Court result suggests confusion about MGAs and insurers

Managing general agent (MGA) Can-Sure Underwriting failed to quash a motion to correct a misnomer in a flood damage claim, arguing the claimant incorrectly identified the MGA as an insurer.

Ontario’s Superior Court also rejected Can-Sure’s argument that the claimant, representing a rental property in Innisfil, Ont., missed a one-year contractual limitation period to amend its claim to name the five subscribing commercial property insurers instead of the MGA.

“The object of [defending a motion to correct a misnomer in a statement of claim] should not be one of looking for traps, tricks or loopholes,” Ontario Superior Court Associate Justice Jay Josefo wrote, citing previous caselaw, in a decision released Wednesday. “We should not be engaged in the legal equivalent of ‘whack a mole’ or ‘gotcha.’

“In my view, what defendants are seeking to do in this matter strikes me very much as ‘gotcha.’”

The case exposed the sometimes-confusing similarities between the role of MGAs and insurers. Ultimately, the court decision turned on the two different ways the MGA represented itself to the claimants.

The court also found the limitation period did not apply because of a legal doctrine known as “estoppel.” Simply put, the five subscribing insurers acted as if they were the defendants, even though the statement of claim did not name them as such, and so the delay in adding them to the claim as defendants would not prejudice them.

In Raubvogel v. Can-Sure Underwriting, a pipe in a rental property in Innisfil, Ont., burst in March 2019, leading the claimant, Raubvogel, to sue its property insurer in a coverage dispute over losses allegedly sustained during the resultant flood. The merits of the coverage claim have not been heard in court.

The claimant didn’t sue the five insurers on the subscription policy. Instead, it sued Can-Sure, the MGA that issued the policy on behalf of the five subscribing insurers, each of which held a 20% share of liability under the policy’s damage coverage.

Raubvogel petitioned the court to allow it to amend its claim to name the subscribing insurers—Lloyd’s Underwriters (including three different Lloyd’s syndicates), Allianz Global Corporate & Specialty, and Everest Insurance Company of Canada—as the proper defendants.

Related: Regulators’ principles of conduct: Are ‘MGAs’ the same as retail brokers?

Can-Sure objected to the motion for two main reasons. First of all, it said it was not a defendant insurer, it was an MGA representing the insurers.

But the court observed some of the correspondence Can-Sure sent to the claimant was confusing about the MGA’s true role. For example, Can-Sure’s adjuster, Ryan Lumbard, issued a letter to the claimants dated Sept 23, 2019, which said: “As you are aware, we are the independent Insurance adjusters acting on behalf of your insurers, Can-Sure Underwriting.”

The court interpreted this to mean the first response from the MGA, sent to both the claimant and his counsel, “is that the defendant is the insurer.”

And yet, Can-Sure’s statement of defence, served in July 2020 — after the Lumbard letter— seemingly contradicts that position:

“Can-Sure states that it is not an insurer. Can-Sure carries on business as a managing general agent authorized to underwrite policies of insurance on behalf of various insurance markets, including the subscribing insurers referred to below.”

Ultimately, Can-Sure’s statement of defence pleaded in detail on the merits of the case, which struck the court as odd, if it was not the insurer.

“It would hardly be the first time that a party named as a defendant in an action pleaded, in essence, ‘it’s not me,’” Josefo wrote for the court. “Many a defendant would seek to avoid liability, by pointing the finger elsewhere.

“Moreover, that pleaded denial contradicts the prior position of the defendant (in the Lumbard letter) acknowledging that it was the insurer. Defendant [Can-Sure] also defended the action in detail, pleading on the merits in the statement of defence. Given its position that it was not the proper defendant, defending the action on the merits of it strikes me as, if not unusual, then at least contradictory to its position that it was the wrong party.”

Can-Sure also pleaded the claim should be denied because it was filed well beyond a one-year contractual limitation included in the policy.

However, the court noted, both parties were operating under the mistaken impression that the limitation period was two years. The court noted Can-Sure’s adjuster Lumbard said in his September 2019 letter:

“Should you wish to dispute your insurers’ position, please note there is a two-year limitation date from the date of loss. You therefore must issue your claim before March 14, 2021, to protect proscription and your interest.”

The court found the claimants were entitled to rely on this letter, although the limitation date was in error. And it said the subscribing insurers had immediately received notice of the pending lawsuit from Can-Sure, and so the insurers were already acting as though they were aware of the lawsuit; hence, they were not prejudiced if the one-year contract limit was changed to two.

“The parties both conducted their affairs for a period of time as if there was a two-year, not a one-year, contractual limitation period,” as Josefo wrote. “Only when defendant finally re-discovered the more onerous contractual terms did defendant change its position (when it amended its statement of defence to plead the limitation).”

Feature image courtesy of iStock.com/fotosipsak