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Limitation Period Inapplicable After Liability of Insurer to Pay is Admitted
Published in the June 2007 issue of Transportation Notes - View Article
The Alberta Court of Appeal recently released its unanimous decision in an interesting insurance coverage case.
By way of background, the insured, Terroco Industries Ltd. (“Terroco”) suffered a fire loss on September 28, 2001. The fire resulted in damage to a building and its contents, as well as to a pressure truck used by Terroco in its oilfield operations.
Terroco had three insurance claims against its insurer, Sovereign General Insurance Co. (the “insurer’). Two claims fell under a property policy and were paid promptly without controversy.
The third claim arose from the loss of the pressure truck, which was covered under a separate fleet automobile policy.
When the insurer received the auto claim, it retained the services of an independent adjuster to assess the value of the pressure truck. It was found to be between $45,000 and $48,000. With this valuation in hand, the insurer authorized payment of $46,410 in settlement of the claim. In the course of communicating the decision to pay this amount to an employee of Terroco, the adjuster came under the (mistaken) impression that Terroco found the settlement acceptable.
Shortly after this communication, the CEO of Terroco expressed his dissatisfaction with the valuation of the truck. He, in turn, sought a second appraisal, which resulted in a valuation of $75,625. This appraisal report was provided to the adjuster in April 2002.
Despite their subsequent attempts to resolve the difference, the two appraisors were not able to come to an agreement on the accurate value of the loss.
In early September 2002, an independent umpire was selected to fix the value of the loss, the intention being that the umpire’s determination would be binding on the parties.
Both parties agreed to forward their appraisal documents to the umpire, but, for an unspecified reason, Terroco delayed in forwarding its documents. This resulted in the umpire not being able to make his decision before the one year anniversary of the loss (i.e. September 28, 2002).
The relevant statutory condition under the Alberta Insurance Act, R.S.A. 2000, c. I-3 , requires that a claim for unpaid losses against an insurer be commenced within one year of the date of loss.
With this provision in mind, after the one year anniversary of the date of loss took place, but before the umpire could make a determination, the insurer instructed the adjuster to close the file, and to discharge the umpire leaving the value undetermined.
Terroco commenced legal proceedings on October 31, 2002 (more than one year from the date of loss), alleging, not that the insurer had failed to honour the insurance policy per se, but, rather, that it had failed to honour the agreement to have the loss valued by an umpire. Terroco sought, as relief in the action, an order appointing an umpire to assess the value of the loss, as had been agreed by the parties in the first place.
The trial Court held in favour of Terroco, finding that once the appraisal process began in the adjustment of a claim, the one year limitation period was suspended.
While the Court of Appeal also held in favour of Terroco (and dismissed the appeal), it explicitly stated that it did not accept the reasoning of the trial judge. Rather, it found that the appraisal process, taken alone, determines only one aspect of the claim, namely value. The Court emphasized that appraisers have no authority to enforce their opinion as to value, nor decide any other issue, such as coverage, which may ultimately render the claim unpayable.
Moreover, the Court noted that s. 517(2) of the Insurance Act plainly provides that “neither the insurer, nor the insured is deemed to have waived any term or condition of a contract by any act relating to the appraisal of the amount of loss … or to the investigation or adjustment of any claim under the contract.”
The Court of Appeal held in favour of Terroco for an entirely different reason. In made special reference to testimony given at trial by the insurer’s claims examiner, Margaret McNarry, who admitted that the only reason the claim was denied was the expiry of the limitation period.
Ms. McNarry stated, in cross-examination, that had the umpire rendered his decision before September 28, 2002, the insurer would have paid the claim.
This evidence was consistent with the position of Terroco’s senior officer who testified at trial that he had the understanding that the insurer would pay whatever value the umpire assigned to the pressure truck.
The Court found, based on this testimony, that liability to pay the claim had been admitted by the insurer, and that only the quantum remained to be determined. The limitation provision was found to be inapplicable to the facts of this case because it applies to the insurance contract only, and not the ancillary agreement that the claim would be valued by the umpire.
In dismissing the appeal, the Court held that the case was “the same as if prior to the expiration of the limitation period the insurer had agreed to pay a fixed amount, but payment had not yet been made.”
One final, and rather ironic note: Just before trial, the insurer served a Request to Admit on Terroco — asking Terroco to admit for the purposes of trial, that the truck was worth $46,410 (the amount offered and rejected in the first place). Terroco failed to respond to the Request. The consequence of such a failure is, in the normal course, that the fact in question is admitted.
Terroco was quite fortunate in that the Court did exercise its discretion to set aside that deemed “fact” — but it did suffer cost consequences as a result in that the Court of Appeal chose not to make the usual order of costs to the successful party.
Terroco Industries Ltd. V. Sovereign General Insurance Co. [2007] A.J. No. 463 (C.A.)