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It is inevitable that at some point a business will experience a harmful event that causes it to suffer a financial loss. Examples include a third party breaking a contract or a warehouse fire due to faulty electrical wiring. Therefore, businesses need to be aware of the time limits that restrict their right to start a lawsuit. The legal term for this is limitation period (think of it as an hourglass full of sand).

Definition of limitation periods

Ontario has a default two-year limitation period:

“Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.”1

Note that limitation periods differ based on various factors, including the type of harm suffered and the industry in which it occurs. They can be as short as days or weeks.2

A claim can be “discovered” one of two ways. First, the day that the business became aware of the event. There is a presumption that the business knew of the event on the day it actually occurred. This can be rebutted depending on the facts. Second, when a reasonable business ought to have known.3 The second option arises where there was a delay in discovering the claim. Where there is a delay the issue becomes whether that delay was reasonable.

When does it start to run?

The analysis focuses on when the harm occurred and when the business became aware of it. The type of harmful event will dictate when it is discoverable. For instance, where a business experiences a fire at its warehouse it will immediately become aware of the harm suffered (i.e. the destruction of the warehouse and any inventory stored there). Where a party agrees to a contract, discovery of any alleged breach of the contract would likely be when the third party fails to perform its obligations under the contract.

Where a business has been harmed by another party the default limitation period to commence an action against that other party is two years.4

What about insurance policies?

With respect to loss caused by fire,5 the business could look to its insurance policy for compensation. The Limitations Act allows for insurance policies relating to businesses to include shortened limitation periods.6 Generally, an insurance policy applicable to a business has a one year limitation period. However, the limitation period could be less than one year depending on the wording of the insurance policy.7

Businesses should be conscious of this deadline if a dispute arises with its insurer relating to what is covered or the amount of compensation. Where such a dispute arises, the business should review its insurance policy first to identify any contractually agreed upon limitation period. Following this, I recommend speaking with a lawyer about your legal options and whether advancing an action against your insurer is viable. Failing to deal with the matter head on could mean you run out of time to pursue any action against your insurance.

A cautionary tale!

A recent decision by the Ontario Court of Appeal (Boyce v Co-operators General Insurance Co) highlights the dangers of not taking limitation periods seriously.8 In that case, a fashion boutique lost its inventory after experiencing a harmful event. The fashion boutique notified its insurer of the loss. The insurer took the position that the cause of the harmful event was not covered under the insurance policy. The insurance policy had a one year limitation period. The fashion boutique waited 16 months to start a legal action against its insurer. The Court of Appeal held that the one year limitation period found in the insurance contract was valid and applicable. As a result of not filing a claim within the contractually agreed upon 1 year limitation period, the fashion boutique had to absorb the loss of its inventory and was not compensated by the insurer.

That avoidable outcome is a reminder to businesses of the importance of complying with limitation periods. Courts enforce limitation periods. Limitation periods vary and are complex. It is recommended that a business consult a lawyer immediately after discovery of a harmful event or loss, not only to discuss the merits of their claim, but to understand the applicable limitation periods that may govern any such claim.

If you have questions or would like further information on this topic, please contact Cole Vegso at [email protected] or call 519-660-7755.

1 Limitations Act, 2002, SO 2002, c 24, Sch B s 4.

2 For a more thorough review please see the following: http://www.practicepro.ca/practice/pdf/MiniLimitationsChart.pdf.

3 Limitations Act, 2002, SO 2002, c 24, Sch B ss 5 (1) and (2).

4 Remember, this is the default time period. The applicable time period will vary depending on the nature of the claim.

5 Insurance Act, RSO 1990, c I.8 s 148, statutory condition #14.

6 Section 22 (5) of the Limitations Act permits business agreements to vary or exclude the limitation period if made on or after October 19, 2006.

7 Boyce v Co-operators General Insurance Co, 2013 ONCA 298, leave to appeal to the Supreme Court of Canada refused, at para 20: A court faced with a contractual term that purports to shorten a statutory limitation period must consider whether that provision in “clear language” describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods. A term in a contract which meets those requirements will be sufficient for s. 22 purposes, assuming, of course, it meets any of the other requirements specifically identified in s. 22.

8 Boyce v Co-operators General Insurance Co.

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