July 28, 2026
Being sued is never a pleasant experience. Having liability insurance which will defend and indemnify you against the claim reduces the stress, inconvenience, and cost.
Liability insurance policies include a duty to cooperate with your insurer in the investigation, defence, and settlement of the claim.
THE ISSUE
What happens if the insurer claims you failed to cooperate?
THE CASE
Although policy wordings will vary, and the facts are always unique, in Monteith & Sutherland v Novex Insurance, the Superior Court of Justice gives general guidance which applies to most cases. This judgment was upheld by the Ontario Court of Appeal..
In this case, the insured gave notice of the claim to its insurer, which appointed an adjuster to investigate.
In a somewhat unusual move, the insurer never took control of the defence of the claim and did not participate. After keeping the insurer advised throughout of the progress of the lawsuit, the insured settled that claim and sued the insurer for indemnity (recovery of the payment to the claimant) and the costs of the defence.
The insurer’s position was that by failing to respond to a “reservation of rights” letter sent by the insurer early in the process, the insured breached the duty to cooperate. Though there was no response at the time, the insured’s lawyer did later deal with the issue in an email which got no response from the insurer.
The judge summarizes the test for when a breach of the duty to cooperate will lead to a denial of coverage:
…a breach of the duty to co-operate must be substantial. In considering an alleged failure to co-operate, the court is to undertake “a qualitative analysis of the insured’s conduct to determine whether it amounts to substantial non-cooperation…[having regard to] all of the circumstances…with particular emphasis on the interaction between the insured and the insurer.”
The key point is that not any breach of duty to cooperate will remove coverage. Only a substantial breach which damages the insurer’s position matters.
The judge ruled that even if the lack of timely response was a breach, it was not a substantial one. In this case, the insurer could not prove any prejudice. Though they did not take over the defence because of the failure to agree on the reservation of rights, that was their choice. They were infirmed of the events, given the opportunity to participate throughout and did so to a certain extent.
Factors considered by the judge included:
- The insurer’s participation in the defence of the claim
- its failure to request or demand from the insured what it wanted/needed but didn’t have respecting that defence, and
- the lack of any evidence of any resultant prejudice to the insurer.
TAKEAWAYS
- The duty to cooperate is important.
- What that duty requires will depend upon the details of every situation.
- The duty is not absolute, and only a substantial breach removes your coverage.
- If there is a dispute with your insurer over the extent of the duty, what will ultimately matter is whether there is prejudice to the insurer’s rights.
- Continued reasonable efforts to keep the insurer involved and informed will count in your favour.
- Because these situations are never simple, getting legal advice early in the process is a sound investment.
- A lawyer will help you with:
- protecting your position with the insurer, and
- the defence or settlement of the claim. Just because you have a dispute with your insurer, the original claim will not just go away.
WHAT WEILERS LLP CAN DO TO HELP YOU
At Weilers LLP, we have experience dealing with lawsuits of most sorts. We know insurance law. If you become involved in a dispute which might be covered by your insurance, we can give you the help that you need dealing with your insurer, as well as advise and if necessary, defend you to protect you against the claim.
Give us a call at Weilers LLP to see whether we are the right lawyers for you.