Introduction
Relief against forfeiture is a remedy in insurance coverage disputes that has existed for generations but has recently grown both in its prominence and application through a series of decisions of the Ontario Court of Appeal. It has now started to gain footholds in other jurisdictions across the country as well.
If a policy holder can successfully claim for relief against forfeiture, then even if there is clear evidence of a breach of a policy condition, the Courts can overrule the policy language and order that the benefits be paid – even when the policy was properly voided.
The Supreme Court of Canada has said that the purpose of allowing relief from forfeiture in insurance cases is to prevent hardship to beneficiaries where there has been a failure to comply with a condition and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer.[1]
A well-informed analysis of coverage should include a consideration of whether relief from forfeiture could apply prior to denying or voiding coverage.
Historical basis
Relief against forfeiture originated in the British Courts of Equity, and was restricted to a tenant resisting a landlord’s effort to evict for failure to pay rent on time. The application of the rules for this kind of relief were tightly limited as British courts held that they could not assume any general authority to vary the contracts of private parties.[2]
Many of the historical civil and criminal laws of England, as they existed in 1858, were imported into Canadian law by provincial statues such as the Law and Equity Act in B.C.[3]
The B.C. Law and Equity Act contains a specific provision relating to relief against forfeiture, with broad powers given to the court, “24. The court may relieve against all penalties and forfeitures, and in granting the relief may impose any terms as to costs, expenses, damages, compensations and all other matters that the court thinks fit.”[4]
Many other provinces have statutes similar to B.C. laws and Ontario contains the same general provisions in its equivalent to the B.C. statute.[5]
Application to Insurance
Relief against forfeiture comes into play with insurance claims when a policy is voided two ways: a) by actions occurring after the loss; and b) those occurring before the loss.
Breach of a condition arising after the loss has received a lot of statutory and judicial attention over the years.
Post-Loss Breach
The Insurance Act of B.C. provides[6] for relief against forfeiture when there has been “imperfect compliance” with a statutory condition regarding the proof of loss or other post-loss obligations by the insured.
Other provinces have enacted similar legislative provisions[7], and the Supreme Court of Canada extended the application of these provisions from statutory conditions to include the provisions of insurance contracts generally.[8] Subsequent iterations of the provincial insurance acts now include this broader language.
The key concept in determining whether a given situation is amenable for application of the relief against forfeiture provisions is whether there has been “imperfect compliance” with the requirements or whether the actions were “non-compliance.”
Where there has been non-compliance, there will be no relief against forfeiture. If there was “imperfect compliance” the court should pose the question as to whether it would be inequitable that the insurance would be forfeited (if no relief given).[9]
Pre-Loss Breach
Pre-Loss breaches of a statutory condition have had a longer journey to being subjected to relief against forfeiture, and the courts have established different modes of analysis for it.
Historically, it was accepted that there was no relief available for breach of statutory conditions (such as material misrepresentation or material change in the risk). The theory was that a statutory condition could not be “unjust or inequitable” because the legislature passing the law meant that it could not be unjust.
This changed with the Supreme Court of Canada Decision in Marche v. Halifax Insurance.[10] In Marche, the high court was dealing with an insured who saw his policy voided after a total fire loss due to a property becoming vacant prior to the loss, notwithstanding that the vacancy was resolved before the fire. The case dealt with the insurance act of Nova Scotia, but the language is similar in the other common-law jurisdictions.
Statutory conditions were explicitly excluded from the Nova Scotia legislation on relief against forfeiture until 1956 when the language was changed. The insured argued that the change in the language of the legislation had to be for a reason, and as a result, the change opened the door to claims of this nature.
Former Chief Justice McLachlin, writing for the majority, held that s.171 of the Nova Scotia Insurance Act did apply to the statutory conditions as well as the contractual ones.[11]
What do we mean by “Unjust and Inequitable?”
The Court in Marche noted that in the facts of that case, the insurer did not really contend that the provisions were not unjust (bear in mind that the vacancy giving rise to the forfeiture had been rectified prior to the loss). As a result, there is no real analysis of how a court should consider these issues.
In order to answer these questions, we must look to another line of cases. In Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC),[12] the Supreme Court of Canada sets out a 3 part test to determine if and when it is appropriate to grant relief from forfeiture, after noting that it is an equitable remedy and is purely discretionary. The factors to be considered by the court in the exercise of its discretion are:
- the conduct of the applicant,
- the gravity of the breaches, and
- the disparity between the value of the property forfeited and the damage caused by the breach.
The dispute in Saskatchewan River Bungalows dealt with life insurance policies from Alberta, but subsequent decisions in other jurisdictions have further defended and refined these concepts.
In Kozel[13], the Ontario Court of Appeal applied the provisions of s. 98 of the Courts of Justice Act[14], which deals with contracts generally, and not insurance agreements in particular, to grant relief against forfeiture for an insured under a motor vehicle policy which was voided because the driver’s license had expired.
In Monk v. Farmers Mutual Insurance Company (Lindsay),[15] The Ontario court of Appeal considered the three-part test from Saskatchewan River Bungalows in the context of a property insurance policy. The Court in Monk found that the most important part of the three-part test was the reasonableness of the insured’s actions and stressed that the Court should consider the nature of the breach, what caused it and what, if anything, the insured attempted to do about it.
In B.C., The Insurance Act provides a general remedy, in s. 32, for “unjust contract provisions,” distinct from s. 13(a) that deals specifically with post loss breaches:
Unjust contract provisions
32 If a contract contains any term or condition, … the term or condition is not binding on the insured if it is held to be unjust or unreasonable by the court before which a question relating to it is tried.
In a decision released last week,[16] the B.C. Supreme Court applied the three-part test from Kozel and Saskatchewan Bungalows, to find that an insured would be entitled to relief against forfeiture for a failure to promptly advise an insurer of a material change in risk. S. 32 of the Insurance Act had been raised in B.C. before, but this is the first decision that imposes a specific form of analysis to determine if the insured is deserving of this extraordinary remedy.
How Can This Affect Claims Currently On My Desk?
An insurer faced with a coverage determination that a breach of a condition could apply needs to also consider whether the insured might be entitled to relief against forfeiture. It is conceivable that a failure to consider whether relief against forfeiture might apply could lead to a claim for bad faith.
Coverage counsel should keep current on future expansions of, and refinements to, the application of relief against forfeiture, specifically for pre-loss breaches of conditions as these coverage disputes are more often seeking alternative remedies in the centuries old equitable remedy.
Counsel looking at disputing the voiding of a policy for the breach of a condition can consider pleading relief against forfeiture as an alternate remedy.
For more information about relief against forfeiture or other aspects of insurance coverage law, please contact Andrew N. Epstein at aepstein@lindsayllp.ca.
[1] Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778 at 13
[2] Hill v. Barclay (1810) 33 ER 1037
[3] “2. Subject to section 3, the Civil and Criminal Laws of England, as they existed on November 19, 1858, so far as they are not from local circumstances inapplicable, are in force in British Columbia, but those laws must be held to be modified and altered by all legislation that has the force of law in British Columbia or in any former Colony comprised within its geographical limits.” Law and Equity Act, RSBC 1996 c. 253.
[4] Law and Equity Act, supra, at s. 24.
[5] See for example, Judicature Act, RSA 2000, c. J-2, s. 5, 15 and 16; Courts of Justice Act, RSO 1990, c. 43 at ss. 96-98; Judicature Act, RSNS, c. 240.
[6] Insurance Act, RSBC 2012 c.1, s. 13(a).
[7] See for example, Alberta: Insurance Act, RSA 2000, cl-3, s. 8-12, 8-203; Ontario: Insurance Act, R.S.O. 1990, c. I.8, s. 129; and, Saskatchewan: The Insurance Act, S.S. 2015, I-9.11.
[8] Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., supra.
[9] Petersen v. Bannon, 1993 CanLII 4719 (BCCA) at para 67.
[10] Marche v. Halifax Insurance, 2005 SCC 6 (CanLII).
[11] Marche v. Halifax Insurance, supra, at para 36.
[12] Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC)
[13] Kozel v. The Personal Insurance Company, 2014 ONCA 130 at para XXX
[14] Since the Ontario Insurance Act provisions only applied to post-loss breaches, the Ontario Court of Appeal applied the more general language from the Courts of Justice Act, R.S.O. 1990, c.43, at s. 98: “98 A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.”
[15] Monk v. Farmers Mutual Insurance Company (Lindsay) 2019 ONCA 616 at para 82
[16] Dubroy v. Canadian Northern Shield Insurance Co., 2021 BCSC 352