Furtado v. Underwriter, 2024 ONCA 579 summarizes the key differences between claims-made and reported policies and occurrence policies in connection with late notice of a claim. The Ontario Court of Appeal affirmed the lower court’s decision that failure to give timely notice under a claims-made and reported policy made relief from forfeiture inapplicable and the insurer was allowed to avoid coverage for the claim. In a claims-made and reported policy, the notice provision is a condition precedent to coverage, such that breaching it constitutes non-compliance with a policy condition, foreclosing the availability of relief from forfeiture.

The type of policy in question is important as different types of policies will often contain particular language which dictates their parameters for coverage. Claims-made and reported policies only cover claims made against the insured and reported to the insurer within the policy period. Occurrence policies cover claims that arise during the policy period regardless of when the claim is reported. Late notice can have very different effects under each type of policy. Late notice under a claims-made policy will often foreclose relief from forfeiture because the notice is a condition precedent to coverage; failure to give notice constitutes non-compliance which means coverage was never available in the first place. Late notice under an occurrence policy may happen after coverage was triggered in the first instance, in which case the insured’s conduct constitutes imperfect compliance and leaves open the possibility of being relieved from the forfeiture of coverage that follows from the breach of a policy condition. The difference is critical and can make the difference in having $5 million in coverage or no coverage at all, as was the case in Furtado.

Lower Court Decision: Late Notice Was Breach of a Condition Precedent Foreclosing Relief from Forfeiture

The Ontario Securities Commission charged the insured for alleged securities violations. When the investigation started, the Ontario Securities Act prohibited the insured from disclosing the investigation to anyone except counsel. As such, the insured did not report the investigation to his insurer with whom he held a directors and officers claims-made and reported policy. During the investigation, the insured became aware of a change in the law allowing him to report to his insurer. The insured still did not report to his insurer until two years after the rule change, at which time he reported the charges.

The insurer denied coverage because the insured did not report the initial investigation within the policy period after he was legally permitted to. The insured asked the court for relief from forfeiture: he wanted the court to relieve him from having his coverage forfeited due to his late notice on the basis that his late notice was imperfect compliance only (rather than non-compliance with a condition precedent). The Court agreed with the insurer and found relief from forfeiture was not available. The claims-made policy required notice within the policy period as a condition to coverage. Failure to give notice was non-compliance. Relief from forfeiture was not available.

Appeal: Late Notice Was Breach of a Condition Precedent Foreclosing Relief from Forfeiture

The insurer succeeded on appeal. The Ontario Court of Appeal reaffirmed the motion judge’s decision: the insured breached the notice provisions which were a condition precedent to coverage. The Court of Appeal highlighted  the differences between claims-made and reported policies, and occurrence policies. The condition precedent for occurrence policies is whether the occurrence (i.e. the injurious event) took place during the policy period: it does not concern when notice is given or when the claims against the insured are made. The condition precedent for claims-made policies is whether the claim against the insured is made during the policy period: it does not concern when the occurrence took place. The triggering event for claims-made and reported policies involve two conditions precedent: the claim against the insured and the reporting to the insurer must both be made during the policy period.

The Court of Appeal summarized the law on when relief from forfeiture is available depending on the type of policy and insured’s conduct. Non-compliance is a breach of a condition and forecloses relief from forfeiture—coverage never arose in the first place, so relief is not possible. Imperfect compliance is a breach of a policy term for which relief from forfeiture may be granted—coverage was triggered and may have been available but for the breach, so relief is possible.

Here, the insured failed to give timely notice of the investigation after he knew he could legally report it. His reporting of the formal charges was insufficient. The policy required reporting of a “fact or circumstance” within the policy period. The investigation constituted circumstances triggering the notice requirement. Once the insured knew he could legally report, he was obliged to. His failure to do so was a breach of a condition precedent to coverage such that he never met the requirements for coverage in the first place (i.e. relief was not possible). This was not a case where he was losing the benefit of coverage which he otherwise could receive but for his imperfect compliance with a policy condition (i.e. relief may have been possible).

Takeaway

Furtado provides a helpful comparison of claims-made and reported policies and occurrence policies when considering an insured’s failure to give timely notice of a claim. Interestingly, the Court of Appeal reviewed Moldaver J.A.’s comments in Stuart v. Hutchins, 40 O.R. (3d) 321 (C.A.) where he recognized that relief from forfeiture is possible even under a claims-made policy where the reporting requirement is not a condition of coverage. However, as in this case, the specific wording of the claims-made policy in Stuart made clear that the making and reporting of a claim were triggering events for coverage. This comes full circle to first principles in insurance law: coverage will always depend on the specific policy wording in any type of policy.