Court of Appeal for Ontario

Date: 2019-08-26 Docket: C66074

Judges: Paciocco, Harvison Young and Zarnett JJ.A.

Between

The Commonwell Mutual Insurance Group Applicant (Appellant)

and

Shayne Campbell Respondent (Respondent)

Counsel

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

Appeal Information

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

Background

[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. Campbell's 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. Campbell's home owner's policy. 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, plaintiff's counsel ultimately asked Mr. Campbell's 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. Commonwell's 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 owner's 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 Commonwell's appeal with reasons to follow. These are our reasons, presented in an analytically convenient order.

Analysis

Waiver and Estoppel

[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.

Estoppel

[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. Campbell's claim that he relied upon Commonwell's 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. Campbell's reliance has been detrimental. We do not agree.

[10] The alleged error of law is grounded in the application judge's 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 Commonwell's 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 court's 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. Campbell's 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 plaintiff's counsel was seeking information from defence counsel, at least relating to coverage issues. We see no error in the application judge's 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 Commonwell's 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 judge's 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.

Adequacy of Reasons

[17] Commonwell also argues that the application judge's reasons for decision are inadequate. We disagree. The application judge's 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.

Scope of the Estoppel Finding

[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 judge's 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.

Duty to Defend vs. Indemnification

[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 judge's finding that Commonwell is estopped from relying upon the unowned registrable vehicles exemption and the consent exemption undercuts Commonwell's 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.

Disposition

[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.

Footnote

[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.