Maracle v. Travellers Indemnity Co. of Canada, [1991] 2 S.C.R. 50

Travellers Indemnity Company of Canada Appellant

v.

Andrew Clifford Maracle, Jr. Respondent

Indexed as: Maracle v. Travellers Indemnity Co. of Canada

File No.: 21725.

1991: February 28; 1991: June 6.

Present: La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin and Iacobucci JJ.

on appeal from the court of appeal for Ontario

Insurance ‑‑ Limitation periods ‑‑ Promissory estoppel ‑‑ Action against insurer brought after limitation period had expired ‑‑ Whether doctrine of promissory estoppel effective answer to limitation period defence ‑‑ Whether insurer admitted liability ‑‑ Whether insurer promised not to rely on limitation period.

Limitation of actions ‑‑ Promissory estoppel ‑‑ Action against insurer brought after limitation period had expired ‑‑ Whether doctrine of promissory estoppel effective answer to limitation period defence.

Respondent's commercial building was destroyed by fire. The insurer admitted liability for the full amount of the coverage for equipment and stock, and paid this amount into court after it learned of third party claims, but no agreement was reached on the amount for the building. The insurer later wrote respondent offering to settle the building claim as well, and to pay the amount offered into court, "without prejudice" to the insurer's liability. Respondent did not reply to this letter, but shortly after the one‑year limitation period had expired, issued a statement of claim for the amount of building coverage claimed. The trial judge found that there was no expressed promise by the insurer not to rely on the limitation period and dismissed the action. The Court of Appeal reversed the judgment. In a majority decision it found that promissory estoppel can prevent the insurer from relying on a limitation period where there has been either an admission of liability or a promise not to rely on the limitation period. This appeal is to determine whether the doctrine of promissory estoppel is an effective answer to the limitation period defence, and whether the insurer's admission of liability created a debtor‑creditor relationship and thereby a separate contract between the insurer and the insured for which the limitation period would be six years.

Held: The appeal should be allowed.

The party relying on the doctrine of promissory estoppel must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. The representee must also establish that, in reliance on the representation, he acted on it or in some way changed his position. While an admission of liability is one of the factors from which a court may infer that a promise was made not to rely on the limitation period, it is not an alternate basis of promissory estoppel. The admission of liability must go beyond an offer of settlement and extend to the limitation period. There must be words or conduct from which it can be inferred that the admission was to apply whether the case was settled or not, and that the only issue between the parties, should litigation ensue, is the issue of quantum. If this inference is drawn as a finding of fact and the admission led the plaintiff to miss the limitation period, promissory estoppel has been established. In this case the trial judge, having found that there was no promise relating to the limitation period, was correct in concluding that promissory estoppel had not been made out. Further, the admission of liability with respect to the coverage for equipment and stock could not be construed to apply to the building coverage, particularly since the letter offering to settle that aspect of the claim contained an express reservation of rights.

The insurer's implied promise to pay respondent an amount yet to be determined could not create any contractual rights since there was no acceptance.

Cases Cited

Disapproved: Collavino Inc. v. Employers Mutual Liability Insurance Co. of Wisconsin (1984), 5 C.C.L.I. 94; referred to: Gillis v. Bourgard (1983), 41 O.R. (2d) 107; John Burrows Ltd. v. Subsurface Surveys Ltd., [1968] S.C.R. 607; Engineered Homes Ltd. v. Mason, [1983] 1 S.C.R. 641; Marchischuk v. Dominion Industrial Supplies Ltd., [1991] 2 S.C.R. 000.

Statutes and Regulations Cited

Insurance Act, R.S.O. 1980, c. 218, ss. 106, 118, 125, Item 14.

APPEAL from a judgment of the Ontario Court of Appeal (1989), 70 O.R. (2d) 360, 62 D.L.R. (4th) 570, 35 O.A.C. 297, [1990] I.L.R. {PP} 1‑2539, 40 C.C.L.I. 161, reversing a decision of the High Court of Justice, [1988] I.L.R. {PP} 1‑2326, 31 C.C.L.I. 42, dismissing respondent's action. Appeal allowed.

Joshua Liswood and Linda Dolan, for the appellant.

Ross V. Smiley, Q.C., and Will O'Hara, for the respondent.

//Sopinka J.//

The judgment of the Court was delivered by

Sopinka J. -- This appeal was heard concurrently with Marchischuk v. Dominion Industrial Supplies Ltd., [1991] 2 S.C.R. 000. Both appeals raise the issue as to the circumstances in which an admission of liability made to a prospective plaintiff by a prospective defendant amounts to promissory estoppel precluding reliance on a limitation period.

Facts

On November 10, 1982, the commercial building of the respondent Maracle was destroyed by fire. The appellant was notified immediately. The policy provided coverage of three separate categories of assets: (i) fixtures, equipment and tenant improvements, (ii) stock in trade, and (iii) the building proper. This is referred to as a commercial package of insurance protection.

The respondent was underinsured with respect to the first two categories covered by the policy, and the insurance company soon admitted liability for the full amount for them, $70,000. No agreement, however, was reached with respect to the amount for the building and this remained in dispute throughout. The maximum coverage for the building was $100,000. The adjuster put the depreciated value of the structure at $84,000. Initially, the insurer considered exercising its option to replace the building, but on December 16, 1982, the insurer made Maracle a cash offer of $75,000. Maracle rejected it.

The insurer was advised that there were third party claims against the proceeds of the policy. Accordingly, on January 13, 1983 it sought, and was granted, permission pursuant to s. 118 of the Insurance Act, R.S.O. 1980, c. 218, to pay the $70,000 for the settled claims into court. The affidavit accompanying this payment included an admission of liability with respect to these proceeds. On February 23, 1983 the insurer advised the respondent by letter that the insurer was prepared to settle the building claim for $84,000, and to pay that amount into court as well. A Proof of Loss form for $84,000 was included, as was a blank Proof of Loss to be completed and returned by the insured should the offer prove unacceptable. Maracle did not reply to this letter, notwithstanding its clarity:

Should this proposal not be acceptable to you, then in accordance with the Statutory Conditions of the contract and to comply with the Insurance Act, we enclose Blank Proofs of Loss.

The foregoing information and submission of these Proofs is to comply with the Insurance Act, Without Prejudice, to the liability of the insurer.

In August 1983, Maracle retained a solicitor, Shanbaum, to take the matter on his behalf, and provided Shanbaum with a copy of the insurer's letter of February 23, 1983. No further communication, however, took place between the parties prior to the expiry of the limitation period on November 10, 1983. On November 23, 1983, Maracle issued a statement of claim with respect to the amount claimed under item (iii), the building coverage. Trial of the limitation issue commenced in Ontario High Court on January 28, 1987.

Judgments Below

Ontario High Court of Justice (1987), 31 C.C.L.I. 42

Sirois J. began with a chronological summary of the undisputed facts. He then provided a synopsis of the positions of the parties. The defence was failure to commence the action within one year after the loss as per statutory condition 14 of the policy, as set out in s. 125, Item 14 of the Insurance Act of Ontario. As well, the defence of failure to file a proof of loss was raised.

The plaintiff relied on estoppel, arguing that the defendant expressly admitted liability under the contract to pay the plaintiff, and therefore became the debtor of the plaintiff for an amount on the building to be determined following investigation as to quantum only. Alternatively, the plaintiff alleged that the defendant waived the limitation period and entered into a constructive settlement of the plaintiff's claim, subject only to assessment of the value of the loss of the building. In answer to the defence of breach of the condition to file Proof of Loss, the plaintiff argued that it was entitled to relief from forfeiture under s. 106 of the Insurance Act.

Sirois J. noted that he had been referred to no case where an admission under s. 118 of the Insurance Act had been made by the insurer. After considering the decision of the Ontario Court of Appeal in Gillis v. Bourgard (1983), 41 O.R. (2d) 107, and Holland J.'s decision in Collavino Inc. v. Employers Mutual Liability Insurance Co. of Wisconsin (1984), 5 C.C.L.I. 94 (Ont. H.C.), Sirois J. concluded (at p. 47):

From the above decision, there are two essential elements to the doctrine of promissory estoppel. Firstly, there must be an expressed or implied admission of liability, and secondly, there must be an expressed or implied promise by the insurer not to rely on the limitation period.

In our case we have one of those ingredients, namely, the expressed admission of liability under s. 118 of the Insurance Act. There is no expressed promise by the insurer not to rely on the limitation period. The evidence is that after its offer of February 23, 1983, the insurer maintained silence.

From those facts I conclude that despite the fact of the formal admission of liability, of payment of part of the proceeds in court, one cannot infer that this amounted to a promise by the insurer not to rely on the limitation period defence.

As a result, the plaintiff must fail and I must dismiss the action. On the facts of this case, however, I conclude that it should be dismissed without costs.

Ontario Court of Appeal (1989), 70 O.R. (2d) 360

The majority of the court, per Brooke J.A. (Craig J. ad hoc concurring), were of the view that the case at bar was distinguishable on the facts from Gillis v. Bourgard, supra, on the basis that in that case there was no clear admission of liability. In the case at bar, in the court's view, the respondent not only admitted liability, but made the same admission to the court in applying for permission to pay in the proceeds of the policy.

The majority expressly adopted the view of Holland J. in Collavino Inc. v. Employers Mutual Liability, supra, that promissory estoppel is an effective answer to the defence of a limitation period where there is either an express or implied admission of liability or an implied promise not to rely on the limitation period, as long as the further requirement is met that there must be some evidence that one of the parties entered into a course of negotiations which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced. The majority was of the view that the further requirement was met in this case.

Galligan J.A. dissented on the basis that the course of negotiations established in this case was insufficient to estop the insurer from relying on the limitation period (at p. 364):

It is my opinion that the insurer never admitted liability to pay $84,000 or any specific amount for damages to the building. It made an offer of settlement, which offer was not accepted. It made clear that in the event that the offer was not accepted, that the provisions of the statutory conditions and of the Insurance Act were to apply. The insurer in this case, in my opinion, neither did nor said anything which could have led anyone to think that it was waiving its right to rely upon the limitation contained in the statutory condition.

I am unable to agree with my colleagues that the fact that the insurance company exercised the right given to it under s. 118 of the Insurance Act to pay into court moneys for which it admitted liability under two of the coverages disentitled it to rely on the statutory condition imposing a limitation of one year for a claim under the building coverage.

Points in Issue

1. Whether the Court of Appeal erred in finding that the doctrine of promissory estoppel was an effective answer to the defence that the respondent's action was barred as not having been brought within the one-year contractual and statutory limitation period.

2. Did the insurer's admission of liability create a debtor-creditor relationship between the insurer and the insured and thereby an implied promise to pay the insured an amount to be ascertained either by agreement or by a reference, and as such, constitute a separate contract between the insurer and the insured wherein the limitation for suit would be six years?

Issue 1: Promissory Estoppel

The principles of promissory estoppel are well settled. The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the representee must establish that, in reliance on the representation, he acted on it or in some way changed his position. In John Burrows Ltd. v. Subsurface Surveys Ltd., [1968] S.C.R. 607, Ritchie J. stated, at p. 615:

It seems clear to me that this type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced, and I think that this implies that there must be evidence from which it can be inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiations.

This passage was cited with approval by McIntyre J. in Engineered Homes Ltd. v. Mason, [1983] 1 S.C.R. 641, at p. 647. McIntyre J. stated that the promise must be unambiguous but could be inferred from circumstances.

In Collavino Inc. v. Employers Mutual Liability, supra, Holland J., in applying these principles to a case in which an admission of liability had been made, stated (at p. 101):

Promissory estoppel can prevent the insurer from relying on a limitation period where there has been either (1) an admission of liability of [sic: "or"] (2) a promise not to rely on the limitation period relied on by the insured....

Before the principle applies there must be some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced.

This passage would imply that an admission of liability per se is an alternative basis on which promissory estoppel can be based. In my view, while an admission of liability is clearly one of the factors from which a court may infer as a finding of fact that a promise was made not to rely on the limitation period, it is not an alternate basis of promissory estoppel. In Gillis v. Bourgard, supra, the Ontario Court of Appeal, per Brooke J.A., dealt with a case in which an admission of liability was the basis for a claim of promissory estoppel. In concluding that the necessary ingredients for promissory estoppel had not been established, Brooke J.A. stated, at p. 109:

It seems to us that what occurred here was, at best, no more than normal dealings between parties attempting to resolve an insurance claim. To hold that it could or did give rise to any admission of liability or a promise not to rely upon a condition of the contract, the limitation period, is completely unwarranted and puts in jeopardy the benefit of such dealings to litigants.

An admission of liability is frequently made in the course of settlement negotiations. This is often a preliminary step in order to clear the way to enter into a discussion as to quantum. Indeed, when an offer to pay a stated amount is made by one party to the other, an admission of liability is usually implicit. In this type of situation, the admission of liability is simply an acknowledgment that, for the purpose of settlement discussions, the admitting party is taking no issue that he or she was negligent, liable for breach of contract, etc. There must be something more for an admission of liability to extend to a limitation period. The principles of promissory estoppel require that the promissor, by words or conduct, intend to affect legal relations. Accordingly, an admission of liability which is to be taken as a promise not to rely on the limitation period must be such that the trier of fact can infer from it that it was so intended. There must be words or conduct from which it can be inferred that the admission was to apply whether the case was settled or not, and that the only issue between the parties, should litigation ensue, is the issue of quantum. Whether this inference can be drawn is an issue of fact. If this finding is in favour of the plaintiff and the effect of the admission in the circumstances led the plaintiff to miss the limitation period, the elements of promissory estoppel have been established.

Application to this Case

The trial judge expressly found that the words and conduct referred to herein could not be interpreted as a promise, express or implied, not to rely on the limitation period. While the majority of the Court of Appeal were of the view that the admission of liability in this case went beyond an offer of settlement, they do not explain how they were able to infer that it extended to the limitation period. Not only is there no evidence to suggest that the admission was intended to have this effect, but the letter of February 23, 1983 was made "without prejudice" to the liability of the insurer. The use of this expression is commonly understood to mean that if there is no settlement, the party making the offer is free to assert all its rights, unaffected by anything stated or done in the negotiations. In my opinion, therefore, the trial judge, having found that there was no promise relating to the limitation period, was correct in concluding that promissory estoppel had not been made out. Furthermore, I agree with Galligan J.A. that an admission of liability with respect to coverage for item (i) fixtures, equipment and tenant improvements and item (ii) stock in trade could not be construed to apply to item (iii) the building coverage. Any inference that might otherwise be drawn from this admission was blunted by the letter of February 23, 1983, containing an express reservation of rights.

Issue 2

This submission was based on the premise that a promise to pay an amount yet to be determined and to pay it into court somehow creates a debt. In the absence of acceptance, no contractual rights, including a debt, could be created. The submission therefore has no merit.

Conclusion

The appeal is therefore allowed and the judgment of the Court of Appeal is set aside, with costs to the appellant both here and in the Court of Appeal. The judgment of Sirois J. is restored.

Appeal allowed with costs.

Solicitors for the appellant: Sawers, Liswood, Scott, Hickman, Toronto.

Solicitors for the respondent: Lilly, Goldman, Blott, Fejer, Toronto.