Relief from forfeiture not available for late reporting of D&O claim

Insurance law – Liability insurance – Directors and officers – Actions – Breach of policy – Relief against forfeiture.

Furtado v. Lloyd’s Underwriters, [2023] O.J. No. 4518, Ontario Superior Court of Justice, October 17, 2023, J.T. Akbarali J.

The insured was the subject of two proceedings commenced by the Ontario Securities Commission.  The insured made a claim under a director and officers’ liability policy for, among other things, defence costs. The insurer denied the claim on the basis that the insured had failed to provide notice of the claims in accordance with the terms of the policy. The insurer brought an application seeking relief from forfeiture and an order directing the insurer to indemnify him for his defence costs and other losses with respect to the proceedings.

The insured was the directing mind of a real estate development business. The policy in issue, which was procured by the business, required the insured to give written notice of any claim as soon as practicable either during the policy period or within 30 days after the expiry of the policy period or, if applicable, during the discovery period. The notice section also included a notice of circumstances clause which had the effect of allowing an insured to report to the insurer a fact or circumstance that may give rise to a claim or allegation of a wrongful act in the future. The policy also contained a suspension clause which acknowledged that there are some circumstances in which an insured may not be able to give notice in accordance with the terms of policy.

In this case, the insured received correspondence from the Ontatio Securities Commission on March 29, 2019 in which the OSC made an inquiry regarding certain business activities and sought production of information and documentation. The insured responded on April 18, 2019. Shortly thereafter the insured received a summons under the Securities Act requiring the insured to attend an examination at the OSC’s offices. A May 2, 2019 letter warned the insured that he was prohibited from disclosing the nature or content of the order and related information to anyone except his counsel. Between November 7, 2019 and June 7, 2021 the insured received eight additional summons. On December 6, 2021 the OSC froze funds in the insured’s business account and commenced a receivership application.

The insured, through his counsel, began the process of notifying the insurer of the investigation and all steps taken by February 18, 2022. The insurer denied coverage.

On the application, the court held that while the suspension clause was triggered for a period of time, the claim was not reported for almost one year after the clause was exhausted. The court therefore held that the breach was non-compliance with a condition precedent to coverage, the insurer had been prejudiced and relief from forfeiture was not available. 

This case was digested by Cameron B. Elder and edited by Steven W. Abramson of Harper Grey LLP and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].