The time for you to sue your insurer over a commercial insurance dispute might be shorter than you think. Insurers and their customers, affectionately referred to as insureds, rarely agree on how an insurance claim should be handled. Disputes emerge, some of which lead to court – or the intention to go to court.
Claims Adjusting: No Fun
When an insured experiences a loss after a negative event (e.g. a flood), they file a claim with their insurer. The insured wants a speedy response, to receive complete compensation (indemnity), and simply move on with business and life. But the insurer needs to investigate the event and the loss to see if coverage is owing under the terms and conditions of the policy (e.g. alien attacks might be excluded). The insurer also needs to assess the value of the claim (e.g. what was lost, how much will it cost to repair or replace?). This post-claim examination and evaluation process is called adjusting. The people that adjust claims for insurers are called, somewhat predictably, claims adjusters.
The adjusting process is seldom pleasurable for an insured. It can include scrambling to find receipts, taking pictures, and submitting tedious forms. Emotionally, it is a bitter mix of frustration, hope, and anxiety. It can often be a lengthy process with an incredibly disappointing outcome, from the insured’s perspective. The outcome can be incredibly disappointing. It’s not surprising then, that insureds often start, or intend to start, lawsuits against their insurer after or while a claim is adjusted.
Insurers Shorten Limitation Periods Through Policy Provisions
Insurers don’t like lawsuits brought against them by their insureds. To limit the number of such lawsuits, insurers include conditions in their policies that substantially shorten the period in which an insured can sue them. A specified period during which a party can start a court claim against another party is called a limitation period.
What is the importance of a limitation period? If a limitation period expires before a party starts their action in court, they could forever lose their right to sue the intended opposing party. To be clear: court actions don’t have to be completed within an applicable limitation period; they only need to be started within that period.
In Ontario, the Limitations Act, 2002 (the “Act”) provides a Basic Limitation Period of two years. Subject to many complicated exceptions and wrinkles, a party generally has two years to start a legal proceeding from the day they discover the claim. The complexity and depth of the subject of limitation periods far outstrips the scope of this article.
Insurers regularly include policy conditions that specify a one-year limitation period. This cuts the statutory limitation period in half. Commercial insureds need to know that, if there is clear language, these one-year limitation period provisions hold up in court. Insurers can rely on them (e.g., Aviva Insurance et al v. Sahara Restaurant, 2024 ONSC 1415 (CanLII)). Under the Act the basic two-year limitation period can be changed or excluded by parties to a “business agreement” (S. 22(5)). Insurance policies involved with the operation of a business fall within the definition of “business agreement”.
When Does the Clock Start Ticking?
The one-year limitation period ‘stopwatch’ starts ticking on the date the loss or damage occurs. Read that again. Contrary to popular belief, the start date is not the date when: a claim is made to the insurer; the specific cause of the damage is discovered; the insurer starts adjusting the claim; or, the insurer denies the claim.
The running of the clock is not reset, suspended, or extended if the insurer requests and receives new information, pays part of the loss claimed, or even if it admits liability to pay the insured (Sahara Restaurant). Normal dealings between an insured and an insurer attempting to resolve a claim do not extend the limitation period (Gillis v. Bourgard et al. (1983), 1983 CanLII 1858 (ON CA)). If an insured wants to argue that the insurer’s actions during the adjusting process (or otherwise) meant that the limitation period was extended or suspended, the insured must establish for the court that the words and conduct of the insurer amounted to a promise not to rely on the limitation period (Sahara Restaurant).
Guard Your Rights
It’s always a good idea to read your insurance policies closely – from front to back. It may be sleep-inducing, but it might help you catch important terms and conditions. Insurers are increasingly expressing their terms and conditions in clearer language that humans (i.e. not just adjusters and lawyers) can understand. If you experience a loss (e.g. property damage) due to a negative event, immediately put the date you discovered the damage or loss in your phone calendar and/or any other electronic or physical calendar. But equally – maybe more importantly – mark the one-year anniversary of that date of loss. This will keep you alert to the limitation period if you get distracted during the adjusting process. When your insurer corresponds with you regarding an insurance claim, read those letters closely. Insurers will typically refer to the one-year limitation period in their letters. Plus, insurance claims, the adjusting process, and insurance disputes are complicated – you can always consult a lawyer!
About the Author:
Kris Dixon is a litigator at Soloway Wright LLP with a focus on Construction Litigation, Commercial Litigation, and Insurance Law.
He regularly represents contractors and subcontractors in navigating all manner of complex construction disputes.
DISCLAIMER: This article is for general information purposes only and is not (and should not be construed as) legal advice. The information contained herein summarizes only certain aspects of the subject matter and is not a comprehensive review of applicable law. All of the foregoing is subject to legal and accounting advice based on the particular circumstances of each potential client.
