Supreme Court Of Canada Rules On An Insurer's Right To Withdraw Coverage For Policy Breaches

• Published date: 24 November 2021
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Alexander Holburn Beaudin + Lang LLP
• Author: Mr Scott Ashbourne

In October of 2019, the Ontario Court of Appeal ruled in the case of Bradfield v Royal Sun Alliance Insurance, 2019 ONCA 800, that an insurer had the right to withdraw its defence of its insured when the insurer discovered evidence of a policy breach three years after the accident giving rise to the claim.

On November 18, 2021, the Supreme Court of Canada affirmed the Court of Appeal decision in Trial Lawyers Association of British Columbia v Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47.

Bradfield and Devecseri were riding their motorcycles in May of 2006 when Devecseri struck an oncoming vehicle driven by Caton. Devecseri died in the accident, and Caton brought a claim for damages against Bradfield and Devecseri's estate. The estate was defended by Devecseri's automobile insurer, Royal Sun Alliance Insurance Company ("RSA"). Bradfield also brought a claim against Devecseri's estate.

RSA retained an adjuster to investigate. Despite undertaking other inquiries, the adjuster did not obtain the Coroner's report, which was available shortly after the 2006 accident. Caton commenced his claim in 2008 and Examinations for Discovery were conducted in 2009 at which time RSA discovered that its insured, Devecseri, had consumed alcohol prior to the collision, in breach of the terms of his policy. This information was in the 2006 Coroner's report and was known to Bradfield and a second friend who had been drinking with Devecseri before the collision. All parties agreed that RSA did not have this information before Examinations for Discovery. Within two weeks of learning that Devecseri had been in breach of his policy at the relevant time, RSA took an off-coverage position, withdrawing its defence of the Devecseri estate and reducing available proceeds on the RSA policy to the statutory minimum.

The trial Court held both Bradfield and Devecseri liable for Caton's damages and Bradfield succeeded on his cross-claim against the Devecseri estate. Bradfield then sought a declaration that he was entitled to recover from RSA on two grounds: that RSA had waived its right to deny coverage because Devecseri's alcohol consumption was discoverable if RSA had obtained the Coroner's report; or alternatively, RSA was estopped from denying coverage on the basis of its conduct between the May 2006 accident and its July 2009 denial, as Bradfield relied on RSA's initial position and would suffer prejudice if RSA's 2009 coverage denial was allowed to stand.

The Lower...