The Settlement Process

AuthorDenis Boivin
Pages349-436
349
CHAPTER 9
THE SETTLEMENT
PROCESS
A. INTRODUCTION
Assume that an insured has suffered a loss or damages. Assume further
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 compensation, and in the context of third-party insurance,
this person is entitled to being defended and indemnif‌ied. However, in
each case, there are certain procedures that must be followed before-
hand. Likewise, 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 speaking, 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 these
sections, we will analyze the contractual obligations of each party and
the remedies that arise in the event of a breach. In particular, we will
focus on the differences between f‌irst-party coverage and third-party
coverage. Sections E and F deal with problems that arise from the ex-
change of information between the insured and the insurer — waiver,
estoppel, and the binding nature of settlements.
INSURANCE LAW350
B. OBLIGATIONS OF THE INSURED
At the risk of sounding trite, 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. As noted in Chapter 5, the insured may have a
contractual obligation to disclose material changes that arise after the
signing of the contract.1 More important, the policyholder remains
bound by the duty of utmost good faith and by the indemnity prin-
ciple during the entire life of the contract. As long as nothing happens
to the subject matter insured, these 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 respon-
sibilities of the policyholder increase signif‌icantly. In particular, the
insured must: (1) notify the insurer and establish the insured losses
within a specif‌ic time frame, (2) safeguard the subject matter insured
from further loss or damage, (3) cooperate with the insurer during 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 willing to grant relief from 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 givenotice of the incident and must provide
proof of the loss or damage suffered. These obligations are interrelated
yet distinct, and are either based in contract or legislation, depending
on the type of insurance involved. Both obligations must be fulf‌illed
within the period of time mandated by the contract or applicable statu-
tory provision. The requirements of the insured’s notice and proof of
loss vary from one context to the other, as do the relevant deadlines.
a) Part IV Contracts of Insurance
Contracts of insurance subject to Part IV of the Ontario Insurance Act
or its equivalent incorporate 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 cess351
contains dual obligations. First, upon the occurrence of any loss or
damage covered by the contract, the insured must “forthwith” give
written notice to the insurer.3 The notice may also be delivered or sent
by registered mail to the 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 occurred; (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 property in
question; (5) the interest of the insured and of others in the property;
(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 was 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 sixty days after receiving a notice of loss.5
b) Automobile Insurance
For automobile insurance, there are three statutory provisions set-
ting out requirements with respect 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, cause damage to the insured automobile, and
cause personal injury or property damage to another person. In such a
case, a single notice may serve multiple purposes.
The requirements of statutory condition 5(1) are triggered when
the insured automobile is involved in an accident that causes 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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