The Settlement Process

• Author: Denis Boivin
• Pages: 349-436

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).