Canada

Written by Sean McGarry, Partner & Vanessa De Sousa, Associate

Key developments in 2025

2025 was a dynamic year in the world of insurance in Canada. In this chapter, we explore the economic uncertainty, fears of impending recession, and developments in the legal sector that underscored the year Canada had, as well as what is to come in 2026.

Economic Uncertainty and Recession 

Canada faced significant financial difficulties in 2025, with experts noting that the country is still at risk of a recession within the next six months. The Bank of Canada’s Market Participants Survey for Q3 of 2025, released in early November, noted that market participants believed there was about a 35% chance that Canada is in a recession or will enter one in the next half-year. However, later that month, Statistics Canada published its Q3 results, noting that Canada narrowly avoided recession in the third quarter of 2025. It stated that Gross Domestic Product (GDP) climbed 0.6% from July to September, following the concerning second quarter results, which saw Canada’s GDP decline by 0.5% between April and June.

Tariffs imposed by foreign governments caused significant strain on Canada’s economy in 2025. According to Budget Canada, new tariffs and shifting trade policies strained supply chains and raised costs for Canadian exporters, with high tariffs and significant trade actions now applying to auto, steel, aluminum, copper and wood. Nonetheless, Canada continued to benefit from favourable access to our largest export market, with 85% of Canada-U.S. trade remaining tariff-free and the average U.S. tariff rate on Canadian goods standing at 5.4%.

Appeal Rulings Appear More Favourable on Notice Issues

The Ontario Court of Appeal (ONCA) recently issued two important insurance-related decisions, both addressing whether the insured had sufficiently complied with notice requirements in claims-made and reported policies such that relief from forfeiture could be granted. In a claims-made and reported policy, coverage is only triggered if the claim was made and reported during the policy period. In both cases, equitable relief was not available to the plaintiffs due to their specific late reporting. This is a break from the typical Canadian trend of flexible findings to excuse policy breaches.

On March 27, 2025, the Supreme Court of Canada dismissed an insured’s leave to appeal the decision in Furtado v. Lloyd’s Underwriters, 2024 ONCA 579 (Furtado). In Furtado, the ONCA held that the insured, was not entitled to relief from forfeiture after failing to disclose to his insurer an Ontario Security Commission (OSC) investigation and a subsequent receivership application and enforcement proceeding against the business.

Furtado built on the earlier decision in Kestenberg Siegal Lipkus LLP v. Royal & Sun Alliance Insurance Company of Canada, 2024 ONCA 607 (Kestenberg), whereby the ONCA held that where a condition precedent to triggering insurance coverage is not met, relief from forfeiture will not be available because this would constitute non-compliance rather than imperfect compliance. In Kestenberg, The Court rejected the insured’s argument that relief from forfeiture is available in all insurance cases unless the breach of condition is both substantial and prejudices the insurer. It also disagreed that a claims-made and reported requirement must be contained in the insuring agreement clause for it to be a condition precedent to coverage. Rather, courts must interpret a policy as a whole and ordinary principles of contractual interpretation apply.

In Furtado, the policy included a suspension clause pausing notice requirements while the insured was legally prohibited by law enforcement or the OSC from making disclosures. When he was informed that new legislation now permitted disclosure to his insurer, the insured waited nearly a year to report a claim to the insurance company, at which time the policy had expired. The delay in giving notice constituted non-compliance with a condition precedent to coverage, for which no relief from forfeiture could be granted.

Backlog in the Canadian Court Systems

As of November 2025, there were 50 judicial vacancies across Canada, in addition to longstanding criticism of whether those openings are even sufficient given recent population growth. This has led to long judicial wait times and concerns with respect to access to justice. Yet, in 2025, the Federal Court of Appeal’s ruling in Canada (Prime Minister) v. Hameed, 2025 FCA 118 overturned a controversial lower court decision requiring judicial vacancies to be filled within a “reasonable time”.

The Federal Court (FC) backlog has been exacerbated by a surge in appeals of immigration decisions, resulting in delays of over a year to obtain final rulings. According to the Canadian Bar Association (CBA), immigration-related filings at the FC have quadrupled since 2020. Despite this, operational funding to expand judicial capacity has not been renewed since 2023. Without funding, the FC is projected to hear approximately 400 fewer immigration cases yearly, thus adding to further backlogs.

Lastly, in 2025, the Government of Canada published its estimated budget for expenditures over the next three years, which would cut over $20 million from support services for administrative tribunals. In response, the CBA created a submission to Finance Canada in August, which highlighted the persistent underfunding for the Courts Administration Service and called for relief for the structural deficit/funding gap of approximately $35 million. The CBA noted that lack of financial backing for court systems strains core operations and, if left unaddressed, risks undermining the ability of the courts to discharge their mandate to interpret the laws enacted by Parliament effectively and independently.

What to look out for in 2026

Rule Reform in Ontario

The Civil Rules Review Working Group published its Phase 2 Consultation Paper on April 1, 2025, which proposed various changes to the way civil legal proceedings are conducted in Ontario. A revised version has been presented to members of the bar with recommendations that are expected to be imminently published by the Ministry of Attorney General, including:

1. New pre-litigation protocols for specific types of cases, which will mandate the early exchange of information and specific documents, and require parties to make a genuine effort to resolve their disputes before starting court proceedings;
2. Changes to examinations for discovery, including limiting the scope and time allowed for oral examinations and eliminating them in some instances;
3. Requiring up-front exchange of all evidence-in-chief once pleadings are completed;
4. Requiring mandatory case conferences after the exchange of evidence to set dates for a trial and mediation within two years;
5. Curbing motions practice by using judicial intervention to ensure that motions are addressed in a manner proportionate to the significance of the issues and the impact they have on the substantive dispute; and
6. Streamlining expert evidence by encouraging joint experts and permitting a single expert per issue.

In theory, these changes will reduce backlogs by streamlining litigation However, the new system has been criticized by the bar for “front loading” litigation costs and prolonging contentious issues. The detailed presentation of a case early in litigation may help early assessments, but also risks the parties missing opportunity to settle given the significant early time investment required.

Given that Ontario is Canada’s largest province, these proposed changes and the associated risks set a strong precedent for the rest of the country. Time will tell if other provinces and territories will follow suit, though at the moment, the proposed changes to the rules of civil procedure make Ontario an outlier amongst other Canadian jurisdictions.

Artificial Intelligence

Advancements in artificial intelligence are making their way into the traditionally conservative legal industry. Rule changes have already required lawyers to make attestations about the veracity of case law and evidence given the advent of AI hallucinations.

AI presents a unique opportunity for firms and claims managers to streamline operations and reduce overall workload.

AI is beginning to be considered as part of the standard of care in particular for large document cases, such as construction disputes, which have become increasingly unwieldly given the large e-discovery burden.

Tools that rely on artificial intelligence also present significant challenges to claim assessments. Self-represented plaintiffs can use it as a tool to create a volume of legal submissions that increase costs on meritless claims. Savvy claims handlers should also be aware of the potential of faked or altered evidence given the prevalence of tools that allow for “deep fakes”.