Canadian Underwriter

Top court asked to create “new law” in waiver case involving insurer’s flip-flop on coverage

July 14, 2021   by Greg Meckbach

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Canadian law on estoppel or waiver could change if the Supreme Court of Canada rules against RSA in Trial Lawyers Association of British Columbia v. Royal and Sun Alliance Insurance Company of Canada, a Vancouver-based insurance lawyer suggested Tuesday.

Estoppel can happen when a carrier tells the client it will not enforce part of the contract. If the insurer later wants to deny coverage, the client can argue the carrier’s earlier conduct means it is “estopped” enforcing that particular part of the contract. An insurer can be deemed to have waived its rights if it decided earlier not to hold a client to a particular part of the contract.

The concepts of waiver and estoppel came up in the case of  Bradfield v Royal Sun Alliance Insurance Company of Canada.

The Court of Appeal for Ontario ruled in favour of RSA in a disputed subrogated claim from State Farm. The Supreme Court of Canada heard May 17 an appeal from the Court of Appeal for Ontario. At the time of writing The Supreme Court of Canada had yet to issue a ruling.

It began in 2006, when Jeffrey Bradfield was injured in an accident. RSA insured motorcyclist Steven Devecseri, who was killed. Devecseri’s estate was sued by plaintiffs, including Bradfield, who had a family protection endorsement with State Farm.

RSA started defending Bradfield’s lawsuit against Devecseri three years before RSA found out about a coroner’s report showing that Devecseri had alcohol in his blood when he died. Devecseri had an Ontario M2 licence, which prohibits motorcyclists from riding with any alcohol at all in their blood.

In 2009, RSA took an off-coverage position after it learned about the coroner’s report. The original police report did not mention any blood alcohol level.

State Farm argued that by failing to take an off-coverage position in 2006, RSA’s conduct amounted to a waiver of its right to take an off-coverage position later. RSA countered that it did not actually know what the coroner’s report said when it started defending the lawsuit.

Originally in 2018, Ontario Superior Court Justice Alexander Sosna decided against RSA, ruling that Bradfield could recover $800,000 from RSA because RSA waived its rights. Bradfield settled with RSA after the Court of Appeal for Ontario overturned Sosna’s ruling.

Now, the Trial Lawyers Association of British Columbia is asking the Supreme Court of Canada to restore Sosna’s ruling as a matter of principle. Among other things, RSA argues the matter is moot because of the settlement.

When the 2006 motorcycle collision was reported to RSA, the insurer began defending and was not aware that alcohol was a component in the accident, said Satinder Sidhu, a Vancouver-based insurance and construction lawyer with Clark Wilson LLP. Sidhu made her comments during Top Cases & Industry Developments in P&C Insurance, a webinar produced by the Insurance Institute of British Columbia.

“The insurer did not go so far as to get the coroner’s report, which would have made it clear that alcohol was involved,” Sidhu said July 13 during the webinar.

If the Supreme Court of Canada restores the 2018 Ontario Superior Court of Justice ruling against RSA in Bradfield case, this could change Canada’s doctrine of waiver or estoppel and would be bad news for insurers, Sidhu suggested during the Top Cases webinar.

This is because the original 2018 ruling (overturned in 2019 by Ontario’s appeal court ) sets a very “high bar” for insurers in investigating claims to determine whether there is coverage, said Sidhu.

“The insurer would, arguably, have to overturn every stone when investigating a claim to determine if there is coverage.”

Waiver and estoppel are related but are not exactly the same thing.

The concept of estoppel essentially prohibits a party in a contract from acting inconsistently with representations it has made, where it would be unfair to do so, Sidhu said during her presentation.

In the context of insurance coverage disputes, estoppel prevents an insurer from denying coverage on the basis of an insured’s breach of contract in certain situations — for example, when an insurer represents to the insured that the contract term will not be enforced, and then the insured relies on this representation to its detriment.

Waiver, on the other hand, is when an insurer decides not to hold the insured to a particular contractual obligation.

The Nova Scotia Supreme Court explained the concept of estoppel in Snair v. Halifax Insurance Nationale-Nederlanden North America Corporation, released in 1995, said Sidhu.

“As the law stands, pursuant to Snair and upheld in Bradfield, there must be knowledge on the part of the insurer of the facts that could invalidate coverage,” Sidhu said July 13.

During a May 17 Supreme Court of Canada hearing, Chief Justice of Canada Richard Wagner asked the lawyer for the B.C. Trial Lawyers Association, Ryan Dalziel, whether RSA needed to have “constructive knowledge” of motorcyclist Devecseri’s policy breach (by driving with alcohol in his system) in order to be “estopped” from taking an off-coverage position. Dalziel replied in the affirmative.

Chief Justice Wagner said he is not aware any legal precedents for this.

“I am going to invite the court to make a very incremental extension of the common law that would create the possibility of presumed knowledge in certain circumstances in the claims assessment process,” Dalziel told the Supreme Court May 17.

Chief Justice Wagner asked if this would be “new law,” to which Dalziel replied “yes.”

The Snair case began in 1988, when Shelley Anne Conrad suffered massive brain damage as result of a boating accident in Nova Scotia. Conrad sued James Snair, who in turn had a coverage dispute with his insurer. A Nova Scotia court ruled that Snair was liable for the accident. The insurance policy had an exclusion for liability for “bodily injury to you or to any person residing in your household other than a residence employee.”

In 1993, the insurer took an off-coverage position on the grounds that Conrad lived with Snair at the time of the 1988 accident.

Ultimately the Nova Scotia Supreme Court ruled that even though Conrad and Snair at one time lived together, they were not actually in the same “household.” The court also found that even if Conrad and Snair were considered to be in the same “household,” the insurer was in any case estopped from taking the off-coverage position in 1993 because the insurer actually knew in 1988 that the plaintiff lived in the same residence as the defendant.

In the 2019 Bradfield ruling, the Court of Appeal for Ontario “clarified that the knowledge requirement is not met by the simple existence of the information. The insurer has to actually possess that information,” Sidhu said July 13 at the IIBC webinar.

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