The Ontario Superior Court has confirmed that a short, pandemic-era licence lapse did not void automobile liability coverage where the insured acted with due diligence and the system failed him.
In Urban Lennox Gibbs v. Security National, the insured Gibbs’s G2 licence expired on January 27, 2020. He booked the earliest available road test for February 18, attended as scheduled, and the MTO’s DriveTest centre cancelled six minutes before start time without explanation. Within days, COVID-19 disruptions began. The Province of Ontario later announced a grace period for expired licences. The insured believed incorrectly that the grace period covered him. In fact, it began March 1, 2020, eleven days after the cancelled test and thirty-four days after his licence expired.
On July 3, 2021, the insured experienced a sudden medical episode while driving and rear-ended another vehicle. The insurer paid property damage but refused to defend or indemnify the bodily injury claim on the basis that the insured was not “authorized by law” to drive on the accident date due to the expired G2.
The judge granted coverage on the primary ground of due diligence. In the alternative, she she would have granted relief from forfeiture.
Due Diligence and Relief from Forfeiture
The application judge had to decide whether the expired licence amounted to a breach of the statutory condition that voided coverage? And If so, whether she should exercise discretion and grant relief against forfeiture?
With respect to due diligence, the question was whether the insured acted reasonably before and after the lapse, and not whether he achieved perfection. The judge found that the insured promptly booked and attended a road test and that the last-minute cancellation was beyond his control. In the early-pandemic environment, his belief in a government grace period was an honest mistake. He continued trying to rebook in the face of shutdowns and competing family obligations. On these facts, the due-diligence defence defeated the statutory-condition argument, so coverage followed.
With respect to relief from forfeiture, the judge assessed and applied the three considerations from Kozel[1]: The conduct of the applicant, the gravity of the breach, and the disparity between the value of the property forfeited and the damage caused by the breach. The judge found all three considerations favoured relief from forfeiture.
On the first consideration, she found among other things that the insured had paid his premiums on time, he had tried to renew his licence in the circumstances, and co-operated with the insurer’s investigations.
On the second point, she found that the gravity of the breach, like in Kozel, was “minor and was not fundamental to the contract”. She held that the expired licence did not impact his driving skills, and his licence had been expired “for only 34 days before the province-wide grace period for license expirations took effect”.
On the third consideration, the application judge held that disparity between the amount forfeited (his policy limits) and the damage caused by his expired licence was huge.
Accordingly, the application judge held that she would have granted relief from forfeiture in any event.
Section 233 Policy Breaches
As the insured’s coverage application developed, the insurer advanced new “false statement” grounds and argued that the insured’s claim was forfeited pursuant to section 233 of the Insurance Act.
The application judge rejected the insurer’s arguments. She held that the insurer had failed to establish any false statements by the insured in the claim. More importantly, she found that the false statement allegations were made late in the litigation and were not set out in the insurer’s original denial letter:
[66] Furthermore, I am troubled by how Security National has advanced these claims. Security National raised its various allegations of false statements for the first time in its factum in this proceeding. It did not refer to the alleged false statements in its denial of coverage letter in October 2021, in which the only stated ground for denial of coverage was that Mr. Gibbs did not have a valid license at the time of the accident. Nor did Security National provide Mr. Gibbs with formal notice of these allegations any time after October 2021, in a revised or updated denial of coverage letter or any other correspondence. Mr. Gibbs learned of these numerous, and, in some cases, rather shocking, allegations only when he received Security National’s materials in this application.
[67] An insured individual should be able to understand the basis for their denial of insurance coverage, so that they may respond appropriately to the denial. Where the basis for denying coverage evolves, as it seems to have here, an insured should be able to know that too, so that they may understand the evolving case to meet. They should have this information at the outset, or as soon as it becomes known to the insurer. They should not have to wait until after litigation is commenced. It is a matter of basic good faith and procedural fairness for an insurer to provide such notice to its insured. This court has recognized the importance of an insurer providing notice when denying a claim based on alleged false statements, so that the insured may “address the insurer’s […] concerns” (Ratnasingam v. Liberty Mutual Group, 2003 CanLII 46151 (ON SC), at para. 29).
Key Takeaways for Claims Professionals
This decision offers several critical lessons for how insurers should approach coverage disputes, particularly those involving technical policy breaches during extraordinary circumstances.
1. Document the Full Picture Early
The judge’s criticism of Security National’s evolving position underscores a fundamental principle: identify and communicate all grounds for denial in your initial coverage letter. Late-emerging theories – especially serious allegations like false statements—damage credibility and can be seen as bad faith. Claims adjusters should conduct thorough investigations upfront and clearly articulate their complete position from the outset.
2. Apply the Reasonableness Standard, Not Perfection
The due diligence analysis reveals that courts will assess whether an insured’s conduct was reasonable under the circumstances, not whether they achieved perfect compliance. When evaluating statutory condition breaches, consider the insured’s efforts to comply, system failures beyond their control, and whether extraordinary circumstances (like pandemic disruptions) contributed to the breach. A 34-day licence lapse where the insured actively tried to renew differs significantly from willful or thoughtless non-compliance.
3. Assess Actual Prejudice to the Insurer
The relief from forfeiture analysis turned heavily on whether Security National suffered any real prejudice from the breach. In Gibbs, the insured remained an experienced driver with a valid foreign licence, the breach didn’t affect his driving ability, and the insurer was already involved in the litigation. Claims managers and handlers should evaluate not just whether a breach occurred, but whether it actually harmed the insurer’s interests or increased their risk exposure.
4. Consider the Proportionality Factor
Courts will examine the disparity between the value of forfeited coverage and any damage caused by the breach. Here, the insured faced losing $800,000+ in coverage for a technical violation that caused no demonstrable harm. When the financial consequences to the insured vastly outweigh any prejudice to the insurer, courts are more likely to grant relief from forfeiture.
5. Pandemic-Era Claims Require Special Consideration
COVID-19 created unprecedented disruptions to routine processes like licence renewals, court filings, and government services. Claims adjusters handling coverage disputes from this period should recognize that many technical breaches may have resulted from system failures rather than insured negligence. The court found the insured’s belief in a grace period reasonable given the chaotic early-pandemic environment.
6. Maintain Procedural Fairness Throughout
Perhaps most importantly for day-to-day claims handling, this case emphasizes that insureds must receive clear, timely notice of denial grounds. Security National’s decision to raise new theories only in litigation materials violated basic principles of procedural fairness. Claims professionals should ensure that denial letters are comprehensive, clearly reasoned, and provide insureds with sufficient information to respond meaningfully to the insurer’s position.
The Gibbs decision reinforces that while statutory conditions serve important purposes, courts retain discretion to prevent harsh forfeitures where insureds act reasonably but encounter extraordinary circumstances. For claims professionals, this means taking a holistic view of each situation, documenting reasonable efforts to comply, and maintaining transparent communication throughout the claims process.
See Urban Lennox Gibbs v. Security National Insurance Company et al, 2025 ONSC 4656 (CanLII)
[1] Kozel v. The Personal Insurance Company, 2014 ONCA 130 (CanLII)