One of the most important things to keep in mind when considering pursuing civil litigation against a person or a company is that you don’t have an indefinite period to seek damages. Different types of actions have different limitation periods, which is one of the reasons why it is essential to consult with a lawyer when determining whether you can or should sue somebody.

The importance of timely legal action was highlighted in a recent decision by the Alberta Court of Appeal. In Lafferty v. Co-operators General Insurance Co., the appellant homeowners were prevented from suing their insurer due to their failure to exercise due diligence to preserve their claim.

Homeowners unwittingly rented house to drug grow-op

The appellants, a mother and her son, rented their house out to tenants in 2010. They had insurance coverage at the time, and they advised their broker of the change in use of their house. The broker did not instruct them to change their coverage. 

The appellants had no idea their tenants were using the house to grow marijuana. The grow-op was eventually discovered, and on December 1, 2010, Alberta Health Services issued an order deeming that the damage done to the house by the tenants caused it to be unsuitable for habitation. Six days later, the appellants told their insurer about the damage. 

The insurance claim was investigated, and the appellants met with their adjuster on January 6, 2011. The appellants told the court they were advised there was no coverage available to them due to an exclusionary clause in the policy related to drug operations. The appellants were further told that even if there hadn’t been illegal drug activity in the home, their claim would have still been rejected because they did not have the insurance required for a rental home.

The appellants told the court they could not afford to repair the house on their own and walked away from it, letting it fall into disrepair. 

Homeowner learned of potential cause of action four years later

In 2015, the appellant’s son was attending law school and learned in an insurance class that he and his mother could have pursued legal action under the Insurance Act. He became aware of a provision that allows innocent insured parties to avoid exclusionary clauses regarding criminal activity if another party perpetrated the activity. While this part of the Act had not been in place when the house was deemed uninhabitable, it was known to insurance companies that it would be put into force shortly after the appellants’ claim was filed.

The statute of limitations for these types of disputes is two years after an insured party learns of their potential cause of action. The appellant’s son’s position was that it was only in law school that he learned of “what I view to be a lack of…proper investigation” by their insurer. His affidavit stated he discovered there were specific steps the insurer should take when it learns of a material change of risk and seeks to deny a claim on that basis. 

The appellants commenced an action against the insurer on February 7, 2017, and served their claim on January 2, 2018. Their claim stated the insurer did not follow the required steps after the appellants advised that the house was being converted to a rental unit. The appellants alleged this allowed the insurer to keep the appellants’ premiums while avoiding the additional risk. 

Summary judgment granted against homeowners based on expired limitation period

The insurer applied for summary judgment on March 18, 2019, on the basis that the limitation period had expired. The Master agreed, stating the exclusionary clause was not ambiguous and applied to the appellants’ situation. Furthermore, the Master found the appellants were four years late in pursuing litigation.

At the initial appeal, the chambers judge upheld the Master’s decision, again relying on the limitation period. The judge stated that even if there was a breach of duty of good faith on the part of the insurance broker, the appellants were four years late in filing their claim. 

Appellants aware of all material facts at time of denial of coverage: Court of Appeal

At the Court of Appeal, the appellants argued they had not known they could sue their insurer until the son attended law school and took a course on insurance law. 

The court noted that under applicable case law, the limitation period starts “when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence.”

The court found the limitation period did not start when the appellant’s son attended law school. The appellants had already learned of the material facts of their claim when they received the insurer’s letter denying coverage. The court found the appellants should have exercised due diligence at that time but failed to do so. As a result, the appeal was dismissed.

Contact HMC Law in Calgary for Advice on Insurance Litigation Matters

The insurance team at HMC Law understands the complex legal issues involved in insurance coverage disputes and provides clients with reliable advice on their options. Our lawyers have extensive experience handling insurance matters at courts and tribunals throughout Alberta in Western Canada. Contact us online or by calling us at 1-800-480-3534 to find out how we can help you.