Actions against a bankrupt’s insurer can proceed notwithstanding denial of coverage
Hemeon v. District of West Hants, 2008 NSSC 234 examines the interplay between section 69.4 of Canada’s Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”), and section 28 of Nova Scotia’s Insurance Act, R.S.N.S. 1989, c. 231.
The BIA provides for an automatic stay of proceedings in all litigation against a person who makes an assignment in bankruptcy, but then permits that stay to be lifted if the applicant can demonstrate that it will be “materially prejudiced” by the stay, or that lifting the is “equitable on other grounds”.
The Insurance Act provides that if a person obtains judgment against another for which there is insurance, and execution against the judgment debtor is returned unsatisfied, then the judgment creditor can bring the same action against the insurer, and the insurer will be liable up to the face value of the policy.
Although the case is based on Nova Scotia legislation, most provincial insurance legislation contains provisions similar to those interpreted in this case.