The Court of Appeal for Ontario has recently released a decision highlighting a little-used provision of the Insurance Act that allows parties to enforce judgments against an insurer directly.
Section 132 of the Insurance Act contemplates a party obtaining a judgment against an insured and then pursuing the insurer, who may not have participated in the underlying action, for the judgment amount. The relevant subsection reads as follows:
132 (1) Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person’s liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.
As a result of the subsection, parties can pursue insurers and litigate wrongful denials. However, they cannot be placed in a better position than the insured. Put another way, any defence the insurer could use against the insured would also apply to the third party.[1]
In Svia Homes Limited v. Northbridge General Insurance Corporation, 2020 ONCA 684, the plaintiff, Svia Homes, attempted to challenge this general rule.
Svia Homes litigated against the defendant 1390348 Ontario Limited (“139 Ontario”) for an action arising out of a townhouse development. 139 Ontario had a potentially responding insurance policy with Northbridge General Insurance Corporation (“Northbridge”). 139 Ontario did not report the action to Northbridge.
139 Ontario responded to the action without insurance, had its counsel get off the record and was eventually noted in default in 2011. Svia Homes notified Northbridge in 2017 under a statutory condition that reads as follows:
Notice of loss may be given and proof of loss may be made by the agent of the Insured named in the contract in case of absence or inability of the Insured to give the notice or make the proof, and absence or inability being satisfactorily accounted for, or in the like case, or if the Insured refuses to do so, by a person to whom any part of the insurance money is payable.
Northbridge could deny coverage to 139 Ontario for failure to provide timely notice. Svia Homes argued that since notice could be given to them instead, then Svia Homes would be entitled to relief from forfeiture. Svia Homes obtained an $1.8 million judgment against 139 Ontario and moved against Northbridge under s. 132 of the Insurance Act for coverage for the judgment.
The Court accepted that Svia Homes could provide notice, but that notice was nevertheless not timely. There was breach of a condition of the policy and that breach had resulted in prejudice to Northbridge in the form of a long delay in being able to investigate the loss.
While Svia Homes was not successful, the action highlights the potentially substantial risk insurers can create by ignoring notice. Had Svia Homes notified Northbridge earlier, the result would likely be different, and Northbridge could have faced a $1.8 million exposure without the benefit of contesting the liability of its insured.
[1] Sovereign General Insurance Company v. Walker, 2011 ONCA 597 at para. 13
