At our weekly meeting, Chris MacDonald discussed a decision of the Ontario Court of Appeal, Svia Homes Limited v. Northbridge General Insurance Corporation, 2020 ONCA 684.
In this case, the Court considered an appeal brought by Svia Homes Limited (“Svia”). On appeal, Svia contended that the application judge wrongly dismissed its application under section 132 of the Insurance Act to recover a judgment from a contractor’s insurer.
Between 2004 and 2008, Svia developed a townhouse project in Oakville and hired a company to install the sewer system. Shortly thereafter, problems arose with the sewer system and Svia commenced an action against the company, 1390348 Ontario Limited (“139 Limited”), for damages relating to the defective installation of the sewers in 2008.
139 Limited was insured by the respondent, Northbridge General Insurance Corporation (“Northbridge”). In 2011, the lawyer for the sewer company was removed from the record and its pleading was struck. In 2013, the sewer company was noted in default.
Northbridge did not receive notice of the 2008 action until 2017. After it was notified, Northbridge investigated the issue and denied coverage to 139 Limited. Northbridge maintained that the delayed notice constituted a breach of policy conditions, and that the action for coverage for the resultant damage caused by the defective sewer system was barred as the limitation period had expired.
In 2018, Svia amended its statement of claim to include broader claims for resultant damage but failed to provide the amended claim to Northbridge. Svia subsequently obtained default judgment against 139 Limited for over $1.9 million without providing Northbridge notice.
Svia’s attempts to recover the judgment from 139 Limited, including by execution, were unsuccessful. Svia then commenced an application under section 132(1) of the Act to recover the amount of the judgment from Northbridge.
Decision of the Application Judge
The application judge held that 139 Limited had breached Liability Condition 5 of the policy with Northbridge requiring it to give timely notice of the action. In failing to provide timely notice of the 2008 action, 139 Limited had forfeited its right under the insurance policy to claim indemnity from Northbridge.
The judge also noted that Statutory Condition 8 provided that if the insured was absent, unable to provide notice, or refused to do so, notice could be given “by a person to whom any part of the insurance money is payable”. Therefore, this condition enabled Svia to provide Northbridge with notice of the action. Svia provided notice 9 years after the action was brought.
The Court noted that section 132 of the Act permits the holder of an unsatisfied judgment against an insured person to recover the amount of the judgment from that person’s insurer, “subject to the same equities as the insurer would have if the judgment had been satisfied”.
As Northbridge had a defence to the claim by 139 Limited, the judge held that this defence would also be available to Svia’s claim. Because Svia, under section 132, stood in no higher position than 139 Limited, Svia’s claim against Northbridge for payment of the judgment failed due to the breach of Statutory Condition 5.
The judge then assessed whether Svia had standing to request relief from forfeiture as an applicant in a section 132 application. He found that Svia did have standing, but was not entitled to relief from forfeiture under section 129 of the Act for three reasons:
- 139 Limited’s failure to give notice was not reasonable;
- 139 Limited’s failure to give timely notice was substantial and had prejudiced Northbridge’s ability to respond to the action; and
- Although the forfeiture of insurance coverage was substantial, so too was Northbridge’s loss of its ability to defend the action. As such, there was no disparity between the insured’s loss of coverage and the damage caused by the insurer by the breach of condition.
Issues on Appeal
The Court of Appeal considered three issues:
- Did Svia breach the insurance policy’s relevant notice requirement?
- Did the application judge err in finding that there had been prejudice to Northbridge due to the late notice?
- Was the application judge correct in considering 139 Limited’s conduct rather than Svia’s conduce in deciding whether to grant relief.
The Court held that the primary question on a section 132 application is whether the insurer would have had a defence to a claim by its insured if the insured had satisfied the judgment. If 139 Limited had satisfied Svia’s judgment, Northbridge would have had a defence to 139 Limited’s claim for indemnity under the Policy because the first notice it received of the 2008 Action (the notice from Svia) came nine years after the action was commenced. Therefore, notice was not timely and was in breach of 139 Limited’s obligations under the Policy.
The Court held that the application judge correctly found that Northbridge had suffered prejudice due to the late notice.
Northbridge received notice after nine years, at which point its insured’s defence had been struck, discoveries had been conducted and the insured was noted in default. As a result, Northbridge could not investigate the claim or participate in discovery. Further, once Northbridge received notice, the limitation period for bringing an action for contribution and indemnity against other parties had expired.
The Court application judge conducted the appropriate analysis in analyzing the conduct of Northbridge’s insured rather than Svia’s conduct.
The Court stated that in a section 132 application, the Court must apply the same equities as would apply if the insured had satisfied the judgment and was itself claiming the insurance money from the insurer.
On this basis, the Court is required to consider the conduct of the insured and specifically why the insured failed to provide timely notice and the effect of late notice on the insurer in deciding whether to grant relief from forfeiture under section 129 of the Act. This application judge conducted this analysis, and therefore his findings were upheld.
As a result, the appeal was dismissed.