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Insurer Estopped From Denying Coverage

The Court of Appeal’s decision in The Commonwell Mutual Insurance Group v. Campbell, 2019 ONCA 668, demonstrates that, if an insurer wants to dispute coverage, it must do so in a timely manner or at least notify its insured of a potential coverage issue.

Campbell was involved in an accident while riding a dirt bike. He collided with an all-terrain vehicle and was sued.

Campbell’s homeowner’s insurer defended him without securing a non-waiver agreement or issuing a reservation of rights letter.

Ten months later, the insurer advised Campbell that it was denying coverage. The insurer relied on two exemptions in the insurance policy.

The Court of Appeal agreed with the application judge that the insurer was estopped from denying coverage.

The application judge did not make a palpable and overriding error in finding detrimental reliance. A detailed statement of defence was prepared on behalf of Campbell. Tactical decisions were made relating to who would be joined in the action, and crossclaims were issued. A tactical decision was made to not have a jury trial.

Further, Campbell provided evidence that he assumed his interests were being taken care of during the 10 month period. He did nothing to secure his own counsel.

The Court of Appeal rejected the insurer’s argument that, in order to find prejudice, Campbell needed to identify missteps on the part of defence counsel.

Along with being required to defend Campbell, the insurer is not permitted to deny indemnification on the basis of the two exemptions it relied on.

The Court of Appeal held that the application judge’s finding that the insurer is estopped from relying on these exemptions applies to both its duty to defend and its duty to indemnify.