Driver’s Insurance Company Unable To Change Its Mind After Initially Agreeing To Defend Driver

People understandably rely on their insurance companies to help protect them in they are involved in a situation involving personal injury either to themselves or others. But what happens when you are sued following an accident and you contact your insurance company who initially agrees to defend you before changing their mind? Does an insurance company have an obligation to continue to defend its clients? This was a question recently addressed in a decision from the Ontario Superior Court of Justice.

The accident

The accident took place in April 2013 when the insured operated a dirt bike owned by his employer, whose daughter he was dating.  He used the dirt bike to travel to another home via a road. At some point in his journey he turned abruptly in front of an ATV driven by the injured party. The ATV struck the dirt bike and the injured party fell off the ATV, injuring his head when it struck a mailbox. He claimed to have suffered a traumatic brain injury. The statement of claim was issued in April 2015.

Insurance coverage

The insured’s employer was the registered owner of the dirt bike, and the insured party was covered under his employer’s insurance as well as his own. However, he was not licensed to drive the dirt bike, which was also not registered to travel on roads. His personal insurance company denied his claim, but the employer’s insurance company appointed legal counsel to deliver a statement of defence.

The main action had proceeded to the stage of discovery when the insured’s lawyers were asked about insurance coverage. The insurance company had by then appointed separate coverage counsel who took the position it had been an error to defend the insured, later bringing an application asking for a finding that he was not insured. It was this application which the court was considering in this decision.

Analysis of the two policies

The court agreed with the insured’s personal insurance company in its decision to deny coverage under the automobile policy purchased by the insured. The accident fell outside the scope of the policy, and the company made it clear to the insured that it was denying coverage.

The employer’s insurance company, on the other hand, had made no such declaration. The policy between this company and the employer and named insured was a general insurance policy, providing coverage for liability arising from the use or operation of “any self-propelled land vehicle” even if the insured does not own it, so long as it is registered and primarily designed for use off public roads with the owner’s consent.

After initially agreeing to defend the insured, the insurance company later changed its mind on the grounds that the insured did not have the owners consent to drive the dirt bike. However, the court found that since the insured was dating the daughter of the dirt bike’s owner, and the keys were hung in a place where family members could easily access them, there was implied consent.

The court agreed with the insurance company that the vehicle was not registered to be used in the manner which the insured was operating it. However, it chose not to refuse to defend the action on this ground. The court stated, “Had circumstances been different, I might well have found that the operation of an unregistered vehicle on a roadway or highway fell within the exclusionary language.  I am unable to do so in this case because I have concluded that in the absence of a reservation of rights, (the insurance company) is obliged to provide coverage.” In short, the insurance company was within its rights to refuse to defend the insured, but it failed to do so. The court stated that the Supreme Court of Canada held as far back as 1921 that “having elected to defend an insured rather than contesting coverage, the insurer could not avoid paying the judgment after it took the matter to trial and obtained an unfavourable result.” In this case, the matter had already reached a late stage of litigation. As such, the insurance company was ordered to provide the insured with defence and indemnity under its policy.

Contact the exceptional team at Derfel Injury Law if you find yourself involved in a motor vehicle accident or other type of accident. Your insurance company may not always have your best interests in mind. Our team will work tirelessly to achieve the best possible result for your situation. Our experience and familiarity with personal injury law has seen us work on all manners of situations, and we are able to apply this experience to our clients’ needs. Please contact us at 416.847.3580 or reach us online to speak today.