Lessons that were learned in 2023

As we begin 2024, it is useful to consider some of the lessons that were learned by insurance coverage counsel and claims professionals in the previous year.

1.    Read the Pleadings!

All is not lost with broadly worded exclusions. While courts will often read ambiguous policy exclusions in favour of an insured, broadly worded exclusions that exclude claims “in any way involving” an act may still be enforced.

Consider Jack-O’s Sorts Bar v. US Liability Insurance Co., 2023 ONSC 5925, in which the Ontario Superior Court granted the insurer’s summary judgment motion, upholding its denial for a duty to defend as the claim involved an “assault” or “battery”. This is certainly reassuring to insurers where clear exclusionary language can be applied in mixed claims, where otherwise a duty to defend would be engaged.

2.    … but move beyond the “labels”

The Court’s task in a coverage application is to consider the essence of a complaint. Even where negligence is pled in a Statement of Claim, an exclusion for a duty to defend can apply where the exclusion is the basis for a covered derivative act.

For instance, in Butterfield v. Intact Insurance Company, 2023 ONCA 246, the Court of Appeal held that a negligence claim was derivative to an intentional act, making the intentional act exclusion apply. Here, the appellant insured suffered a psychotic episode at a firearms store and stabbed the store owner. He sought defence and indemnity under a liability policy, which the insurer denied and the Court upheld.

3.    “Arising out of” may be broader than “liability for”

As always, coverage provisions in a policy are interpreted broadly, while exclusions are interpreted narrowly. Remember when drafting exclusions to consider using broad language where necessary. “Liability for” may be considered in its legal context, which may limit the scope of the exclusion.

4.     Claims-made means report early!

Courts often award relief from forfeiture to insureds where a policy breach is considered imperfect compliance. However, courts have been reluctant when the failure to comply with a condition prejudices the insurer.

In Furtado v. Lloyd’s Underwriters, 2023 ONSC 5803, the insured delayed until a year to give notice of a claim. The Ontario Court of Appeal upheld the application judge’s decision, and found that the delay was a “substantial breach in a claims-made policy, where notice is the triggering event for coverage”.

5.    COVID-19 is not necessarily Property Damage

While the COVID-19 pandemic lockdowns have long passed, courts are still considering coverage issues related to the virus.

In at least one decision in Ontario, the Court of Appeal upheld a Superior Court decision that COVID-19 did not constitute “direct physical loss or damage” to property required to trigger business interruption coverage. This reinforces the predominant understanding that “direct physical loss or damage” requires physical alteration or property-related event.

Hope everyone had a restful holiday and are ready to get back to those claims!
 

Originally published in WP Magazine from the Ontario Insurance Adjusters Association- OIAA, Vol. 88, No. 5, January 2024