The Courts increasingly test the parameters around which an insurer is entitled to claim exclusion to the insured’s insurance policy. One of such recent cases was Bradfield v. Royal and Sun Alliance Insurance Company of Canada, 2019 ONCA 800 reversed Bradfield v. Royal Sun Alliance Insurance Company of Canada, 2018 CarswellOnt 15936.
The plaintiffs Jeffrey Bradfield, Paul Latanski and Steven Devecseri were riding their motorcycles. Devecseri was in front. He drove onto the wrong side of the road and collided with Jeremy Caton’s automobile. Devecseri was killed and Jeremy Caton was injured. Jeffery Bradfield did not hit Caton’s automobile.
Royal and Sun Alliance Insurance Company of Canada (RSAICC) insured Devecseri under a standard motor vehicle policy. The policy had a CA$1 million limit and one of the policy violations was operating a motorcycle with any alcohol in the insured’s bloodstream.
At the time of the first action initiated by Caton, RSAICC defended the claim without reservation of rights or non-waiver agreement. Devecseri and Jeffrey Bradfield were found liable for damages resulting from the accident. The Court did not determine whether RSAICC was required to provide insurance coverage to Devecseri.
Three years later and in a subsequent action, the Court had to determine whether RSAICC was entitled to take an off-coverage position and reduce the Devecseri estate’s policy limit from CA$1 million to CA$200,000 after it learned that Devecseri had contravened to the terms of his insurance policy by drinking before the accident. RSAICC posited that: it did not have all of material facts from which to determine there was policy breach and therefore knowledge could not be imputed; the knowledge requirement was not whether the insurer could obtain material facts but whether they did have material facts necessary to enable them to know of a policy breach; there was no difference in defence of action whether insurer added itself as a statutory third party or was a defendant in action; and there was no evidence that any of the steps taken by the insurer in defending the case prejudiced the estate.
Waiver and estoppel
The trial judge held that RSAICC waived its right to rely on Devecseri’s policy breach because RSAICC’s off-coverage position came too late. The trial judge imputed knowledge of the breach of policy to RSAICC “from a common-sense perspective” and that the information existed and was discoverable in the coroner’s reports. The trial judge said that the issue of estoppel was rendered moot and His Lordship determined that Jeffrey Bradfield was entitled to recover judgment in the amount of CA$800,000 against RSAICC.
RSAICC appealed the trial judge’s decision that it was responsible to provide insurance coverage to Devecseri’s estate.
The Ontario Court of Appeal found that both waiver and promissory estoppel require actual knowledge of the policy breach. Knowledge could not be imputed and RSAICC had no duty to obtain the coroner’s report. Amongst other reasons, there was no written waiver of the breach by RSAICC to demonstrate a clear intention to waive the policy breach, pursuant to section 131(1) of the Insurance Act, R.S.O. 1990, c. I.8 which is on all fours with section 521 of the Insurance Act, R.S.A. 2000, c. I-3.
While there are other reasons for the decision of the Ontario Court of Appeal, Bradfield confirmed that an insurer must have actual knowledge of material facts constituting a policy breach in order to be bound by any steps taken in defence of an insured, even where such information was in existence prior to the steps.
In my opinion, plaintiffs’ counsel need to be on the alert that pockets which start out as deep ones may become shallow at a late stage in the action(s).
 Referenced and relied upon in Pucci v. The Wawanesa Mutual Insurance Company, 2020 ONCA 265