Clark Wilson LLP Insurance Bulletin
Case Law Review Archive
GUMPP'S LAW: If Insurers Want to Have a Limitation Defence, They Should Clearly and Equivocally Deny First Party Claims
In a previous bulletin, about a year ago, we reported that the Supreme Court of Canada had opened the door to much uncertainty for insurers and more litigation concerning the one-year limitation period regarding claims under property policies.
Well, this issue has since spread to disability claims, but the latest in a series of B.C. Court of Appeal decisions provides might help to clarify the law, and give back to insurers some degree of control over limitation periods under first party policies in general.
In K.P. Pacific and Churchland, the S.C.C. held that sections 3 and 22 of the Insurance Act over-rides the one year from date of loss limitation period imposed by either the wordings of property policies, or the "fire" Statutory Conditions. As a result, it is the one-year limitation in section 22 itself which applies, and that does not start to run until "the furnishing of reasonably sufficient proof of a loss or claim".
The problem with that, for insurers, is that they have no direct control over when an insured furnishes a proof of loss, and the Act does not include any deadline in this regard.
In Gumpp v Co-operators and, previously, two cases against Sun Life (Balzer and Watterson), the B.C.C.A. has provided disability insurers with at least a partial solution: start the one-year limitation period running by clearly and unequivocally denying coverage. Whether the courts will extend the same reasoning to limitation periods under property policies remains to be seen, but the logic may well apply to both types of first party policies. Besides, nothing ventured, nothing gained.
Ruth Gumpp stopped working on September 30, 1994, and filed a Proof of Loss under her group life and disability policy on December 28, 1994. Co-operators paid Ms. Gumpp disability benefits for almost four years, until November 30, 1998. They terminated her benefits in a letter staing that "the medical information no longer supports that you are totally disabled from all types of employment. That decision was reiterated on October 20, 1999, after a review requested by the insured.
Ms. Gumpp did not commence proceedings until May 24, 2001, about two and a half years after her claim had been denied and monthly payments terminated.
In Balzer, Justice Huddart of the B.C.C.A. stated:
"Read literally, the words of s. 22(1) create the absurd result that the limitation period in this case would have begun to run while the benefits were being paid [because it would be triggered by the Proof of Loss that was filed in order to obtain such benefits], or alternatively, would not begin to run until after a claim was made [if the insured decided, for whatever reason, to wait until later to do so]
... A clear and unequivocal denial of coverage precludes the need to furnish a claim (where the policy does not require the filing of a proof of claim) and triggers the commencement of the limitation period... (emphasis by the Court) It avoids the absurd results a literal reading of the words of s. 22(1) would otherwise produce in this and like cases."
In Gumpp, Justice Southin applied the same reasoning, even though Co-operators had been paying benefits for almost four years after the Proof of Loss. The claim was therefore dismissed, as being statute-barred.
This is obviously good news for disability insurers, at least in B.C.
Turning to property insurers, the above decisions obviously leave unanswered questions posed in our bulletin regarding K.P. Pacific and Churchland, such as: What is reasonably sufficient proof of a loss? What is reasonably sufficient proof of a claim under a policy? and, Is there a difference between the two?
However, likely answers to other questions are beginning to emerge, such as:
Q: If an insurer purports to reject a Proof of Loss document, does this postpone the limitation period?
A: Probably.
Q: How does the insurer force the issue if an insured delays in the presentation of a claim?
A: Demand a Proof of Loss within a fixed period of time, failing which the insurer will be compelled to proceed on the basis that the insured had furnished one, and the insurer had clearly and unequivocally denied any and all such claims as of that date.
Q: If an insured does not make a claim, when should the insurer close its file?
A: Not for at least one year after demanding a Proof, or the deadline it has set for doing so.
However, unless the Legislature amends the Insurance Act to deal with these and other issues, more "unproductive and wasteful litigation about such technicalities" (in the words of the S.C.C.), such as Gumpp, Balzer and Watterson, is still guaranteed.
To access those B.C.C.A. decisions, please visit:
Gumpp v. Co-operators Life Insurance Co.
Balzer v. Sun Life Assurance Company of Canada
Watterson v. Sun Life Assurance Company of Canada
Readers with questions regarding limitation periods or any other aspects of all-risk
policy coverage are invited to contact Neo Tuytel (at 604-643-3180; or njt@cwilson.com)
or Nigel Kent (at 604-643-3135; or npk@cwilson.com) of Clark Wilson LLP's Insurance Group.
