Insurance law – Homeowner’s insurance – Policies and insurance contracts – Duty to defend – Limitation of actions – Contractual limitation periods – Expired policy – Statutory conditions; Appeals – Standard of review
A contractual one year limitation period which began to run from the date the “loss or damage” occurred applied to bar an insured’s action against an insurer seeking a declaration that it owed the insured a defence.
 O.J. No. 6853
2015 ONCA 919
Ontario Court of Appeal
December 24, 2015
A. Hoy A.C.J.O., J.L. MacFarland and P.D. Lauwers JJ.A.
The insurer appealed a dismissal of its application to dismiss a third party action against it based on the contractual limitation period in its insurance policy. It also appealed the declaration that it was required to defend the insured in the main action.
In 2000 the insured sold a fuel tank to the plaintiffs in the main action. In January 2008 the fuel tank began to leak and the plaintiffs discovered the leak and resulting damage to their home. The plaintiffs commenced an action against the insured on December 31, 2009. The insured was insured under a policy which expired a few months before the leak. The insured gave notice to the insurer of the action on February 11, 2010, a few days after being served with the notice of action. On April 9, 2010, the insurer denied coverage on the basis that the occurrence occurred after the expiration of the policy.
The policy contained a contractual limitation period providing that every action against an insurer for recovery of any claim under the contract was “absolutely barred unless commenced within one year next after the loss or damage occurs”. The policy also stipulated that the condition applied with respect to liability coverage. The insured commenced an action against the insurer on March 15, 2012.
The motion judge held the limitation period in the insurance policy was unenforceable. The judge also found the occurrence could have occurred during the policy period on the basis that the corrosion of the oil tank which led to the leak could be “property damage”. The court of appeal applied the standard of correctness and found the motion judge erred in concluding the one year limitation period in the policy was not enforceable. It did not consider the issue of whether the occurrence occurred within the policy period.
The court of appeal found this was a business agreement and so the insurer was not prohibited from contracting out of a limitation period found in the Limitations Act. The court of appeal overturned the motion judge’s finding that the denial of coverage for the insured did not constitute “loss or damage” sufficient to fit within the applicable contractual limitation period. The court concluded the contractual one year limitation period was enforceable and began to run when the insurer refused to provide the insured with a defence in the main action. As the insured only issued the third party claim against the insurer almost two years after the denial of coverage, the claim for any duty to defend was barred by the contractual limitation period. The court went on to say that its determination that the insurer has no duty to defend did not dispose of the insurer’s second potential obligation under the policy for indemnification.
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