Insurance law – Automobile insurance – Exclusions – Intentional or criminal acts – Breach of policy – Estoppel – Practice – Appeals
Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada,  S.C.J. No. 47, 2021 SCC 47, Supreme Court of Canada, November 18, 2021, R. Wagner C.J. and M.J. Moldaver, A. Karakatsanis, S. Côté, R. Brown, M. Rowe and N. Kasirer JJ.
To ground promissory estoppel, the promisor must know of the facts that are said to give rise to that legal relationship, and of the alteration thereto. A promisor cannot intend to alter a relationship by promising to refrain from acting on information that it does not have.
An insured died in a motorcycle accident while riding with his motorcycle group. The insurer appointed an adjuster to investigate the accident. The adjuster’s report concluded that further investigation would be required to know whether drugs or alcohol played any role. No steps were taken to obtain a coroner’s report.
A number of parties brought lawsuits against the insured for injuries from the accident, including two individuals that were part of the motorcycle group. The insurer defended the insured’s estate for about two years. An examination for discovery then took place of one of the motorcyclists, who said that he had seen the insured drinking alcohol prior to the accident. A coroner’s report was obtained, confirming that the insured had a modest quantity of alcohol in his system when he died. Shortly thereafter, the insurer advised the parties that it was taking an off-coverage position.
The other motorcyclist sought a declaration of entitlement to recover judgment against the insurer on the basis that the insurer had waived the insured’s breach or was estopped from denying coverage to the insured’s estate. The trial judge granted the declaration and found that the insurer had waived its right to deny full coverage by failing to take an off-coverage position and providing a defence to the insured’s estate as litigation progressed.
The Court of Appeal allowed the appeal, holding that at the time, s. 131(1) of Ontario’s Insurance Act precluded recognition of waiver by conduct. With respect to estoppel, it was held that the insurer’s conduct could not amount to a promise or assurance which was intended to affect the parties’ legal relationship.
The matter was further appealed to the Supreme Court of Canada, which dismissed the appeal. The SCC agreed that waiver by conduct was precluded by statute.
With respect to promissory estoppel, the SCC held that the insurer could not have intended to alter its legal relationship with the plaintiff because it lacked knowledge of the facts which demonstrated the insured’s policy breach.
Promissory estoppel requires that (1) the parties be in a legal relationship at the time of the promise or assurance; (2) the promise or assurance be intended to affect that relationship and to be acted on; and (3) the other party in fact relied on the promise or assurance. In the insurance context, estoppel arises most commonly where an insurer, having initially taken steps consistent with coverage, then denies coverage because of the insured’s breach of a policy term or its ineligibility for insurance in the first place. To prevent the insurer from denying coverage, the insured will attempt to show that the insurer is estopped from changing its coverage position based on its prior words or conduct.
To ground promissory estoppel, the requirement that a promise or assurance be intended to affect the parties’ legal relationship signifies that the promisor must know of the facts that are said to give rise to that legal relationship, and of the alteration thereto. The significance of intention depends entirely on what the promisor knows. A promisor cannot intend to alter a relationship by promising to refrain from acting on information that it does not have. Constructive knowledge arising from a breach of a duty to investigate is not enough, and to hold otherwise would be to unwisely and unnecessarily undermine the existing duty on insurers owed to insureds to investigate liability claims fairly, in a balanced and reasonable manner. However, where an insurer is shown to be in possession of the facts demonstrating a breach, an inference may be drawn that the insurer, by its conduct, intended to alter its legal relationship with the insured — notwithstanding the fact that the insurer did not realize the legal significance of the facts or otherwise failed to appreciate the terms of its policy with the insured.
This case was digested by Kora V. Paciorek, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Kora V. Paciorek at firstname.lastname@example.org.
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