Fridays with Rogers Partners

At our weekly meeting, Emmanuel Couture-Tremblay discussed the recent decision of the Ontario Superior Court in Qureshi v. Royal & Sun Alliance Insurance Company, 2022 ONSC 4997.

Overview

This case involved water damage to store inventory that occurred on October 7, 2014 and again on February 12, 2015. The plaintiff, Mr. Qureshi, submitted two claims under his business insurance policy from Royal & Sun Alliance Insurance Company (“RSA”).

The plaintiff brought an action against the insurer for breach of contract, and for bad faith and unjust enrichment. The defendant accepted that the policy provided coverage for water damage to the plaintiff’s inventory.

Background

First loss

On October 7, 2014, the roof of the leased premises leaked and damaged inventory. The plaintiff then submitted a claim for $53,488.84. This claim was denied because the plaintiff failed to prove the amount of his loss within the one-year limitation period. It was found that the plaintiff’s inventory included counterfeits and that the invoices provided to the insurer were not authentic.

Second loss

On February 12, 2015, a loss was incurred when the roof leaked a second time and damaged inventory. The plaintiff submitted a proof of loss document, claiming $74,486.75. However, the plaintiff failed to file the proof of loss document properly. As a result, the insurance company did not pay for this second claim.

Parties agreed to proceed by Simplified Procedure, with the plaintiff abandoning his claim that exceeded $200,000.

Issues

1. Whether the claim in relation to the first loss is barred by a one-year limitation period.
2. Whether RSA breached its contract of insurance with the plaintiff by not paying benefits to which he was entitled under the insurance policy.

Court’s Analysis

Limitation period

The contractual limitation period overrides the statutory two-year limitation period contained in the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B based on subsections 22(5) and 22(6) of that Act. These subsections state that business agreements can vary the statutory two-year limitation period. The plaintiff was not a “consumer” as defined in the Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A because the policy of insurance in this case was a commercial policy of insurance, and so the insurance policy was considered a “business agreement” for the purposes of this section.

Speyer J. followed the decision in Boyce v. The Co-Operators General Insurance Co., 2013 ONCA 298, and determined that this case did indeed deal with a business agreement that qualified for the limitation period exemption contained in subsections 22(5) and 22(6). Therefore, the limitation period was varied by the policy to a one-year limitation period from date of loss.

Obligation to pay benefits

The court found that the plaintiff failed to prove his loss to the defendant. The policy required the insured to immediately give notice of a loss to the insurer, to deliver a proof of loss verified by a statutory declaration, and if applicable and practicable, to produce accounts, warehouse receipts, stock lists, invoices and other pertinent records, verified by statutory declaration.

In relation to the first loss, Speyer J. found that the cost of the damaged inventory provided by the plaintiff to the insurer was not supported by evidence. In relation to the second loss, the plaintiff never provided any documentary proof of the cost of his damaged inventory.

Spoliation

Speyer J. rejected the notion pleaded by the plaintiff that the damaged inventory, which was eventually destroyed by the emergency restoration company deployed by the insurer as it was unsalvageable, amounted to spoliation. The judge considered the four elements of spoliation identified in Nova Growth Corp. et al. v. Andrzej Roman Kepinski et al., 2014 ONSC 2763, at para. 296.

The four preconditions are that: (1) the missing evidence be relevant; (2) it be destroyed intentionally; (3) that litigation must have been ongoing or contemplated; (4) and that it must be reasonable to infer that the evidence was destroyed in order to affect the outcome of the litigation. The judge found that the doctrine of spoliation failed to meet requirements 1, 2, and 4. The doctrine is therefore not applicable in this case.

Relief from forfeiture

The court did not agree with the plaintiff that he should be granted relief from forfeiture. In Monk v. Farmers’ Mutual Insurance Company (Lindsay),2019 ONCA 616, at para. 77, the Court of Appeal for Ontario explained that the purpose of allowing relief from forfeiture in insurance cases is to prevent hardship to policy beneficiaries where leniency with the condition will not result in prejudice to the insurer. Ultimately, the power to grant relief from forfeiture is a discretionary power (Monk, para. 78).

Section 129 of the Insurance Act, R.S.O. 1990, c. I.8 and section 98 of the Courts of Justice Act, R.S.O. 1990, c. C.43 both authorize the Court to grant relief from forfeiture on such terms as are just. Where the forfeiture at issue involves breach of the terms of an insurance policy, the court must first consider whether the beach constitutes non-compliance with a condition precedent to coverage, or merely imperfect compliance with the policy conditions.  

In most cases, the insured’s breach will be deemed to be imperfect compliance, and relief against forfeiture will be available. Non-compliance with a condition precedent to coverage is rare, but where this is the nature of the insured’s breach, relief from forfeiture is not available.

Where relief from forfeiture is available, the court will employ a three-part test to determine whether relief should be granted (Monk, para. 79). The court will consider whether the conduct of the insured was reasonable, the gravity of the insured’s breach, and the disparity between the value of the property forfeited and the prejudice to the insurer caused by the breach.

In this case, Speyer J. found that the plaintiff’s conduct was unreasonable due to having failed to keep business records and to having falsified invoices, that the breach was grave because he provided no supporting documentation, therefore depriving the defendant of the opportunity to investigate the loss. The third part of the test does not apply in this case as the value of the plaintiff’s lost property is unknown.

Conclusion

The plaintiff’s claim was dismissed because the plaintiff failed to prove his losses, on a balance of probabilities. Additionally, the claim related to the first loss was barred by the contractual limitation period. Finally, the plaintiff was not entitled to relief from forfeiture.

Takeaway

This decision provides guidance with respect to contractual limitation periods and relief from forfeiture assessments by the courts. Limitation periods can be varied in commercial insurance policies if none of the parties are considered a consumer. Relief from forfeiture is a discretionary power that, in the insurance context, requires careful consideration of the insured’s conduct in breaching the terms of the policy.