Off-coverage positions and the timing of a breach of policy defence: Bradfield v. Royal Sun Alliance Insurance Company of Canada, 2019 ONCA 800

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On October 7, 2019, the Ontario Court of Appeal released its decision in the case involving Royal Sun Alliance Insurance Company of Canada (“RSA”) and Jeffrey Bradfield. This decision is noteworthy as it may have the effect of decreasing an insurer’s burden to promptly investigate to determine coverage.

Facts

At all relevant times, RSA provided motorcycle insurance to Steven Devecseri (“SD”). In May 2006, SD was driving his motorcycle with Jeffrey Bradfield (“Bradfield”) and Paul Latanski (“Latanski”). SD guided the group onto the wrong side of the road where they collided with Jeremy Caton’s (“Caton”) automobile. SD died in the accident, and Caton was injured.

Caton brought an action in which SD and Jeffrey Bradfield were found liable for damages resulting from the action. During discoveries, on June 24, 2009, RSA learned that SD had consumed alcohol prior to the accident. Alcohol consumption was not permitted under the terms of his policy with RSA.

As a result, RSA took an off-coverage position on the basis that SD ‘s blood alcohol level being above zero was a breach of the policy. RSA advanced this defence over three years after the accident, and over a year after the claim was brought. At the initial trial, the issue of whether RSA was required to provide insurance coverage to SD was deferred to a second trial.

In the second trial, the judge considered whether RSA had waived its right to rely on SD’s policy breach. The trial judge determined that RSA had taken its off-coverage position too late and Bradfield was entitled to recover $800,000.00 from RSA. The judge reasoned that:

  • RSA did not take steps to acquire the coroner’s report in 2006, when it was initially available;
  • knowledge of the policy breach was imputed at the time the report was available; and
  • RSA’s failure to take an off-coverage position after the report was available in 2006 and prior to defending the claim in 2008 amounted to a waiver by conduct of SD’s breach.
    (2018 ONSC 4477 (CanLII))

RSA appealed the finding that it had waived its right to deny coverage. RSA asserted that waiver requires actual knowledge of the breach, and that a lack of knowledge prevented the doctrine of estoppel.

The Appellate Court’s Decision

The Appeal was allowed. The Ontario Court of Appeal found that RSA did not waive its right to, and was not estopped from, denying coverage.

RSA engaged an adjuster to investigate the accident in 2006. The adjuster obtained a police report that concluded that excessive speed was a major factor in the collision, but made no mention of alcohol. The adjuster interviewed Bradfield and Latanski, but neither of them indicated that SD had been drinking. None of the parties obtained the coroner’s report.

RSA’s position was that it had no knowledge of the breach until 2009, at which point it promptly denied coverage.

The central issue was what constituted “knowledge” under the circumstances. The trial judge imputed knowledge to RSA on the basis that the evidence was available.

The Court of Appeal considered, but ultimately distinguished, the decision in Logel Estate v Wawanesa Mutual Insurance Company, 2009 ONCA 252. In Logel the insurer was prevented from taking an off-coverage position after it had initially agreed to defend.

In this case, RSA had no actual knowledge that SD breached the policy by consuming alcohol until 2009. Knowledge was not be imputed as this was not a case where RSA failed to appreciate the significance of any information.

Further, there was no legal authority to support an insurer’s obligation to obtain a coroner’s report. RSA was not aware of the information contained in the coroner’s report. There was no evidence, or reasonable possibility, that RSA knew of this information and chosen not to obtain the report anyway.

The Court of Appeal also found that RSA was not estopped from asserting a breach of policy as, again, it did not have knowledge of the breach.

Takeaway

When dealing with waiver and estoppel, this decision suggests that an insurer’s knowledge requirement is not whether they can obtain material information, but whether they ultimately do obtain the material information necessary to enable them to become aware of a policy breach. This decision could have the indirect effect of lessening the diligence with which insurers are required to investigate incidents to determine coverage, and the reasoning may be applicable to insurance claims beyond motor vehicle accidents.

For more information, please contact Stevan Manojlovic or another member of Dentons’ Insurance group.