Court rules in favour of RSA and broker after liability client demands payment for defence costs

An Ontario court ruled last week in favour of the Royal & Sun Alliance Insurance Company of Canada and Jones Brown Insurance Brokers & Consultants over a liability policy with an organization that spent more than $100,000 defending itself from a human rights complaint that resulted in an order, which was later quashed, to pay $4,000 in damages.

The Peel Law Association, whose facilities include a library in a Brampton, Ont. courthouse, had applied for a court order to have RSA provide coverage and reimburse its defence costs in the human rights case. In the alternative, the association sought damages from RSA and Jones Brown alleging breach of contract.

The Ontario Superior Court of Justice ruled April 24 against the association in its insurance case, finding it had not given notice to either the broker or the carrier of a claim within the period required by the policy.

In 2010, the Human Rights Tribunal of Ontario ordered PLA to pay $2,000 each to Selwyn Pieters and Brian Noble, because they were asked for identification May 16, 2008 by a PLA staff member in its Brampton library, according to a separate Divisional Court decision, which quashed the HRTO ruling.

PLA makes its library available to lawyers but not to paralegals. HRTO, a quasi-judicial agency, found that PLA, in asking for ID from Pieters and Noble, had discriminated against them in the provision of services, goods and facilities because, the HRTO adjudicator alleged, “race was a factor.”

The Ontario Divisional Court quashed the HRTO decision, suggesting the onus is on human rights complainants to prove discrimination and the HRTO improperly reversed the burden of proof. Court records indicate PLA’s defence costs were nearly $117,000, and PLA had not made a formal insurance claim in connection with the HRTO hearings before Dec. 23, 2010, even though HRTO initiated proceedings in connection with Pieters’ and Noble’s complaints in 2008. Court records indicate the Divisional Court’s decision was appealed.

Last Wednesday, Madam Justice Meredith Donohue, in ruling in favour of PLA’s carrier and broker, found that RSA “lost an early opportunity” to investigate the incident, to settle the matter early without involving lawyers and to retain its own counsel. Those lost opportunities resulted in prejudice to RSA, Judge Donohue wrote, “particularly so in light of the high cost of the litigation and the modest Tribunal orders granted.”

In October 2008, five months after Pieters and Noble were asked for ID and three months after the HRTO initiated proceedings, the PLA completed a renewal application for its liability policy. In answering one question on the application, PLA noted it had retained counsel to represent it in the HRTO action. However, this response did not constitute notice of a claim, according to Judge Donohue.

“The PLA’s evidence was that they were not aware a claim could be submitted for the HRTO proceeding because the directors were not named personally,” wrote Judge Donohue. “It is the PLA’s evidence that if they had known that they had coverage, they would have reported a claim and requested coverage. They had not turned their mind to insurance coverage for the HRTO proceedings.”

However, PLA complained that neither RSA nor brokerage firm Jones Brown followed up, after receiving its policy renewal application in 2008, by asking it to submit a claim in connection with the human rights case.

“The PLA did not provide any evidentiary, contractual, legislative, or legal basis that would support an Insurer’s duty or responsibility to detect the presence of a claim or ferret out potential claims,” Judge Donohue wrote. “It is the insured that has the facts available to it and is in the position to determine whether or not to make a claim based on those facts.”

The RSA policy was a claims-made policy, which required that all incidents giving rise to a claim must be reported in writing as soon as possible.

But evidence from a Jones Brown partner indicated that when the broker was seeking competitive quotes to renew PLA’s policy in 2009, a “potential insurer” had inquired about a note on the PLA financial statements regarding ongoing litigation.

When the partner contacted PLA, “he was told that it ‘was not an insurance issue,'” Judge Donohue wrote in her decision. “He was advised that the insured had hired counsel and would pay any settlement themselves.  He confirmed this information in an office email that day, October 7, 2009.”

Judge Donohue added policyholders are allowed to handle claims themselves.

“It can prejudice them, however, if they later change their minds and seek coverage under their insurance policies.”