Settling Claims

• Author: Denis Boivin
• Pages: 217-247

A. INTRODUCTION

Assume that an insured has suffered a loss. Assume further that this

loss is covered by an insurance policy that was valid at the time of the

incident. Settlement becomes the next phase in the enforcement of the

contract. The insured is presumably entitled to some form of recovery,

but there are certain procedures that must be followed beforehand.

Likewise, the insurance provider must respect certain obligations

before a claim is accepted or rejected. This chapter will outline the set-

tlement process and highlight the main legal issues that arise along the

way to indemnification.

Practically speaking, what must be done in order for the insured to

receive the consideration for which he or she has paid premiums? Sec-

tion B is written from the perspective of insureds — their obligations

with respect to settlement. Section C is written from the perspective of

insurers. The last two sections (D and E) deal with problems that arise

from the exchange of information between the insured and the insur-

er. The settlement process may likely represent the first occasion for

communication between the parties since the signing of the contract.

As long as the premiums have been paid, the parties have likely con-

ducted their affairs without regard to the presence of an insurance con-

tract. Things change dramatically during the settlement process. In this

phase, everything said or written by either party may have an impact

on their respective rights and duties.

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SETTLING CLAIMS

chapter 9

B. DUTIES OF THE INSURED

1) Introduction

At risk of sounding trite, an insurance policy is not a lottery ticket. It

is an agreement imposing contractual obligations on both the insurer

and the insured. The duties of the insured do not end when the con-

tract is signed, when the premium is paid, and when all material cir-

cumstances have been disclosed. As noted in Chapter 5, the insured

may have a contractual obligation to disclose material changes that

arise after the signing of the contract. (This is true with respect to auto-

mobile insurance and fire insurance.) More importantly, the insured

remains bound by the duty of good faith and by the principle of indem-

nification during the entire life of the contract. As long as nothing hap-

pens to the insured, these duties are relatively unobtrusive; the

insured’s main obligation will be to continue paying premiums on time.

However, if and when a risk materializes, the insured’s responsibilities

become amplified.

2) Notice and Proof of Loss

a) Delays

The common law imposes two distinct obligations on an insured fol-

lowing a loss that is allegedly covered by an insurance policy. These

duties stem from the principles of indemnification and of utmost good

faith. First, the insured must give notice of the incident within a rea-

sonable period of time. Second, the insured must give evidence of the

losses suffered within a reasonable period of time. On both points, the

burden of proof is on the insured. The insured must establish that the

insured risk materialized during the life of the insurance contract. In

addition, the insured must establish that this risk gave rise to losses

covered by the policy. However, as noted in the previous chapter, the

insured does not need to prove the negative. If the insurer claims that

the insured has breached a condition of the contract or that the loss is

excluded by the policy, the burden is on the insurer to establish the

applicability of the relevant contractual provision.1

The duties to give notice and proof of loss are codified in three

areas of insurance — namely, fire insurance, automobile insurance, and

accident and sickness insurance. With respect to fire insurance, the

218 Insurance Law

1Continental Insurance Co. v. Dalton Cartage Ltd., [1982] 1 S.C.R. 164 [Continental

Insurance]. See also Chapter 8.