Discoverability

The amended statutes, with some qualifiers, have codified the common law of discoverability. ¹

Ontario’s statue is more severe, as it presumes that the claim has been discovered on the date of the actual breach, unless the contrary has been proven by the plaintiff. ²

This Limitations Act, effective as of January 1, 2004, as noted, incorporates the discoverability rule, the purpose of which is to “avoid the injustice of precluding an action before the person is able to raise it”. ³

The leading case on the issue of discoverability related to limitation periods on insurance claims is a 1997 Supreme Court of Canada decision. ⁴

The Supreme Court agreed that the discoverability principle should apply to allow the limitation clock to commence when the plaintiff became aware of the severity of his injuries. To the same end is the Ontario Court of Appeal decision in its March 1999 decision. ⁵

The November 2015 decision of Perell J. ⁶reviewed the essential principles of discoverability and concluded as follows:

1. Discovery is a fact driven analysis that considers the particular action, and the subjective or objective knowledge of the material facts;
2. The onus is upon the plaintiff to show that the claim is not statute-barred; and
3. That he/she has behaved as a reasonable person, showing reasonable diligence in discovering the relevant facts;

Should the plaintiff possess the material facts, the assertion that he does appreciate the legal significance of same is not material and hence ignorance or misunderstanding of the law is of no consequence.

Case law in B.C. had established that once benefits had been approved and paid, it was unfair to start the time clock until there had been an express and clear denial, as it would be implicitly unfair to expect an insured to sue from a specified time from the submission of proof of loss where the claim had been acknowledged.

The need for this test remains important as to the discoverability of the claim.

A 1997 decision of the B.C. Supreme Court ⁷considered a fact situation where the benefits had been approved and then ceased. The court concluded that once benefits have been approved, there must be a communication from the insurer that the claim has been denied in a clear and unequivocal manner.

This is the case even where the legislation on its face may suggest that the limitation clock has begun to run even when the claim has been honoured and benefits are being paid.⁸

For this reason, the time clock will commence at the time the insurer presents a clear and unequivocal denial of benefits where benefits have initially been paid. Any inherent ambiguity in such communication will be read against the interests of the insurer, as was noted by the B.C. Court of Appeal:

Any ambiguity in the communication of a refusal of benefits, as to whether it is a clear and unequivocal denial, should be resolved in favour of the insured. To avoid any doubt, the preferred course for an insurer intending to deny coverage should be to include an alert in the letter drawing the insured’s attention to the one year limitation in s. 22(1) and informing the insured that the insurer will rely on the denial as starting the running of time.

In Balzer, the plaintiff had qualified for own occupation benefits for the 18 month period as defined in the policy. Sun Life advised her that she would not be eligible for any occupation benefits by advising that the evidence failed to show total disability and that she could review the decision with more detailed medical information, a position which was again repeated.

Thereafter followed communications of the same genre between the parties. As noted by the Court of Appeal:

Thus, every letter advised her that benefits under the “any occupation” coverage were denied, but would be reviewed if she were to provide the detailed medical report Sun Life wanted.

At no time did the insurer advise her that a new proof of claim was required to make an own occupation claim, or that the limitation period had expired.

It was noted that the policy in question did not require the submission of a proof of claim, a feature which distinguished this case from comparable actions.

The court concluded it is upon the denial of benefits that the limitation clock began and to do so required a clear and unequivocal denial of benefits. ⁹  It is also consistent with the general rules of interpretation applicable to a policy of insurance.

The issue of whether an internal review or appeal of a decision to decline benefits pivots on the question of whether the insurer has presented its position of rejection of the claim in a clear and unequivocal manner. The cases are accordingly very much fact driven.

A 2006 decision of the B.C. Court of Appeal the court concluded that the running of the limitation period is not suspended while the insurer is considering the merits of the appeal.¹⁰

A second case was to the same import and upheld on appeal. ¹¹It confirmed that an internal appeal of the claim does not pause the time clock for the limitation period, where there has been a clear and unequivocal denial of the claim.

In a contrasting context ¹²the insurer took the initiative to obtain its own independent medical examination. The date of the examination was set well after the expiry of the limitation period of January 27, 1990. Mr. Justice Armstrong was not impressed with such conduct by the insurer in its submission of a limitation defence on these facts. The court also saw in the policy terms to assist it in the conclusion that the time clock was in pause mode:

In the circumstances of this case, the demand that she attend an independent medical examination to determine if benefits were payable, leads me to the conclusion that the limitation did not start to run until after the receipt of Dr. Coughlan’s medical report. In spite of Manulife’s use of the word “appeal” or “review” they were continuing on a course to determine if the insured was entitled to benefits.

The court concluded that the limitation clock did not run until the insurer had received the report from the independent expert.

It was noted in this case that Balzer involved a situation in which the insured reasonably believed that she was applying to keep existing benefits and was not aware that a limitation period was commencing. It was hence concluded that the insurer was required to deny “continuing” coverage in a clear and unequivocal manner.

On the facts in Esau, ¹³it was the plaintiff’s own application which commenced the limitation clock. The policy in question allowed the plaintiff to obtain benefits as of May 17 1999. She completed a proof of loss which was received on June 23 1999. A series of letters were exchanged after which the insurer wrote on October 21 1999 to deny the claim and advised the file was closed. It also advised that she could appeal the decision within 31 days by the submission of additional medical information. As benefits were never approved, the time clock started upon the submission of the proof of claim.

Much to the same end is the decision of the Ontario Court of Appeal, ¹⁴in which the issue was  whether the plaintiff had “discovered” her claim based on the communications between the insurer and the plaintiff.

This theme was repeated in Smith v Co-operators.

The question to start the “discoverability” clock was “whether the claim was clearly and unequivocally” denied, a test which the insurer did not meet, given the context of the internal appeals.

The Ontario Court of Appeal in its May 2003 decision ¹⁵examined the limitation period set by section 206(1) of Part V of the Insurance Act, which relates to “disability” insurance. ¹⁶

This section is coordinated with section 203, which requires the insurer, upon receipt of sufficient evidence as defined, to pay the relevant funds within 30 days. Section 206(1) follows, which then requires that the action be commenced within one year after the evidence of s. 203 had been furnished. ¹⁷

The action was commenced beyond the one year period set by s. 206 and just less than one year from the date of the rejection of the claim. Sun Life moved to dismiss unsuccessfully by initial motion and appealed that decision.

The plaintiff argued that the time clock started from the date of the receipt of the notice of rejection, hence being within time. The insurer argued that the statute set the clock from the date on which the evidence was furnished, hence making the claim out of time.

In this case, the court noted that the insurer did not enter into any debate as to whether sufficient evidence of the claim had been submitted, which arguably could extend the time clock as in s. 203. In fact, it rejected the claim within the 30 day period in which it was given by the statute to pay the claim. There was no argument possible that the clock started from the denial of the claim, as the legislation clearly stated the clock ran from the submission of the evidence to support the claim.

The definition of “sufficient evidence” as in s. 203 was that which allowed the insurer to make its decision.

The submission was made that the concept of discoverability should apply to the facts of this case, as the insured was prevented from suing until she had been advised of the rejection of the claim by Sun Life, which was hence her first opportunity to know that Sun Life had accepted her claim as being of “sufficient evidence” to start the s. 206 time clock. The Court rejected this argument, holding that not every limitation period is tied to the existence of facts which are essential to the claim. Certain limitation periods run from the occurrence of a specific event which is not relevant to the existence of a cause of action.

As discussed above, Mr. Justice Perell again considered the limitation period under S. 206 of the Insurance Act. ¹⁸He also concluded that the discoverability principle did not apply and the commencement of the time clock was the submission of the proof of claim.

To the same end was the 2005 Supreme Court of Canada decision. ¹⁹In this case, the plaintiff was injured in a car accident and by the Limitations Act was given 2 years to issue the claim which was done in time on October 28, 1999. However, unknown to the plaintiff, the named defendant had died on December 26, 1998.

By s. 5 of the Survival of Actions Act, the action must be brought against the estate within 6 months after letters probate or administration had been issued and within one year from the date of death. The plaintiff, unaware of the need to do so, missed the time to amend the claim to add the executor of the estate and sought leave following.

The submission to amend was based on the concept of discoverability which was the issue addressed by the Supreme Court. The Court determined that the discoverability rule was of no application in this instance.

The first reason given for this conclusion is that when the limitation period is directly linked to a fixed event, unrelated to the plaintiff’s knowledge or the basis of the cause of action, there is no need to apply this concept. This is the general rule.

In this case, there was also a policy consideration in play, as the passing of time was considered as important to the executor to conclude the administration of the estate.