In the recent case of Furtado v Underwriters, 2024 ONCA 579, the Ontario Court of Appeal reviewed an appeal from an insured party challenging an application judge’s decision denying coverage under a Directors and Officers policy (the “Policy”). The Court upheld the application judge’s ruling, determining that the insured had reported its loss beyond the specified notice period outlined in the contract, as well as affirming the recent legal precedents concerning the doctrine of relief from forfeiture in the insurance context.
While the Policy was in effect, the Ontario Securities Commission (“OSC“) initiated inquiries into the business dealings of Go-To, a company in which the insured held a directorial position. Following this, the OSC issued an Order for the insured to produce certain documents related to the investigation into Go-To. As part of the process, the insured was cautioned by the OSC that section 16(1) of the Securities Act prohibited them from disclosing the specifics of the order to anyone except their legal counsel.
However, in February 2021, the OSC advised the insured of a change in law permitting them to advise their insurer of the OSC investigation. The insured failed to do so. At the application hearing to determine coverage under the Policy, the insured submitted that the Policy contained a Suspension Clause, which suspended their obligation to report a claim whilst not permitted by law to report same. Alternatively, the insured argued their entitlement to coverage under the Policy per the doctrine of relief from forfeiture.
The application judge held in favour of the insurer, stating that the insured breached its obligations under the Policy, which was a “claims-made” policy. Notably, the application judge held that the insured was aware of the changes in the law permitting disclosure of the OSC investigation by February 2021 but failed to report the investigation to its insurer until February 2022, more than two years after the expiration of the Policy.
The Court of Appeal confirmed the ruling of the application judge, emphasizing that the insured failed to comply with the notice provisions outlined in the Policy. The insured was made aware of the legal amendments that allowed for the disclosure of the OSC investigation in February 2021. While the insured eventually notified the insurer of the OSC investigation in February 2022, this was found not to be in time and was in breach of the terms of the Policy.
In addressing the insured’s alternative argument, the Court of Appeal held that such a delay in reporting constituted a substantial breach of the claims-made nature of the Policy and excluded them from relying on the doctrine of relief from forfeiture based on the decision in Stuart v Hutchins, 1998 CanLII 7163 (ON CA). Despite the insurer’s contentions on the relevance of recent case law on relief from forfeiture, the Court of Appeal determined that this particular case involved imperfect compliance, distinguishing it from the cases referenced by the insurer. Consequently, the insurer was unable to invoke the doctrine of relief from forfeiture. The Court of Appeal emphasized that the failure to adhere to notice provisions in the Policy constituted a violation of a condition precedent to coverage, rendering relief from forfeiture inapplicable.
The ruling in Furtado highlights the importance of policyholders giving prompt notice of claims according to the explicit terms in insurance policies. It may be advisable for policyholders to review their insurance policies regularly to stay informed about notice requirements, especially with changing laws. Seeking legal advice to understand reporting obligations and potential relief from forfeiture is an option. Similarly, insurers may consider consulting legal counsel when crafting clear and unambiguous notice clauses in claims-made or insurance policies.
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