When Is It “Appropriate” to Sue an Insurer?

October 3, 2018 | Sean McGarry

The Ontario Court of Appeal recently ruled on the application of limitation periods in actions against insurers.

In Nasr Hospitality Services Inc. v. Intact Insurance[1] the principal of the plaintiff corporation, Mr. Nasr, discovered water damage on the premises of his insured property. He immediately reported the damage to his insurer, Intact Insurance, in February of 2013.

The insurer began adjusting the claim, made payments for business interruption expenses, and engaged in settlement negotiations with the plaintiff. In July of 2013, the insurer denied the claim in its entirety due “policy violations”. The plaintiff issued a claim on April 22, 2015 for breach of contract.

The Ontario Limitations Act, 2002 requires that actions be commenced within two years of discovery of a claim.[2] If the claim was discovered on the date the damage was reported, it would be statute barred. If it was discovered on the date of formal denial, it would be in time.

The common law has traditionally focused on when the plaintiff knew a cause of action had arisen from an act or omission of the defendant. The legislature has added an additional inquiry that a “proceeding would be an appropriate means” to remedy the loss.[3]

The Motion Judge focused on this “appropriateness” requirement. Given the circumstances of the payments being made by the insurer, the Motion Judge ruled that it would not have been “appropriate” to sue until the insurer “clearly repudiated its obligation to indemnify under the insurance policy.” The action was found to have been discovered in July of 2013, and was thus not statute barred.

The Court of Appeal overturned this decision. The Court emphasised that the appropriateness of the claim must be its legal appropriateness. While it is clearly not practical to begin a lawsuit the day after a cause of action arises, it would create unacceptable uncertainty if courts had to evaluate the tenor and tone of the conversations of the parties to determine when the action had begun to be appropriate.[4]

The Court cautioned insurers on the possibility of promissory estoppel precluding them from relying on a limitation period at a later point. Promissory estoppel requires that: (1) the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and be acted on; and (2) in reliance on that representation, the representee acted on it or in some way changed his position.[5] The plaintiff conceded, however, that promissory estoppel did not apply in the case at bar.

This decision affirms underwriters’ ability to engage in settlement negotiations with insureds without extending the limitation period. Underwriters or their representatives should be careful, however, not to make an assurance to the insured that was intended to be relied upon.

[1] 2018 ONCA 725.

[2] Limitations Act, 2002, S.O. 2002, C. 24, Sch. B, s. 4.

[3] Ibid., s. 5(1) (a) (iv).

[4] This reasoning is consistent with the Court’s comments in Markel Insurance Company of Canada v. ING Insurance Company of Canada, 2012 ONCA 218.

[5] These principles have been commented on in detail in two Supreme Court of Canada decisions: Maracle v. Travellers Indemnity Co. of Canada, 1991 CanLII 58 (SCC), [1991] 2 S.C.R. 50, and Marchischuk v. Dominion Industrial Supplies Ltd., 1991 CanLII 59 (SCC), [1991] 2 S.C.R. 61.


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