Sued and Have Insurance: What to Know in Ontario

What does it mean to be sued and have insurance?

Liability insurance is meant to respond when the insured person is held responsible for harm to someone else. If a lawsuit is started over an event the policy may cover, the insurer may become involved, depending on the policy.

Whether it responds in a particular case depends on the policy wording, the type of insurance and the facts. This article covers what the Ontario statutes reviewed say, mainly for car insurance, and where the answer turns on the policy.

Do I have to tell my insurer if I am sued?

For automobile claims, the Insurance Act contains several notice duties:

If the insured is unable to meet the seven-day notice because of incapacity, the Act says to comply as soon as possible afterward (s. 258.1(3); s. 258.3(3)).

For other kinds of liability policies, such as a home, tenant or business policy, the statutes reviewed for this article do not set out a general notice deadline. That is a question for the policy wording. How the clock applies in a specific situation depends on the facts and should be confirmed with a lawyer immediately.

What does the insurer do after it is told?

Under s. 245 of the Insurance Act, a motor vehicle liability policy must contain certain promises where an insured person is involved in an accident, arising from the ownership or use of the insured automobile, that injures someone or damages property. The insurer will:

1. investigate, negotiate with the claimant and settle claims as it considers expedient, once it receives notice of the loss or damage (s. 245(a));
2. defend, in the name of the insured and at the insurer's cost, any civil action brought against the insured because of that loss or damage (s. 245(b));
3. pay costs assessed against the insured in an action it defends, and interest after judgment on the part of the judgment within its limit (s. 245(c)); and
4. reimburse the insured for immediately necessary medical aid for an injured person (s. 245(d)).

In bodily injury claims from car accidents, an insurer that is defending the action must also try to settle the claim as quickly as possible (s. 258.5(1)). And on request of either side, the claimant and the defending insurer must take part in a mediation of the claim following the procedures set by regulation (s. 258.6(1)).

Under the court rules, a statement of defence is due 20 days after service on a defendant served in Ontario (Rule 18.01(a)). How the insurer's involvement fits that clock should be confirmed with a lawyer immediately. See our guide on what to expect after a statement of claim is served.

What rights does the injured person have against the insurer?

A person with a claim against an insured, for which a motor vehicle liability policy provides indemnity, may recover a judgment against the insured and then have the insurance money applied toward that judgment. They may even sue the insurer to make that happen, though they are not a party to the contract (s. 258(1)).

The Act protects that right, with some exceptions for particular types of coverage (s. 258(10), (11), (12)). Subject to those, it is not undone by the insured's own acts or defaults, before or after the event, that break the Act or the policy terms, and the insurer cannot raise those as a defence in that action (s. 258(4)(b)). Likewise, the insured's later cancellation or surrender of the policy does not defeat it (s. 258(4)(a)).

That protects the injured person. The insured must reimburse the insurer on demand for amounts it paid only because of s. 258 that it would not otherwise have owed (s. 258(13)).

For liability policies that are not motor vehicle policies, a different section applies. It allows a person who holds an unpaid judgment, where an execution against the insured was returned unsatisfied, to sue the insurer up to the policy's face value, subject to the same equities the insurer would have had against the insured (s. 132(1), (2)).

Why can late notice matter?

Late notice matters in two different ways.

For the insured. The statute sets the notice periods in the table above, but the statutes reviewed for this article do not say what a missed deadline does to the insured's own coverage. That consequence, and any argument about it, turns on the policy wording and the facts, and on what a court or tribunal would find. A person in this position typically has a lawyer read the policy conditions and the dates.

For the injured person. In the car-accident context, the Act says the insured's default does not prejudice the injured person's right to have insurance money applied to a judgment (s. 258(4)(b)), subject to the exceptions in s. 258(10) to (12).

Relief from forfeiture. The Act also lets a court, where there was imperfect compliance with a statutory condition and the insurance was forfeited or avoided as a result, relieve against the forfeiture if it considers that inequitable (s. 129). Whether that could apply to a given late notice should be confirmed with a lawyer.

What if the insurer denies coverage, or there is a conflict?

Several situations can put the insured and the insurer at odds:

• A denial of liability under the policy. Where an insurer denies liability under a motor vehicle policy, the Act provides that it is added to the action as a third party once the court is asked. Once added, it may contest the insured's liability and the amount of the claim, deliver pleadings, take part in discovery and cross-examine at trial, as if it were a defendant (s. 258(14), (15)).
• More than one policy. If the insured has more than one motor vehicle policy and the insurers disagree on who must defend, either the insured or an insurer can ask the Superior Court of Justice for directions (s. 257(1)).

The statutes reviewed for this article do not set out a general rule on when an insured is entitled to their own separate lawyer if the insurer's and the insured's interests diverge. That depends on the policy and the circumstances, and a lawyer can advise on it.

How does insurance show up in the lawsuit itself?

The court rules make insurance visible to the other side. A party must disclose, and on request produce for inspection, any policy that could require an insurer to pay part or all of a judgment (Rule 30.02(3)). On an examination for discovery, a party can also obtain details of the policy and the amount available under it (Rule 31.06(4)).

In mandatory mediation under Rule 24.1, unless the court orders otherwise, a representative of an insurer that may have to pay must attend, and the insured party is not required to (Rule 24.1.11(1.1)). More on that in our guide to mediation and pre-trial conferences.

When it is worth talking to a lawyer

A person in this position typically benefits from legal advice when:

• a statement of claim or a notice of intention to sue has been served and the dates are running;
• the insurer has not yet been told, or told late;
• the insurer has refused to defend, reserved its rights or denied coverage;
• the amount claimed is higher than the policy limit;
• more than one insurer or policy could apply; or
• there is no insurance at all, which is covered in our guide on being sued after an accident with no insurance.

What to gather

• The statement of claim or notice of intention to sue, with the date and manner of service
• The full insurance policy, including declarations page and endorsements
• Every letter, email and call note exchanged with the insurer
• Proof of when and how the insurer was notified
• Police, collision or incident reports
• Photos, witness names and any statements already given