Paid the claim? No need to re-appraise after limitation period, court says

An insurer that has already paid a claim doesn’t have to do a follow-up appraisal after the limitation period has expired, Ontario’s Superior Court of Justice has ruled. 

“An admission of liability to pay on the part of an insurer does not extend the limitation period against the insurer,” the court ruled in Friday Aviva Insurance et al v. Sahara Rest[a]urant. 

Sahara Restaurant suffered significant damage to its restaurant after a sprinkler pipe burst on Jan. 1, 2018. At the time of the water damage, Sahara Restaurant had a valid policy with Aviva Insurance and Lloyd’s Underwriters that included certain coverages for water damage claims. 

The restaurant reported the damage to their insurers the same day, and the adjusters were on the site to commence their investigation on Jan. 2, 2018.  

On May 30, 2018, the insurers told the restaurant its policy included a one-year limitation period to commence a claim. The limitation date was Jan. 1, 2019. Then on Aug. 20, 2018, the insurers advised the restaurant of its limitation date a second time. 

The policy wording specified that “every action or proceeding against the insurers for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.” 

The insurers paid $72,313 towards some of the claims submitted by Sahara Restaurant, but rejected other claims they deemed were not covered by the policy.  

On July 29, 2019, more than six months after the limitation period expired, Sahara Restaurant demanded an appraisal be conducted regarding the rejected claims.  

The insurers refused, stating the limitation period for the claim had expired. The insurers also noted Sahara Restaurant was informed twice in writing that the limitation expired one year after the loss.  

Moreover, the insurers argued, “the appraisal process under section 128 of the Insurance Act is intended to deal with disputes regarding the quantum of a claim; not entitlement to make a claim,” the court decision states. 

But Sahara Restaurant argued that it, as well as the adjuster, were still communicating with the insurers to quantify the claim throughout 2019.  

“It points to email communications from the insurers after Jan. 1, 2019, in which the insurers continue to ask for information to consider the business interruption aspect of the claim,” the case reads. “It therefore claims that the insurers cannot rely upon the limitation period of Jan. 1, 2019, to deny its claim, as they were continuing to consider and adjust the claim after the expiry of the one-year limitation period.” 

Sahara Restaurant further argues the insurers breached their contract by failing to thoroughly evaluate and approve its claim for water damage and its business interruption losses resulting from the water damage.  

The restaurant also said the insurers breached their covenant of fair dealing with Sahara Restaurant by refusing to participate in an appraisal process provided in the insurance agreement. 

But ultimately, Justice C. Wilkinson decided Sahara Restaurant failed to establish its claim for promissory estoppel against the insurers. (Promissory estoppel is the legal principle that a promise is enforceable by law.) 

“I find that the insurers took no action or made any statements to suggest to Sahara Restaurant that they would not be relying upon the one-year limitation period…or that the running limitation period was suspended,” Wilkinson writes.

“I find that the communications that took place between the broker for Sahara Restaurant and the insurers were normal dealings between the parties attempting to resolve an insurance claim.” 

Furthermore, Wilkinson deemed Sahara Restaurant’s demand for appraisal after the limitation period invalid.  

“Sahara Restaurant failed to issue a statement of claim against the insurers within the one-year limitation period,” Wilkinson writes. “Although a demand for an appraisal is a mandatory process, the demand will have no force and effect if the claimant’s right to make a claim against the insurer has been extinguished. 

“I reject Sahara Restaurant’s position that the invocation of the appraisal process referred to in section 128 of the Insurance Act extends the limitation period until the value of the loss has been quantified,” the conclusion reads.  

“I also reject Sahara Restaurant’s position that the ongoing discussion between the insurers and Sahara Restaurant or its representative regarding the quantum of the claim extended the limitation period. I further reject Sahara Restaurant’s submission that the insurers acted in bad faith while considering and adjusting their claim.” 

Feature image by iStock.com/Florencio Horcajo Alvarez