Breach of policy waived if insurer takes too long to claim no coverage: court

An insurance company that takes three years to assert no coverage in a claim effectively waives the breach of a client’s policy that otherwise would have voided the insurer’s obligation to pay the full policy limit of its third party liability, the Ontario Court of Appeal has upheld.
In Logel Estate v. Wawnesa Mutual Insurance Company, the appeal court issued a short endorsement upholding the position of the Ontario Superior Court.
The Superior Court ruled Wawanesa was correct in asserting that it did not owe the full, Cdn$1-million policy limit of third party liability coverage to its deceased client, Lori Logel. Nevertheless, the court ruled, the insurer waited too long in the proceedings to establish its no-coverage position, thus waiving its ability to deny coverage.
Lori Logel was killed in a single car accident and her passenger, Bryan Gill, sustained serious injuries. Gill sued Logel’s estate, and the proceedings started in the lower court sometime in early 2002.
“Wawanesa’s position on the motion was that Ms. Logel’s breach of the statutory condition of her policy meant that its contractual liability for third party liability policy limits of $1,000,000 was voided, thus potentially limiting Gill to a maximum recovery of $200,000 under the Wawanesa policy,” the Appeal Court noted.
The Ontario Superior Court held that Wawanesa’s interpretation of the terms of the policy was correct. But Wawanesa’s conduct from January 2002 to August 2005 constituted “a continuing election that amounted to a waiver by conduct of Ms. Logel’s breach.”
The Appeal Court agreed with the motions judge, noting Wawanesa filed a Statement of Defence in July 2002. “In the following three years, the action proceeded through discoveries, production and settlement discussions, including the dismissal of the action against two parties,” the Appeal Court observed. “Not until August 2005 did the appellant raise the potential coverage issue.”
In these circumstances, the appellate court ruled, the Ontario Superior Court was entitled to apply the law in this area, citing another case that held: “[i]n the present case the insurer finally took an off-coverage position but … much too late.”