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Promissory estoppel requires: (1) the parties were in a legal relationship at the time of the promise; (2) the promise was intended to affect the relationship and be acted on; and, (3) the other party in fact relied on the promise or assurance

Ontario

,

Canada

Overview

In Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47, the Supreme Court of Canada considered whether an insurer was obliged to continue defending an insured either on the basis of promissory estoppel or waiver by conduct, after discovering partway through its defence, that he had consumed alcohol immediately prior t the accident, putting him in breach of his insurance policy.
Waiver by conduct was precluded by statute at the time. Promissory estoppel requires that:
(1) the parties be in a legal relationship at the time of the promise or assurance;
(2) the promise or assurance be intended to affect that relationship and to be acted on; and
(3) the other party in fact relied on the promise or assurance.

The requirement that a promise or assurance be intended to affect the parties’ legal relationship signifies that the promisor must know of the facts that are said to give rise to that legal relationship, and of the alteration thereto.

Background

Steven Devecseri died in a motorcycle accident. His insurer defended his estate in two lawsuit. Three years after the accident, and over a year into litigation, the insurer learned Mr. Devecseri had consumed alcohol immediately prior to the accident, putting him in breach of his insurance policy. RSA promptly ceased defending Mr. Devecseri’s estate and denied coverage. A judgment was obtained against the estate. In enforcing his award against the estate, the plaintiff rejected the insurer’s position that its exposure was limited to the statutory minimum, on the basis of waiver by estoppel or promissory estoppel (paras 1-2).

Supreme Court Decision/Reasoning (Majority)
Estoppel

The Court held that the principles of promissory estoppel are well settled. The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the promisee must establish that, in reliance on the promise, he acted on it or in some way changed his position. The equitable defence therefore requires that:
(1) the parties be in a legal relationship at the time of the promise or assurance;
(2) the promise or assurance be intended to affect that relationship and to be acted on; and,
(3) the other party in fact relied on the promise or assurance.
It is implicit that such reliance be to the promisee’s detriment (para 15).  To ground promissory estoppel, the requirement stated in Maracle that a promise or assurance must be intended to affect the parties’ legal relationship signifies that the promisor must know of the facts that are said to give rise to that legal relationship, and of the alteration thereto (para 21). That is all that is required: knowledge of the facts, knowledge of their legal significance can be imputed (paras 24, 26, 29).

Duty to Investigate

The duty owed to the insured to investigate fairly, in a balanced and reasonable manner is at odds with the duty to investigate “thoroughly” and “diligently”.  Were such a duty owed to third parties, it would sit uneasily, and indeed would undermine, the duties of utmost good faith and fair dealing that govern the relationship between the parties to an insurance contract. This is because the obligations between the insurer and the insured are reciprocal; while the insurer has the aforementioned duty to investigate fairly, in a balanced and reasonable manner, the insured is also under a reciprocal duty to disclose facts material to the claim (para 34).

Third Party Enforcement of Estoppel In Insurance

There is no basis in law for a third-party claimant to be able to ground an estoppel argument in any alleged breaches of an insurer’s duty to its insured (para 35).

April 14, 2022
Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47