Limitation Limbo: When Does the Clock Really Start Ticking?

Recent case law offers important guidance on the dichotomy of contractual limitation clauses in insurance policies, balancing the rights of insured parties with insurers’ ability to impose shorter timelines. Courts have emphasized that such clauses must be clearly worded and contextually appropriate. This article examines key court decisions, and the variables which impact when, if, and how a contractual limitation will be applicable. 

The Enforceability of Limitation Periods to Insurance Policies

The general limitation period in civil disputes, under Section 5 of the Limitations Act (the “LA”), is two years from discovery.[1] However, Section 22(5) allows parties to contract out of this in “business agreements”.[2]

An insurance policy qualifies as a “business agreement” under Section 22(6) but must use “clear language” to exclude other limitation periods.[3] Thus, insurance contracts can override the standard two-year limitation and impose their own, such as that in Statutory Condition 14 of Section 148 of the Ontario Insurance Act (the “Act”).[4]

The Act also includes statutory carve-outs. For instance, Section 259.1 sets a one-year limitation for auto claim denials, starting from the date of loss.[5]

However, the enforceability of one-year clauses remains unsettled, depending on factors like the nature of the dispute, policy wording, and party conduct.

Triggering Event of the Limitation Period

a. Date of Proof of Loss

The most important condition for enforcing a contractual limitation period is that it must be clear and unambiguous.[6] This principle was central in Nasr Hospitality Services Inc. v. Intact Insurance Company, 2018 ONCA 725 (“Nasr”), where the Ontario Court of Appeal granted summary judgment dismissing the insured’s claim as time-barred under a one-year contractual limitation.[7]

Nasr highlights the ongoing debate over when such a limitation is triggered. Justice Brown, writing for the majority, held that the limitation began on February 1, 2013—the day after Nasr submitted the proof of loss, marking the claim’s initiation. In contrast, Justice Feldman in dissent, proposes that the limitation should be triggered when the insurer breaches its contractual obligations—typically, the date the claim is formally denied.

This divergence underscores the polarization surrounding discoverability in insurance disputes, particularly where policy language and insurer conduct blur the line between claim submission and denial.

b. Date of Sufficient Denial

In Kassburg v. Sun Life Assurance Company of Canada (“Kassburg”), the Ontario Court of Appeal determined that a limitation period generally begins when the insurer clearly and unequivocally denies the claim, rather than the date of loss. This protects insured parties, as they may not realize they have a dispute until the insurer formally refuses to pay.[8] The reasoning in Kassburg focused on the ambiguity in the denial and policy itself, and interpreted those ambiguities against the drafter, in accordance with the doctrine of contra proferentum.

The main takeaway from reconciling Kassburg, is that if insurer acts in bad faith, unnecessarily prolongs their investigation, provides ambiguous denials, or is otherwise misleading, the limitation period may be extended. However, insured parties should not assume that unclear denials will automatically extend the limitation period.

c. Date of Loss/Damage

As previously noted, certain legislative carve-outs—such as Sections 148 and 259.1 of the Insurance Act—explicitly trigger the limitation period from the date of loss. However, Statutory Condition 14, found in Part IV: Fire Insurance, raises questions about its applicability beyond fire-related claims.

This issue was addressed in K.P. Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada, where the Supreme Court of Canada interpreted a similar provision in the BC Insurance Act. The Court held that the one-year limitation in BC applied only to fire losses, as other types of claims were governed by the “General Provisions” portion of the legislation, which explicitly imposed a triggering date from the proof of loss.[9]

Ontario’s Insurance Act, however, lacks such limiting provisions. As a result, courts have interpreted Statutory Condition 14 more broadly, applying it to non-fire claims as well. This was affirmed in Aviva Insurance et al v. Sahara Restaurant, where a burst pipe caused water damage on January 1, 2018. Although the insurer provided partial coverage, it denied further claims and refused appraisal requests made in September 2019, citing the expired one-year limitation.[10]

The Ontario Superior Court upheld the insurer’s position, finding that the policy was a business agreement under Section 22(6) of the Limitations Act. The one-year period began on the date of loss, and the insured’s claim—filed after that period—was statute-barred. Crucially, the court noted that the insurer had clearly communicated the limitation deadline and thus had not acted in bad faith. Therefore, promissory estoppel was not applicable.[11]

d) Effective Policy Wording

When considering effective policy wording for favourable limitation applications, insurers should consider the case of Daverne v. John Switzer Fuels Ltd. et al., 2015 ONCA 919 (“Daverne”).[12] In Daverne, the Court of Appeal overturned the motion judge and accepted the following provision in the policy:

“8. Applicability of Statutory Conditions and Additional Conditions: The Statutory Conditions and Additional Conditions apply with respect to all the perils insured by this policy and to the liability coverage, where provided, except where these conditions may be modified or supplemented by riders or endorsements attached.”

The Court determined that the contractual clause incorporating the Statutory Conditions was clear and enforceable. As a result, Statutory Condition 14 of the Act applied to all types of perils, including the fuel leak in question.

Promissory Estoppel

As discussed, limitation periods may be extended in certain circumstances—most notably through the doctrine of promissory estoppel. This doctrine prevents a party, typically an insurer, from enforcing a strict legal right (such as a contractual limitation period) if their conduct led the insured to reasonably believe that the right would not be enforced.[13]

Courts apply promissory estoppel cautiously. The insured must show that:

• a promise or assurance was made (explicitly or implicitly) that the limitation period would not be enforced;
• they relied on that promise to their detriment; and
• enforcing the limitation would be unfair.

This was emphasized in Maracle v. Travellers Indemnity Co. of Canada (“Travellers”), where the Supreme Court of Canada held that estoppel requires a clear and unequivocal promise not to enforce the limitation. Mere settlement discussions or silence are insufficient.[14]

In Trial Lawyers Assoc. of BC v. Royal & Sun Alliance (“Trial Lawyers”), the doctrine failed because the insurer had no knowledge—actual or constructive—of the policy breach, which later led to a denial, and thus no promise could be inferred.[15]

A more recent application is seen in Raubvogel v. Can-Sure Underwriting, where a burst pipe led to a coverage dispute. The insurer initially referenced a two-year limitation period in its denial letter, but later sought dismissal based on a one-year contractual limit. The Ontario Superior Court rejected this, holding that the insurer was estopped from relying on the contractual limitation period due to its earlier communication, which reasonably induced reliance by the insured.[16]

Justice Josefo also clarified that promissory estoppel should not be confused with waiver. While this article does not explore the topic of waiver in depth; insurers should be mindful that their conduct during litigation may give rise to such claims. Where parties intend to extend limitation periods, the negotiation of a tolling agreement remains the safest and most effective method.

Ultimately, courts will ask whether the insured reasonably believed the claim was still under consideration—such as when the insurer continues to request information—before enforcing a limitation period.

Key Takeaways[17]

In conclusion, the enforceability of contractual limitation periods in property insurance policies remains a nuanced and evolving area of Ontario law. While courts generally uphold these clauses, their validity hinges on clear and unambiguous policy language—especially when insurers seek to contract out of the standard two-year limitation under the Limitations Act, 2002. The classification of insurance contracts as “business agreements” under Section 22(6) permits such deviations, but only where the terms are explicit.

A key complexity lies in identifying the triggering event for the limitation period. Courts have considered the date of loss, proof of loss, and denial of claim as potential triggers, depending on statutory context, policy wording, and factual circumstances. In the absence of clarity, courts often favor the date of denial, particularly where ambiguity or insurer conduct clouds the insured’s understanding.

Judicial interpretation also reflects a consumer protection lens, with courts applying contra proferentem to resolve ambiguities against insurers. Still, this is not absolute. Courts will enforce limitation periods strictly where language is clear, and the insurer has acted in good faith. Equitable doctrines like promissory estoppel offer relief only in narrow cases involving clear, detrimental reliance on a promise not to enforce the limitation.

Ultimately, the jurisprudence underscores the importance of precise drafting and transparent claims handling. Insurers must clearly define limitation clauses and triggering events and communicate proactively with insureds. Doing so not only strengthens enforceability but also reduces the risk of judicial intervention based on fairness or bad faith.

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