An insurer was held not to have waived a policy breach and was not estopped from relying on it to deny coverage where it learned of the breach after having begun defending the claim against its insured, even though evidence of the breach existed before it undertook the defence.
Bradfield v. Royal Sun Alliance Insurance, 2019 ONCA 800, per Thorburn J.A., lv. to app. allowed 2020 CarswellOnt 5669
Facts + Issues
On May 29, 2006, the Plaintiff Bradfield, Latanski, and Devecseri were riding their motorcycles with Devecseri leading in front. Devecseri pulled into the opposite lane of traffic, and collided with Caton’s car. Devecseri was pronounced dead at the scene and Caton suffered personal injuries.
Devecseri was insured by Royal and Sun Alliance (“RSA”) under a standard motor vehicle policy with a $1 million limit. In June 2006 RSA retained an adjuster to investigate the claim. The adjuster concluded that the major cause of the accident was speeding. He did not mention alcohol being involved, because he thought that police would have mentioned that in the collision report if it had been. Also, when he interviewed Bradfield and Latanski they did not tell him about any drinking. The RSA adjuster had been directed by RSA to access the coroner’s report but for reasons not explained neither he nor any of the parties did so. (It turned out later that the report noted alcohol in Devecseri’s system.) Bradfield’s insurer received hearsay information that there had been drinking but did not bring that to the attention of RSA’s adjuster.
On May 27, 2008, Caton brought a claim for damages against Bradfield, Latanski, and the Devecseri Estate. RSA filed a Statement of Defence on behalf of Devecseri’s Estate on March 5, 2009, without any reservation of rights letter or a non-waiver agreement. At Discovery on 24 – 25 June 2009 Latanski revealed for the first time that Devecseri and Bradfield had been drinking beer shortly before the accident. Bradfield testified that he had been at the bar in question but could not remember if Devecseri had been drinking. Two weeks after the Discovery RSA advised the other parties that it was “taking and ‘off-coverage’ position” with respect to its insured the Devecseri Estate on the basis that he had been in breach of policy of having a blood alcohol level above zero, contrary to his M2 licence. However, RSA did not ever provide the Devecseri Estate with notice that it was waving the policy violation per the Insurance Act, s. 131(1).
At the first trial in 2012, the jury awarded Caton $1.8 million, holding Bradfield 10% at fault and Devecseri’s Estate 90% at fault. Bradfield succeeded in his crossclaim against the Devecseri Estate. The issue of whether or not RSA could deny coverage was deferred.
At a second trial, Bradfield sought a declaration of entitlement to recover judgment against RSA for the remaining $800,000 available in Devecseri’s policy ($200,000 had already been paid out) pursuant to s. 258 of the Insurance Act, R.S.O. 1990, c. I.8. The trial judge awarded Bradfield $800,000 from RSA on the basis that RSA had waived its right to rely on a policy breach and was therefore responsible to pay the claim against Devecseri’s Estate.
The trial judge specifically noted that evidence existed in a coroner’s report dated August 29, 2006 that Devecseri had alcohol in his bloodstream at the time of his death. The report was available for release, yet RSA did not obtain the coroner’s report until after Discovery occurred in June 2009, and after RSA filed a Statement of Defence. Accordingly, the trial judge imputed knowledge of Devecseri’s breach to RSA and held that RSA had by its conduct waived its right to rely on the policy breach to deny coverage because evidence of Devecseri’s blood alcohol level existed and was available three years before the Discovery and, having found waiver, the issue of estoppel was moot.
RSA appealed the trial judge’s on the following issues:
- Whether the trial judge erred in holding that RSA waived its right to deny coverage to Devecseri’s Estate; and
- Whether the trial judge erred in holding that the issue of estoppel was moot.
HELD: For the insurer RSA; appeal allowed.
- The Court reviewed the law re waiver and estoppel:
30 Waiver and promissory estoppel are closely related: Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.,  2 S.C.R. 490 (S.C.C.), at para. 18.
31 The principle underlying both doctrines is that a party should not be allowed to resile from a choice when it would be unfair to the other party to do so. Both require “knowledge” of the policy breach: Economical Insurance Group v. Fleming (2008), 89 O.R. (3d) 68 (Ont. S.C.J.), at para. 31, aff’d 2009 ONCA 112, 69 C.C.L.I. (4th) 185 (Ont. C.A.), and Rosenblood Estate v. Law Society of Upper Canada (1989), 37 C.C.L.I. 142 (Ont. H.C.) at para. 53, aff’d (1992), 16 C.C.L.I. (2d) 226 (Ont. C.A.).
32 Waiver will be found where:
”the party waiving had (1) full knowledge of the deficiency that might be relied upon; and (2) the unequivocal and conscious intention to relinquish the right to rely on the contract or obligation. The creation of such a stringent test reflects the fact that no consideration moves from the party in whose favour a waiver operates. An overly broad interpretation of waiver would undermine the requirement of contractual consideration”: Saskatchewan River Bungalows, at para. 20, and Economical Insurance Group, at para. 31.
33 Knowledge can be inferred from conduct, but “that conduct must give evidence of an unequivocal intention to abandon rights known to the party waiving the right”: Canadian Federation of Students / Fédération canadienne des étudiant(e)s v. Cape Breton University Students’ Union, 2015 ONSC 4093 (Ont. S.C.J.), at para. 129.
42 The essential elements of estoppel are that:
1. As in the case of waiver, the insurer must have knowledge of the facts that support a lack of coverage; and
2. Unlike waiver, there must be “a course of conduct by the insurer upon which the insured relied to its detriment.” Rosenblood Estate, at p. 18.
- The Court held that RSA had not waived its right to deny coverage to Devecseri’s estate.
- It was held that RSA knew Devecseri had an M2 licence and that it was a breach of the policy to consume any alcohol before driving, but RSA had no actual knowledge that Devecseri breached the policy by consuming alcohol before driving his motorcycle until 2009.
- The Court held that the trial judge had erred in imputing knowledge of Devecseri’s blood alcohol level to RSA. It distinguished the case of Logel (Litigation Administrator of) v. Wawanesa Mutual Insurance Co.  I.L.R. I-4744 (Ont. S.C.J.), aff’d 2009 ONCA 252, 70 C.C.L.I. (4th) 188 (Ont. C.A.) which held that upon receipt of the status of the insured’s licence the insurer had knowledge of that information:
38 Second, unlike Logel, knowledge of a policy breach could not be imputed, as RSA did not have all of the material facts from which to determine there was a policy breach. This was not a case where RSA failed to appreciate the significance of information; it did not have information that Devecseri had been drinking and had thereby breached the terms of the policy.
- It was held that there was no evidence that RSA knew that the coroner’s report contained information showing that Devecseri’s blood alcohol content was greater than zero and knowing that, chose not to get the coroner’s report.
- Finally, there was no written waiver issued on the part of RSA to demonstrate a clear intention to waive the policy breach, as required by s. 131(1) of the Insurance Act.
- The Court held that the trial judge had not addressed estoppel, after erroneously finding against RSA on the basis of waiver. It held that RSA was not estopped from asserting a policy breach and denying coverage to Devecseri’s estate.
- RSA had no knowledge of the policy breach until June 2009, so it did not have the requisite knowledge of the facts that support a lack of coverage. Estoppel therefore did not arise.
- There was also no evidence of detrimental reliance, given that there was no evidence that any of the steps taken by RSA to defend the case operated to prejudice Devecseri’s Estate:
49 RSA expended time, effort and money to investigate and defend the action until July 2009. There is no evidence that any of the steps taken by RSA to defend the case operated to prejudice the estate. On the contrary, the litigation administrator for the estate and Caton’s counsel agreed there was no difference in the defence of the action whether RSA added itself as a statutory third party or was a defendant in the action. Thus, even if Bradfield’s submission is that prejudice is presumed was correct, that presumption has been rebutted and I find no detrimental reliance in this case.
This decision addresses the central issue of what constitutes knowledge of a policy breach by an insurer, which is a prerequisite for a finding of both waiver and estoppel. The Court of Appeal stated clearly that the insurer has the requisite level of knowledge if it “has actual knowledge of the material facts constituting a policy breach, whether or not the insurer appreciates the significance of those facts to its obligation to defend” (at para 51). Knowledge will not be imputed to an insurer unless the insurer has all of the material facts which would allow it to determine that there was a policy breach. The concept of “coulda, woulda, shoulda” does not apply – that fact that RSA could have discovered the policy breach earlier than it actually did not turn the tide against it.
The Supreme Court of Canada has very recently granted the insured leave to appeal: 2020 CarswellOnt 5669.