The Supreme Court of Canada recently ruled a deceased insured’s policy breach allowed his insurance company to deny coverage, despite the insurer’s initial intention to defend claims brought against his estate.
Insured Died in Motorcycle Accident and Injured Others
In 2006, the insured died in a motorcycle accident, resulting in the injury of another motorcyclist and a car driver. The insured had a standard motor vehicle insurance policy with an insurance company.
The two men injured in the accident subsequently brought claims against the insured’s estate. The insurance company initially sought to defend the claims under the insurance policy.
Insurance Company Withdrew Coverage and Defence Following Discovery of Policy Breach
Following the accident, the insurance company investigated the crash and concluded that speed had been a factor. It did not make any finding as to whether drugs or alcohol were involved. Although the insurance company typically obtained coroner reports as part of these types of investigation, it did not initially do so in this case.
However, during the process of defending the estate, the insurance company learned during an examination for discovery that the insured had consumed alcohol just before the accident. It also obtained the coroner’s report, which indicated that the insured had a modest quantity of alcohol in his system when he died.
Following this discovery, in 2009, the insurance company advised all parties that it was taking an off‑coverage position. This meant it would no longer defend the estate as alcohol consumption was a breach of the insurance policy. The insurance company’s decision also meant that the two injured men could not recover the total amount available under the insurance policy and would only be entitled to the statutory minimum coverage.
Injured Party Awarded Damages Against Estate, Sought Recovery from Insurance Company
The two injured men continued their litigation over the next several years and were awarded damages. In the motorcyclist’s case, a judgment was granted against the insured’s estate.
The motorcyclist sought a declaration from the court that he was entitled to recover the judgment from the insurance company. He argued that based on the insurer’s conduct, it waived the policy breach or was “estopped” (prevented) from denying coverage as it initially defended the estate.
The trial judge ruled against the insurance company, holding that it had waived its right to deny coverage by failing to take an off‑coverage position and providing a defence to the estate as the litigation progressed. However, on appeal, the Ontario Court of Appeal rejected the waiver argument because insurance legislation at the time only allowed for a waiver in writing, not by conduct. Additionally, it found the estoppel argument failed because the insurance company had not known of the policy breach when it defended the estate.
The motorcyclist obtained leave to appeal to the Supreme Court of Canada. The Trial Lawyers Association of British Columbia was substituted as the appellant after the motorcyclist settled with the insurance company.
Supreme Court of Canada Ruled Insurance Company Was Not Estopped from Denying Coverage
At the outset, the court stated it would not consider the waiver argument as the parties conceded it was not available under the applicable legislation in force at the time of the events.
The court focused instead on the promissory estoppel argument, explaining that this type of defence requires that:
- The parties be in a legal relationship at the time of the promise or assurance;
- The promise or assurance be intended to affect that relationship and to be acted on; and
- The other party relied on the promise or assurance to their detriment.
The court noted the promisor (in this case, the insurance company) must know of the facts that give rise to the legal relationship and all the facts supporting its promise. As a result, the court found the estoppel argument failed because the insurance company did not know of the insured’s policy breach when it defended the estate. The court explained that the element of intention depends entirely on what the promissor knows because there can be no intention to alter a relationship by promising to refrain from acting on information that it does not have.
The court continued:
“If [the insurance company] is to be taken, by having furnished a defence, as having intended to affect a relationship with [the motorcyclist] by extending coverage notwithstanding [the insured]’s breach, it must be shown to have known of the facts which demonstrate that breach.”
As the insurance company did not know about the policy breach at the relevant time, the court found it was not estopped from denying coverage following its discovery of the breach.
The court further found the insurance company had not made a promise to the estate with the intention of altering the legal relationship. The insurance company also did not owe anyone a duty to investigate the matter other than the insured’s estate.
Given the factors above, the Supreme Court of Canada dismissed the appeal.
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