Insured who Committed Material Breach was Entitled to Relief from Forfeiture
An application by the insurer for a declaration that it had no obligation to defend or indemnify the insured based on a material breach was dismissed. The insured argued successfully that it was entitled to relief from forfeiture pursuant to s.98 of the Courts of Justice Act as the breach was one of imperfect compliance rather than non-compliance.
Aviva Canada Inc v. Gravenhurst Taxi Ltd.,  O.J. No. 5644, November 3, 2014, Ontario Superior Court of Justice, T.M. Wood J.
This was an application by the insurer for a declaration that it had no obligation to defend or indemnify the insured in a motor vehicle accident action. The insured operated a taxi business. The insured was provided with a certificate of insurance at each renewal, but not the policy. The insured argued that it was not aware of a provision that required the insured to inform the insurer of any driver changes during the policy period. The insurer argued that the insured was aware. The insured provided an updated driver list at each renewal and argued that the insurer was aware that they regularly added drivers during the policy period.
One of the insured’s drivers was in a motor vehicle accident. This driver had been added to the list during the policy period. The driver had a previous reckless driving conviction and had an epileptic episode in the past. The insurer denied coverage on the basis of a material breach.
The insured argued unsuccessfully that the insurer was estopped from denying coverage because it had condoned mid-period changes to the driver list in the past. However, the insured argued successfully that it was entitled to relief from forfeiture pursuant to s.98 of the Courts of Justice Act, R.S.O. 1990, c.43, as the breach was one of imperfect compliance rather than non-compliance. The court engaged in a two-part analysis. First, the court looked to whether the breach was fundamental or incidental. The court held that it was incidental as there was nothing to suggest that coverage was conditional on keeping the insurer informed promptly of new drivers. Second, the court examined the insured’s conduct, the gravity of the breach and the prejudice to the parties using the three part test from Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co.,  2 S.C.R. 490. The court found that all three factors favoured the insured and ordered that the insurer provide the insured with a defence in the MVA action.
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