In April 2013, the respondent, Shayne Campbell, was involved in a dirt bike accident. He collided with an ATV (all-terrain vehicle), injuring the ATV driver. In April 2015, Mr. Campbell was sued for negligence.
Mr. Campbell’s automobile insurer, The Guarantee Company of North America (Guarantee), had Mr. Campbell sign a non-waiver agreement and issued a reservation of rights letter before ultimately denying coverage.
The appellant, Commonwell Mutual Insurance Group (Commonwell), held Mr. Campbell’s homeowner’s policy. In June 2015, without securing a non-waiver agreement or issuing a reservation of rights letter, Commonwell appointed a lawyer to defend the claim against Mr. Campbell, pleadings were exchanged, and other steps detailed below were taken.
In January 2016, the plaintiff’s counsel ultimately asked Mr. Campbell’s lawyer whether there was any issue about coverage. This provoked Commonwell to inquire further into the coverage issue, and in March 2016, Commonwell advised Mr. Campbell in writing that they were denying coverage and would be moving for declaration that Commonwell was not obligated to defend or indemnify him. Commonwell’s position was that the policy does not cover liability arising from the use of the dirt bike, as it was required to be registered. In taking this position, Commonwell was invoking an exemption from coverage in the policy for vehicles not owned by the insured that were “required to be registered under any government authority.”
Ontario Superior Court of Justice
In August 2016, Commonwell brought an application seeking declarations that Mr. Campbell did not have coverage, nor was Commonwell obliged to defend him.
In October 2018, the application judge denied the application, holding that Commonwell had either waived its right to deny coverage and refuse to defend, or was estopped from doing so. Commonwell appealed this decision.
Court of Appeal for Ontario
The Court of Appeal for Ontario dismissed Commonwell’s appeal and rejected all of its arguments. Notably, it was held that Commonwell had not persuaded the Court of Appeal for Ontario that the application judge made a palpable and overriding error in their finding of detrimental reliance on behalf of Mr. Campbell. In fact, immediately upon being served with the Statement of Claim, Mr. Campbell contacted his insurance broker and was put in touch with adjusters for Guarantee and Commonwell.
Guarantee promptly issued a non-waiver agreement and reservation of rights letter, and ultimately denied coverage. Instead of taking similar steps, Commonwell appointed counsel for Mr. Campbell. Commonwell prepared a Statement of Defence and made tactical decisions with respect to jury notice, which parties were to be added to the action and crossclaims. Just as importantly, the action proceeded to the examination for discovery stage as the plaintiff’s counsel was seeking information regarding coverage issues.
In other words, the lawyer Commonwell appointed for Mr. Campbell acted for him for 10 months before Commonwell gave Mr. Campbell any reason to believe his liability was not covered and he would not be defended. As such, the Court of Appeal for Ontario upheld the application judge’s position in that litigation was well-advanced and permitting Commonwell to assert no coverage or duty to defend Mr. Campbell, which would be detrimental to Mr. Campbell.
In addition, the Court of Appeal for Ontario concluded there was supplementary direct evidence of prejudice. Mr. Campbell assumed that his interests were being taken care of during the 10-month period; he did nothing to secure his own counsel to second-guess the decisions being made by the lawyer Commonwell retained; he did not seek to have Guarantee defend him and he allowed Commonwell to prosecute the defence of his case for close to a year without taking charge of his own defence.
This decision is important because it highlights the need for due diligence and promptness required of the insurers (and to a certain extent, their counsel), and demonstrates that the courts will consider whether an insurer adequately addressed the question of coverage prior to advancing litigation.
The Commonwell decision demonstrates that taking steps to move files forward and litigate without addressing the issue of coverage can actually be used as evidence to deny insurers their right to deny coverage and refuse to defend, or sometimes even estop them from doing so. As such, insurers (and their counsel) should avoid resorting to “cookie-cutter” or “template” approaches, and instead, conduct due diligence regarding coverage issues before proceeding with litigation.