By Richard Hayles

The new Limitations Act introduces important changes to the law of limitations in Ontario as of January 1st, 2004. Because of the “grandfathering” provisions of the new statute, however, its effect on life and disability insurance claims may not be as comprehensive as the drafters intended.

Unless The law of limitations can be confusing. At the present time, many different statutes establish different limitation periods which vary in respect of the length of the prescription period and the circumstances that cause time to begin to run. The archaic language of the former Limitations Act is difficult for lawyers, let alone lay persons, to understand. The need for change is obvious, as has been recognized by the Ontario Law Reform Commission since the 1960's.

Under the former legislation, limitation periods for life and disability claims are found not in the Limitations Act, but in the Insurance Act: specifically, statutory condition 12 from section 300 of the Act, and section 206 of the Act. The former applies to all individual policies of accident and sickness insurance, and the latter to life insurance policies, as well as any disability coverage that is included in a life insurance policy.

Both provide a one year limitation period. Under condition 12, time runs from the date the benefit became payable, while under section 206 it runs from the date the claimant first submitted proof of his claim. Section 206 also contains an ultimate limitation period of six years from the “happening of the event,” being the death of the life insured, or the onset of disability, as the case may be.

In the case of disability policies, the courts usually construe prescriptions as “rolling limitation periods,” which only bar benefits that became due more than twelve months prior to the initiation of the action: Smith v. Empire Life, [1996] I.L.R. 1-3312 (Ont. Gen. Div.); leave refused [1996] O.J. No. 3113 (C.A.).

The new Limitations Act replaces most Ontario limitation periods with a basic two year limitation period commencing from the discovery of the claim. Since time does not begin to run until the plaintiff knows or ought to have known that he had a claim for legal redress, the new law codifies the “discoverability” approach that the courts have been moving towards in the last two decades. The discoverability principle is capped, however, by an ultimate limitation period, which expires fifteen years after the date of the act or omission that forms the basis of the action. This limitation period barrs the action whether the claim was discovered in the fifteen year period or not. The new Act is subject to a number of exceptions which, while important, are not relevant here.

Both statutory condition 12 from section 300 of the Insurance Act, and section 206 of the Insurance Act, are repealed by the new Limitations Act. They are replaced by the new two year and fifteen year limitation periods, and section 22 (1) of the new legislation states that those limitation periods apply despite any agreement to vary or exclude them. Under section 22 (2), however, agreements made before the Act comes into force are unaffected. This “grandfathering” provision preserves contractual limitation periods contained in any kind of contract (not just insurance policies) entered into before January 1, 2004.

For policies of insurance issued on or after January 1, 2004, then, the limitation periods in the new legislation will govern. The new Act will also apply to pre-2004 policies which do not contain a contractual agreement respecting limitations of actions.

Many, if not most policies of life and disability insurance do contain contractual limitation periods, however. In the case of individual accident and sickness policies, section 300 of the Insurance Act directs the insurer to attach the statutory conditions to the policy under an appropriate heading. Condition 12 is therefore physically incorporated into the policy. In life insurance, it is also common practice to write a contractual limitation period into the policy, although this is not a requirement of statute.

Case law under statutory condition 14 from section 148 in the fire insurance part of the Insurance Act establishes that the condition can be incorporated into a policy by reference, even if the contract isn’t a fire insurance policy and therefore isn’t subject to section 148. Cases have held, for instance, that where the fire insurance conditions are attached to a crop insurance policy, or to a multi-peril policy, they form part of the contract despite the fact that these policies are not governed by part 6: Demeyere Tobacco Farms Ltd. v. Continental Insurance (1984), 46 O.R. (2d) 423 (H.C.J.), aff’d (1986), 53 O.R.(2d) 800 (C.A.); Sayers & Associates Ltd. v. Insurance Corp. of Ireland, [1980] O.J. No. 107, aff’d [1981] O.J. No. 107 (C.A.) Applying the same reasoning to life and accident insurance products, it would seem that accident and sickness policies which list the conditions from section 300 will continue to be subject to condition 12 as a matter of contract, even after condition 12 is repealed. Contractual limitation periods that are not derived from the Insurance Act will also continue to be effective.

Usually, people buy life and disability policies when they are in their twenties and thirties, and keep them in force for the full term of the insurance (in most cases, to age 65). This means that many of the policies now in force will continue to be subject to the current Insurance Act limitation periods for decades. As lawyers get used to the new Limitations Act they may be begin to assume that the straightforward scheme of 2 and 15 year limitation periods applies across the board. Twenty years from now, there may not be very many practitioners who remember the former limitation periods, and this could become a professional liability trap for litigators.

It seems possible that the drafters of the new Limitations Act were not thinking of long term contracts, such as life and disability insurance policies, when they created the grandfathering provision in section 22. It may be advisable to amend the legislation at some future date, so as to provide a transition deadline after which all existing contractual limitation periods are replaced by the scheme of the new Limitations Act.

Richard Hayles practices insurance law, and is the author of “Disability Insurance: Canadian Law and Business Practice,” the first Canadian textbook on disability insurance law.

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