May 25, 2021 by Greg Meckbach
The Trial Lawyers Association of British Columbia is asking Canada’s top court to essentially make a “new law” barring a liability insurer from taking an off-coverage position after starting to defend a tort claim if the insurer previously had “presumed knowledge” — as opposed to actual knowledge — of a policy breach.
On May 17, the Supreme Court of Canada (SCC) heard arguments in Trial Lawyers Association of British Columbia v. Royal and Sun Alliance Insurance Company of Canada.
The tragedy leading to that case happened on May 29, 2006, when Jeffrey Bradfield, Steven Devecseri and Paul Latanski were riding their motorcycles. Leading the trio was Devecseri, who drove onto the wrong side of the road and collided with a car driven by Jeremy Caton. Devecseri died as a result of the collision.
Several different court disputes resulted. Caton sued Bradfield and Devecseri’s estate. Caton was awarded $1.8 million in damages, with Devecseri’s estate 90% liable and Bradfield 10% liable.
Separately, Bradfield sued Devecseri’s estate and settled.
Bradfield was insured by State Farm. His coverage with State Farm included a family protection endorsement providing coverage in case Bradfield were to sue an uninsured or underinsured at-fault motorist. Devecseri had $1 million in liability insurance with RSA. Devecseri also had an Ontario M2 licence, which — under the graduated licencing system – prohibits the motorcyclists from riding with any alcohol in their blood.
A 2006 coroner’s report revealed that Devecseri’s blood ethanol level was 31mg/100ml and his urine ethanol level was 46mg/100ml at the time of death. But RSA started defending Bradfield’s lawsuit against Devecseri’s estate before RSA learned Devecseri has been drinking before the accident.
So a key dispute is how much State Farm — which was officially acquired by Desjardins in Canada on Jan. 1, 2015 — can recover from RSA after State Farm pays out on Bradfield’s family protection endorsement. If RSA can take an off-coverage position, then the maximum RSA would have to pay out is $200,000, instead of the $1-million policy limit.
Bradfield’s claim against RSA is essentially a subrogated claim by State Farm, which provided a family protection endorsement for Bradfield. State Farm has since settled its subrogated claim against RSA. However, The Trial Lawyers Association of British Columbia is arguing that the SCC should — as a matter of principle — restore a 2018 Ontario Superior Court of Justice ruling against RSA, which was overturned in 2019 by the Court of Appeal for Ontario. RSA is arguing the settlement makes the case a moot point, and if it were not moot, that the 2019 Court of Appeal for Ontario ruling should stand.
Shortly after the 2006 accident, RSA had instructed the adjuster handling the tort claim against Devecseri’s estate to obtain a coroner’s report. But the report was not obtained that year.
It was not until June 2009 — during examinations for discovery — that RSA found out that Devecseri had been drinking alcohol before the accident. The following month, RSA took an off-coverage position.
In Bradfield v. Royal and Sun Alliance Insurance Company of Canada, released July 20, 2018, Justice Alexander Sosna of the Ontario Superior Court of Justice ruled that Bradfield could recover $800,000 from RSA. At that time, Justice Sosna ruled that RSA’s conduct — in failing to take an off-coverage position in 2006 — amounted to a waiver of its right to take an off-coverage position.
Justice Sosna’s ruling was reversed by the Court of Appeal for Ontario in a ruling released Oct. 10, 2019. Key to the ruling in favour of RSA was that it was not until 2009 that RSA had actual knowledge that Devecseri breached his policy by consuming alcohol before driving.
Now the association wants the SCC to rule that Justice Sosna’s original ruling should be restored. Essentially, the Trial Lawyers Association argues there are important public policy considerations that apply not only to State Farm’s subrogated claim against RSA but which also apply generally to any plaintiff suing an insured defendant.
A plaintiff in a motor vehicle personal injury cases could have a problem if the defendant’s insurer, some time into the litigation process, asserts that there is a breach of policy by the defendant, lawyer Ryan Dalziel told the Supreme Court of Canada May 17, 2021.
As a result, “plaintiffs and co-defendants are left in a situation in which the defendant is likely to be financially hollow,” said Dalziel, who is representing the Trial Lawyers Association of B.C.
So a key question is when a court can say it is too late in the process for the defendant’s liability insurer to go off coverage.
During the hearing, Chief Justice of Canada Richard Wagner asked Dalziel whether RSA would have to have had “constructive knowledge” of the policy breach in order to be “estopped” from taking an off-coverage position. Dalziel replied in the affirmative. Chief Justice Wagner said he is not aware of 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,” said Dalziel.
Chief Justice Wagner asked if this would be “new law” to which Dalziel replied “yes.”
Early in its investigation of the 2006 tragedy, RSA obtained accident reports which made no mention of alcohol by any drivers. Instead, a police report attributed excessive speed as a major factor.
RSA heard, for the first time, of any alcohol consumption, in 2009. That was when motorcyclist Latanski was examined for discovery.
What was disputed was whether the concepts of “waiver” and “estoppel” applied to RSA.
In its argument to the SCC, The Trial Lawyers Association of British Columbia said argue RSA was “estopped,” as of 2009, from taking the off-coverage positions.
“In this case on what basis would you say the insurer is presumed to know something that it did not know?” Justice Russell Brown asked Dalziel during the hearing.
Dalziel replied that an insurer’s duty of good faith includes a duty of investigation. When the duty of investigation is not carried, out it creates presumed knowledge of what should have been discovered in the investigation, argued Dalziel.
Feature image via iStock.com/alexsl