Furtado v. Lloyd’s Underwriters, 2023 ONSC 5803
Reading time: 3.5 minutes (approx.)
By: Alexandre Doucet (Articled Clerk)
The applicant, a director of a real estate development firm known as Go-To Developments Holdings Inc. (“Go-To”), had a Director and Officer Liability policy through Lloyd’s Underwriters (“Lloyd’s”) covering the period from October 6, 2018, to October 25, 2019.
The applicant made a claim under the policy for defense costs related to an Ontario Securities Commission (“OSC”) investigation and receivership proceeding, which was initiated on March 29, 2019, but did not notify Lloyd’s of this claim until February 2022. Lloyd’s argued that, in a claims-made policy, notification is a condition precedent to the use of the policy, while the applicant argued that the failure to notify the insurer of the claim did not lead to it suffering any prejudice.
The applicant sought relief from forfeiture, a specific equitable remedy that protects parties against a loss of an interest or right due to a failure to perform something – in this case, protection from loss of defense cost coverage due to the delay in notifying Lloyd’s of the claim. The disagreement between both parties stemmed from when the obligation to report arose, in addition to the secondary issue of whether the alleged breach caused prejudice against Lloyd.
Justice Akbarali relied on the 1998 Ontario Court of Appeal decision Stuart v. Hutchins, 1998 CanLII 7163 (ONCA) to find that delaying until a year to give notice is a “substantial breach in a claims-made policy, where notice is the triggering event for coverage” [para 46]. Stuart v. Hutchins, states that if a court were to allow an extension of coverage on insurers, it would effectively re-write the contract between two parties. Courts will rarely re-write contracts, partly due to long established Freedom of Contract common law principles, but also because it would open the floodgates for every disenfranchised contracted party to do the same. Since an extra year of coverage would re-write Lloyd’s contract with Go-To, a substantial prejudice exists. The court therefore dismissed the insured’s application for relief from forfeiture.