Relief From Forfeiture Under Insurance Policies: Plop, Plop, Fizz, Fizz? or More Indigestion for Insurers?

Authors: Neo Tuytel and Diane Weinrath

Published: May, 1995

Like other types of contracts, insurance policies are usually subject to various conditions, some of which are imposed by statute and others by the wording of the policy itself. In order to maintain coverage in the event of a loss, insureds must comply with such conditions, for example, by notifying the insurer of a possible claim in a timely manner or providing accurate information with respect to proof of a loss.

If an insured fails to comply with any conditions, this is, of course, a breach of contract which, without more, would entitle the insurer to forfeit coverage under the policy. However, in certain circumstances this could cause unfair hardship. The policyholder may have neglected, through mere inadvertence, to comply with a condition of minor importance to the insurer. The insurer might benefit unduly if it were permitted to completely avoid all of the obligations under its contract with the insured. In order to prevent such an injustice, the governments of the common law Canadian provinces (i.e. all but Quebec) enacted legislation which provides a potential remedy for insureds, by giving courts a discretionary jurisdiction to relieve against forfeiture under insurance policies. By exercising such discretion, our courts may order insurers to meet their obligations under contracts of insurance, despite the fact that the policyholder has breached a condition which would otherwise entitle the insurer to deny coverage.

The purpose of this paper is to provide an overview of the law regarding relief from forfeiture, as it has developed in Canada, and particularly British Columbia. It will indicate how the relevant legislation has been interpreted, what the factors are which determine whether and when such relief is likely to be granted and how the law in this area continues to evolve.

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