Disability Insurance Claim Time Barred: Insurance Act, s. 22
Monday, September 28, 2009
Christopher Rhone

The British Columbia Supreme Court dismissed an Action against Sun Life as the insured commenced action over one year after Sun Life refused his disability benefits: Sander v. Sun Life, 2009 BCSC 1301 (Sept. 24, 2009). The Court held that s. 22 of the B.C. Insurance Act barred the claim.

Sander v. Sun Life provides a helpful summary of issues relevant to determine whether an Action against an insurer is time barred. In its reasons, the Court refers to and succinctly summarizes a number of appellate cases on point. As the section 22 limitation period applies to many types of insurance issued in British Columbia, this case has broad application. 

Sun Life initially approved and paid the insured's benefits claim. Payments continued from July 1998 until June 2001, at which time Sun Life denied coverage. Sun Life argued that its June 2001 letter to the insured was a "clear and unequivocal notice to [the Insured] that it was 'discontinuing benefits payable' under the disability policy." In its letter to the Insured, Sun Life had written: "We are writing to confirm that Sun Life . . . will be discontinuing benefits payable to Dr. Sander under the long term disability coverage. . . . Sun Life’s final payment will be for the period June 1 to June 14, 2001."

The Sun Life Insurance Policy set out a two year limitation period: "No action or proceeding against the Company for recovery of a claim under this policy shall be commenced more than two years after the date the insurance money became payable or would have become payable if it had been a valid claim."

Section 22(1) of the Insurance Act provides that: "Every action on a contract must be commenced within one year after the furnishing of reasonably sufficient proof of a loss or claim under the contract and not after."

The Court noted that neither the Policy nor s. 22(1) of the Insurance Act was satisfactory. Applied literally, both would require commencement of an Action during the period of time during which Sun Life was paying the claim. Adding to the chorus of complaints about the limitation period described in the Insurance Act, the Court observed that "[20] For a number of years the Courts of this province have urged legislators to clarify s. 22 of the Insurance Act as it relates to the commencement of the running of the limitation period, so as to make the Act clear and easily understandable by both insureds and insurers."

Citing the B.C. Court of Appeal decision in Balzer v. Sun Life Assurance Company of Canada, 2003 BCCA 306, the Court explained that "[21] . . . despite the 'entirely inadequate words' of s. 22, the Act should be interpreted to mean that the limitation period of one year is triggered when the insurer provides a 'clear and unequivocal' notice of denial of coverage or of termination of benefits."

The Court noted the instruction to insurers in Balzer that "the preferred course for an insurer intending to deny coverage should be to include an alert in the letter drawing the insured's attention to the one year limitation in s. 22(1)”. Nonetheless, the Court held that: "subsequent authorities which have discussed this issue have concluded that an explicit alert may be a preferred course of action, but is not a pre-requisite for 'clear and unequivocal notice.'" As noted above, Sun Life did not alert the insured to the one-year limitation period when it denied coverage. See for example Esau v. Co-operators Life Insurance Co., 2006 BCCA 249; Gumpp v. Co-operators Life Insurance Co., 2004 BCCA 217 and Watterson v. Sun Life Assurance Company of Canada, 2003 BCCA 305.

The Court accepted that any doubt or ambiguity in the denial of coverage acts against the insurer: "[56] Balzer provides that any doubt or ambiguity in the giving of clear and unequivocal notice must be resolved in favour of the insured (at para. 45)." Nonetheless, the Court held that the insurer's conduct and words in its letter were clear and unequivocal notice to the insured that it would cease payments under the policy and provide no further coverage:

[63] . . .  I do not find there is anything in the conduct of the defendant which derogates from or lessens the import of the June 29, 2001 letter advising [the insured] of its intention to cease payments and close its file after June 14, 2002.  In my view, the notice (the effect of which was that benefits had ceased) contained in the letter should have been more, not less, clear given the surrounding circumstances.  Sun Life, had made its position clear from the outset and had been consistent.  It insisted Dr. Sander have corrective eye surgery and have it within a reasonable period of time.  It advised him and his counsel that if he did not have surgery within such reasonable time, it would set a notionally reasonable period of time for him to have it and recover and then stop the payment of benefits.

 As the Action was commenced beyond one year after the letter, the Action was statute barred. 

Article originally appeared on Branch MacMaster LLP: Barristers & Solicitors (http://www.branchmacmaster.com/).
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