In Kestenberg Siegal Lipkus v Royal & Sun Alliance Ins. Co. ("Kestenberg"), the Ontario Superior Court addressed an insurance dispute where an insured party failed to properly inform their insurer of a claim due to their broker's negligence. The insurance operated under a "claims made and reported" policy, which strictly covers claims initiated and reported during the policy period.
The insured held various policies, including a second excess professional liability policy, and they entrusted the negligent broker to relay a claim to their excess insurers. Although the broker notified the first excess insurer promptly, he failed to notify the second excess insurers in a timely manner. By the time the broker contacted the second excess insurers, the policy had expired and the insureds were denied coverage due to the policy's stringent notice requirement.
The policy contained a notice provision, labeled "Condition C," as follows:
As a condition precedent to its rights under this policy, an Insured must provide written notice of any claim as soon as practicable.
In addition, the policy contained a claims-made and reported condition, labelled "Condition D," as follows:
This policy only covers claims first made against the Insured and reported to the Insurer during the policy period and provided that such claim arises out of an act, error or omission committed or alleged to have been committed on or after the retroactive date set forth at Item. 6 of the Declarations.
BUYER BEWARE: THE LIMITATIONS OF CLAIMS-MADE POLICIES
Kestenberg highlights the nature of claims-made policies, which offer limited coverage for lower premiums, but carry potentially expensive implications. The Court ruled against the insureds and emphasized the importance of adhering to strict policy terms, by stating that claims must be initiated and reported within the policy period. Although the insureds presented vigorous arguments that reflected their frustration, the Court noted the insureds had the opportunity to purchase an extended reporting period, but chose not to, thereby reinforcing the policy's claims-made and reported nature.
Additionally, the Court commented on the inherent characteristics of claims-made policies, which are commonly characterized by their limited coverage in exchange for reduced premiums. The Court recognized these policies often carry with them the risk of coverage gaps and individuals should be aware of these risks when selecting such policy terms. In its decision, the Court noted that insurance policies do not need to explicitly label certain conditions as "conditions precedent" and that insureds are obliged to adhere to the precise stipulations of their respective policies. Ultimately, the Court confirmed that, as a matter of public policy, insurance policies should be construed in accordance with their unequivocal terms.
THE COURT'S RATIONALE FOR DENYING RELIEF
With respect to the relief from the notice requirement, the Court considered whether denying relief would inflict harm upon the insureds. The Court recognized the negligent broker had professional liability insurance that could respond to the claim in the event of refusal by the second excess insurer. The availability of relief, vis-à-vis the professional liability insurance of the broker, would be available for the insureds to pursue, and the Court's provision of relief would inherently translate into relief of the broker's insurer. Consequently, the Court did not see it necessary, from an equitable or contractual position, to grant relief where it was available within the relationship between the broker and their respective insurer.
TAKEAWAYS – READ THE FINE PRINT
Kestenberg is a reminder that the Court is committed to upholding the precise stipulations outlined in insurance policies, even when complex legal scenarios emerge and insured are not necessarily the direct cause of their losses. Strict adherence, diligence and awareness are of paramount importance to safeguard one's interest in entitlement to insurance coverage.
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