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Insurance & Reinsurance
A recent case out of the Supreme Court of Canada is creating waves in the world of insurance litigation.
In Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47 (“TLABC v. RSA”), three drivers were involved in a motor vehicle accident, including the deceased defendant motorcyclist. The deceased’s insurer, RSA, provided his estate with a defence in the ensuing litigation for nearly three years, until it learned the deceased had alcohol in his system at the time of the accident. RSA then revoked coverage for breach of the policy terms. As a result, the amount available to the injured plaintiff decreased from the policy limits of $1 million to the provincial statutory minimum limit of $200,000.
The parties agreed that a coroner’s report, which was available soon after the accident, would have provided evidence of the breach. RSA took no steps to obtain this report for nearly three years.
Interestingly, the plaintiff relied on the doctrine of promissory estoppel and argued that RSA should be estopped from denying coverage to the deceased’s estate because it responded to the claim and provided the estate with a defence long after it could have discovered evidence of a policy breach with thorough and diligent investigation.
This was a novel approach to the doctrine. In the insurance context, estoppel generally arises where an insurer initially takes steps consistent with coverage, then denies coverage because of the insured’s breach of a policy term. 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.
The equitable defence of promissory estoppel requires:
(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, to the promisee’s detriment.
Ultimately, the Court found that the intent required in the second stage of the test required actual knowledge of the facts giving rise to the legal relationship, and any changes to that legal relationship. Specifically, RSA could not have intended to alter a relationship by promising to refrain from acting on information it did not have; in this case, that the deceased had alcohol in his system at the time of the accident.
The Court rejected the plaintiff’s argument that knowledge should be imputed because the insurer could have found the coroner’s report with thorough and diligent investigation. Insurers are under no obligation to third parties to investigate policy breaches. The duty imposed on insurers is to investigate fairly, and in a balanced and reasonable manner, and that duty is owed to the insured alone. To find otherwise would, according to the Court, result in liability insurance contracts providing greater protection to third parties than it provides to the insured.
The Court left two issues up for future consideration:
(1) to what extent provincial legislation allows a third-party claimant to assert an estoppel argument, as the
basis of the requisite legal relationship; and
(2) whether the detrimental reliance required by the test can be established by presumption in cases where
litigation has progressed to an advanced stage.
We anticipate seeing more from the Court on these issues in the future.