April 27, 2023
Managing the exclusion and expiry of claims

Managing the exclusion and expiry of claims through contract documents in Canada


Of Waiver, Covenants to Insure and Conditions Precedent, Etc.



Generally speaking, the expiry of claims for contractual liability or negligence in Canada are tied to limitation periods set out in various pieces of legislation. In Ontario, for example, the Limitations Act, 2002, establishes a general limitation period of two years (from the date the claim is ‘discovered’) and (in most cases) an outside limitation period of 15 years. Similar statutory limitation periods (with varying timeframes) are in place across Canada. These general limitation periods can be ‘trumped’ by more specific legislation in some cases (for claims against Municipalities in most jurisdictions, for example). Significantly, however, the statutory expiry of claims can also be overruled in contract, by agreement of the parties. It is this ability that will be addressed in this article.

Exclusion clauses

First, contract documents can simply provide that a party will not be entitled compensation for certain impacts or breaches of contract. As the Supreme Court of Canada made clear in Tercon, for example, so long as the clause is clear (and not unconscionable) the Courts will not interfere with the parties’ right to negotiate what a party can and cannot pursue a claim for. Such clauses commonly include where the contractor is precluded for making any claims for delay or where a bidder is precluded from making any claim arising from an owner’s breach of its obligations in a tender process. We also note that proving ‘unconscionability’ (which could override
the contractual exclusion) involves a very high bar.

Contractual conditions precedent: notice and dispute resolution clauses

Parties can make a claim conditional on certain conditions being met (often referred to as ‘conditions precedent’). They might be required to give formal notice of a potential claim within a certain period of time, for example. They might also be required to provide detailed backup to the claim and/ or initiate dispute resolution within certain time periods, failing which the claim will be extinguished. Although such clauses are common to Canadian standard form contracts, they can vary widely (through supplementary conditions or in non-standard forms). Canadian courts have also established that, unless it can be established that a party somehow waived the application of a contractual condition precedent, claim will be lost if the condition is not met.

Covenants to insure

Our courts recognize that a covenant to obtain insurance can create “tort immunity”:   that where one party agrees to insure itself and others against a particular risk, it cannot then sue the others if the risk materializes — even if they fail to take out the insurance. The covenants are often given so that everyone in the contract ladder doesn’t need to charge for insurance against the same type of risk (such as fire, flood, other property damage or theft). The tort immunity only applies to the extent that the insurance was intended to cover the loss or damages in question.

Indemnification provisions

Contracts can also be drafted to forestall claims by limiting the extent to which one party will be entitled to be indemnified by the other. Standard from CCDC contract language, for example, allows for indemnification only where notice in writing within a specified event or date has been given, and in relation to claims caused by the negligence or breach of contract of the party from whom indemnification is sought (or anyone for whom that party is responsible). The right does not extend, under such language, to claims for indirect, consequential, punitive or exemplary damages. The right is also at times limited, in relation to certain types of claims (only) to the monetary limits of the insurance taken out by the party that has to indemnify.

Waiver of claims
on contract close-out

It is not uncommon for construction contracts to provide that upon a certain date or event (such as substantial completion or the owner’s taking over of the project, which is common under Canadian standard forms) each party will waive and release the other from all claims for breach of contract or negligence they have, subject to certain exceptions. The exceptions commonly include claims resulting for acts or omissions which occur after the date or event in question, claims for which notice has been given prior to that date or event, indemnification for claims advanced by third parties which can be asserted under the contract or subcontract (see above) and claims of various specific kinds (such as those environmental claims).

These clauses can be significant not only because they will limit the ability of the other contracting party to pursue certain claims, they can also stop third-parties from making claims. This, because a party that is protected by a valid contractual limitation of liability for certain conduct

cannot generally be called on to contribute to pay the damages suffered by a third-party as a result of the same conduct. By way of example, then, if an owner cannot sue its contractor for construction that (in part) caused a building to fail, but sues its architect or engineer for their role in the same failure, the architect/ engineer cannot generally bring the contractor in by way of a third-party claim where the owner has waived its claims against the contractor. Waiver clauses, then, can provide substantial protections against liability claims.

Tolling Agreements


The contractual provisions discussed above deal with the exclusion and expiry of a claim. It should also be noted that a claim’s expiry can also generally be suspended, or extended, by agreement between the parties, through what are often referred to as ‘tolling agreements.’ By way of such agreements, and depending on the terms of applicable limitation period statutes, the parties can agree to suspend or extend the expiry of a claim either indefinity or to a specific date.

The importance of tolling agreements should not be underestimated in construction, particularly given the Supreme Court of Canada decision in Grant Thornton LLP v. New Brunswick, 2021 SCC 31, which held that the clock starts ticking when a “plausible inference” of liability arises on facts that are, or ought to be, known by the claimant through the exercise of reasonable diligence. It is not unusual for a party to know about a potential claim long before they might decide that the claim is worth pursuing, such as where a party might know it has suffered a deficiency or impact (such as delay) but is not sure that the dollar-value would be worth pursuing, where the fact of a deficiency is known but the severity is not and where a contractor or trade is working at, but yet completed, the correction of a known defect. In such circumstances, a statutory limitation period can creep up on the parties very quickly. The parties might accordingly wish to formally ‘toll’ the expiry of the claim(s), to allow for investigation and/or negotiation, etc.

Words of caution


Although we have provided examples drawn from standard form contracts in use across Canada, it is important to recognize that the bounds of what parties can agree to are almost (though certainly not entirely) limitless. Clauses which set out what claims will be excluded, what conditions precedent will be placed on claims and how and when claims will be waived or expire can go well beyond the norm, yet still be enforceable (except in limited circumstances). Covenants to insure or indemnify might also go well beyond what is usually provided for. It is accordingly very important that parties review proposed or draft contracts to assess how these types of provisions will impact their risk.


Rob Kennaley


Rob Kennaley is with Kennaley Construction Law, a construction law firm with offices in Simcoe, Toronto and Barrie, Ont.