The Alberta Court of Appeal (ABCA) has issued a ruling reiterating how important it is for policyholders to act quickly if they wish to oppose a position taken by their insurer. In
Lafferty v. Co-operators,1 the ABCA reiterated that the insured’s limitation period begins to run as soon as he knows or should know the material facts at the origin of the dispute with his insurer. Ignorance (or misunderstanding) of the law by a person does not delay a statute of limitations.
Justin and Verna Lafferty owned a rental home that they insured with The Co-operators. The tenants used the house to operate a marijuana growing business. In December 2010, Alberta Health Services issued an order finding the house unfit for habitation. The Lafferty’s sought to recover the costs of restoring the property from The Co-operators.
In January 2011, the Lafferty’s met with an insurance adjuster, who indicated that the charges they were claiming were not covered, relying on a policy exclusion for loss or damage caused by illegal drug deals. In February, The Co-operators sent the Lafferty’s a letter formally rejecting their request, citing the drug trading exclusion and another exclusion for damage caused by vandalism.
The Lafferty’s did not initiate formal lawsuits against The Co-operators until 2017. In the meantime, Justin attended law school. He heard of a provision from Alberta Insurance Act on which an innocent insured can rely to avoid an exclusion for property damage caused by the criminal or intentional act of another person. Justin asserted that it was only after learning about this legal principle and several others that he realized he had a claim against The Co-operators for dealing in bad faith with the claim of the Lafferty.
The Co-operators sought summary judgment on the Lafferty’s claim. Among other arguments, she claimed that the statute of limitations expired years earlier. A captain accepted and rejected the request.
The Lafferty’s appealed, which ultimately brought them to the ABCA. The ABCA explained that the question was whether the lower courts erred in concluding that the limitation period had expired. The onus was on The Co-operators to prove that the Lafferty’s discovered their claim more than two years before bringing a lawsuit.
The ABCA concluded that The Co-operators had met its onus. In its reasons, the ABCA cited a recent Supreme Court of Canada decision (Grant Thornton LLP v. New Brunswick) that our firm has discussed here.
Grant thornton states that a plaintiff will be deemed to have discovered his claim when he knows or should know of the material facts on which his claim is based, so that a plausible inference of liability can be drawn against the defendant.
The material facts underlying the Lafferty’s claim were known to them when they received the 2011 denial letter. At that time, the Lafferty’s knew that The Co-operators was denying their claim and the reasons given by The Co. -operators. Although Justin later learned of the legal principles that might qualify the Lafferty’s for a remedy, that did not delay or restart the limitation period. The two-year limitation period expired in 2013. The lower courts rightly dismissed the proceedings initiated by the Lafferty’s in 2017.
Although this decision was made in Alberta, its application
Grant thornton is relevant across Canada, as several other provinces have similar statutes of limitation and discoverability. Laffertyemphasizes how important it is for policyholders to consult legal counsel promptly, as the policyholder’s understanding of coverage law (or lack thereof) does not delay the statute of limitations. In
Lafferty, the insurer agreed that the limitation period did not begin to run until after the issuance of its letter of refusal. However, in many policies an insured’s limitation period will be much shorter than two years and it will also start to run earlier, for example from the date of the underlying loss or damage. To protect your rights, carefully review your policy and consult a lawyer as soon as possible.
1. 2021 ABCA 359.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.