The importance of doing diligence: Pembridge Insurance Company v. The Sovereign General Insurance Company, 2019 ONSC 7291

It is easier to walk forward than run backwards.

Justice Kimmel’s recent decision in Pembridge Insurance Company v. The Sovereign General Insurance Company, 2019 ONSC 7291 affirms that, when an insurer accepts priority for a claim, it can only withdraw acceptance in exceptional circumstances, such as bad faith or misrepresentation. This case is an important reminder to insurers to investigate loss transfer requests diligently at first instance.     


In 2014, a taxi struck Ms. Hennessy while she was crossing the street, causing extensive injuries. Ms. Hennessy submitted a claim under Statutory Accident Benefits Schedule (“SABS”) to taxi’s insurer, The Sovereign General Insurance Company (“Sovereign”). Upon receiving the claim, Sovereign notified Pembridge Insurance Company (“Pembridge”) that it might be an insurer responsible for paying Ms. Hennessy’s claim.

Pembridge provided auto insurance to Hennessy’s parents. Upon receiving Sovereign’s notice, Pembridge assumed without thorough investigation that Ms. Hennessy was a dependent of her parents and, therefore, an insured person under her parents’ auto insurance policy. On this basis, Pembridge accepted priority of Ms. Hennessy’s SABS claim. Ms. Hennessy agreed to transfer her claim from Sovereign to Pembridge.

Pembridge eventually realized its error and delivered a demand for arbitration to challenge the priority by which it was required to pay Ms. Hennessy’s claim. The Arbitrator Shari Novick concluded that an insurer who accepts priority for a claim cannot later resile from its position absent exceptional circumstances, which were not present in this case. Pembridge appealed this decision.


On appeal, Pembridge argued that it had never agreed to accept priority of Ms. Hennessy’s claim due to an absence of consideration and, in the alternative, the agreement was a nullity because it was entered into within the 14-day period that Ms. Hennessy could have objected to the notice from Sovereign that triggered Pembridge’s acceptance of priority. Justice Kimmel found neither argument to be compelling.

Pembridge further argued that the arbitral jurisprudence underlying the Arbitrator Novick’s finding that Pembridge could not withdraw acceptance of priority was wrongly decided. Justice Kimmel strongly rejected this assertion, noting that this arbitral jurisprudence gave effect to a policy consideration endorsed by the Court of Appeal for Ontario, “clarity and certainty of application are of primary concern.”[1] Past arbitral decisions of Lee Samis, Shari Novick, and Guy Jones all reiterated that, in accordance with the Court of Appeal’s noted policy consideration, insurers should not make loss transfer or priority decisions lightly, thinking they can simply change their minds later. Justice Kimmel held that, in the underlying decision, Arbitrator Novick’s decision was a reasonable application of this policy consideration.


This case affirms that, in order to maintain clarity and certainty in loss transfer/ priority disputes, the court will not permit insurers to resile from an agreement to accept priority absent exceptional circumstances. It is therefore important for insurers to adequately investigate any request for loss transfer to avoid compromising their future legal position and binding themselves to a claim they might not otherwise be required to pay.

[1] Kingsway General Insurance Co. v. West Wawanosh Insurance Co., [2002] 58 O.R.(3d) 251 (C.A.), at para. 10