Insurer Estopped From Denying Coverage After Three Years

It is common for victims of a motor vehicle accident to sue those who may have been responsible for injuries incurred as a result of the accident. Insurance companies have the right to defend those for whom they owe coverage, or to deny coverage when they feel it is not warranted. However, as one insurance company learned in a recent Ontario Superior Court of Justice decision, the ability to deny coverage has its limits.

The accident

The accident leading to the dispute arose when the rider of a motorcycle (the “lead rider”) who was leading a group of motorcyclists crossed into the opposing lane of traffic and hit another car. The lead rider died instantly, but the other riders (the “injured riders”) sustained injuries.

While unknown to the insurance companies at the time, the lead rider had consumed alcohol earlier in the evening. This was in violation of his insurance policy as an M2 driver, which calls for drivers to have an alcohol level of zero.

One of the injured riders filed injury actions against the estate of the lead rider as well as his own insurance company (State Farm) for uninsured/underinsured coverage.

The lead rider was insured by RSA, who on June 6, 2006, hired an adjuster to investigate the accident. They hired a lawyer to defend the estate on August 3, 2008. The lawyer filed a statement of defence on March 5, 2009.

Discovery of alcohol

It was only after lawyers were hired that discovery took place. During this process testimony was provided, one of the riders observed that the lead rider had been drinking alcohol on the night of the accident. The parties agreed that a Coroner’s report might reveal whether the lead rider did, in fact, have alcohol in his system on the night of the accident. After obtaining said report, it was discovered that the lead rider did have alcohol in his blood and urine the evening of the accident.

After discovering this, RSA sought to add itself as a Third Party to the claim, stating they planned to deny coverage based on the lead rider’s violation of his insurance policy.

While the party’s would eventually settle (RSA contributed $100,000) while the injured rider’s insurance company, State Farm, paid out another $750,000. Following this the injured rider and State Farm brought a motion to determine the coverage issue raised by RSA.

The positions of the parties

The injured driver argued that RSA had defended the case for three years, having at no time raise any issue over coverage. They also argued that a policy violation cannot be raised as a basis for denying coverage. Finally, in the alternative, the injured driver  asked for RSA to be estopped from relying on the policy violation as a reason to deny coverage because of its conduct over the years leading up to the trial.

RSA on the other hand, stated that they had not received information from anyone that there was a possible policy violation, and as a result they argued they had no knowledge of a possible policy breach.

But could the insurer have known?

RSA had claimed they only learned about the Coroner’s report in 2009. However, the adjuster they hired had let them know well before that date that a Coroner’s report might provide evidence about alcohol in the lead rider’s body. Despite being told of this, RSA did nothing to obtain the report.

The court determined that RSA had not taken enough steps to obtain information related to whether the driver had been drinking. Had they followed their adjuster’s advice, they would have raised the coverage issue much earlier. As a result, the court found RSA to be estopped from relying on the policy breach in order to deny coverage.

At Derfel Injury Law we have over a decade of experience in representing clients who have been injured in motor vehicle accidents. We understand the stress you and your loved ones may be experiencing following an accident. Our compassionate and professional approach seeks to ensure you are represented as best as possible through every step of your claim, including those against under or uninsured drivers.  Please call us at 416.847.3580 or reach us online to see how we can help you today.