The limitation period for the primary insurer to commence an action against a secondary insurer commences on the date of the denial, not the date of the underlying loss.
Farm Credit Canada ("FCC") was successful in its application for an order adding it as a plaintiff to an action against an insurer where the Court found that FCC was first loss payee on certain loans made to the original plaintiff and held that FCC's breach of contract claim was not statute-barred.
Stomp Pork Farm Ltd. v. Lombard General Insurance Co. of Canada [2008] S.J. No. 613 Saskatchewan Court of Queen's Bench R. K. Ottenbreit J. October 7, 2008.
Stomp Pork Farm Ltd. ("Stomp") operated a pork production operation which was damaged by a fire in 2005 which destroyed a barn under construction. Stomp commenced an action against its insurers for failure to indemnify it in respect of this loss. The insurers had denied coverage on the basis that the welding, cutting and open-flame warranty in the policy was breached. Previously, FCC had advanced certain loans to Stomp and had required insurance to be placed on the facilities and also required FCC to be named as first loss payee under the policies and that there be a standard mortgage clause to the policy added to protect FCC. Originally, FCC has been content to allow Stomp to proceed with the action against the insurers. However, Stomp was subsequently placed under creditor protection under the Companies Creditors Arrangements Act, R.S.C. 1985 c.C-36 and no further actions were taken by Stomp against the insurers after December, 2007. FCC then applied to add itself as a plaintiff to the action originally commenced by Stomp. The defendant insurers resisted this application on the basis that FCC was barred from commencing an action as the two-year limitation had expired.
This Court noted that it was common ground that FCC's claim was in breach of contract. This cause of action arose when the insurers denied the claim, not when the fire occurred. The Court noted that although FCC was at risk because its security was impaired after the fire, it suffered no actual loss, injury or damage until such time as the indemnitor failed to honour its bargain respecting the concurrent security. In this case, there was no formal denial of FCC's claim. However, assuming FCC should have provided all the information needed to assess the claim on the filing of the Proof of Loss, the insurer's obligation to pay would have arisen 60 days after the filing of the Proof of Loss at the earliest. Therefore, the failure to pay occurred on August 19, 2006. This was the date that time began to run for the purposes of the limitation period. Therefore, the claim of FCC was not out of time and an order was granted adding FCC as a plaintiff to the action originally commenced by Stomp.
The Court noted that in the alternative, even if FCC had been out of time, it would have nevertheless allowed the amendment under section 20 of the Limitations Act, S.S. 2004, c. l-16.1 as this was not a wholly new claim but merely the adding on of a new claim to an existing action, which was allowed by section 20 where there was no prejudice. In this case, the insurers had not been affected in any negative way in their ability to respond to the claim.
This case was originally summarized by jmeadows@harpergrey.com and originally edited by dpilley@harpergrey.com
