The Co-operators; and
  3. in any event, there was no duty to provide notice that the policy had lapsed.

It was found that the Plaintiff was evasive and not credible or reliable with regard to how he could not be aware that he was not paying premiums for the Barrie property.

Justice McKelvey discussed the case law regarding notification of cancellation:

There is some authority to suggest that there is no obligation on an insurer to notify its insured about the lapse of a policy: see, for example, Roy v. Atlantic Underwriters (1986), 67 N.B.R. (2d) 16 (C.A.). However, in some cases, courts have held that a duty exists to notify a customer of a pending expiry, or of a proposed non-renewal or cancellation. Thus, in Morash v. Lockhart & Ritchie Limited (1978), 1978 CanLII 2111 (NB CA), 24 N.B.R. (2d) 180 (C.A.), the court found that the evidence at trial justified a conclusion that the standard of reasonable care called for the defendant to notify the plaintiff in some way that his policy was not being renewed and that the omission to do so constituted negligence on the part of the insurer. In the present case, Mr. Dawson did not receive any renewal notices for the Barrie policy after July 2007, and has not received renewal documentation for any Co-operators policy since September 2010. He paid no premiums at all, to Co-operators, after he cancelled the Innisfil policy in September 2010. Even in the absence of the telephone discussions, there could be no reasonable belief by Mr. Dawson that the Barrie policy was still in force. It follows that, by the time of the fire, there was no duty on Co-operators to notify Mr. Dawson that his coverage on the Barrie property had lapsed.

It was concluded that the Plaintiff had been notified about the termination of the coverage of the property and the evidence, when considered in its context, satisfied the Court that The Co-operators met any duty it owed to the Plaintiff to advise of the fact that coverage under its policy had ceased.

Section 134(3) of the Insurance Act states that:

Where note or cheque for premium not honoured

(3) Where a cheque, bill of exchange or promissory note is given, whether originally or by way of renewal, for the whole or part of any premium and the cheque, bill of exchange or promissory note is not honoured according to its tenor, the insurer may terminate the contract forthwith by giving written notice by registered mail.

However, amendments are being made as follows:

Note: On a day to be named by proclamation of the Lieutenant Governor, subsection 134 (3) of the Act is amended by adding “personal delivery, or prepaid courier if there is a record by the person who has delivered it that the notice has been sent” at the end.

Accordingly, this case highlights the importance of documentation of cancellation by the insurer to the insured, even when it appears that it is obvious that there is no coverage!  There are always novel ways to try and find coverage.

Just heard about Pallett Valo being chosen as One of Ontario's Top Three Regional Firms. Congratulations – well deserved.
Peter Campbell, BDO Canada LLP