Condition 4.3.a. of the insurance policy states:
An Insured shall, as soon as practicable after learning of a Claim or becoming aware of circumstances that might constitute an Occurrence or give rise to a Claim, however unmeritorious, give written notice to the Insurer… This is a condition precedent to the Insurer’s liability for the Claim or Occurrence under this Part A.
And because the insurance policy year is July 1 – June 30, every May issue of LIANSwers includes the following reminder:
Your insurance policy requires that you report a claim (or potential claim) to LIANS as soon as practicable after learning of it or becoming aware of circumstances that might constitute an occurrence or give rise to a claim, however unmeritorious. Furthermore, you must report that claim (or potential claim) within the policy period in which you become aware of it. These are conditions of your policy. The current policy period ends June 30….
But despite the policy condition and our reminder, we regularly see late reported claims, which is to say claims reported not as soon as practicable. A late reported claim is not just a claim that is reported in a subsequent policy period. It can also be a claim reported in the same policy period in which you became aware of it but after an intervening event that impacts the handling.
Though we have always had late reported matters, they have been increasing. And in recent matters, the late reporting has been so significant that it has resulted in LIANS denying coverage to an insured because our ability to resolve the matter has been prejudiced by the late notice.
Now that we are at the mid-point of the policy year (the insurance policy period or year being July 1 – June 30), because of the increase we are seeing in late reported claims, with recent case law on this issue from the Ontario Court of Appeal, we think it prudent to remind the profession of your claim reporting obligation. Our professional liability policy is written on a claims made and reported basis, Policy Condition 4.2 stating:
This Part A gives the described coverage to an Insured for any Occurrence in respect of which:
a. the initial Claim is made during the policy period and reported in writing to the Insurer during the policy period; or
b. a potential Claim is reported in writing to the Insurer during the policy period, which shall be considered a Claim made during the policy period;
provided that the Insured had no knowledge before commencement of the policy period of the Claim or potential Claim and could not reasonably have foreseen before commencement of the policy period that a Claim might arise.
When the policy period expires, the Insurer shall be free of liability for Occurrences except for those in respect of which a Claim has been made or is considered to have been made during the policy period under paragraph (a) or (b) above.
Condition 4.2 is supplemented by Condition 4.3.a. that states that notice shall be provided as soon as practicable.
When it comes to notice, claims made insurance policies (e.g., your LIANS professional liability policy) are very different from occurrence based policies (e.g., auto insurance), a distinction the Ontario Court of Appeal has reminded us about in two recent decisions: Furtado v. Lloyd’s Underwriters, 2024 ONCA 579 (CanLII) which involved a Directors and Officers Liability policy and Kestenberg Siegal Lipkus LLP v. Royal and SunAlliance Insurance Company, 2024 ONCA 607 (CanLII) which involved the 2nd excess layer of the professional liability policy issued to the plaintiff law firm. Both cases involved late reporting, both policies, like ours, being written on a claims made and reported basis. In both cases, the reporting provision was held to be a condition precedent to coverage and because the coverage was not triggered during the proper policy period, relief from forfeiture was not available.
In Furtado, the insured became aware of the claim during the 2018 – 2019 policy year of its Directors and Officers liability policy but only gave notice to the insurer during the 2021 – 2022 policy year. In Kestenberg, the insured law firm gave notice of the potential claim to its broker in 2018 but the broker failed to forward it to the excess insurers until 2021 (and in Kestenberg, it was the broker who brought the action against the excess insurers as it admitted its liability to the lawyer).
In both cases the insurer denied coverage due to late notice, denials that were upheld by the Court of Appeal who also denied relief from forfeiture, the Court in Furtado concluding that the insured:
breached a condition precedent to coverage under the Policy when he did not advise of the investigation that led to the Claims within the Policy period… He is therefore not entitled to relief from forfeiture….
Both decisions set out the differences between claims made and occurrence based coverage. From Furtado:
[56] This Policy is a form of claims-made and reported policy. It differs from occurrence policies in several important respects.
[57] As the Supreme Court of Canada described in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252, at p. 260: “Every insurance policy must provide a mechanism for determining the claims for which the insurer is liable in a temporal sense.”
[58] In occurrence policies, “[i]f the negligent act giving rise to the damages occurred during the policy period, the insurer is required to indemnify the insured for any damages arising from it regardless of when the actual claim is made”: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 23.
[59] The triggering event for occurrence policies is whether the occurrence took place within the policy period, not whether notice of the claim was given during the policy period. Occurrence policies therefore provide coverage for incidents that took place during the policy period, regardless of when the claim is brought: see e.g., Reid Crowther, at pp. 260, 262-63. For example, where an accident occurs within the policy period, the damage or loss is covered regardless of when the claim is brought.
[60] Claims-made policies on the other hand, focus on when the claim is made against the insured, not when the negligent or injurious occurrence took place. As such, “[i]f a claim is made by a third party during the policy period, the insurer is required to indemnify regardless of when the negligent act giving rise to the claim occurred”: Jesuit Fathers, at para. 23.
[62] Finally, claims-made and reported policies make coverage subject to two conditions precedent: that the claim be both made and reported to the insurer during the policy period.
As a general proposition, whenever there is late reporting of a claim, the insured runs the risk of a denial of insurance coverage. In our case, at this time, we choose not to strictly rely on Conditions 4.2 and 4.3 for all late reported matters. Instead, when we receive late notice of a claim (and the late notice could be in a subsequent policy period or in the current policy period), we look at various issues including whether events have occurred between the time when you first became aware of the claim and when it was reported to us that negatively impact our ability to respond to the matter. In other words, we ask if our handling has been prejudiced by the late notice. If there is no prejudice to us, we do not deny coverage because of late notice. But, if we conclude that there is prejudice to us, we may deny coverage due to late notice. Though coverage under any insurance policy can be denied for various reasons, there is no reason for that to happen to you because you advised us of the matter later than you should have.