



COURT OF APPEAL FOR ONTARIO

CITATION: Bradfield v. Royal Sun Alliance
    Insurance
Company of Canada, 2019 ONCA 800

DATE: 20191007

DOCKET: C65787

Doherty,
    Harvison Young and Thorburn JJ.A.

BETWEEN

Jeffrey
    Bradfield

Plaintiff (Respondent)

and

Royal
    Sun Alliance Insurance Company of Canada

Defendant
    (Appellant)

Derek V. Abreu and Mark A. Borgo, for
    the appellant

Todd J. McCarthy and
    Samuel A. Davies, for the respondent

Heard: September 19,
    2019

On appeal from the order of Justice Alexander
    Sosna of the Superior Court of Justice, dated July 25, 2019, with reasons
    reported at 2018 ONSC 4477.

Thorburn
    J.A.:

OVERVIEW

[1]

This is an appeal by Royal and Sun Alliance
    Insurance Company of Canada (RSA) from the trial judges decision that RSA
    was responsible to provide insurance coverage to its insured, Steven
    Devecseris estate.

[2]

On May 29, 2006, the plaintiff/respondent
    Jeffrey Bradfield, Paul Latanski and the late Steven Devecseri were riding
    their motorcycles. Devecseri was in front. He drove onto the wrong side of the
    road and collided with Jeremy Catons automobile. Bradfield did not hit Catons
    automobile. Devecseri was killed and Caton was injured.

[3]

Devecseri was insured by RSA under a standard
    motor vehicle policy with a $1 million limit. He had an M2 drivers licence,
    which prohibited him from operating a motorcycle with any alcohol in his
    bloodstream. To do so, constituted a policy violation.

[4]

In the first action brought by Caton, Devecseri
    and Bradfield were found liable for damages resulting from the motor vehicle
    accident. The issue of whether RSA was required to provide insurance coverage
    to Devecseri was not determined.

[5]

In the second action, the trial judge was asked
    to determine whether RSA was entitled to take an off-coverage position and
    reduce the estates policy limit from $1 million to $200,000 after it learned
    that Devecseri had been drinking before the accident, contrary to the terms of
    his insurance policy.

[6]

The trial judge held that RSA waived its right
    to rely on Devecseris policy breach because RSA had taken its off-coverage
    position too late. He held that Bradfield was entitled to recover judgment in
    the amount of $800,000 against RSA. The trial judge drew his conclusions for
    the following reasons:

1.

RSA did not obtain the coroners report after Devecseris fatal
    accident in 2006, which stated that Devecseri had alcohol in his system at the
    time of death;

2.

Having alcohol in his system was contrary to the terms of
    Devecseris M2 licence and his insurance policy;

3.

[S]ecuring a copy of the Coroners report would not be a
    non-mandatory item on a list of suggested areas to investigate;

4.

Knowledge of the policy breach was imputed as of the time the
    coroners report was available to RSA in 2006; and

5.

RSAs failure to take an off-coverage position after June 2006, its
    defence of the claim in 2008, and continuing until discovery in 2009, amounted
    to a waiver by conduct of Devecseris breach. Having found waiver, the issue
    of estoppel is rendered moot.

[7]

RSA appeals the trial judges finding that RSA
    waived its right to deny coverage.

[8]

RSA claims that waiver requires actual knowledge
    of the breach and there was no actual knowledge of the breach in this case.
    Moreover, there was no clear waiver of the breach in writing as provided in s.
    131(1) of the
Insurance Act
, R.S.O. 1990, c. I.8.

[9]

RSA further claims there can be no estoppel, as
    there was no knowledge of the breach until 2009 and there is no evidence the
    defence would have been conducted any differently had RSA taken an off-coverage
    position in 2006. As such, there was no detrimental reliance.

[10]

For the reasons that follow, I find that RSA did
    not waive and is not estopped from denying coverage. The appeal is therefore
    granted.

BACKGROUND FACTS

[11]

There is no dispute as to the facts.

RSAs investigation

[12]

On June 6, 2006, RSA engaged an adjuster to
    investigate the circumstances surrounding the accident. RSA instructed its
    adjuster to obtain any and all information with regard to this accident from the
    investigating police service and the coroner (death certificate). According to
    the adjuster, this form was a list of non-mandatory, suggested areas to
    investigate.

[13]

The adjuster obtained the police report which
    concluded that excessive speed was a major contributing factor in the
    collision but made no mention of alcohol. The RSA adjuster testified that he
    believed that if alcohol was involved, it would have been disclosed in the
    police report.

[14]

None of the parties obtained a copy of the
    coroners report.

[15]

Before 2009, Bradfields insurer received
    hearsay information that drinking was involved in the accident but did not
    disclose that information to RSAs adjuster.

[16]

RSAs adjuster interviewed Bradfield and
    Latanski as part of his investigation. Neither told the adjuster that Devecseri
    had been drinking before the accident.

The First Trial

[17]

On May 27, 2008, Caton (the automobile driver)
    brought a claim for damages against Bradfield, Latanski and Devecseris estate.
    RSA filed a Statement of Defence on March 5, 2009.

[18]

During his examination for discovery on June
    24-25, 2009, Latanski advised for the first time that Devecseri and Bradfield
    were drinking beer shortly before the accident. Bradfield testified that he was
    at the bar but could not recall if Devecseri was drinking.

[19]

On July 8, 2009, one year after the claim was
    brought and two weeks after Latanskis testimony at discovery, RSA advised the
    parties that it was taking an off-coverage position as a result of this
    disclosure. It did so on the basis that having a blood alcohol level above zero
    was contrary to Mr. Devecseris M2 motorcycle licence and a breach of his
    insurance policy.

[20]

At no time did RSA provide the estate notice in
    writing that it was waiving the policy violation, as described in s. 131(1) of
    the
Insurance Act.


[21]

In 2012, the jury awarded Caton $1.8 million: it
    held Bradfield 10% at fault and Devecseris estate 90% at fault. Bradfield
    was indemnified against Devecseris estate and obtained judgment on his
    crossclaim against the estate.

[22]

The issue of whether RSA could deny coverage was
    deferred.

The Second Trial

[23]

In the second trial, Bradfield sought a
    declaration of entitlement to recover judgment against RSA for the remaining
    $800,000 available in Devecseris policy ($200,000 had already been paid out)
    pursuant to s. 258 of the
Insurance Act
. Bradfield took the position
    that RSA had waived or was estopped from denying Devecseris estate insurance
    coverage because Bradfield submitted that:

1.

Bradfield obtained judgment on his crossclaim against the estate;

2.

RSA knew Devecseri breached the terms of the policy by having a
    blood alcohol level above zero, contrary to the terms of Devecseris M2
    motorcycle licence and in breach of his insurance policy. Knowing of the
    breach, RSA chose to defend the claim;

3.

RSAs conduct from May 2006 to July 2009 amounted to a waiver of its
    right to assert a policy breach and deny coverage; and

4.

Prejudice is presumed given the three-year delay. In any event,
    there was prejudice and detrimental reliance such that RSA should be estopped
    from denying coverage.

[24]

RSA took the position that it had no knowledge
    of the breach until 2009, at which point it denied coverage. As such, it did
    not waive the policy breach. Moreover, there was no prejudice as the litigation
    administrator for Devecseris estate and counsel for Caton both testified that
    the only difference between RSA defending the action and being added as a
    statutory third party was the style of cause. The litigation steps would not
    have been any different.

THE TRIAL JUDGES DECISION

[25]

The trial judge awarded Bradfield $800,000 from
    RSA on the basis that RSA waived its right to rely on a policy breach and was
    therefore responsible to pay the claim against Devecseris estate.

[26]

He held that:

[
58
] From a
    common-sense perspective and in the context of an insurers investigation of a
    motor vehicle accident involving a fatality, evidence of alcohol in the
    deceaseds bloodstreamroutinely detailed in Coroners reportsis clearly
    relevant in determining if a policy breach has taken place.



[
63
] Contrary to RSAs
    submission, I find that evidence
did
exist that Devecseri
    had alcohol in his bloodstream at the time of death. That evidence was available
    in a Coroners report dated August 29, 2006. That report was available for
    release three years before the 2009 discoveries where Latanski testified that
    Devecseri was drinking alcohol before the accident. When RSA received the
    Coroners report from Catons counsel in 2009, it unequivocally provided
    evidence of a policy breach.

[
64
] The [adjustor]
    Eddy Report specifically acknowledged RSAs direction to obtain a copy of the
    Coroners report. As already reviewed, for reasons not explained, RSA took no
    steps to obtain a copy of the Coroners report.

[
65
] On August 13, 2008,
    Forbes delivered a notice of intent to defend. In March 2009, he filed a
    statement of defence and counterclaim, formally stating, as in
Logel
,
    we elect to defend. That defence did not set out any reservation of rights
    letter or proposal of a non-waiver agreement. As held in
Rosenblood
at
    para 21:

When a claim
    is presented to an insurer the facts giving rise to the claim should be
    investigated. If there is no coverage then the insured [as in the present
    matter, the Estate] should be told at once and the insurer should have nothing
    further to do with the claim if it wishes to maintain its off-coverage
    position. If coverage is questionable the insurer should advise the insured at once
    and in the absence of a non-waiver agreement or of an adequate reservation of
    rights letter defends the claim at its risk.

[
66
] At discovery on June
    24-25, 2009, Latanski provided evidence that Devecseri was drinking before the
    accident. Forbes volunteered to bring a WAGG motion to obtain the Coroners
    report. He later declined, finding that he was in a conflict of interest and
    did not wish to take any steps that could be interpreted as a waiver of rights
    by RSA, while at the same time being duty-bound to Devecseriwhose Estate he
    was appointed to defend. Catons counsel volunteered to obtain the Coroners
    report.

[
67
] As
    in
Logel
, nearly three years elapsed from Eddys investigation to
    when RSA announced it was taking an off-coverage position, added itself as a
    statutory third-party, and instructed Forbes to remove himself from the record.

[27]

In short, the trial judge imputed knowledge of
    the breach to RSA on the basis that the evidence was available to RSA, had it
    obtained the coroners report. Having decided to defend, RSA waived its right
    to rely on the breach of policy to deny coverage.

ANALYSIS AND CONCLUSION

The Issues

[28]

The issues on this appeal are whether the trial
    judge erred in holding that:

1.

RSA waived its right to deny coverage to Devecseris estate; and

2.

The issue of estoppel was moot.

[29]

The central issue is what constitutes knowledge,
    which is a prerequisite for a finding of both waiver and estoppel.
    Determination of the appropriate legal test is a legal issue for which the
    standard of review is correctness.

Waiver by Conduct

[30]

Waiver and promissory estoppel are closely
    related:
Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co
.,
    [1994] 2 S.C.R. 490, at para. 18.

[31]

The principle underlying both doctrines is that
    a party should not be allowed to resile from a choice when it would be unfair
    to the other party to do so. Both require knowledge of the policy breach:
Economical
    Insurance Group v. Fleming
(2009), 89 O.R. (3d) 68, at para. 31, affd
    2009 ONCA 112, 69 C.C.L.I. (4th) 185, and
Rosenblood Estate v. Law Society
    of Upper Canada
(1989),
37 C.C.L.I. 142 (Ont. H.C.) at para. 53,
    affd
16 C.C.L.I. (2d) 226 (Ont. C.A.).

[32]

Waiver will be found where:

the party waiving had (1) full knowledge of
    the deficiency that might be relied upon; and (2) the unequivocal and conscious
    intention to relinquish the right to rely on the contract or obligation. The
    creation of such a stringent test reflects the fact that no consideration moves
    from the party in whose favour a waiver operates. An overly broad
    interpretation of waiver would undermine the requirement of contractual
    consideration:
Saskatchewan River Bungalows
, at para. 20, and
Economical
    Insurance Group,
at para. 31.

[33]

Knowledge can be inferred from conduct, but
    that conduct must give evidence of an unequivocal intention to abandon rights
    known to the party waiving the right:
Canadian Federation of
    Students/Fédération canadienne des étudiant(e)s v. Cape Breton University
    Students Union,
2015 ONSC 4093, at para. 129
.

[34]

In
Logel Estate v. Wawanesa Mutual Insurance
    Company
, the insurer elected to defend the claim after receiving the
    accident report and the pathology report for a single car collision leading to
    a death: [2008] I.L.R. I-4744 (Ont. S.C.), aff'd 2009 ONCA 252, 70 C.C.L.I.
    (4th) 188. Those reports contained the evidence of the status of the insureds
    licence and her physical condition. In
Logel
, the trial judge
    concluded at para. 21:

that
upon receipt
they must have had knowledge of the facts including the status of Ms. Logel's
    licence and her physical condition, which gave rise to the exclusion of
    coverage. If they did not appreciate the significance of these facts they
    should have, before they elected to defend. [Emphasis added.]

[35]

In
Logel,
all facts necessary to
    establish knowledge were within the possession of the insurer. The insurer
    simply did not appreciate the significance of the facts before it elected to
    defend. In the face of this information, the court held that the insurer waived
    the breach by obtaining all the necessary information to enable it to be aware
    of a policy breach and deciding to defend the claim.

[36]

In this case, RSA knew Devecseri had an M2
    licence and it was a breach of the policy to consume any alcohol before
    driving.

[37]

However, it is agreed that RSA had no actual
    knowledge that Devecseri breached the policy by consuming alcohol before
    driving until 2009.

[38]

Second, unlike
Logel
, knowledge of a
    policy breach could not be imputed, as RSA did not have all of the material
    facts from which to determine there was a policy breach. This was not a case where
    RSA failed to appreciate the significance of information; it did not have
    information that Devecseri had been drinking and had thereby breached the terms
    of the policy.

[39]

Third, there is no evidence to support Bradfields
    assertion that RSA knew of the policy breach but chose not to take possession
    of the information. No legal authority was proffered to support Bradfields
    assertion that an insurer must obtain the coroners report. It is also agreed
    that, although information as to the blood alcohol content was in the coroners
    report, there is no evidence that RSA knew that information was contained in
    the coroners report and knowing that, chose not to get the coroners report. On
    the contrary, had RSA obtained the report, it would not have expended monies
    conducting further investigation and defending the claim.

[40]

Lastly, there was no written waiver of the
    breach on the part of RSA, as required by s. 131(1) of the
Insurance Act
,
    to demonstrate a clear intention to waive the policy breach.

[41]

For these reasons, it was not correct to
    conclude that RSA waived its right to refuse coverage for breach of the terms
    of the insurance policy.

Estoppel

[42]

The essential elements of estoppel are that:

1.

As in the case of waiver, the insurer must have knowledge of the
    facts that support a lack of coverage; and

2.

Unlike waiver, there must be a course of conduct by the insurer
    upon which the insured relied to its detriment.
Rosenblood Estate,
at
    p. 18.

[43]

In
Rosenblood Estate
,

a credit
    union claimed its solicitor was dishonest, resulting in losses to the credit
    union. The credit union sued the solicitor, who was insured by the Law Society.
    The Law Society retained counsel to defend the claim against the solicitor. Two
    years later, the Law Society advised the estate that it was denying coverage on
    the grounds that the loss was caused by dishonesty, which was excluded from
    coverage, and that the insured solicitor was in breach of the policy by failing
    to give timely notice of possible claims.

[44]

The court in
Rosenblood
held that the
    insurer was estopped from denying coverage, as the insurer had all of the
    relevant facts necessary to decide whether to defend the fraud claim but
    nonetheless elected to defend the claim.

[45]

The insurer in
Rosenblood
should have
    appreciated the significance of the information in its possession that
    constituted a policy violation. Despite this information, it elected to defend
    the claim. The insured relied to its detriment on the insurers agreement to
    defend the claim. As such, the insurer was estopped from relying on a policy
    breach and was required to defend the claim.

[46]

In this case, the trial judge did not address
    the issue of estoppel, as he found that RSA had waived its right to rely on the
    policy breach.

[47]

I find RSA is not estopped from asserting a
    breach of the policy, as, for the reasons set out above, RSA had no knowledge
    of the breach until 2009.

[48]

Moreover, there was no evidence of detrimental
    reliance. The claim was issued in May 2008, the statement of defence was filed
    in March 2009, and the evidence as to alcohol consumption came to light in June
    2009. Two weeks after discovering the evidence of alcohol consumption, RSA took
    an off-coverage position.

[49]

RSA expended time, effort and money to
    investigate and defend the action until July 2009. There is no evidence that
    any of the steps taken by RSA to defend the case operated to prejudice the
    estate. On the contrary, the litigation administrator for the estate and
    Catons counsel agreed there was no difference in the defence of the action
    whether RSA added itself as a statutory third party or was a defendant in the
    action. Thus, even if Bradfields submission is that prejudice is presumed was
    correct, that presumption has been rebutted and I find no detrimental reliance
    in this case.

[50]

For these reasons, I find RSA is not estopped
    from asserting a policy breach.

SUMMARY OF CONCLUSIONS

[51]

Knowledge is established where the insurer has
    actual knowledge of the material facts constituting a policy breach, whether or
    not the insurer appreciates the significance of those facts to its obligation
    to defend.

[52]

In this case, RSA did not have actual knowledge
    of the policy breach that entitled RSA to deny coverage until June 2009.

[53]

Nor can knowledge be imputed, as RSA was not in
    possession of any evidence that Devecseri had been drinking before the accident
    until it received Latanskis evidence. The knowledge requirement is not whether
    the insurer
could
obtain the material facts but whether they
did
have
    the material facts necessary to enable them to know of the policy breach.

[54]

RSA expressed no clear intention to forego the
    exercise of the right to deny coverage.

[55]

In any event, there is no prejudice to the
    insured in this case, as the only evidence at trial was even if RSA had invoked
    the policy breach earlier, the defence would not have been any different.

[56]

Although information confirming the policy
    breach could have been obtained through further investigation, RSA did not have
    the information until 2009. Counsel for Bradfield offered no legal authority
    for the proposition that an insurer is required to investigate every reasonable
    possibility that a policy was breached.

[57]

For these reasons, RSA did not waive its right
    to rely on the policy breach nor was it estopped from relying on the breach.
    The appeal is therefore granted and the decision is set aside.

[58]

Costs to RSA in the amount of $15, 000 as agreed
    by the parties. In view of the result, trial costs are reversed.

Released: October 7, 2019

DD

J.A. Thorburn J.A.

I agree Doherty J.A.

I agree Harvison Young J.A.


