01 / 14 / 2008
In this article I summarize a number of British Columbia court cases which consider the date upon which the one-year statutory limitation period begins to run pursuant to section 22(1) of the Insurance Act, R.S.B.C. 1996, c. 226. I also provide practice tips to minimize controversy regarding the precise date upon which the limitation period begins to run.
Section 22(1) provides as follows: “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.”
But what happens if the insured does not file a proof of loss? This may occur if the insured seeks to avoid its obligations under the policy, or it may occur where there is no general requirement to file a proof of loss (i.e., in relation to a claim under a Commercial General Liability policy).
Applying the one-year statutory limitation period in such cases may present difficulties. As the British Columbia Supreme Court recently noted in Lanki v Co-Operators Life Insurance Company, 2007 BCSC 1891 (at para. 42): “because of the poor wording of s. 22 [of the Insurance Act], the decisions [of the courts] are, to a degree, decided on a case-by-case basis.” Nonetheless, B.C. courts have repeatedly held that the limitation period in such cases begins to run once the insurer determines its liability, and clearly and unequivocally advises the policyholder concerning the insurer’s liability.
In order to minimize controversy surrounding the date upon which the one-year limitation period begins to run, consider the following:
- In relation to first party property loss cases, the adjuster should follow up with the insured to obtain a final proof of loss. However, note that submission of a final proof of loss by the insured does not necessarily mark commencement of the limitation period. If the final proof of loss is delivered before the insurer determines its liability, and coverage is later denied, the limitation period may begin to run from the later denial date. See Balzer v. Sun Life, 2003 BCCA 306).
- If the insured fails to provide a proof of loss, but the insurer has been making payments to the insured under the policy, consider including a letter with the final payment which specifically and clearly advises the insured that the insurer has now fulfilled its obligations under the policy and that further coverage is terminated, and to note commencement of the one-year limitation period. See Lanki v. Co-Operators Life Insurance Company, 2007 BCSC 1891.
- If the claim does not require submission of a proof of loss (for example, a claim for coverage under a Commercial General Liability Policy), ensure that a clear and unequivocal denial of coverage is sent to the insured. This will improve the insurer’s ability to rely upon that date as the commencement of the applicable limitation period. See Canadian Northern Shield v. Demers, 2004 BCSC 435.
The leading case concerning the one-year statutory limitation period is KP Pacific Holdings Ltd. v. Guardian Insurance Company of Canada (2003), 225 D.L.R. (4th) 193. In KP Pacific the Court considered whether the limitation period ran from the date of a fire loss giving rise to the insured’s claim, or from the date upon which the insured submitted a proof of loss to its insurer. The Supreme Court of Canada held (at para. 6), that “. . . we conclude that the limitation period of one year from filing proof of loss applies . . .”
But what happens if the insured does not file a proof of loss? Contrary to a common misconception, KP Pacific does not require that the insured submit a final proof of loss before the limitation period begins to run. If that were the case, insureds could always refuse to submit a final proof of loss to thwart commencement of the limitation period. This issue has been discussed in several cases.
In Canadian Northern Shield v. Demers, 2004 BCSC 435 (homeowner’s liability policy), the insured did not submit a proof of loss to the insurer as the policy was a liability policy. The insurer had refused to defend the insured. The Court held that in such cases the limitation period commences once the insurer issues a “clear and unequivocal denial” of coverage. As the Court explained (at paras. 23 to 26, (mphasis added):
That brings me to the second issue, namely the proper construction and application of s. 22 (1) of the Insurance Act. The difficulty with the language of s. 22(1) has been dealt with before in this court. In Mameli v. American Home Assurance Co.,  B.C.J. No. 188, 2002 BCSC 169, Clancy, J. concluded, at paras. 57-9, that the Act requiring “reasonably sufficient proof of loss” before the commencement of the running of the limitation period means that the insurer must make an unequivocal determination of its liability before the limitation period will begin to run. The commencement of the limitation period by way of a clear and unequivocal denial of coverage was also approved by the Court of Appeal in Balzer v. Sun Life Assurance Co. of Canada,  B.C.J. No. 1170, 2003 BCCA 306 at para. 43. If the petitioner made, and communicated to the respondents, an unequivocal decision to deny coverage, on the facts of this case, I am satisfied that the one year period within which the insured may bring action would start to run.
On the evidence, it is clear that Mr. Demers understood that he had been denied coverage as a result of his April 1995 telephone conversation with Ms. Senyk. He had to have recognized, as is made clear by his October 1997 letter to his own lawyer, that there may be some way of challenging the denial of coverage. If his lawyer did not take any steps on his behalf, following that letter, that cannot operate to extend any limitation period for taking action against the petitioner. [Emphasis added]
After his telephone conversations with Ms. Senyk, Ms. Dowdall and Mr. Allmark in July, 1999, Mr. Demers had to have understood that he had, again, been denied insurance coverage, notwithstanding the not guilty verdicts in the criminal proceedings. By November, 1999, when he wrote to the petitioner, he raised the possibility of the petitioner being brought into the civil actions as a third party, although he suggested that would occur at the instance of the plaintiff, Mr. Lee. There is nothing in the correspondence of the petitioner’s counsel, dated January, 2000, which would make the July, 1999 denial of coverage unequivocal. [Emphasis added]
Consequently, I conclude that the limitation period within which the respondents were required to commence action started to run, at the very latest, in July of 1999. Therefore, the third party notices, filed in December of 2000, were filed out of time. The petitioner is entitled to the declarations sought, namely that the respondents are not entitled to insurance coverage or indemnity, and that the petitioner is not obliged to undertake the defence of the respondents in either of the civil actions
The British Columbia Court of Appeal considered s. 22 of the Insurance Act in Balzer v. Sun Life Assurance Co. of Canada, 2003 BCCA 306, a disability insurance case, and held as follows (at para. 40):
It is at denial of coverage of termination of benefits that an insured would have reason to sue the insurer. That is when a limitation period should begin to run, not while benefits are being received, not on some later date when an insured decided to file a proof of loss or commence an action. This sensible result is at the root of the reasoning in the authorities cited to us.
In Knight Towing v. Guardian Insurance Company,  B.C.J. No. 432 (S.C.) the B.C. Supreme Court noted that an interpretation which requires that a proof of loss be filed before the limitation period begins to run could undermine the purpose of the section by enabling the insured to indefinitely prolong the matter. Thus, the court held that if the insurer denies coverage, there is no need for a proof of loss.
Most recently, in Lanki v. Co-Operators Life Insurance Company, 2007 BCSC 1891, a disability claim, the B.C. Supreme Court held (at para. 33) that the B.C. Court of Appeal decision in Balzer stands for the proposition that “. . . the limitation period runs from the date of the termination of the benefits, provided there is clear and unequivocal notice that the benefits will be terminated.” And, further (at para. 42), “. . . I apply the reasoning in Balzar and find that the limitation period runs from the date of the termination of the benefits and the refusal to pay further benefits, not the date of the notice of termination.”
To summarize, the courts apply a one year limitation period even though a proof of loss had not been filed. In the above noted decisions, the date marking commencement of the applicable limitation period was decided on a case-by-case basis (as noted in Lanki). In each case the period began to run when the insurer delivered a clear and unequivocal denial of coverage or the date of termination of coverage.
In order to clearly highlight the limitation commencement date, insurers should deliver a clear and unequivocal denial of coverage or, where payments are made under the policy, deliver a notice to the insured with the final payment explaining that the insurer’s obligations are now at an end, thus marking commencement of the applicable limitation period.