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“Mistaken Priority”: SABS Jurisprudence Inapplicable to Tort Liability Coverage Priority

By Riley Groskopf

The Ontario Court of Appeal recently released its decision in BelairDirect Insurance Company v. Continental Casualty Company, 2023 ONCA 834. The decision addresses priority of coverage for motor vehicle accidents outside of the statutory accident benefits context, and issues of mistake.


A vehicle leasing corporation called WTH leased a motor vehicle to Mr. George Sarantakos. WTH was insured by Continental Casualty Company (“Continental”). Mr. Sarantakos proceeded to get into a motor vehicle accident, and a lawsuit seeking $2.1 million dollars in damages was commenced.

While investigating the claim, counsel for Continental came to believe that Mr. Sarantakos was also insured under a policy of automobile insurance issued by BelairDirect (“Belair”) to Mr. Sarantakos’ mother. Counsel for Continental put Belair on notice of the claim, based on the priority scheme contained in s. 277(1.1) of the Insurance Act.

Section 277(1.1) of the Insurance Act creates a set of rules to be applied to determine the order in which the third party liability provisions of various policies respond in motor vehicle accident cases, specifically where a vehicle has been leased. The rules are as follows:

  1. Firstly, insurance available under a contract evidenced by a motor vehicle liability policy under which the lessee of the automobile is entitled to indemnity as an insured named in the contract.
  2. Secondly, insurance available under a contract evidenced by a motor vehicle liability policy under which the driver of the automobile is entitled to indemnity, either as an insured named in the contract, as the spouse of an insured named in the contract who resides with that insured or as a driver named in the contract, is excess to the insurance referred to in paragraph 1.
  3. Thirdly, insurance available under a contract evidenced by a motor vehicle liability policy under which the owner of the automobile is entitled to indemnity as an insured named in the contract is excess to the insurance referred to in paragraphs 1 and 2. [1]

Believing that Mr. Sarantakos was covered by the Belair policy, an adjuster for Belair advised that Mr. Sarantakos was covered under the policy with limits up to $1,000,000, and advised that they would agree to the release of WTH from the action, contingent upon an agreement being reached with the plaintiff.

Counsel for the plaintiff in the tort action was not agreeable to terms proposed by counsel for Belair, as counsel for Belair refused to admit liability in the action and counsel for the plaintiff refused to limit the damages sought to the Belair policy limits.

Prior to discoveries, Belair discovered that Mr. Sarantakos was not actually covered by the policy issued to his mother at the time of the accident. Belair advised all parties that there was no coverage under the Belair policy. Continental then declined to assume the defence of Mr. Sarantakos.

Findings of the Application Judge

In a coverage application commenced by Belair, the application judge determined that Mr. Sarantakos was not insured under the Belair policy at the time of the accident. The application judge found that there was no binding agreement from Belair to accept priority of payment under s. 277(1.1) of the Insurance Act. Additionally, the application judge found that Belair was not estopped from denying coverage based on its previous acceptance of coverage, and that Continental had a duty to defend Mr. Sarantakos.


On appeal Continental accepted that Mr. Sarantakos was not covered under the Belair policy, and accepted that he was covered under the policy issued to WTH. They also accepted that Belair initially undertook the defence of Mr. Sarantakos on an erroneous belief that Mr. Sarantakos was a named driver in the policy issued to his mother.

Continental argued that the application judge erred in failing to find that Belair had entered into a binding agreement to abandon a claim of priority, and that there was, at minimum, a binding partial settlement agreement with respect to priority and coverage based on Belair’s consent to an order dismissing the underlying action as against WTH.

Continental also argued that the application judge failed to consider caselaw decided under the Statutory Accident Benefits Schedule (O.reg 283/95) (the “SABS”), to find that Belair had accepted priority.

In her decision, Justice Simmons, speaking for the Court, quickly dispatched of the arguments relating to the consideration of caselaw decided in reference to priority under the SABS. The Court determined that there is no similar regulation to the SABS in cases of third party liability coverage and priority. There is a fundamental difference between SABS and tort liability coverage that necessitates the difference in schemes. For example, as noted by Justice Simmons, the SABS scheme exists to ensure prompt payments of SABS benefits by preventing priority disputes from delaying payments, a concern that does not exist in tort.

Regarding the alleged waiver of Belair’s right to deny coverage, the Court stated that full knowledge of rights and an unequivocal and conscious intention to abandon them are required for a waiver. Belair was genuinely mistaken when they initially accepted the defence of Mr. Sarantakos, therefore could not have had full knowledge of its rights at the time.

Finally, the Court addressed the issue of the allegedly binding agreement. The Court focused on the failure of counsel for the plaintiff, counsel for Continental and counsel for Belair to come to an agreement. Counsel for Belair was willing to release WTH from the action, but only contingent upon the plaintiff limiting their claims, which did not happen. There was no evidence that Belair’s consent was unconditional, and the conditions were never met.

The Court also found that there was no confirmation or even indication that Belair was agreeable to abandoning any priority or coverage dispute, particularly as when they advised there were no coverage issues, they specified “at this time”.

For these reasons, the appeal was dismissed and the application judge’s decision was upheld. Continental was, in the end, responsible for defending Mr. Sarantakos.


This case raises interesting issues regarding the extent of an agreement and the effects of confirmation of coverage. It is important for insurers to be sure of their coverage position before providing positive affirmations of coverage. In this case, it was possible that, had Belair not qualified their acceptance of coverage with “at this time” and had counsel for the plaintiff been agreeable to limiting their claim, Belair may have been left to pay for the claim due to their error.

This case also serves to illustrate the importance of a meeting of the minds between all parties for an agreement to be valid. Despite being initially aligned in their agreement to have WTH released from the action, counsel for Belair and counsel for Continental did not reach a final agreement because counsel for Belair made the agreement contingent on the condition that counsel for the plaintiff agree to limit their claim. Since this did not occur, the two parties did not come to an enforceable agreement, and Belair could not be said to have waived their claim.

Additionally, this decision highlights the difference between priority in the SABS context and in a tort liability context. The law concerning the administration and litigation of SABS, including priority of payment, is a unique system in motor vehicle accident law that is not often applicable beyond its scope.

In this case, reliance on case law related to SABS priority disputes was not effective in a matter dealing with tort priority, due to the different purpose and nature of SABS litigation. Despite both issues being about priority of insurers and often using similar language, the differences are so significant that the Court refused to consider SABS caselaw in the tort liability priority context, and appear to have not found the line of argument persuasive in any way.

[1] Insurance Act, R.S.O. 1990, c. I.8, s.277(1.1)