CANADA Law and Practice Contributed by: Chris McKibbin, Avi Sharabi, Alex Valova and Douglas Treilhard, Stieber Berlach LLP
ada, it is unusual for a claimant to proceed all the way to judgment against an insured defendant without the insurer becoming involved. 6.2 Emerging Liability and Defence Trends Concerns such as reputational risk have prompted some parties to opt out of dealing with disputes in court. Rather, more parties are turning to other ave- nues such as arbitration and appearing before third- party referees. In construction, this usually happens at the contract stage between the parties, before an insurer responds to a claim. While these alternative forms of dispute resolution offer benefits, including confidentiality, they can also be costly and time- consuming. The development of co-ordinated multi- claimant actions is an additional area where costs tend to increase. Depending on the nature of the claims and whether the pleadings comply with local court rules, some insurers are considering steps they can take at the pleadings stage to strike or reduce the scope of actions. 7. Geopolitical Factors 7.1 Geopolitical Drivers of Insurance Disputes There is an ongoing tariff dispute between Canada and the United States. The dispute is driving up claims costs. It is prolonging supply chain delays. It is raising the cost of construction materials. These effects of the so-called “trade war” could result in higher indemnity payouts for commercial and personal lines first-party claims, among others. The Iran war may also affect Canadian insurance claims. Insurers of Canadian businesses operating in the Middle East may see more disputes over the scope of war and terrorism exclusions. Canada has little case law on the scope of these exclusions. There is a chance that the Iran war could contribute to the development of the law in this area. Similarly, matters arising out of sea route disruptions (ie, the Strait of Hormuz), airspace closures and trade embargoes could trigger business interruption claims. A key question will be whether such claims trigger the physical damage requirements of those policies.
The rise in insurance claims from geopolitical risks could also lead to more disputes between reinsurers and primary insurers. One of the main issues in rein- surance arbitrations is aggregation, ie, whether losses can be grouped to assess how deductibles and policy limits apply. An increase in claims may also prompt reinsurers to scrutinise individual primary insurance settlements more closely, leading to further reinsur- ance arbitrations. 7.2 Sanctions and Payment Challenges Many insurance policies exclude sanctions liability. However, sanctions regimes may restrict who can receive indemnity payouts. These include two notable Canadian sanctions regimes – the Special Economic Measures Act and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Restrictions on indemnity payouts may lead to disputes with poli- cyholders over the scope of these regimes and their impact on potential indemnity payouts. The insurer will then have to weigh its good faith obligations to its policyholder against the risk of an incorrect legisla- tive interpretation that leads to sanctions against the insurer. 7.3 War, Political Risk and Exclusions No recent notable cases involving these exclusions have been reported in Canada. Generally, such exclu- sions have been difficult to apply in Canada. Canadian courts have narrowly interpreted what constitutes an act of war or act of terrorism. 7.4 Supply Chain and Systemic Loss Events Such disruptions are likely to give rise to more rein- surance disputes. The aggregation question in rein- surance asks whether several claims can be grouped under a common denominator for policy limits and deductible analysis. Supply chain instability and asso- ciated delays are likely to lead to higher indemnity requests from insurers. If such events occur alongside a recognisable global event, such as energy market disruptions due to related causes, they are likely to attract closer scrutiny from reinsurers. This could lead to more reinsurance disputes. 7.5 Forward Outlook and Market Response Geopolitical uncertainty is likely to spark an increase in both the quantity and the severity of claims. These
53 I NSURANCE L I T IGATI O N 2026
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