In Kestenberg Siegal Lipkus v Royal & Sun Alliance Ins Co, the Ontario Superior Court considered whether relief from forfeiture applied where an insured did not give notice of a claim due to their broker's negligence.
The policy in question was a "claims made and reported" policy; the insured reported their claim to their broker, who failed to give notice to the insureds' excess insurers. By the time the broker reported the claim to the excess insurers, the policy period had expired.
In the result, the Court declined to grant relief from forfeiture, effectively finding that an insurance broker's negligence is not valid grounds for relief from forfeiture, even if it resulted in a gap in coverage.
Kestenberg Siegal Lipkus v. Royal & Sun Alliance Ins. Co. was a decision on a coverage application. The applicants, who were insured under a professional liability policy, sought a declaration that the respondents, their excess insurers under the policy, were responsible for coverage for a professional liability claim against them.
The insureds had three insurance policies during the material time: a primary professional liability policy, a first excess professional liability policy and a second excess professional liability policy. It was the second excess policy that was at issue in the application.
The policy in question was a "claims made and reported" policy, such that it only covered claims that are first made and reported to the insurer during the policy period. Specifically, the policy wording provided:
- As a condition precedent to its rights under this policy, an Insured must provide written notice of any claim as soon as practicable.
- This policy only covers claims first made against the Insured and reported to the Insurer during the policy period and provided that such claim arises out of an act, error or omission committed or alleged to have been committed on or after the retroactive date set forth at Item #6 of the Declarations.
The insureds asked their insurance broker to report the claim to their first and second excess insurers in 2018. The broker promptly reported the claim to the first excess insurer, but failed to report the claim to the second excess insurers until 2021; at which time the policy period had expired. The insurers denied coverage, relying on the notice condition under the policy.
At the outset, the Court observed that an important part of the bargain struck in claims-made policies is restricted coverage by the insurer in exchange for a lower premium paid by the insured. This can result in a coverage gap, even though the insured is consistently insured: "such gaps are in the nature of the type of coverage chosen."
The Court considered, but ultimately rejected, several arguments by the insureds suggesting that coverage was available. The Court held that a claims-made clause does not have to be labelled as a "condition precedent" in order to be one. As well, there was no conflict between the requirement to provide notice "as soon as practicable" and the requirement that claims be made and reported within the policy term: the policy "only covers claims first made and reported during the policy period"; "[w]ithin the policy period, however, the insured is obligated to provide notice of a claim as soon as practicable." Additionally, the insureds had the option to purchase an extended reporting period with their coverage, but did not; which reinforced the fact that the policy was a claims-made and reported policy: "[i]t does not mean that claims can be reported after the policy period where, as here, an extended reporting period is not purchased."
The insureds argued that the rationale for insurance is coverage, and that as a matter of public policy coverage must be interpreted generously. The Court agreed with this principle generally, but noted that another well-established principle is that the explicit terms of an insurance policy are to be adhered to. Public policy supported this proposition as well: "[i]t does not help insureds at large for policies sold with a discounted premium due to the claims-made condition be suddenly required to cover claims not made within the time parameters of the policy. That will quickly put an end to the sale of policies with discounted premiums."
The Court also concluded that the insureds would not suffer any prejudice if they were denied relief from forfeiture of the notice requirement: it was acknowledged that the broker was insured for professional liability, and who would presumably respond to the claim if the second excess insurer did not. In this context, relief from forfeiture for the insured would amount to relief from forfeiture for the broker's insurer, and the Court found no contract-based or equitable grounds to justify the relief sought.
The bottom line
While practitioners will be aware that relief from forfeiture has been found to apply in a wide range of circumstances, Kestenberg Siegal Lipkus v. Royal & Sun Alliance Ins. Co. illustrates that a Court will not go so far as to ignore the terms of the insurance policy at issue for the sake of finding coverage.