The Canadian Bar Insurance Association
Civil Litigation, Insurance, Personal Injury

Insurance coverage issues after you’ve been sued in Ontario

By Michael Lesage

In this article, I will discuss what you need to know about being sued in Ontario and how your insurance policy will come into play, including what to do if your insurance company denies coverage or asks you to sign a non-waiver agreement.

What should I do if I have been sued in Ontario?

If you have been sued or served with a claim in Ontario, it is important that you promptly obtain legal advice to protect your interests. If you ignore the claim, judgment may be entered against you in as little as 20 days, for the full amount of the claim, plus costs, and collections efforts can begin shortly thereafter. Collections efforts can include wage garnishments and the seizure and sale of your home or other property.

For certain legal claims (specifically those for which insurance coverage may be available) it is also important to notify any insurances companies that may provide coverage. The safest way to do this is to unconditionally ‘tender’ your claim to your insurer and demand defence and indemnity, in writing. Do not rely upon advice from your broker or insurer that there is no coverage or no insurance, get a legal opinion from an insurance lawyer.

Will insurance cover the claim against me?

For certain claims, such as auto accidents and falls on your property, your insurance policy will likely provide coverage (provided you have or had insurance). However, for other claims, your insurance company may deny insurance coverage outright, ask you to sign a “non-waiver agreement,” or agree to provide coverage, subject to a “reservation of rights.”

How can I tell if the claim against me is covered by insurance?

Because insurance policies aren’t written in plain English, it is often very difficult to determine whether a particular claim is or may be covered under an insurance policy. In some cases, the insurer will be responsible for paying for the defence of the claim, but not the actual claim itself. For a list of factors the court will consider, see paragraphs 32 and 33 of the following case. For a more definitive opinion, you should contact our lawyers.

What should I do if my insurance company denies coverage?

In many cases, insurance companies wrongly deny coverage. If you have submitted a claim to your insurance company, and it has been denied, you should obtain legal advice from a lawyer experienced in insurance law, such as the lawyers at Michael’s Firm. It is important that the reasons for the denial are set forth by the insurance company in writing. In an interesting ‘quirk’ to Ontario law, an insurance company may maintain the right to appoint defence counsel, even where the insurer has breached its duties under the policy, by initially refusing to defend. See e.g. this case and also this case.

What is a non-waiver agreement?

In response to a claim, an insurance company will sometimes ask an insured to sign a “non-waiver agreement.” This agreement can modify the terms of the insurance contract and is not done for the benefit of a policyholder. Among other things, such an agreement can make the policyholder responsible for reimbursing the insurer the costs incurred in investigating and defending the action, if it is later determined that no coverage exists. A policyholder can refuse to sign a non-waiver agreement, and should never agree to sign a non-waiver agreement without seeking legal advice.

What is a ‘reservation of rights’ letter?

In many cases, an insurance company will defend a claim, subject to a letter reserving its rights (a reservation of rights letter) to later dispute or deny coverage (i.e. to later find that the claim is not covered under the policy). Therein, insurers will set forth the reasons why they assert insurance coverage may be unavailable, including the specific policy exclusions they are relying upon.

What should you do if your insurer gives you a ‘reservation of rights’ letter?

If you receive a reservation of rights letter, you should have it reviewed by a lawyer with experience in insurance law. In many cases, it is sensible to write back and request clarification of the specific basis upon which the insurer contests or may contest coverage and to reject any additional terms the insurer has included that were not set forth within the policy (i.e. for reimbursement).

If my insurer defends the claim against me under a ‘reservation of rights’, may I appoint counsel of my choice to defend me?

Unlike in the U.S., where a defence under a reservation of rights can be considered a policy breach, the law in this respect in Ontario is much more nuanced. Thus even where an insurer has issued a reservation of rights, it may maintain the right to appoint defence counsel in various circumstances. See this case see also this case. As noted above, the same can be true even where the insurer has initially denied coverage altogether.

Why should I get independent legal advice?

If your insurance company is seeking to deny coverage, have you sign a non-waiver agreement, or is providing a defence under a reservation of rights, you will likely be well served in obtaining an opinion from an insurance coverage lawyer. Remember, your lawyer will act to protect your interests and work to ensure that any claim against you is covered by insurance, while the lawyer hired by the insurance company may have the opposite objective.

When may I appoint counsel of my choice to defend me and have my insurance company pay for it?

While insurance companies have the contractual right to control the defence, that right is not absolute. Specifically, a lawyer retained by an insurance company to represent a policyholder/insured has a duty to fully represent and protect the interests of the insured (despite the fact that such lawyers are paid by and reports to the insurance company). Where the interests of the insured and the insurance company diverge, it may give rise to a reasonable apprehension of conflict of interest, such that the insured may be entitled to appoint counsel of its choice at the expense of the insurer. If you have been sued, this can mean the difference between the loss being covered by your insurance and you being responsible for paying the loss out of pocket.

Specifically, your insurance company will lose the right to control your defence when:

“In the particular circumstances of case, there is a reasonable apprehension of a conflict of interest if counsel were to act for both the insurer and the insured.” See this case

This typically occurs when the question of insurance coverage turns on the conduct of the insured, such that one type of alleged conduct is covered under the policy, while another type is not (i.e. an injury caused either intentionally or by accident). In this type of scenario, were the insurer to retain the right to select counsel, a reasonable person would perceive a conflict of interest, as the insurer stands to benefit financially from steering the outcome to a source not covered by insurance. In such circumstances, the court will perceive a conflict, and require the insurer to pay the costs incurred in defending the action. See this case.

This issue was recently addressed in this case. In that case, suit was brought against a minor after he caused injury to another. The minor’s mother was insured by an insurance company, who appointed counsel to defend the minor under a non-waiver and reservation of rights agreement. That counsel brought an application for additional coverage under two other insurance policies, which were denied under the ‘intentional acts’ exclusion. Such decision, if upheld, would also likely lead to coverage being excluded under the insurance company’s policy (in effect, the lawyer paid for by the insurance company initiated a course of action that resulted in the loss being excluded from coverage, to the benefit of the insurer and the detriment of the insured). Against that backdrop, the Court of Appeal held that there was a reasonable apprehension of a conflict of interest between the minor and the insurer, and ordered that the minor have independent counsel that did not report or take instructions from the insurance company.

The above is intended as a brief overview of insurance law only and does not constitute legal advice for your particular situation.

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