Insurer may deny coverage even after it has begun defending you if you were violating the policy - Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada

November 29, 2021, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

DATE OF DECISION: November 18, 2021

HEARD BEFORE: Coram: Wagner C.J. and Moldaver, Karakatsanis, Côté, Brown, Rowe and Kasirer JJ.

INSURANCE: automobile insurance; promissory estoppel; third party claim; motorcycle accident; delay in insurer becoming aware of insured’s policy breach; is insurer estopped from denying coverage by its conduct before it had actual knowledge of material facts that constituted a breach

Background:

D died in a motorcycle accident. His insurer, Royal & Sun Alliance (“RSA”), proceeded to defend his estate in two lawsuits started by B and another claimant, both injured in the accident.

Three years after the accident, and over a year into litigation, RSA learned that D had consumed alcohol immediately prior to the accident, putting him in breach of his insurance policy. RSA promptly ceased defending D’s estate and denied coverage. Nearly three years later, the other claimant’s action proceeded to trial, resulting in a judgment against D’s estate and against B, and a judgment for B on his cross‑claim against D’s estate.

B sought a declaration of entitlement to recover a judgment against RSA on the basis that RSA waived D’s breach or was estopped from denying coverage to D’s estate. The trial judge granted the declaration and found that RSA had waived its right to deny full coverage by failing to take an off‑coverage position and by providing a defence to D’s estate as the litigation progressed. Having found waiver by conduct, the trial judge did not consider the estoppel argument.

The Court of Appeal allowed RSA’s appeal, holding that, at that time, Ontario’s Insurance Act precluded recognition of waiver by conduct and with respect to estoppel, that RSA’s conduct could not amount to a promise or assurance which was intended to affect the parties’ legal relationship, as RSA lacked knowledge of D’s policy breach when it provided him with a defence. B sought to appeal the decision, but after being granted leave, he reached a settlement agreement with RSA and discontinued his appeal. Trial Lawyers Association of British Columbia asked and was permitted to be substituted as the appellant.

Discussion:

The Court of Appeal allowed RSA’s appeal on the basis that at the time of the accident Ontario’s Insurance Act precluded waiver recognition by conduct. With regards to the estoppel, the appeal court found that RSZ’s actions did not amount to an assurance nor a promise intended to affect the legal relationship between the parties and RSA as RSA was not aware of D’s policy breach when it was defending him.

B also sought and was granted the appeal to the Supreme Court however after reaching a settlement with RSA he stopped the appeal. The Trial Lawyers Association of British Columbia was granted permission to be substituted as the appellant in the case.

At the Supreme Court, the majority upheld the Ontario Court of Appeal decision since the statute precluded waiver by conduct at the time of the accident. The Supreme Court found that with regard to the promissory estoppel RSA could not have intended alteration of the legal relationship with B as it had no knowledge of the policy breach on the part of D.

The SCC noted in the majority decision that promissory estoppel requires:

• The parties be in a legal relationship at the time of the assurance or promise
• The promise of assurance is intended to affect the relationship and is to be acted on
• The other party relies on the promise of assurance

Result: The appeal should be dismissed.

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Deutschmann Law serves South-Western Ontario with offices in Kitchener-Waterloo, Cambridge, Woodstock, Brantford, Stratford and Ayr. The law practice of Robert Deutschmann focuses almost exclusively in personal injury and disability insurance matters. For more information, please visit www.deutschmannlaw.com or call us at 1-519-742-7774.

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