COURT FILE NO.: 263/12 DATE: 20180720 CORRECTED DATE: 20180725
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Jeffrey Bradfield Plaintiff – and – Royal and Sun Alliance Insurance Company of Canada Defendant
Counsel: Todd J. McCarthy, for the Plaintiff John J. Aikins, for the Defendant
HEARD: May 15, 16, 17 and 18, 2017
Corrected Reasons for Decision: The text of the original Reasons was corrected on July 25, 2018 and the description of the correction is appended.
REASONS FOR DECISION
SOSNA J.:
INTRODUCTION
1This action is brought under s. 258 of the Insurance Act, R.S.O. 1990, c. I.8.
2The Plaintiff, Jeffrey Bradfield (“Bradfield”), seeks a declaration of entitlement to recover judgment against the Defendant, Royal and Sun Alliance Insurance Company (“RSA”).
3Bradfield’s action arises from a 2012 judgment involving a motor vehicle collision that killed Devecseri and injured other drivers, including Bradfield. The judgment—a jury verdict—awarded $1,800,000 in total damages, apportioned 90/10 between Devecseri and Bradfield. That judgment also indemnified Bradfield against the Estate.
4When the collision occurred, Bradfield’s insurer was State Farm Insurance (“State Farm”).
5S. 258(1) of the Insurance Act grants that a person may claim against an insurer for the amounts he/she has a judgment for against an insured, provided that the insured is entitled to indemnity under his motor vehicle liability policy.
6For this action, Bradfield “stands in the shoes” of Devecseri, who RSA insured with a liability limit of $1,000,000 under a standard motor vehicle policy in force on or about May 29, 2006. Bradfield seeks the funds available to Devecseri’s estate (the “Estate”) under that policy.
7The following is common ground between the parties: if Bradfield establishes on a balance of probabilities that RSA either [1] waived its right to rely on Devecseri’s policy violation, or [2] is otherwise estopped from doing so by virtue of its conduct between May 29, 2006 and July 8, 2009, then Bradfield is entitled to an $800,000 judgment (the balance of the policy limit of $1,000,000, less $200,000) directly against RSA, pursuant to s. 258(1).
FACTUAL AND PROCEDURAL BACKGROUND
8The following facts are admitted.
9On May 29, 2006, Devecseri drove his motorcycle, pulled into the opposite lane of traffic, and collided with a car operated by Jeremy Caton (“Caton”). At the time, Devecseri was the lead in a group of motorcyclists which included Bradfield and Stanley Latanski (“Latanski”).
10Devecseri was pronounced dead at the scene. Caton, Bradfield, and Latanski all suffered personal injuries. At the time of the accident, Devecseri was in breach of his RSA policy as an M2 driver, as his blood alcohol level was above zero.
11State Farm insured both Bradfield and Latanski.
12Two personal injury actions commenced: one by Bradfield, another by Caton. Bradfield’s action named as defendants the Estate and State Farm for uninsured/underinsured coverage. Bradfield’s action was issued in Newmarket on October 7, 2007.
13Caton’s action was issued in Peterborough on May 27, 2008, and the Estate, Latanski, Bradfield, and Kingsway Insurance were named as defendants.
14On June 6, 2006, RSA appointed Tom Eddy (“Eddy”) as adjuster to investigate the accident.
15On August 3, 2008, RSA retained Stuart Forbes (“Forbes”) to defend the Estate in both the Bradfield and Caton actions. Forbes filed a statement of defence in each action on March 5, 2009. Keith Smockum (“Smockum”) was named as the Estate’s Litigation Administrator.
16State Farm retained counsel to represent Bradfield in the Caton Action. On February 20, 2009, counsel served a statement of defence on Bradfield’s behalf.
17On June 25, 2009, all counsel including Forbes attended discoveries of Latanski and Bradfield. At discovery, Latanski disclosed that he observed Devecseri and Bradfield consuming beer at an Oshawa restaurant/bar shortly before the accident. Bradfield testified that he was at a restaurant/bar with Devecseri, that he could not recall if Devecseri was drinking alcohol, that he did not consume alcohol that he could recall, but could not recall what he was drinking.
18As a result of the discovery evidence, all parties agreed that a Coroner’s report may reveal the presence, if any, of alcohol in Devecseri’s bloodstream at the time of the collision. As of the discovery date in June 2009, RSA had not ordered a copy of the Coroner’s report.
19Caton’s counsel agreed to seek an order to obtain the Coroner’s report. By letter dated October 28, 2009, he forwarded the report to all parties. The report dated August 29, 2006, revealed that Devecseri’s blood ethanol level was 31mg/100ml and his urine ethanol level was 46mg/100ml at the time of death.
20On July 6, 2009, RSA instructed Forbes to remove his firm as solicitor of record for the Estate. Pursuant to s. 258(14) of the Insurance Act, RSA also instructed Forbes to add RSA as a “statutory third-party” in Bradfield’s action. Smockum also stepped aside to be replaced by Dale Orlando as Litigation Administrator.
21On July 8, 2009, RSA advised the parties in both actions that it was taking an off-coverage position as a result of the disclosure at the discovery. On January 15, 2010, RSA was also added as a statutory third-party in the Caton action.
22In early May 2012, Bradfield settled his action against the estate and State Farm. RSA paid $100,000 (half its statutory liability) plus costs, while State Farm paid the balance of $750,000 pursuant to the uninsured/underinsured provisions of its policy with Bradfield. Then, in agreement with all concerned—notably Bradfield and State Farm—RSA paid the other half ($100,000) of its limit to Caton before his trial proceeded.
23The Caton action was scheduled for trial on May 22, 2012. On the eve of trial, Bradfield/State Farm served a motion under Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, seeking an “order for a declaration that the Estate of Devecseri had an insurance policy with a liability limit of $1 million”. Bradfield/State Farm was alleging that RSA had waived Devecseri’s policy breach or was estopped from denying the coverage. The trial judge ruled that the motion would not proceed.
24Caton succeeded in his action which concluded in June 2012. The judgment in his favour totalled $1,800,000, apportioned 90% liability against the Estate, and 10% against Bradfield.
25Following the verdict, Bradfield/State Farm brought a second motion to determine the coverage issue between Devecseri and RSA. Again, the trial judge dismissed that motion.
THE PLAINTIFF’S POSITION
26Bradfield submits that, as co-defendant to the Caton action, he obtained judgment on his crossclaim against the Estate.
27Bradfield contends that RSA initially defended the Estate through the Litigation Administrator Smockum for over three years without a reservation of rights and without raising any coverage issues. The defence afforded the Estate was with full indemnity up to the applicable motor vehicle liability policy limit of $1,000,000.
28Bradfield submits that a policy violation cannot be raised as a basis for denying coverage, when RSA’s conduct from May 2006 to July 2009 amounts to a waiver of its rights to rely on one. Though RSA ultimately took an off-coverage position in 2009, it was far too late.
29In the alternative, Bradfield submits that RSA is estopped from relying on the policy violation because of its conduct over the same three-year period. Prejudice is presumed. In any event, there is evidence in this matter of both prejudice and detrimental reliance.
THE DEFENDANT’S POSITION
30The long standing principle of insurance contracts is that both the insured and the insurer are to be acting in the utmost good faith towards each other. The onus is on the insured (the Estate) to provide the insurer RSA with all relevant information. RSA never received information from the Estate, or anyone else, that there was a possible policy violation.
31Actual knowledge is required for waiver and estoppel. No such knowledge of a possible policy breach existed. Accordingly, RSA’s conduct does not amount to waiver or estoppel. Furthermore, there must be prejudice and/or detrimental reliance for this action to succeed. There is no evidence of prejudice or detrimental reliance.
32RSA seeks that the action be dismissed.
THE LAW
33The issue of knowledge of a breach of an insurance policy, and related issues of waiver and estoppel by the insurer, were reviewed in two seminal cases: Logel (Litigation Administrator of) v. Wawanesa Mutual Insurance Co., 2008 ONSC 48127, [2008] O.J. No. 3717 (Ont. S.C.); and Rosenblood Estate v. Law Society of Upper Canada, 1989 ONSC 10413, [1989] O.J. No. 240 (Ont. H.C.) (appeal dismissed, 1992 ONCA 15594, [1992] O.J. No. 3030 (Ont. C.A.)).
34In Logel, the plaintiff was insured by Wawenesa. She was killed in a car accident in June 2000. Her policy limits were $1,000,000. At the time of the accident, she was significantly impaired by alcohol. She was licenced as a G2 driver to drive only when her blood alcohol concentration was zero.
35Logel’s passenger was severely injured in the accident. His injuries passed the “threshold”, and the value of his claim exceeded $200,000. The passenger sued Logel’s estate and others for personal injuries arising from the accident.
36At trial, a declaration was sought to determine whether Wawenesa waived the breach of the statutory condition of coverage, or alternatively is deemed to have made an election thereby precluding its position that the breach of statutory condition limits liability on the policy to the statutory minimum of $200,000.
37Wawenesa denied any waiver and argued that Logel’s breach of her policy’s statutory condition reduced the third-party limits from $1,000,000 to the minimum of $200,000.
38Wawenesa hired adjustors after the accident. In August 2000, they obtained a copy of the police accident report which revealed that Logel was a G2 driver and the driver’s condition was shown as “00”, meaning unknown.
39In January 2002, Wawanesa’s counsel obtained a copy of the Coroner’s report. That report showed that Logel had alcohol in her system at the time of death, while driving.
40Thereafter, counsel never directed their minds to a possible policy breach until the summer of 2005. Then, a clerk reported the results of a three-year record driver record search to determine Logel’s licence status.
41Wawanesa submitted that unless the claims examiner and its counsel actually directed their minds to the issue of a policy breach and made a conscious decision to elect not to raise the defence, Wawenesa was not bound by any waiver.
42Citing Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 SCC 100, [1994] 2 S.C.R. 490 (S.C.C.), Lack J. found at para. 18 that waiver can be communicated through a formal legal document or, inferred by conduct.
43At para. 19, Lack J. held that:
[t]here can be no doubt that Wawanesa and its representatives had full knowledge of its rights under Ms. Logel’s policy. It is, after all, an insurer and its business is assessing claims and determining whether they are covered by the policies of insurance it has issued.
44Lack J. found at para. 20 that Wawenesa’s July 2002 filing of the statement of defence on the estate’s behalf was the equivalent of stating “we elect to defend”. She found by that date (para. 21):
Wawanesa’s claims examiner and its legal counsel had the accident report and the pathology report. I cannot accept that in a case involving a single car collision leading to a death and to serious injuries they did not extensively review these reports. I conclude 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.
45In summary, she held the following (para. 23):
The failure of the Respondent, Wawanesa, to take an off-coverage position after January 2002, its defence of the claim in July 2002, and continuing until August 2005, was a continuing election that amounted to a waiver by conduct of Ms. Logel’s breach.
46Given the three year delay and litigation steps taken during that period, Lack J. held that prejudice is presumed in such cases and need not be proven. Lack J.’s declaration went as follows (para. 24):
“Wawanesa waived the breach of the statutory condition by Ms. Logel, and is precluded from taking the position that the breach of the statutory condition limits its liability on the policy to the statutory minimum limits.”
47On appeal, Wawenesa argued that Lack J. erred when she concluded it waived its rights under the policy. The appellant accepted it had full knowledge of the facts to give rise to a waiver, but Lack J. erred by determining that the appellant “should have” appreciated the significance of these facts. The appellant argued that only a “conscious intention” to abandon its rights under the policy will suffice to waiver. In addition, Wawanesa argued that Lack J. erred by presuming prejudice to the respondent as a result of the appellant’s delay in asserting its right (Logel (Litigation Administrator of) v. Wawanesa Mutual Insurance Co., 2009 ONCA 252, 70 C.C.L.I. at para. 5).
48At para. 6, the Court of Appeal dismissed Wawenesa’s appeal finding that Lack J. “properly inferred an intention to abandon the right to rely on the policy breach from its conduct over a 3½ year period” when the statement of defence was filed in 2002 until 2005 when the potential coverage issue was raised.
49Finding the facts factually similar to those in Rosenblood, the Court of Appeal adopted Rosenblood’s conclusion (para. 7):
“[i]n the present case the insurer finally took an off coverage position but ... much too late.” Moreover, in the context of the appellant electing to defend the action and taking many steps with respect to its defence over a three year period, it seems obvious, as it was to Holland J. and this court in Rosenblood Estate, that the respondent would be prejudiced if the appellant were allowed to raise a coverage issue three years into the action.
ANALYSIS AND FINDINGS
50For the following reasons, I adopt the findings in Logel’s trial decision, subsequently upheld by the Court of Appeal.
51I find that for three years RSA abandoned the right to rely on a policy breach. Once RSA took an off-coverage position, it was—as in Rosenblood— “much too late”. I further find prejudice is presumed in this case on its facts.
52One week after the accident on June 6, 2006, RSA appointed Thomas Eddy (“Eddy”) to investigate the accident claim. That investigation included issues of liability, damages, and potential policy violations. The Eddy’s “New/Task Assignment Form”, forwarded to Eddy by RSA, set out the following direction:
PLEASE OBTAIN A SIGNED CONSENT FROM THE EXECUTOR’S [sic] OF THE INSURED’S ESTATE ALLOWING US TO OBTAIN ANY AND ALL INFORMATION WITH REGARD TO THIS ACCIDENT FROM THE INVESTIGATING POLICE SERVICE AND THE CORONER (DEATH CERTIFICATE). ALSO ATTEMPT TO GET STATEMENTS FROM THE INVOLVED PARTIES. IF ANY WITNESSES ARE IDENTIFIED IN THE POLICE REPORT (ALREADY ORDERED) STATEMENTS WILL ALSO BE SOUGHT.
THE TWO UNIDENTIFIED MOTORCYCLISTS SHOULD ALSO BE IDENTIFIED AND INTERVIEWED.
53Eddy’s report to RSA, dated September 25, 2006, (the “Eddy Report”) stated the following:
- Under “INSURED”, Eddy reported that he interviewed Devecseri’s mother. She indicated that she was “perplexed over how the accident happened” and that “her son was an excellent driver”.
- Under “POLICY VIOLATIONS…”, he reported that “speed was definitely an issue” and “[t]he question now arises – has there been a policy violation, as can it be proven there was road racing involved? We have no evidence at this time that there was.”
- Under “JEFFREY BRADFIELD’S VERSION”, he reported that Bradfield provided him an initial account of how the accident occurred.
- Under “STATEMENT FROM PAUL LATANSKI” and “STATEMENT FROM JEREMY CATON”, he reported that both parties refused to be interviewed and were not returning his calls.
- Under “LIABILITY”, he reported that he “ordered the Accident Reconstruction Report which will hopefully provide us with full statements that the DRPS Technical Support Unit has obtained.”
- Under “FATALITY- STEVEN DEVECSRI”, he stated:
You had asked us to obtain a copy of the Coroner’s report. Can you possibly confirm with your AB adjuster if they have obtained a copy of same. If not, we can easily do so, but traditionally, this would come from the AB file.
Once we receive the Accident Reconstruction report, this may determine if the any blood samples were taken to determine if alcohol or drugs were a factor.
- Under “RECOMMENDATIONS, he wrote: “We have ordered the Accident Reconstruction report, police photographs and the officer’s notes etc.”
54At trial, Eddy acknowledged that investigating policy violations was part of his mandate. He acknowledged in the Eddy Report that evidence of speeding raised a possible policy violation. He further noted that obtaining an accident report may help “determine if alcohol or drugs were a factor”, in other words: a possible policy violation.
55Eddy and RSA knew of Devecseri’s M2 licence status. They knew this status prohibited Devecseri from operating a vehicle with alcohol in his bloodstream. If he did, this would constitute a policy violation. Obtaining a copy of the Coroner’s report would have provided evidence of alcohol in the insured’s bloodstream at time of the accident.
56The Eddy Report specifically referred to an RSA direction to obtain a copy of the Coroner’s report. Eddy could not explain, when pressed in cross-examination, why neither he nor the AB adjuster took any steps to obtain a copy of the Coroner’s report.
57Christine Starcevic (“Starcevic”) is RSA’s Head Office Claims Representative. She testified that RSA had no specific policy for obtaining Coroner’s reports. She testified that she has never requested one in the past. She testified that the New/Task Assignment Form referred to in paragraph 54 was merely a list of non-mandatory, suggested areas to investigate. She agreed, however, that a Coroner’s report would enable RSA to conclude whether a policy violation had occurred.
58From a common sense perspective and in the context of an insurer’s investigation of a motor vehicle accident involving a fatality, evidence of alcohol in the deceased’s bloodstream—routinely detailed in Coroner’s reports—is clearly relevant in determining if a policy breach has taken place.
59Contrary to Starcevic’s evidence, I find that securing a copy of the Coroner’s report would not be a non-mandatory item on a list of suggested areas to investigate. As emphasized in Logel already quoted above in paragraph 45: “It is, after all, an insurer and its business is assessing claims and determining whether they are covered by the policies of insurance it has issued.”
60RSA relies on the principle that an insurer and insured are to act in the utmost good faith towards each other. In so doing, RSA submits that it did not—nor should any insurer—actively try to deny coverage by considering all possible policy violations.
61Eddy’s investigation commenced June 6, 2006, and concluded on February 28, 2007. Devecseri was deceased and could not be interviewed. Latanski and Bradfield were uncooperative and refused to be interviewed. The Accident Reconstruction Report was redacted. According to RSA, no evidence existed to infer or suspect that Devecseri had breached his policy.
62Before Latanski’s discovery in June 2009, there was no indication that Devecseri was drinking the day of the accident. In those circumstances, why would RSA seek to prove a fact not in existence?
63Contrary to RSA’s 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 Coroner’s 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 Coroner’s report from Caton’s counsel in 2009, it unequivocally provided evidence of a policy breach.
64The Eddy Report specifically acknowledged RSA’s direction to obtain a copy of the Coroner’s report. As already reviewed, for reasons not explained, RSA took no steps to obtain a copy of the Coroner’s report.
65On 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.
66At 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 Coroner’s 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 Devecseri—whose Estate he was appointed to defend. Caton’s counsel volunteered to obtain the Coroner’s report.
67As in Logel, nearly three years elapsed from Eddy’s 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.
68Three years earlier on September 25, 2006, RSA instructed Eddy to obtain a copy of the Coroner’s report. They did this because RSA was alive to the importance of such a report. Evidence of alcohol in Devecseri’s bloodstream at the time of death was a policy violation, which entitled RSA to take an off-coverage position. Again, for reasons unexplained, neither Eddy nor anyone at RSA obtained a copy of the report before RSA’s election to defend two and a half years later, in March 2009.
69Again as in Logel, I find that RSA’s 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 Devecseri’s breach.
70Contrary to RSA’s submission that the Applicant must prove prejudice if waiver is found, Rosenblood at para. 63 tells us that prejudice is presumed where—as in the present matter—the insurer persisted for almost three years in its defence through production and discovery. Having found waiver, the issue of estoppel is rendered moot.
71For the above reasons, an order will go declaring that Bradfield recover judgment of $800,000 against the Defendant RSA, available to the Estate, pursuant to a standard motor vehicle policy issued to him, in force on or about May 29, 2006.
72If the parties cannot agree on costs, they may make written submissions. First, Bradfield’s counsel shall deliver submissions by August 31, 2018. Then, within fifteen (15) days of receipt of those submissions, RSA’s counsel shall deliver submissions. Within five (5) days of receipt of those submissions, Bradfield’s counsel may deliver a brief reply. All submissions, with proof of service, must be filed with the trial coordinator at Oshawa. The trial coordinator, may accept a party’s submissions, if not on time, with the other party’s consent. When the filing of submissions is complete, the trial coordinator shall forward all of them to me, as one package, for consideration.
Released: July 25, 2018
July 25, 2018 – Corrections:
- Page 2, paragraph 5 now reads: insurer
- Page 2, paragraph 14 now reads: June 6, 2006
- Page 8, paragraph 63 now reads: 2009