Pepper v Sanmina-Sci Systems: Some much needed guidance on limitation periods in the LTD claims context

Bennett Gastle is successful at the Court of Appeal. In eight short paragraphs, the Court of Appeal for Ontario in Pepper v Sanmina-SCI Systems sheds light on how the appropriateness factor, under section 5(1)(a)(iv) of the Limitations Act, 2002, applies to long-term disability (“LTD”) claims in Ontario.

First, the Court confirms that Markel Insurance Co. of Canada v ING Insurance Co. of Canada remains the benchmark for assessing when it would be “appropriate” to bring a proceeding.  This means that the appropriate time to commence litigation is when a proceeding is “legally appropriate.”   The Court in Markel purposefully narrows the considerations regarding appropriateness to legal factors.   Tactical, financial or convenience considerations that might otherwise inform a plaintiff’s decision as to when to sue do not delay the start of the limitations clock.  Instead, commencing a proceeding is appropriate once the plaintiff’s claim is fully ripened and can be prosecuted in court.

Yet there are exceptions to the bright-line test identified in Markel.  Namely, a proceeding may not be appropriate where there is an ongoing alternative process that could eliminate the dispute.  A 2017 decision of the Court of Appeal, Presidential MSH Corporation v. Marr Foster & Co. LLP, confirmed that such processes would not delay the start of the limitations clock unless they had reasonably certain or ascertainable end dates.

This brings us to the second area where Pepper adds clarity: an LTD insurer’s appeal process probably does not qualify as an alternative process sufficient to delay the limitations clock if it is not a formal process or statutory in nature.  The appeal process in Pepper was not formal because it was not contractual. There was nothing in the insurance policy that provided a right to appeal or any appeal process (even though the termination letter itself described a sui generis process).

Informal appeal processes are akin to attempts by the parties to resolve the claim; such dealings do not give rise to an estoppel argument. This makes sense. There would be no words or conduct that might constitute a promise or assurance not to rely on the limitation period.  This is also consistent with prior case law pertaining to insurers reviewing new evidence regarding denied claims.

Finally, a curious comment in Pepper helps illuminate how to assess the appropriateness factor. The Court held that the failure on the part of the motion judge to recognize the date on which the limitation period commenced is an error in law.  But prior appellate decisions have held that the question of whether an action is statute-barred is a question of mixed fact and law.  An error in law, on the other hand, typically involves the application of the wrong legal test.  Separating the correct test from irrelevant factors is where Pepper adds additional clarity:

“[6]  The motion judge recognized that the respondent had a “fully ripened” claim as of November 1, 2007 (see para. 71-72 of the Reasons). His further analysis is, in our view, no more than an “evaluative gloss” on the word “appropriate” and introduces the uncertainty Markel cautions against.”

In other words, there are no additional material facts necessary to apprise a plaintiff that commencing a proceeding would be appropriate.  All of the motion judge’s analysis beyond asking when the claim fully ripened is evaluative gloss. It constitutes the application of incorrect principles of law.  In this case, the evaluative gloss included considering:

  1. The insurer’s history of denying and then restoring benefits;
  2. The insurer’s invitation for further appeals;
  3. The insurer’s ongoing review of new evidence for the denied claim;
  4. The insurer’s failure to advise of its intention to rely on a limitation period;
  5. The claimant’s belief that his claim would be approved on appeal; and
  6. The claimant’s belief that his claim was never the subject of an absolute definitive denial.

This is what makes Pepper a useful precedent.  It helps identify permissible and impermissible factors to assess when the appropriateness element delays the limitations clock.  It helps litigants identify whether an insurer’s appeal process should impact the start of a limitation period.  And it provides a clear jurisprudential framework for courts to evaluate when a plaintiff knew or ought to have known that commencing a proceeding would be an appropriate means to remedy an alleged breach of insurance contract claim.

For more information please contact Stephen Simpson at ssimpson@bennettgastle.com or (416) 361-3319 ext. 253.

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