December 21, 2021
Newsletter – December 2021
I Didn’t Know That!!: The Supreme Court of Canada Confirms the Role of an Insurer’s Knowledge in Considering Whether Estoppel Should Defeat a Denial of Coverage
In the insurance context, the legal doctrine of “promissory 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. When an estoppel is found, the insurer is deemed to have affirmed coverage by either words or conduct that later make it unfair for the insurer to deny coverage, and the court may prevent it from doing so.
Obviously, the effect of estoppel can be extremely detrimental to an insurer, and it is primarily for this reason that the recent decision of the Supreme Court of Canada in Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47 will be of great interest to insurers.
Royal & Sun Alliance’s (“RSA”) insured had died in a motorcycle accident. RSA proceeded to defend his estate in two lawsuits. At examinations for discovery, RSA learned that its insured had consumed alcohol immediately prior to the accident, in breach of the conditions of the RSA policy. RSA then denied coverage and ceased defending, which reduced RSA’s exposure to the $200,000 statutory minimum limits. One of the actions later proceeded to trial, resulting in a judgment against the estate and a co-defendant, B, and a judgment for B on a cross-claim against the estate. B then took steps to enforce the judgment directly against RSA.
The trial judge had found that RSA waived its right to deny coverage by providing a defence to the estate. The Court of Appeal allowed RSA’s appeal, holding that s. 131(1) of the Ontario Insurance Act, at the relevant time, required that waiver be writing, but RSA did not waive any rights in writing. With respect to estoppel, as RSA lacked knowledge of the breach when it agreed to defend, RSA’s conduct could not amount to a promise that was intended to affect the parties’ legal relationship.
B sought to appeal the decision to the Supreme Court of Canada, but after being granted leave, he reached a settlement with RSA and discontinued his appeal. The Trial Lawyers Association of B.C. was permitted to be substituted as the appellant before the Supreme Court. The appeal to the Supreme Court of Canada only addressed the issue of estoppel, as the parties agreed that s. 131(1) of the Ontario Insurance Act, at the relevant time, required that waiver be given in writing.
At the outset, the court noted that promissory estoppel is an equitable defence the elements of which are: (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 his or her detriment.
The court held that RSA gave no promise or assurance intended to affect its legal relationship with B because at the time it provided the defence RSA lacked knowledge of the insured having breached the policy conditions by consuming alcohol. The requirement that a promise or assurance be intended to affect the parties’ legal relationship requires that the promisor know of the facts that are said to alter that relationship. RSA could not be taken to have intended to alter a relationship by promising to refrain from acting on information that it did not have.
The appellant also argued that RSA should be imputed with constructive knowledge arising from a purported breach of its duty to investigate. That is, if RSA had investigated more before defending they would have learned of the relevant facts. The court agreed that had RSA known of the facts that demonstrated the insured’s breach (that he had consumed alcohol prior to the accident) but had failed to appreciate the facts’ legal significance (that it was a policy breach), knowledge of that legal significance could have been imputed to RSA. But this was not such a case, because RSA did not know of these facts.
In any event, the court found that constructive knowledge arising from a breach of duty to investigate is not enough to ground an estoppel, 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. The court noted insurers have strong economic incentives to deny coverage, which the court has sought to temper in the public interest. The court stated that, far from tempering such incentives, the appellant’s submission would encourage insurers “to go the extra mile to find policy breaches.” The court also stated that there is no basis in law for a third‑party claimant to be able to ground estoppel on alleged breaches of an insurer’s duty to its insured. The duty to investigate fairly is owed only to the insured.
This decision provides welcome clarification regarding the doctrine of estoppel in the insurance context and the knowledge that must be attributable to an insurer before an estoppel will be found. And while it shows that insurers who agree to defend without a reservation of rights will not necessarily be estopped from later denying coverage if they come into possession of new facts supporting a denial, it also underscores the need for well drafted reservations of rights whenever possible.
“Other Insurance” – A “two for one” deal?
In Northbridge General Insurance Corp v XL Specialty Insurance Co, 2021 BCSC 1682, an insurer who issued a professional liability policy refused to contribute to defence costs on the basis that its insured had “other valid and collectible insurance” under a CGL policy.
The insured was an inspection company that was sued by a strata corporation for failing to maintain a transformer device. The transfer had failed and caused a power outage to the strata building, its plumbing system to freeze, and resulting water egress to the rest of the building.
The Underlying Action
In the underlying action, the plaintiff strata corporation made two separate categories of allegations. In the first category of allegations, it alleged that that the inspection company failed to reasonably inspect, test, service, and maintain the transformer in accordance with industry standards (the “non-professional allegations”).
In the second category of allegations, the Strata alleged that the inspection company failed to retain and/or ensure that its employees were competent, qualified, and complied with industry standards (the “professional liability allegations”).
The defendant insured reported the claims to both its general liability insurer (Northbridge) and its professional liability insurer (XL Specialty Insurance).
Positions of the Competing Insurers
Northbridge conceded that the non-professional allegations causing “property damage” fell within the general liability grant of coverage and acknowledged a duty to defend. However, Northbridge took the position that an exclusion for property damage caused by a negligent failure to provide “professional services” applied and said that XL ought to pay the costs of defending the professional liability aspects of the claim.
XL contended that the Strata’s allegations arose from the provision of “maintenance services” and not “engineering services” and therefore did not allege professional negligence. XL also took the position that, in light of its “other insurance” clause stating that the XL policy was excess to any “…other valid and collectible insurance is available to the Insured, in addition to Design Professional’s Insurance..”, the Northbridge policy provided that valid and collectible insurance.
The Court applied the interpretive analysis set out in the Supreme Court’s decision of Progressive Homes Ltd. v Lombard General Insurance Co. and determined that it was possible that the allegations in the underlying action could result in findings of both professional and non-professional negligence.
As each policy provided separate coverages for different kinds of loss, there was a possibility that each of the policies could be implicated. The Court held there was a further possibility that some of the Strata’s allegations would be excluded from coverage by operation of the CGL Policy’s “professional services” exclusion clause.
Because of these possibilities – XL could not establish that there was “other valid and collectible insurance” for claims relating to professional liability for its “other insurance” clause to be triggered.
The Court ordered XL to indemnify Northbridge for 50% of defence costs and to share ongoing legal costs on a 50/50 basis.
Insurance policies typically contain an “other insurance” clause which effectively allows them to operate as excess insurance, when the insured has coverage for the same loss under another policy.
However, where there is a mere possibility that the underlying action contains allegations that could individually fall within one of the two policies, the “other insurance” clause may not be triggered. That is to say, when it is possible that a category of allegations in the underlying action could fall within the grant of coverage of one policy, but not another, then an “other insurance” clause referencing “valid and collectible insurance” under the other policy can mean that each type of policy is primary for different parts. Insurers who are currently funding defence costs on behalf of their insured should carefully analyze the allegations in the underlying action and determine whether there are categories of allegations that are not covered under their policy, but could be covered under another policy of insurance.
If so, the insurer that is funding the cost of defence could seek contribution and indemnity from the other insurer on the mere possibility that allegations against its insured could fall severally within the two policies.
Are Virtual Examinations for Discovery Here to Stay?
By Tiffany Sillanpää, Dolden Wallace Folick Toronto, Email: firstname.lastname@example.org
Since 2020, much of civil litigation has moved to the virtual world of Zoom. Everything from court hearings and mediations to examinations for discovery have taken place virtually with parties and their counsels sitting in separate locations – often many kilometers apart.
There is no question that this has saved everyone time and money. But, as the end of the pandemic starts to come into focus, questions about whether courts will require a full return to “the before times”, or continue incorporating virtual options for far-flung parties, remain in the back of everyone’s minds.
In the recent case of Worsoff v MTCC 1168, 20211 ONSC 6493, the Ontario Superior Court’s Justice Myers was faced with such questions. Particularly, he addressed the value of keeping the practice of virtual examinations for discovery available as an ongoing option for parties in litigation.
In Worsoff v MTCC 1168, the parties could not agree on the method by which to conduct examinations for discovery prompting the plaintiff to bring a motion requesting the court to compel participation in an “in-person” oral examination for discovery. The defendant had agreed to examine the plaintiff virtually, and the plaintiff had not objected. However, the plaintiff insisted on examining the defendant in person.
Plaintiff’s counsel argued that in-person examinations were the “best method” and that there was no reason why the parties could not meet in person when the provincial COVID rules allowed for large gatherings and sporting venues to re-open.
However, the parties were located across Ottawa and Toronto which meant travel by at least one party would be required.
Justice Myers rejected the idea that “the pandemic is over so we should all just go back to the way it was” or that “the ‘good old days’ were actually good.” He emphasized that counsel should work together amicably to agree upon methods of discovery and that any party insisting on a particular method “should have a good reason for declining to cooperate.”
Overall, Justice Myers said that discoveries lend themselves well to the virtual format and the degree of difference between in-person and virtual methods in such a routine litigation step is of little importance. While Justice Myers noted that virtual examinations may not work in cases where the parties are not familiar with technology or risks of abuse are present, technology was not going to be an issue in the case at hand. Additionally, a witness’s poor internet connections alone was not a good enough reason to compel everyone to attend in person as the witness could always just attend his lawyers’ office to participate.
This case suggests that courts may be open to allowing the use of virtual procedures by litigants (such as examination for discoveries), even as the pandemic recedes. Justice Myers’ decision is welcome news for insurers who want to continue taking advantage of the cost and time savings that virtual examinations for discovery have afforded during the pandemic. The virtual method also holds the potential to speed-up litigation as witnesses and counsel often do not have to put aside full days of time to participate, making them easier to fit into already busy schedules.
The Ontario Court of Appeal Lifts the Soft Cap on Damages for Fatality Cases
By Robert Smith, Dolden Wallace Folick Toronto, Email: email@example.com
Until now, in cases involving deceased relatives, Ontario litigants had operated on the assumption that $100,000 (in 1992 dollars) was the upper limit for an award of damages for loss of guidance, care and companionship under the Family Law Act, R.S.O. 1990, c. F.3. That assumption came from the Ontario Court of Appeal’s decision of To v. Toronto Board of Education. Those days are now over. In Moore v. 7595611 Canada Corp., 2021 ONCA 459, the Ontario Court of Appeal upheld a jury award of $250,000 in damages granted to the parents of a young woman who tragically died in a fire. This is a decision that insurers should make note of because, under certain circumstances, the old $100,000 upper limit has been shattered.
The facts of this case are disturbing and egregious. The deceased lived in the basement apartment of a rooming house. The Landlord had blocked off access to the rooming house from the basement apartment, leaving the apartment with only one entrance and exit. A fire engulfed that doorway in flames and the deceased had to wait for firefighters to arrive. She suffered third-degrees burns over half of her body and the Plaintiffs, her parents, had to go through a nightmarish experience while she clung to life at a hospital. They eventually made the decision to remove her from life support.
At trial, a jury awarded $250,000 for loss of guidance, care and companionship to each of the Plaintiffs. The Landlord appealed and relied on To v. Toronto Board of Education to support its argument that the award was too high.
The Court of Appeal upheld the larger award on two grounds. First, it held that an appellate court should only overrule a jury’s award of damages if it “shocks the conscience of the court” or is “so inordinately high (or low) as to constitute a wholly erroneous estimate of the guidance, care and companionship loss.” These precedents establish a deferential standard for determinations made by juries.
Second, the Court held that To v. Toronto Board of Education, and later cases that interpreted it, were all careful to reinforce the idea that there is no judge-made cap for this form of damages. There is also no legislated cap on damages in Ontario, as there is in other Canadian provinces (for example, Alberta). Rather, the Court in To v. Toronto Board of Education held that $100,000 (in 1992 dollars) “might be viewed as being the high end of an accepted range” of damages. In the recent appeal (Moore v. 7595611 Canada Corp) the court held that the award of damages is to be determined based on the factual circumstances of each case.
In Moore v. 7595611 Canada Corp there was evidence of a strong family relationship that the Plaintiffs had with the deceased. Thus, the court concluded that the award of damages, while high, did not shock the conscience of the court.
The $100,000 “soft cap” on damages for loss of guidance, care and companionship was always meant to be taken with a grain of salt. It was a useful shorthand for the general range of damages that our legal system believed was fair. The lack of a legislated cap on damages, combined with the deference afforded to juries, made a case like Moore inevitable. Insurers should be aware of this because the plaintiff’s Bar is likely going to use Moore to argue that the old $100,000 cap is no longer good law and will try to use it as leverage for higher settlements in fatality cases.
Be Careful What You Plead For: The Impact of a Criminal Conviction on Civil Liability
In a recent BC Supreme Court decision, Thatcher v Lowe, 2021 BCSC 590, the court held two defendants liable for assault on the basis of their guilty pleas in a related criminal action.
The plaintiff, Ryan Thatcher, was attacked by members of a motorcycle club after he was seen to be wearing a “Hells Angels” vest, when he was not in fact a member. He then brought a civil action against his attackers in relation to the assault and sought a summary judgment against two of them, Lowe and Mansfield. Both Lowe and Mansfield had previously been prosecuted in a criminal action for the assault, and had pled guilty in this related criminal proceeding. However, in the civil action, they both denied any involvement in the altercation with the plaintiff.
Criminal Convictions are Prima Facie Proof of Liability
In British Columbia, the Evidence Act, RSBC 1996, c 124, s 71, allows a criminal conviction to be admitted in subsequent civil proceedings to prove liability.
In this regard, a criminal conviction is considered prima facie proof that the defendant committed the tortious act, and is only rebuttable where it does not constitute an abuse of process. Liability may be rebutted where there is fraud or dishonesty, fresh and previously unavailable evidence to conclusively impeach the original finding, or where the stakes in the subsequent civil proceedings considerably outweigh the stakes in the criminal conviction. An abuse of process refers to “the court’s inherent jurisdiction to prevent a misuse of the court process in a way that would be manifestly unfair to a party or otherwise bring the administration of justice into disrepute.” If the rebuttal is successful, a criminal conviction becomes a relevant factor for the Court to consider when determining civil liability.
In Thatcher v Lowe, Lowe and Mansfield raised various arguments in support of their position that allowing them to defend the civil action would not amount to an abuse of process, including that: there was no trial in the criminal action, there were inconsistencies between the facts set out in the notice of civil claim and the facts put to the sentencing judge in the criminal action; and the plea deal allowed them to keep their jobs and avoid legal fees, such that the stakes were not severe enough to justify a full and robust response.
The Court rejected the defendants’ arguments. Although the Court acknowledged there were differences between the facts set out in the notice of civil claim and the facts put to the sentencing judge, the Court stated that “what is important is whether the circumstances admitted by Mr. Lowe and Mr. Mansfield at the sentencing hearing establish all of the elements of the torts at issue”.
The Court concluded that the “careful and deliberate” guilty pleas entered by Low and Mansfield established the elements of assault, battery and false imprisonment.
The Court rejected the argument that the stakes were not high in the criminal action, noting that the defendants faced jail time and significant financial penalties.
The Court stated that the position taken by Lowe and Mansfield “is the very the very thing the doctrine of abuse of process is designed to address. It would wholly undermine the administration of justice to permit Mr. Lowe and Mr. Mansfield to derive the substantial benefits of their guilty pleas and then permit them to resile from their unequivocal admissions in these proceedings”.
The Court concluded that there was no genuine issue for trial with respect to the liability of Lowe and Mansfield for assault, battery and false imprisonment, and he granted judgment against them on those liability issues.
Insurers of commercial hosts (pubs, bars, nightclubs, etc.) will be familiar with the relevance of criminal proceedings on civil actions concerning assaults, including “patron on patron” assaults, and assaults by security staff. In such circumstances, criminal proceedings will often have concluded before the notice of civil claim has been filed.
Thatcher is a useful reminder that a criminal conviction of assault will almost always lead to a finding of liability in a related civil action. In these circumstances, establishing a third party claim for contribution and indemnity against an assailant should be a straightforward task.
Insurers of commercial hosts should also be aware that if the convicted assailant is employed by the commercial host, the commercial host faces the risk of being found vicariously liable for the employee’s actions in a related civil action. Insurers should consider revisiting the policy wordings of intentional act exclusion clauses to ensure that they effectively exclude deliberate acts of the insured where criminal responsibility is imposed.
Getting the Lawyer you Paid For – A New Test for Legal Representation at the Civil Resolution Tribunal
By Jorgan Tennant, Dolden Wallace Folick Vancouver, Email: firstname.lastname@example.org
There is an inherent contradiction that arises when an insured defendant applies for legal representation at the British Columbia Civil Resolution Tribunal (“CRT”). The CRT is intended, in part, to be an informal forum where parties can resolve minor disputes without the need for lawyers to get involved. This results in many, if not most, applications for legal representation being rejected. However, many defendants at the CRT have a right to legal representation through their insurance policy – a right they have paid for – and when their request is denied, they lose their contractual right to a defense. The question then becomes “how can an insurer meet their obligation to provide legal representation to their insured if their application for legal representation is denied?”
The solution that the CRT has so far permitted for this contradiction has been to allow lawyers to prepare submissions and perform all of the same duties for their clients as they normally would, but only allow the clients themselves to submit anything or interact with CRT members directly. Essentially, this amounts to legal representation, but with extra steps that increase the complexity and cost of handling these matters.
In the recent case of The Owners, Strata Plan BCS 1697 v. Hugo, 2021 BCSC 2030, the court clarified what CRT members must consider when deciding whether to permit an applicant to have legal representation. The decision suggests that the CRT will have to consider an insured defendant’s right to a defence in future applications for legal representation.
The CRT claim in this case was initiated by a claimant with no legal experience. The respondent was a strata corporation, and it had applied to the CRT to have an articled student, retained by the strata’s insurer, to be the legal representative for the strata. Otherwise, the strata’s representative for the CRT claim would be a litigator with 10 years of experience. The strata argued that it would be less prejudicial to the claimant if the articled student represented the strata rather than the strata representative, given the representative’s significant legal experience. The CRT denied the strata’s application. The matter was subsequently petitioned to the BC Supreme Court regarding this denial.
The petition was successful, and the Court stated that CRT members cannot simply point to a respondent’s opposition to an applicant’s request for legal representation as sufficient grounds to dismiss the request. The CRT member must give consideration to both the applicant’s and the respondent’s grounds for requesting or opposing legal representation. The court reasoned as follows:
In my opinion, the legislation requires that a CRT member hearing an application pursuant to s. 20(2)(c):
a) Consider whether the applicant has presented a cogent reason, grounded in considerations of justice and fairness, why it should be permitted representation in the particular circumstances of the proceeding at hand, focusing on the applicant’s reason for seeking representation, and not on the position of the respondent;
b) Consider whether allowing the applicant to be represented will prejudice the respondent, taking into account the respondent’s circumstances and, if the request is opposed, the cogency of the grounds of opposition; and
c) Balance the potential prejudice to each party and to the efficient resolution of the dispute in the interests of justice and fairness.
In denying insured defendants their right to a legal representative, the CRT is denying them a benefit for which they had specifically paid an insurance company for. Whether or not this reason is enough to compel the CRT to formally allow legal representation for insured defendants remains to be seen, but, at the very least, it is a reason that ought to be considered in future applications. Until then, lawyers representing insured defendants at the CRT will be forced to continue operating in the background.
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