At issue on this application was whether a duty to defend arose when an insured was in clear breach of a condition of the statutory Ontario Automobile Policy (OAP), and, if so, whether an Insurer was estopped from denying liability. A claim was made against the insured after an accident involving his son. The accident report indicated that the applicant was street racing at the time of the accident, and he was criminally charged. The Respondent Insurer conducted an investigation and had filed a Statement of Defence while reserving its right under the policy to deny liability. The Applicant claimed the Insurer was thus estopped from refusing to defend or indemnify. The application was dismissed as the Court held that while breach of an OAP condition was not sufficient for denial, other factors supported denial. No real steps had been taken in the action, and the Insured had been advised of the Insurer’s reservation of rights to deny liability. There was no prejudice.

Bejinariu v. Primmum Insurance Co., [2004] O.J. No. 516, Ontario Superior Court of Justice

The applicant was named as a Defendant in two separate actions arising out of an automobile accident. Both actions alleged that the applicant was driving the Insured’s vehicle and was racing with another Defendant. The applicant was charged under the Criminal Code with causing bodily harm by criminal negligence and with failure to stop at the scene of an accident. Primmum retained an independent adjuster to investigate. The adjuster sent a letter to the Insured indicating that any action taken to investigate or defend the claim or handle any litigation shall not be construed as a waiver of the right to deny liability. After the investigation Primmum denied coverage on the basis that the Insured breached certain statutory conditions under Ontario Automobile Policy (“OAP”), section 4(2), which precludes racing.

Initially Primmum had retained a law firm to defend the Insured but subsequently instructed counsel to bring a motion to remove themselves as solicitors of record. On the motion, Primmum was added as a statutory third party, pursuant to section 258(14) of the Ontario Insurance Act, which allows an Insurer who denies liability to be added as a third party in order to participate in the defence without prejudicing any defence it may have against the Insured or any right to recover against the Insured.

On this application, the court considered whether an Insurer is obliged to defend an Insured where there is an allegation of a breach of a statutory condition. The court applied the Ontario Court of Appeal decision in Longo v.Maciorowski (2000), 50 O.R. (3d) 595 to find that there is no immutable legal principle whereby an Insurer may deny coverage where a breach of an OAP condition is alleged; however, four factors supported the Insurer’s position:

1. There was an allegation of a clear breach, and the word “racing” is used in the pleadings;
2. There was no material supporting a claim for estoppel or relief put forward by the Insured;
3. The Insurer invoked the statutory mechanism to be added as a third party; and
4. As a third party, the Insurer had contested liability and quantum of the claim made against the Insurer in language that was adopted by the Insurer in his own Statement of Defence.

The court also considered whether Primmum was estopped from being relieved from its duty to defend because it took steps in the Insured’s defence. The court held that the Insurer was entitled to rely on the reservation of rights provision in the adjuster’s letter. Mere delivery of a Statement of Defence was not sufficient to estop the Insurer from denying liability, particularly where it had invoked the statutory mechanism to be added as a third party and drafted its defence in a manner that contests both liability and damages in the same manner as the Defendant.

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