Trial Lawyers Association

Introduction

This case is a Supreme Court decision relating to the criteria for promissory estoppel. Promissory estoppel is the doctrine that a promisor cannot renege on their promise in certain circumstances. The criteria, as set out in Maracle, requires that the parties be in a legal relationship at the time of the promise, that the promise be intended to affect the relationship and to be acted upon, and that the promisee relied upon that promise. The present proceedings invoke the question of whether or not certain conduct can be held as a promise, and whether that promise can be extended to a third party. Although this case is moot as both parties settled before it reached the supreme court, their ruling will remain in law.

Facts

On May 29^th, 2006, Mr. Devecseri died in a motorcycle accident as he rode into oncoming traffic. This accident injured a fellow motorcycle rider, Mr. Bradfield, and the driver of a car, Mr. Caton. At the time of the accident, Mr. Devecseri had alcohol in his system, which was in breach of his motorcycle license. This breach would violate his motor vehicle insurance policy.

Royal and Sun Alliance (RSA) Insurance, Mr. Devecseri’s insurance company, appointed someone to investigate the nature of the accident. The Adjuster concluded that speed was a factor in the accident and that further testing would be required to conclude if substances played a role in the crash. Two years later, Mr. Bradfield sued Mr. Devecseri’s estate while Mr. Caton who sued both men.

RSA naturally defended the estate, until it was aware that Mr. Devesceri was in breach of his policy, and notified the two men that they would be taking an off-coverage position in 2009. This would mean that if the two men were successful in their claims, they would both be limited to the collective statutory minimum of $200,000 as opposed to $1,000,000 under the full policy pursuant to the Insurance Act s. 251(1).

In 2012, Mr. Bradfield settled his lawsuit against Mr. Devesceri’s estate. Mr. Canton succeeded in his claim against the two men. Costs were split as ninety percent from Mr. Devesceri, and ten percent from Mr. Bradfield. Afterwards, Mr. Bradfield filed a different claim against RSA on the basis that they waived Mr Devesceri’s breach and prevented themselves from denying full coverage.

The court of first instance ruled in favor of Mr. Bradfield. RSA had in fact waived their right to deny coverage. The court ruled on that; no weight was given to the estoppel argument. However, The Ontario Court of Appeal allowed RSA’s appeal. Firstly, Mr. Bradfield’s waiver argument failed as the court found that one cannot waiver by conduct. Secondly, Mr. Bradfield was unable to satisfy the criteria of promissory estoppel.

Mr. Bradfield eventually settled with RSA. The Trial Lawyers Association of British Colombia requested to be substituted as the appellant. Their request was permitted and served as the appellants in the Supreme Court of Canada.

Legal Issues

Can Mr. Bradfield use promissory estoppel on RSA for going back on their promise to not deny full coverage as a result of them not finding evidence of the breach when it happened?

Arguments Presented

Appellants: The appellant submits that RSA was estopped from denying full coverage. They submit that RSA is liable on two grounds,

1. RSA had imputed knowledge of Mr. Devesceri’s breach and can therefore not deny full coverage.
2. RSA owed a duty to Mr. Bradfield to properly investigate any potential breaches to the policy.

Respondents:

1. The initial claimant in this case was a third party. Therefore, a third party cannot raise a promissory estoppel argument as nothing was promised to them.
2. The elements required in promissory estoppel are not present

Courts Reasoning and Analysis

The Supreme Court did not find the appellant’s argument persuasive in that RSA possessed imputed knowledge of the breach. The appellants relied heavily on the argument that RSA should have known the legal significance of a potential breach and were therefore in possession of this knowledge from the start of litigation. However, promissory estoppel requires that the insurer be aware of the fact that caused the breach to be bound by the equitable doctrine. The knowledge of its legal significance is irrelevant. The Supreme Court clarified this by hypothesizing what would happen if RSA were aware of the fact which caused the breach: “Had, therefore, RSA known of the fact that demonstrated Mr. Devecseri’s breach but had failed to appreciate its legal significance, knowledge of that legal significance could have been imputed to RSA.” (para 24). The fact of the matter was that RSA did not have knowledge of the initial breach. Since they did not have knowledge of the fact, there was no legal significance for RSA to grasp, which meant that knowledge could not be imputed. The Supreme court supported this stance with precedent from Western Canada Accident and Guarantee Insurance Co. v Parrott, as well as Rosenblood Estate v Law Society of Upper Canada. Both stated that knowledge of the legal significance of a breach in the context of coverage is irrelevant if the defendant is already aware of the facts of said breach.

Likewise, the Supreme Court did not find that there was a duty of the respondent to thoroughly investigate a potential breach for a claim. Firstly, there is no precedent that a third party can mount an estoppel argument on alleged breaches of an insurers duty to insure. The reasoning behind this is that the relationship between an insurer and the inured is reciprocal. In instances where the insurer is tasked with investigating potential breaches of a claim, they hold a duty to investigate fairly. Likewise, the insurer possesses a duty to disclose any and all relevant information to the claim. In the original proceedings, since Mr. Devecseri died before he could disclose any pertinent information, such as his consumption of alcohol, this hindered the standard investigation of a breach. Meaning that the Supreme Court did not feel that it would be fair to impose RSA a duty to Mr. Bradfield to investigate thoroughly when Mr. Bradfield owed them no such duty and the standard investigation was not possible. Secondly, the Supreme Court felt that any alteration of obligations of insurers to the insured would constrain the insurance system. If the Supreme Court mandated that third parties are eligible to bring estoppel arguments, then that would encourage insurers to work harder to find policy breaches, potentially denying people from coverage.

Judgement and Ratio Decidendi  

Appeal Dismissed without costs.

No promise was made to Mr. Bradfield as knowledge of Mr. Devecseri’s breach was not imputed to RSA.

RSA was under no obligation to investigate further as no such duty exists for third parties.

Critical Analysis

What makes this case significant is its impact on the requirements for promissory estoppel. Most notably the second step, that the promise or assurance be intended to affect the relationship and to be acted upon. This case highlights that knowledge of the facts are needed to mount an estoppel argument against someone. One cannot rely on the defendants conduct as proof of knowledge of facts. Meaning that if there is no proof of awareness of facts, there is no promise. The Supreme Court’s decision is logical as one of the primary components of promissory estoppel is proof that a promise was made, in the context of an insurer and insured relationship. If they accepted the position of Trial Lawyers, that could mean that anyone who had the slightest knowledge of a breach could be taken to have engaged in the promise. Even if the likelihood of knowledge was extremely small, that knowledge would still be imputed to the insurer and an assurance would be made. Such a stance would open the floodgates for dozens of similar claims and play into the fear of insurance companies to take extra precautions to find breaches. Moreover, the objective approach proposed by Karakatsanis J is the most logical method to analyze the promisor’s intent. This is important as the intent demonstrates the foundation of a promise and whether there are legal relations. Examining said intent objectively is the most transparent way to evaluate it.

Additionally, this case provides precedent for the limits of third party rights in promissory estoppel. Mr. Bradfield did have a valid argument in that a legal relationship between him and RSA did exist under s.258 of the Insurance Act. However, that relationship does not entitle him to claim promissory estoppel for someone else’s estate, as defined in the same provision. This decision highlights the need to ground estoppel arguments to their relevant parties. The only criticism of this decision is that it is too restrictive, thereby going against the statutory interpretation guidelines as set out in Rizzo. However, the overall purpose of case law is to serve as a control mechanism. Therefore, the Supreme Court made an effective decision in striking a balance between the rights of potential claimants and the need to manage a steady flow of claims.

Furthermore, the results of this case are an accurate depiction of the law of equity. Promissory estoppel is an equitable doctrine, not found in common law. The goals of equity are to address unfairness and to provide a remedy where common law cannot. Though the initial appellant suffered loss, he was rightfully barred from promissory estoppel as he did not seek it out with clean hands. To obtain this defense, the court requires the person seeking equity to be an innocent victim who has truly done nothing wrong. In the present case, Mr. Bradfield was partly to blame for the vehicular accident which caused these lawsuits. Therefore, an added benefit of this decision is that it protects the reputation that promissory estoppel holds.

Conclusion

The appellants in this case contended that promissory estoppel was possible as a promise was made to them. This promise was not proven as the respondents were not aware of the facts which would have held them legally responsible for it. Furthermore, the appellant was a third party who could not claim promissory estoppel on behalf of someone else’s estate. For these reasons the appeal was dismissed by the Supreme Court of Canada. It serves as a novel case as it clarifies the requirements needed to form a promissory estoppel claim. Most notably, this case highlights that a party cannot be held to an assurance or a promise if it does not know the facts of a breach for a policy that it is representing. All of this, of course, is in the context of insurance claims.

Cases

Maracle v. Travellers Indemnity Co. of Canada, [1991] 2 S.C.R. 50

Rizzo &Rizzo Shoes Ltd. (Re), 36 OR (3d) 418, [1998] 1 SCR 27

Rosenblood Estate v. Law Society of Upper Canada (1989) ONHCJ 10413, 14 ACWS (3d) 85

Western Canada Accident and Guarantee Insurance Co. v. Parrott (1921) CanLii 66 (SCC), 61 SCR 595

Legislation

Insurance Act R.S.O 1990