Recently, the Ontario Court of Appeal decided a case in which an insurance company was estopped from denying defence to an insured because it had defended him for 10 months prior to its application.

Estoppel may be described as a legal doctrine by which a court may prevent, or “estop” a person from going back on his or her word.

What Happened?

In April 2013, the insured was involved in a dirt bike accident. He collided with an ATV (all-terrain vehicle), injuring the ATV driver. In April 2015, the insured was sued in negligence.

The insured’s automobile insurer had the insured sign a non-waiver agreement and issued a reservation of rights letter before ultimately denying coverage.

The insured also had a home owner’s policy with another insurance company. In June 2015, without securing a non-waiver agreement or issuing a reservation letter, the home owner insurer appointed a lawyer to defend the claim against the insured.

However, in 2016, the home owner insurer inquired further into the coverage issue, and in March 2016, it advised the insured in writing that it was denying coverage and would be moving for a declaration that it was not obligated to defend or indemnify him.

The home owner insurer’s position was that the policy did not cover liability arising from the use of the dirt bike, as it was required to be registered. In taking this position, it invoked an exemption from coverage in the policy for vehicles not owned by the insured that were “required to be registered under any government authority” (the unowned registrable vehicles exemption).

In August 2016, the home owner insurer sought declarations that the insured did not have coverage, nor was the home owner insurer obliged to defend him.

During the course of the application, the home owner insurer also invoked a further exemption from coverage for vehicles used without the owner’s consent (the consent exemption).

In October 2018, the application judge denied the application, holding that the home owner insurer had either waived its right to deny coverage and refuse to defend, or was estopped from doing so.

The home owner insurer appealed the decision.

Court of Appeal Decision

First, the court found that, contrary to the insurer’s argument, the application judge distinguished between waiver and estoppel, and clearly stated that the application must fail on either basis.

The court turned to the issue of estoppel. Detrimental reliance is one element required for a finding of estoppel. The application judge found that by the time the insurer denied coverage, the litigation was “well advanced”, and he drew an inference of prejudice.

The insurer argued that the litigation was not well enough advanced to trigger presumed prejudice. The court explained:

“Implicit in [the insurer]’s contention is that “well advanced” litigation is a formal legal status that can be identified by the stage of litigation, and that prejudice is presumed as a matter of law where litigation reaches this stage.”

The court was not persuaded by the insurer’s argument. Instead, it found that immediately upon being served with a statement of claim in April 2015, the insured contacted his insurance broker and was put in touch with adjustors for his two insurers. While the automobile insurer promptly issued a non-waiver agreement and a reservation of rights letter, and ultimately denied coverage, the home owner insurer pursued the claim and took steps to defend the insured. The court stated:

“Ultimately, the lawyer [the home owner insurer] appointed for [the insured] acted for him for 10 months before [the home owner insurer] gave [the insured] any reason to believe his liability was not covered and he would not be defended. In these circumstances, the application judge was entitled to conclude that the litigation was well-advanced, and to infer that allowing [the home owner insurer] to now assert that there is no coverage and therefore no duty to defend [the insured] would be detrimental to him.”

As a result, the court refused to interfere with the application judge’s estoppel finding.

Additionally, it stated that because estoppel and waiver were redundant mechanisms for preventing the insurer from denying coverage and its obligation to defend, it did not need to consider whether the application judge erred in applying the doctrine of waiver.

As a result, the appeal was dismissed.

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Many of us rely on insurance to protect us, our families, our businesses and assets in the case of unforeseen difficulties. However, when policyholders wish to make a claim on their insurance, they often discover their coverage is inadequate or their claim is denied for an unexpected reason. At Campbell Litigation, our Waterloo insurance disputes lawyers will advocate for your claim to be paid out in accordance with the coverage you have paid for.

If you have an insurance issue, hiring an experienced lawyer can be your best chance to negotiate the benefits you are entitled to. At Campbell Litigation, our lawyers have worked in this region for decades, developing a reputation for dedication to clients.

If you require legal advice about your insurance issue, call us at 519-886-1204 or contact us online. We offer prospective insurance clients a free initial consultation.