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Relief From Forfeiture Denied After Insured Waited 7 Years to Notify Insurer

Searles v Economical Insurance, 2022 ONSC 7217.

Reading Time: 3 minutes (approx.)

By: Weston McArthur (Articled Clerk)

Christine and Darrell Searles, the Applicants, had a home insurance policy with Economical Mutual. Eventually, the Applicants sold their home.

In 2013, the purchaser of the home sued the Applicants for damages, alleging that home renovations done by the Applicants had been defective and that black mould was throughout the house. The Applicants hired defence counsel, incurring $56,578.60 in legal fees and disbursements, and ended up settling with the purchaser for $47,500.00.

In October 2020, the Applicants tried to recoup their settlement and legal expenses by notifying Economical that they were making a claim under their home insurance policy. Economical conceded that the Applicants were covered under the policy; however, Economical argued the Applicants breached the notice provisions of their policy, which required prompt notice of the claim.

The Applicants requested relief from forfeiture, a remedy in which the court has discretionary power to excuse a party from suffering the usual penalties for failing to meet a condition in a contract (often through a mistake). When considering a request for relief from forfeiture, courts consider three factors: (1) the conduct of the insured, (2) the gravity of the breach, and (3) the “disparity between the loss of coverage and the extent of the damages caused by the insured’s breach” [para 39].

Regarding the first factor, the conduct of the Applicants was in their favour. At paragraph 43, Justice Roger stated that “[Economical] admit[s] that the applicants’ delay in reporting was inadvertent and that their conduct was reasonable”.

Regarding the second factor, Justice Roger found that the gravity of the breach was serious. He listed numerous reasons, including the lack of evidence preservation and the fact that Economical could no longer exercise its right to deny indemnity.

Regarding third factor, Justice Roger concluded that, while the Applicants are out approximately $110,000, “Economical was deprived of the ability to exercise its contractual rights of attempting to limit those losses” [para 45].  Further, the Applicants had not shown that legal costs and expenses incurred “were not aggravated by their late notice” [para 47].

Based upon these three factors, Justice Roger of the Ontario Superior Court of Justice denied the application.

Link: https://www.canlii.org/en/on/onsc/doc/2022/2022onsc7217/2022onsc7217.html?autocompleteStr=2022%20onsc%207217&autocompletePos=1

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