The Settlement Process

AuthorDenis Boivin
Assume that an insured has suffered a loss or da mages. Assume furt her
that the losses are covered by an insurance policy that was valid at the
time of the incident. Settlement becomes the next phase in the enforce-
ment of the contract. At f‌irst glance, the ins ured is entitled to some form
of f‌inancial compensat ion, and in the context of third-party i nsurance,
this person is ent itled to being defended and indemnif‌ied. However, in
each case, there are cer tain procedures that must be followed before-
hand. Likewi se, the insurance provider must meet certain obligations
before a claim is accepted or rejected. This chapter will outline the
settlement process and highlight the main legal issues that arise along
the way, from claim to indemnif‌ication.
Practically spe aking, what must be done in order for the insured
to receive the f‌inancial consideration for which premiums were paid?
Section B is written from the perspective of policyholders, whereas Sec-
tions C and D are written from the perspective of insurers. In t hese
sections, we will an alyze the contractual obligations of each pa rty and
the remedies that ar ise in the event of a breach. In particular, we will
focus on the differences between f‌i rst-party coverage and third-part y
coverage. Sections E and F deal with problems that arise from the ex-
change of information between the insured and the insurer — wa iver,
estoppel, and the binding nature of settlements.
At the risk of sounding tr ite, an insurance policy is not a lottery ticket.
It is an agreement imposing contractual obligations on both the in-
surer and the insured. The duties of the insured do not end when the
contract is signed, the premium is paid, and all material ci rcumst ances
have been disclosed. A s noted in Chapter 5, the insured may have a
contractual obligation to disclose m aterial changes th at arise after the
signing of the contract.1 More important, the policyholder remains
bound by the duty of utmost good faith and by the indemn ity prin-
ciple during the entire life of the contract. As long as nothing happens
to the subject matter insured, the se duties are relatively unobtrusive;
the insured’s main obligation will be to continue paying premiums on
time. However, if and when an insured risk materializes, the re spon-
sibilities of the policyholder increase signif‌icantly. In particular, the
insured must: (1) notify the insurer and establish t he insured losses
within a speci f‌ic time frame, (2) safegu ard the subject matter insured
from further loss or dam age, (3) cooperate with the insurer dur ing its
investigation of the loss, and (4) be honest throughout the settlement
process. Failure to comply may lead to forfeiture — that is, the policy-
holder may lose her right to claim an indemnity under the contract,
unless the court is w illing to grant relief f rom forfeiture.
1) Notice and Proof
Generally speak ing, once an insured risk materiali zes, the policyholder
must do two basic things in order to s afeguard the rights created by the
contract: the insured must g ive notice of the incident and must provide
proof of the loss or damage suffered. These obligations are interrelated
yet distinct, and are either ba sed in contract or legislation, depending
on the type of insurance involved. Both obligations must be fulf‌illed
within the per iod of time mandated by the contract or applicable statu-
tory provision. The requirements of the in sured’s notice and proof of
loss vary from one context to the other, as do the relevant deadl ines.
a) Part IV Contracts of Insurance
Contracts of insurance subject to Part IV of the Ontario Insurance Act
or its equ ivalent incor porate statutory condition 6.2 This provision
1 See Chapter 5, Sect ion B(5).
2 Insurance Act, RSO 1990, c I.8, s 148, statutor y condition 6. For a discussion of
the scope of applicat ion of Part IV — see Chapter 3, Section D. In Alb erta and
The Settlement Pro cess 351
contains dual obligations. First, upon the occurrence of any loss or
damage covered by the contract, the in sured must “forthwith” give
written notice to the ins urer.3 The notice may also be delivered or sent
by registered mail to t he chief agency of the insurer.4 Second, the in-
sured must deliver “as soon as practicable” a proof of loss verif‌ied by
a statutory declaration. This proof of loss must include the following
items: (1) an inventory of the lost or damaged property and details of
the amount claimed for each item; (2) an explanation of when and how
the loss or damages occur red; (3) a statement that the losses did not
occur through any wilful act, neglect, or connivance on the part of the
insured; (4) details about any other insurance covering the propert y in
question; (5) the interest of the insured and of others in the propert y;
(6) any changes in title, use, occupation, location, possession, or ex-
posures of the property since the issue of the policy; and (7) the place
where the insured property wa s at the time of the loss or damages. In-
surers are required to furnish forms upon which to make the proof of
loss no later than six ty days after receiving a notice of loss.5
b) Automobile Insura nce
For automobile insurance, there are three statutory provisions set-
ting out requirements with re spect to notice and proof of loss. One
provision relates to the insured’s liability coverage, one relates to the
insured’s property damage coverage, and one relates to the insured’s ac-
cident benef‌its coverage. Depending on the nature of t he incident, these
requirements may overlap. For example, the same automobile accident
may injure the insured, c ause damage to the insured automobile, and
cause personal injur y or property damage to another person. In such a
case, a single notice may ser ve multiple purposes.
The requirements of statutory condition 5(1) are triggered when
the insured automobile is involved in an accident that cause s personal
British Columbi a, the equivalent provision i s found in the new revised genera l
part of the Insurance A ct, applicable to all insurance contracts except a select few:
see Albert a Insurance Act, RSA 2000, c I-3, s 540, statutor y condition 6; British
Columbia Ins urance Act, RSBC 2012, c 1, s 29, statutory cond ition 6.
3 In Alberta a nd British Columbia, the stat utory condition uses a moder n adverb
to convey the same mea ning, namely “immedi ately”: Alberta Insurance Act,
above note 2, s 540, statutor y condition 6(1)(a); British Columbia Ins urance Act,
above note 2, s 29, statutory condit ion 6(1)(a).
4 Ontario In surance Act, above note 2, s 148, statutory condition 15. See a lso Alberta
Insurance Act, above note 2, s 54 0, statutory condition 14; British Columbia
Insurance Act, above note 2, s 29, statutor y condition 14.
5 Ontario In surance Act, above note 2, s 135(1). See also Alber ta Insurance Act,
above note 2, s 523(1); British Columbia Insurance Act, above not e 2, s 27(1).

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