Lafferty v Co-operators General Insurance Co, 2021 ABCA 359.
Reading Time: 4 Minutes
Author: Weston McArthur (Student-at-law)
The Plaintiffs, a mother and son, owned a house which was rented out to tenants. They had a home insurance policy with the Co-operators General Insurance Company (the Defendant) which the Plaintiffs intended to cover this rental. The policy had an exclusion related to illegal drug operations.
The tenants grew cannabis and did not maintain the condition of the house, and as a result the house became unsuitable to live in. In December 2010, the Plaintiff advised the Defendant of the loss.
The Plaintiffs’ adjuster told them at a meeting in January 2011 that there was no coverage for two reasons: firstly, due to the illegal drug operation exclusion under the policy, as growing cannabis was illegal at that time; secondly, because the Plaintiffs did not have the correct type of insurance to cover a rental property. The adjuster explained that “the renters constituted a material change in risk, allowing the insurer to avoid their obligations under the policy” [para 4].
Four years later, the Plaintiff son enrolled in law school. When he took an insurance class, he learned that the Defendant may have acted in bad faith.
Following this new understanding of insurance law, the Plaintiffs sued the Co-operators in early 2017 – seven years after the date of the original loss in December 2010.
The Master and Chambers Judge ruled against the Plaintiffs, citing the clear and unambiguous illegal drug exclusion and Alberta’s Limitations Act, which sets out a two-year limitation period for these types of claims to be brought following the date of loss.
The Plaintiffs subsequently appealed to the Alberta Court of Appeal, alleging that they were within the limitation period prescribed by the Act because the Plaintiffs had only “ ‘first suspected the Co-operators of bad faith, and sharp, deceptive practices in their handling of’ the claim” [para 9] in February 2015, during the Plaintiff son’s insurance law class.
The Court unanimously ruled against the Plaintiffs.
The Court wrote that “the common law discoverability rule provides that a cause of action arises for the purposes of a limitation period ‘when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence’ ” [para 25].
The Court continued, “Mr. Lafferty’s legal education in 2015 did not start, or restart, the limitation period clock on the breach of good faith claim as the Laffertys contend, because the material facts upon which their claim was asserted were known to them when they received the insurer’s denial of coverage letter” [para 26].
As a result, the Plaintiffs’ appeal was unsuccessful.