Executive Summary: Key Legal and Evidentiary Issues

• Interaction between Rule 19.03(1) discretion and the strong preference to decide civil actions on their merits when a defendant is noted in default.
• Whether the insurer’s failure to serve a defence, against a background of ongoing claim communications and a buried email demand, could be reasonably explained as inadvertent rather than deliberate.
• Significance of the plaintiff’s conduct, as a practising lawyer, in continuing detailed communications after noting the defendant in default without disclosing that procedural step.
• Impact of the complexity and high value of the underlying insurance and alleged bad faith claim on the decision to permit a defence to be filed.
• Assessment of prejudice to each side where no steps were taken toward default judgment and liability and damages remain unliquidated and unproven.
• Sufficiency of a proposed statement of defence and the need for proper pleading of material facts rather than bare denials, even when default is set aside.

Background and parties
This case arises from a dispute between a homeowner, Howard Markowitz, and his property insurer, The Dominion of Canada General Insurance Company operating as Travelers Canada. The underlying conflict concerns the insurer’s handling of an insurance claim related to damage to Mr. Markowitz’s house, including alleged underpayment and delay. The plaintiff, who is himself a practising lawyer, commenced an action seeking approximately $1.5 million in damages, relief from any policy-based bars to adjudicating his insurance claim, and completion of the claim process. The insurer denies wrongdoing and asserts that it remained engaged with the plaintiff and his claim, even if not to his satisfaction.

Procedural history and the noting in default
The statement of claim was issued in July 2022 but was not served on the insurer until January 2023. The defendant served a notice of intent to defend in April 2023, but a formal statement of defence was not delivered. Over 2023 and 2024, the parties continued to communicate extensively about the insurance claim, including site visits and settlement discussions. Against that backdrop, the plaintiff warned in April 2024 that the defendant might be noted in default. The defendant’s lawyer replied that a statement of defence would be served, and the plaintiff responded on April 9, 2024, indicating that he did not need the defence “at this time” so long as there was meaningful progress and communications. Subsequent emails from the plaintiff in May 2024 focused on the claim and referred only briefly to the lawsuit, but on May 22, 2024, in a long email complaining about the insurer’s handling of the file, the plaintiff included a short demand for a statement of defence near the end. When no defence followed, he proceeded to note the defendant in default on June 4, 2024. Despite that procedural step, the plaintiff continued to engage with the defendant on settlement. In July 2024, the insurer tendered what it considered a final settlement with a cheque; the plaintiff raised questions but did not mention the noting in default. Communications then went silent on both sides for about a year, until July 2025, when the insurer sent a further letter enclosing an additional $442.46 as an underpayment. That correspondence led the insurer to discover that it had been noted in default the previous year. It then moved to set aside the noting in default and sought leave to deliver a statement of defence.

Legal framework for setting aside default
The motion was governed by Rule 19.03(1) of the Ontario Rules of Civil Procedure, which allows the court to set aside a noting in default “on such terms as are just.” The court relied on the Ontario Court of Appeal’s guidance in Trayanov v. Icetrading Inc., which emphasizes that this is a discretionary remedy and underscores the strong preference for deciding civil actions on their merits rather than via purely procedural defaults. In assessing whether to grant relief, the court considered factors such as the parties’ behaviour, the length and reasons for the delay in serving a defence, the complexity and value of the claim, non-compensable prejudice to either side, and whether there was at least an arguable defence. The court also referenced Franchetti v. Huggins for the proposition that, particularly where there has been significant delay, the moving defendant may be expected to show that its defence has an “air of reality.”

Analysis of delay, reasons, and party conduct
On the length of delay, the judge acknowledged that the insurer did not serve a defence and only brought its motion to set aside the noting in default in July 2025, more than a year after being noted in default and long after the claim was issued. However, the court accepted the defendant’s evidence that the May 22, 2024 demand for a defence was inadvertently overlooked. It was embedded in a lengthy and highly critical email at the end of a series of long, contentious communications from the plaintiff. In light of the ongoing direct dealings about the claim, the court found the insurer’s explanation credible and rejected the plaintiff’s attack on the affiant’s reliability. The broader context was also important: the defendant had remained engaged on the claim, including site visits and negotiations, and had no notice from the plaintiff that a default step had actually been taken. The court accepted that the insurer did not know it had been noted in default and moved promptly once that fact came to its attention. At the same time, the judge was critical of the plaintiff’s conduct. As a practising lawyer, having warned of possible default, he then continued to correspond at length about the claim and settlement after actually noting the defendant in default, without disclosing that procedural step. The court regarded that omission as improper conduct for a lawyer, even taking into account his frustration with the insurer. While the insurer was “not blameless” in overlooking the demand and allowing a year of silence after its purported final settlement proposal, its failings were balanced against the plaintiff’s strategic use of the default and his failure to act on it by seeking default judgment.

Complexity, value, prejudice, and the merits of the defence
The court highlighted that this was a high-value and complex matter. The plaintiff claimed $1.5 million in damages and sought relief from policy bars and completion of the claim process, with legal and factual issues involving policy coverage, quantification, and alleged insurer bad faith. The judge noted that little of the claimed amount had been concretely quantified in the record and that the plaintiff himself had selected a large figure based on his home’s value with an expectation of working through damages assessment with the insurer. This complexity and the unliquidated nature of the claim weighed heavily in favour of allowing the matter to be decided on the merits rather than through default. Regarding prejudice, the plaintiff argued that he had relied on the noting in default by not pursuing claims against other potential defendants and that he and his family had enjoyed some peace of mind from believing liability was effectively resolved. The court rejected those claims of prejudice. No steps had been taken in over a year to obtain default judgment. The claim remained unliquidated, and the evidentiary record was insufficient to assess liability or quantum. The court found it unreasonable to treat a mere noting in default as conferring finality or peace of mind, especially where no judgment had been pursued. By contrast, the prejudice to the defendant if default were maintained was obvious: it would face potential liability for a large, untested bad faith claim without any opportunity to defend. On the merits, the court observed that although the proposed draft defence was largely pro forma and deficient in particulars, there were at least arguable defences on coverage and quantum, and the insurer should be permitted to advance them. The court also questioned, but did not finally decide, the viability of a limitation defence, noting that the claim appeared to have been commenced in time given the COVID-related suspension of limitation periods.

Outcome of the motion and costs award
Weighing all of these factors, the court exercised its discretion to set aside the noting in default. It granted the defendant leave to deliver a non-pro forma statement of defence within 20 days, directing that the defence must satisfy Rule 25.06(1) by pleading the material facts relied on rather than relying on bare denials. On costs, the insurer requested substantial indemnity or, initially, even full indemnity costs of the motion. The plaintiff conceded that partial indemnity costs were appropriate if he lost, but asked that they be in the cause. The court refused elevated costs, holding that substantial indemnity is reserved for narrow circumstances such as an operative offer to settle or misconduct warranting sanction, neither of which applied here. However, the court also declined to order that costs be simply in the cause. The defendant had succeeded on the motion, and the plaintiff had unsuccessfully opposed it, so the insurer was entitled to its costs. Taking into account the insurer’s own contribution to the procedural stalemate—particularly its one-year silence after its purported final settlement offer—the judge fashioned a compromise: he fixed costs on a partial indemnity basis at $3,250, inclusive of HST and disbursements, but ordered that this amount be payable only at the conclusion of the litigation and “in any event of the cause.” In practical terms, the successful party on the motion is the defendant insurer, which obtained the setting aside of the noting in default and the right to defend, together with a monetary award of $3,250 in motion costs, while no damages or other monetary relief have yet been determined on the underlying insurance and bad faith claim.