Be clearer with limitation periods, appeal court tells insurers

Insurers should consider telling policyholders the specific dates when applicable limitation periods expire, and suggest that policyholders seek and retain counsel, legal experts recommend after an Appeal Court decision in Alberta.

In Statt v SGI Insurance Services Ltd, a letter from insurer SGI Insurance Services Ltd. referred to a limitation period, but it was not clear as to whether it was the period to submit a proof of loss or to commence a lawsuit against the insurer. The Court of Appeal of Alberta suggested a plain-language wording for clarification.

“Insurers must inform policyholders in clear and unambiguous language of the applicable two-year limitations period,” write Patrick Heinsen, Raphael Jacob and Mathew Grainger, partner, associate and articling student, respectively, with Borden Ladner Gervais LLP in Calgary in a Mondaq article. “The foregoing notice must also clearly indicate that the applicable limitations period begins running from the date of loss.”

Heinsen, Jacob and Grainger made their comments after Alberta’s appeal court in July 2021 dismissed the insurer’s appeal about a limitation period extension, due to SGI’s failure to provide adequate notice of the applicable limitation period.

“The decision… stresses that an insurer must provide detailed notice to their policyholders that is written in unambiguous language, or risk and extension of the applicable limitation period pursuant to section 5.3 of the Fair Practices Regulation.”

Section 5.3(2)(a) of the regulation states an insurer must give written notice to a policyholder setting out the applicable limitation period, “if the claim has not been satisfactorily settled, within 60 days from the date the claimant notifies the insurer of the claim.”

iStock.com/eternalcreative

In Statt, the Appeal Court notes a letter from SGI did refer to a limitation period, but it was not clear as to which one – the one to submit the proof of loss or the limitation period to commence a legal action.

The case involves a residential property owned by James and Juliette Statt that was destroyed by a fire on Nov. 12, 2014. The day after the fire, the insureds submitted a claim to SGI for coverage of their loss. An SGI adjuster provided a letter to the insureds which advised, “[i]n accordance with the Alberta Insurance Act, we are enclosing a blank Proof of Loss form for your record, and must advise you of the two-year limitation period applicable to your claim.”

More than three years after the fire, on Dec. 22, 2017, the Statts brought an originating application for summary judgement seeking compensation for their losses and an extension of the limitation period for commencing a legal action.

The Court of Queen’s Bench of Alberta in 2019 granted the extension and awarded damages of $127,241 for repairs to the property, as well as additional costs for lost rental income and utility costs (the insureds had tenants renting the property). The chambers judge largely upheld the award, leading to SGI appealing the decision.

On appeal, Alberta Court of Appeal Justices Frans Slatter, Patricia Rowbotham and Jolaine Antonio note the Fair Practices Regulation gives little guidance regarding the content of the notice, other than it must include the name of the act or regulation that refers to the applicable limitation period. However, the Appeal Court found SGI’s notice, under the heading “Proof of Loss Form,” was not sufficient, as confirmed by the master and chambers judge.

“While the notice referred to the Insurance Act, it did not link the reference to discussion of the limitation period,” the appeal court decision says. “Including the notice under the heading ‘Proof of Loss Form’ is confusing. As the master observed, it is not clear what is to be done within two years, submit the Proof of Loss or commence an action?”

As consumer protection legislation, the notice about limitation periods should be “written in plain language in understandable terms,” the Appeal Court found.

The court even went as far as to suggest the wording as follows:

“Enforcing Your Rights under Your Insurance Policy.
We will commence processing your claim once we have received your Proof of Loss. This will include determining if you have coverage for the loss you claim, and how much you are entitled to recover. While we expect to reach a consensus with you on these issues, we are required to advise you that under the Insurance Act, if you wish to commence legal action to recover under your insurance policy, you must do so within two years of the date of the loss. If you have any questions about your legal rights, please consult your lawyer.”

SGI argued the earlier decisions erred by extending the limitation period, but the appeal court dismissed the appeal. While the decision dealt with other issues relating to cost awards, it ultimately found the insureds were entitled to summary judgement for a portion of their claim; that being, the cost of the remaining repairs to the property ($127,241).

Feature image by iStock.com/serggn