



COURT OF APPEAL FOR ONTARIO

CITATION: The Commonwell Mutual Insurance Group v. Campbell,
    2019 ONCA 668

DATE: 20190826

DOCKET: C66074

Paciocco, Harvison Young and Zarnett JJ.A.

BETWEEN

The Commonwell Mutual Insurance Group

Applicant (Appellant)

and

Shayne Campbell

Respondent (Respondent)

Cynthia Verconich and Jessica Forester, for the
    appellant The Commonwell Mutual Insurance Group (Commonwell)

Christine A. Powell, for the respondent Shayne Campbell

Heard: August 16, 2019

On appeal from the judgment of Justice Calum Macleod of
    the Superior Court of Justice, dated October 4, 2018, with reasons reported at
    2018 ONSC 5899, [2019] I.L.R. I-6101.

REASONS FOR DECISION

[1]

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

[2]

Mr. Campbells automobile insurer, The Guarantee Company of North
    America (Guarantee), had Mr. Campbell sign a non-waiver agreement and issued a
    reservation of rights letter before ultimately denying coverage.

[3]

The appellant, Commonwell Mutual Insurance Group (Commonwell), held Mr.
    Campbells home owners policy.
[1]
In June 2015, without securing a non-waiver agreement or issuing a reservation
    letter, Commonwell appointed a lawyer to defend the claim against Mr. Campbell,
    pleadings were exchanged, and other steps detailed below were taken.

[4]

In January 2016, plaintiffs counsel ultimately asked Mr. Campbells
    lawyer whether there was any issue about coverage. This provoked Commonwell to
    inquire further into the coverage issue, and in March 2016, Commonwell advised
    Mr. Campbell in writing that they were denying coverage and would be moving for
    a declaration that Commonwell was not obligated to defend or indemnify him. Commonwells
    position is that the policy does not cover liability arising from the use of
    the dirt bike, as it was required to be registered. In taking this position, Commonwell
    was invoking an exemption from coverage in the policy for vehicles not owned by
    the insured that are required to be registered under any government authority
    (the unowned registrable vehicles exemption).

[5]

In August 2016, that application was brought. Commonwell sought
    declarations that Mr. Campbell did not have coverage, nor was Commonwell
    obliged to defend him. During the course of the application, Commonwell also invoked
    a further exemption from coverage for vehicles used without the owners consent
    (the consent exemption). In October 2018, the application judge denied the
    application, holding that Commonwell had either waived its right to deny
    coverage and refuse to defend, or was estopped from doing so. Commonwell
    appeals that decision.

[6]

At the end of oral argument we dismissed Commonwells appeal with
    reasons to follow. These are our reasons, presented in an analytically
    convenient order.

[7]

First, Commonwell argues that the application judge erred in law in not
    distinguishing between waiver and estoppel, which are different legal
    doctrines. We do not agree. The application judge refers to these doctrines
    disjunctively. His comment that [e]ither waiver or estoppel would apply does
    not reflect a failure to decide whether either doctrine applied. In context, he
    is clearly saying that the application must fail on either basis.

[8]

Second, Commonwell argues that the application judge erred in applying
    each of these doctrines. We will begin with estoppel. Commonwell urges that the
    application judge erred in law by inferring prejudice when the litigation was
    not well advanced, and by making a palpable and overriding error of fact in
    finding prejudice to ground the estoppel finding.

[9]

To be clear, when Commonwell refers to prejudice, it is referring to the
    detrimental reliance element that a proper estoppel finding requires. To be
    even more precise, Commonwell does not contest that it had the knowledge that
    it now relies upon to deny coverage at the material time, nor does it dispute Mr.
    Campbells claim that he relied upon Commonwells conduct to conclude that his
    potential liability was covered and that he would be defended. Commonwell urges
    that the application judge erred in law and in fact in finding that Mr. Campbells
    reliance has been detrimental. We do not agree.

[10]

The alleged error of law is grounded in the application judges finding
    that by the time Commonwell denied coverage the litigation was well advanced,
    thus permitting him to draw an inference of prejudice. Commonwell contends that
    the litigation was not well enough advanced to trigger presumed prejudice. Implicit
    in Commonwells 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 decision
    relied upon,
Rosenblood Estate v. Law Society of Upper Canada
(1989), 37
    C.C.L.I. 142 (Ont. H.C.J.), aff'd. 16 C.C.L.I. (2d) 226 (Ont. C.A.), does not
    stand for these propositions, nor does any other authority brought to the
    courts attention. When R.E. Holland J. found in
Rosenblood
that
    where the insurer persisted in the defence through production and discovery
    into settlement negotiations prejudice must be presumed, he was not purporting
    to draw a line as to when litigation is well advanced. Nor was he identifying a
    presumption of law. He was simply explaining why prejudice could be inferred in
    the case before him. Whether to infer or find prejudice or detriment from the
    circumstances of a case is a factual determination; the question before us is therefore,
    whether it was a palpable and overriding error for the application judge to do
    so in this case.

[11]

Commonwell has not persuaded us that the application judge made a
    palpable and overriding error in finding detrimental reliance. Immediately upon
    being served with a statement of claim in April 2015, Mr. Campbell contacted
    his insurance broker and was put in touch with adjustors for Guarantee and Commonwell.
    Guarantee promptly issued a non-waiver agreement and a reservation of rights
    letter, and ultimately denied coverage. To the contrary, instead of taking similar
    prudent steps Commonwell appointed counsel for Mr. Campbell. An investigation
    of Mr. Campbells potential liability was then undertaken. A detailed statement
    of defence was prepared. Tactical decisions were made relating to who would be
    joined in the action, and crossclaims were issued. The tactical decision not to
    have a jury trial was made.

[12]

The application judge also found that the action proceeded to the
    discovery stage, as things had progressed to the point where plaintiffs
    counsel was seeking information from defence counsel, at least relating to
    coverage issues. We see no error in the application judges characterization
    that this was part of the discovery process. In any event, he was clear in the
    step he was describing.

[13]

Ultimately, the lawyer Commonwell appointed for Mr. Campbell acted for
    him for 10 months before Commonwell gave Mr. Campbell 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 Commonwell to now assert that there
    is no coverage and therefore no duty to defend Mr. Campbell would be
    detrimental to him.

[14]

There was also supplementary direct evidence of prejudice. As Mr.
    Campbell attested, he assumed that his interests were being taken care of during
    this 10-month period. He did nothing to secure his own counsel to second-guess
    the decisions being made by the lawyer Commonwell retained. Nor did he seek to
    have Guarantee defend him, as they may well have done given their remaining
    potential for liability under the
Insurance Act
, R.S.O. 1990, c. I.8,
    s. 258.

[15]

We do not accept that to prove prejudice Mr. Campbell is obliged to
    identify missteps that have occurred; this is an unrealistic and unnecessary
    burden to impose at this stage in the litigation. The immediate point is that
    as a result of Commonwells conduct, Mr. Campbell allowed Commonwell to
    prosecute the defence of his case for close to a year without taking charge of
    his own defence.

[16]

We would not interfere with the application judges estoppel finding.
    Given that estoppel and waiver were redundant mechanisms for preventing Commonwell
    from denying coverage and its obligation to defend, we need not consider
    whether the application judge erred in applying the doctrine of waiver.

[17]

Commonwell also argues that the application judges reasons for decision
    are inadequate. We disagree. The application judges reasons are responsive to
    the issues before him and demonstrate the path of his reasoning, facilitating
    appellate review. There was no need for him to resolve whether, properly
    interpreted, the policy did provide coverage given his decision that Commonwell
    is estopped from denying coverage.

[18]

Nor did the application judge fail to make clear what policy terms the
    estoppel and waiver findings applied to. In context, it is evident that the
    application judges ruling, including the estoppel ruling we uphold, prevents
    reliance by Commonwell on both the unowned registrable vehicles exemption and
    the consent exemption. Not even counsel for Mr. Campbell contends that the ruling
    goes beyond this. If different bases for lawfully denying indemnification to
    Mr. Campbell emerge during trial, Commonwell will be free to rely upon them.

[19]

Finally, Commonwell argues that the application judge erred in finding
    that Commonwell is prevented from denying coverage, when an appropriate
    application of waiver or estoppel would simply oblige Commonwell to defend Mr.
    Campbell, not indemnify him. Even leaving aside that Commonwell put both
    matters in issue in its application, we disagree. The application judges
    finding that Commonwell is estopped from relying upon the unowned registrable
    vehicles exemption and the consent exemption undercuts Commonwells ability to
    invoke these exemptions, whether to dispute its duty to defend or to dispute indemnification.

[20]

This outcome is not inconsistent with the fact that the obligation to
    defend is broader than the obligation to indemnify:
Progressive Homes Ltd. v.
    Lombard General Insurance Co. of Canada
, 2010 SCC 33, [2010] 2 S.C.R. 245,
    at para. 19. The duty to defend is based on the possibility rather than the
    fact of coverage because, as a practical matter, the decision whether to defend
    has to be made before the duty to indemnify can be finally determined. This
    functional distinction between the duty to defend and the obligation to
    indemnify has nothing to do with resolving which provisions of the insurance
    contract the insurer is entitled to rely upon. The question before the
    application judge was whether exemption clauses could be invoked, not whether
    there is a possibility of coverage based on the facts pleaded and the terms of
    the insurance contract.

[21]

The appeal is dismissed. Consistent with the general practice of
    awarding substantial indemnity costs where an insurance company has
    unsuccessfully sought to avoid its duty to defend, and with the scales of costs
    contained in the Information Notice to the Profession, costs are awarded to Mr.
    Campbell in the amount of $25,139.20, and disbursements of $1,761.20, inclusive
    of all applicable taxes.

David
    M. Paciocco J.A.

Harvison Young J.A.
B. Zarnett J.A.





[1]
There was a discrepancy between the judgment and reasons for decision.
The judgment below referred to Commonwell Mutual Insurance Group
    and the reasons for decision referred to Commonwell Mutual Assurance Group.
    The proper name for the title of proceedings follows the judgment, Commonwell
    Mutual Insurance Group.


