Laches Returns to Loss Transfer

Eight months ago, a Superior Court judge held that the equitable doctrine of laches does not apply to loss transfer claims. Three days ago, another Superior Court judge held that it does apply. And he applied it to bar a loss transfer claim.

The doctrine of laches issue arises when a party asserts that the opposing party has “slept on its rights”. The doctrine is an equitable defence that can bar an opponent’s claim.

In Intact v. Lombard (ONSC, September 30, 2013), Intact became responsible for paying accident benefits to its insured as a result of a motor vehicle accident that occurred on February 13, 2007. The accident involved a heavy commercial vehicle that Lombard insured, triggering Intact’s statutory right to claim loss transfer against Lombard pursuant to section 275 of the Insurance Act. However, Intact did not send Lombard a loss transfer notice or request for indemnification until September 7, 2011 (some 4.5 years after the date of loss). Lombard raised a laches defence against Intact.

The arbitrator applied the doctrine against Intact and dismissed the loss transfer claim. On appeal, the judge held that the doctrine of laches does not apply in loss transfer matters. She held that the insurer’s loss transfer right was purely statutory (under section 275 of the Insurance Act). She noted that unlike other types of claims where laches might apply, loss transfer claims did not have a “distinctively equitable flavour”. She found that loss transfer claims were “devoid of equitable relief” and that it would inappropriate to grant the equitable laches defence to this type of statutory claim.

The Court of Appeal is scheduled to hear Lombard’s appeal at the end of June.

In Zurich v. TD (ONSC, May 27, 2014), TD sent Zurich a Notice of Loss Transfer alleging that Zurich’s insured was 100 per cent at fault. However, the notice was sent approximately 11 years after the accident. Shortly thereafter, TD made two loss transfer requests for indemnification from Zurich, which asserted the doctrine of laches and denied the claims.

On the issue of laches, the arbitrator acknowledged that he was bound by the judge’s decision in Intact, but stated that he disagreed with her finding that laches cannot be applied to a statutory claim for loss transfer. The arbitrator held that in any event, Zurich had failed to establish “the necessary components of laches…one of them being presumed prejudice or actual prejudice.”

On appeal, the judge found in the unique circumstances of the case that the doctrine of laches applies to a situation where a first party insurer delays for approximately 11 years in requesting loss transfer from a second party insurer. The judge noted that, traditionally, the doctrine of laches has only been applied to equitable, and not legal, claims. Following the fusion of law and equity, however, courts have been more flexible in applying the doctrine to legal claims under certain circumstances:

Ontario’s loss transfer regime possesses an equitable flavour because it is designed to address unfairness between participants in the province’s insurance industry, and that is a sufficient basis to permit the application of the doctrine of laches. Alternatively, I find that the fusion of law and equity, which has evolved in order to achieve fairness and justice, requires a finding that laches can apply in this case. Accordingly, I find that the doctrine of laches applies, under certain circumstances, to delayed loss transfer claims made by first party insurers.

On the facts of the case, the judge disagreed with the arbitrator and found that Zurich had proved the necessary components of laches.

So now we have two diametrically opposing Superior Court decisions on whether the doctrine of laches applies to loss transfer claims. We are eagerly waiting for the Court of Appeal to give us some much needed guidance on this issue.

See Zurich v. TD, 2014 ONSC 3191