Waiver & Estoppel
Justice Dillon noted that a waiver under the Insurance Act in B.C. must be in writing and signed by the party to be charged, as set out in s. 11 of the Act, in addition to the other requirements as set out above. 1 This is true for all other Canadian jurisdictions.
In the same case, it was noted that estoppel may arise where a defence will not succeed due to this statutory requirement. The facts of this case did not support either defence, in any event.
The Supreme Court of Canada released two decisions concurrently in June of 1991 dealing with the defence of estoppel with respect to the limitation period defence pleaded by the insurer.
In one case, the commercial building owned by the insured had been destroyed by fire. The policy covered three separate categories of assets, which were (1) fixtures, equipment and tenant improvements, (2) stock in trade and (3) the building. 2
The plaintiff was underinsured for the first two categories and the insurer admitted liability for the full coverage in the sum of $70,000. No agreement was made for the building, the maximum coverage for which was $100,000. The adjuster had set the depreciated value at $84,000. The insurer offered $75,000 which was rejected.
An issue arose with respect to a competing claim for the insurance proceeds. The insurer sought and obtained an order to pay the $70,000 sum for what was then a settled claim into court. The affidavit material included an admission of liability with respect to this sum. The insurer also advised that it was prepared to settle the building claim for $84,000 and also to pay this sum into court. A proof of loss for this sum was attached and also a blank form, should the insured wish to decline and claim more. This communication was dated February 23, 1983.
In August of 1983, the plaintiff retained legal counsel. The limitation period expired on November 10, 1983. There had been no communication following the February 23, 1983 letter. The claim was issued on November 23, 1983 with respect to the building coverage.
The defence raised the limitation period and the failure to file the proof of loss. The plaintiff replied by estoppel, arguing that the defence had admitted liability and hence became a debtor with the issue of quantum outstanding. In the event of this plea succeeding, the claim arguably would be one in contract external to the Act for which the limitation period would be six years. It also argued waiver of the limitation period. As to the proof of loss, it sought relief from forfeiture under s. 106 of the Insurance Act.
At trial, Sirois, J. concluded that there are two essential elements to the defence of promissory estoppel. Firstly, there must be an express or implied admission of liability and secondly, there must be an express or implied promise not to rely on the limitation period.
The trial judge concluded that only the first test was met and dismissed the claim.
The Court of Appeal saw that there was a clear admission of liability to the court itself by the application to pay into court the proceeds of the policy. The court determined that promissory estoppel is in play when (1) there is an express or implied admission of liability or (2) an implied promise not to rely on the limitation period (3) as long as there is some evidence that one of the parties entered into negotiations which had the effect of leading the other to believe that the strict rights under the contract would not be enforced. The majority saw this test as met and reversed the trial judge.
The Supreme Court stated that to successfully raise an equitable estoppel, the representation made by the insurer must be intended to affect the legal relationship and was intended to be acted upon, referring to an earlier Supreme Court of Canada decision: 3
It seems clear to me that this type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced, and I think that this implies that there must be evidence from which it can be inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiations.
An admission of liability, the Court concluded, is not enough to create an estoppel to extend a limitation period. The principle requires that the promisor intend to affect legal relations. The facts must show this or the basis on which this may be inferred. Should this admission be found and its impact on the plaintiff is to miss the limitation period, the plea is made.
The facts as found by the trial judge did not support the analysis and the appeal accordingly was set aside and the trial judgment restored.
As to the argument that the admission made the sum due to debt, the argument failed for want of consideration.
The companion decision 5
The relevant policy was a term policy, renewable every five years, with an expiry date of July 26, 2000, coinciding with the insured’s 70th birthday. Prior to July 26, 1988, the policyholder had the right to convert the policy to a new life or endowment policy.
The policy contained a 31 day grace period and also a right of reinstatement within 3 years from the date of lapse, subject to insurability and payment of the arrears.
On July 24, 1984 the company mailed a cheque in the sum of $1,316 to pay the annual premium due on July 26, 1984. On August 13, 1984, it received a notice of premium due for the sum of $1,361. A further cheque was sent for the difference of $45. The second payment was received. The first was not.
Following the expiry of the grace period of August 26, 1984, Maritime sent a late payment offer to the company, by which it agreed to accept late payment if it was “postmarked or, if not mailed, received in the Head Office at Halifax, N.S.” on or before September 8, 1984. It also reserved its right to request an updated medical. No reply was received to this request by Maritime.
On November 28, 1984 Maritime wrote to the owner advising of the unpaid July premium which stated that “unfortunately this policy is technically out of force” and requested payment.
On February 2, 1985 Maritime sent a notice of policy lapse to the company and the spouse. The company had closed its hotel business at Lake Louise for the winter season in mid-November. The company was not aware of the late payment offer, the November letter or the lapse notice until April 1985. It searched for the lost premium cheque and in July 1985 sent a replacement and a cheque for the 1985 premium, both of which were refused.
On July 9, 1985 the company’s agent informed the insurer that the insured person was terminally ill and uninsurable. He died on August 10, 1985.
At trial the claim for relief from forfeiture failed.
On appeal, the claim succeeded. 6 Hardance, J.A. ruled on the basis of estoppel, while Hetherington, J.A. relied on waiver. Both agreed that until the respondents were notified that the 1984 cheque had not been received and were given a reasonable time to remedy this by payment, Maritime could not terminate.
The issues on further appeal were (1) did the insurer waive its right to compel a timely payment? and (2) presuming no waiver, is this a case for relief from forfeiture under the Judicature Act?
As a preliminary matter, the court spoke to the distinction between waiver and estoppel and concluded that they are closely related, both relying upon the principle that it would be unfair to allow one party to retract its choice when it would be unfair to the other party. As submissions were made in waiver, there was no need to offer any further distinction.
Waiver requires full awareness of that which is waived and an unequivocal and conscious intention to abandon such rights. A narrow stringent test is to be imposed:
Waiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) an unequivocal and conscious intention to abandon them. The creation of such a stringent test is justified since no consideration moves from the party in whose favour a waiver operates. An overly broad interpretation of waiver would undermine the requirement of contractual consideration.
The Court concluded that there was little doubt that Maritime was fully aware of its rights under the policy, hence satisfying the first step.
As to the second issue, the November letter was determined to constitute a waiver of its right to receive a timely payment. It read as follows:
Unfortunately this policy is now technically out of force, and we will require immediate payment of $1,361.00 to pay the July 1984-85 premium.
This letter, the court determined, clearly waived the payment default. It did, however, speak to a demand for payment.
The subordinate issue became whether the waiver remained in effect as of July 1985 when the missing payment was tendered.
Once a waiver is in place, the court determined that it can be retracted on reasonable notice. However, to be entitled to notice of such recantation, there must be initial reliance upon the waiver. On these facts, the plaintiffs were not aware of the November letter and the remaining communications until April 1985 and hence there was no detrimental reliance. Hence there was no need to recant the waiver on fair notice. The February statement advising of the lapse of the policy was hence effective.
Further, as obiter, even once apprised of the default in April, the replacement cheque was not tendered until July, some three months later. Even if notice were imposed, it would have been met by the failure of the plaintiffs to act between April and July. The case on waiver failed.
The defence of waiver was also considered by the Queen’s Bench of Alberta. 7
The issue came before the court as a defence motion for summary judgment to dismiss the claim as out of time.
The insurer had written to the plaintiff as follows:
We have reviewed this gentleman’s claim and have waived the time limits for claim submission as Mr. Desgagne was on WCB benefits. We therefore require the claim forms for Long Term Disability and we ask for the Employer’s and the Employee’s portion of the form to be completed.
The court reviewed other correspondence between the parties, the essence of which was requests for further medical information to enable an adjudication of the claim. The insurer did not specifically waive the limitation period, but the Court concluded that the totality of the correspondence and the exhibited actions of the Defendant waived the limitation period.
The court also considered that the apparent co-operation in providing additional medical reports led the plaintiff to believe that the limitation period was, by inference, not to be imposed. The Court cited a 1989 B.C. Court of Appeal decision 8 which held:
That the limitation period should start to run on a clear and unequivocal denial of liability (whether or not proof of loss had been made). There it was held that the insurer’s undertaking to co-operate with the Plaintiff’s surveyor led the Plaintiff to believe that time was not running, and prevented the denial of liability from being unequivocal. I agree with those principles, and I hold that they are applicable here.
The Ontario Court of Appeal in its May 2003 decision 9 also spoke to the issue of estoppel, however, in strictly obiter terms.
The plaintiff had sued for a dismemberment insurance benefit under Part V of the Ontario Insurance Act, which required a notice of “sufficient evidence” be given to the insurer under s. 203, which then mandated by s. 206, that an action be commenced within 12 months from the date of the submission of such evidence by s. 203.
The insurer rejected the claim within the allotted 30 days for its response by s. 203. It engaged in no dialogue with the insured as the sufficiency of the evidence submitted. It simply rejected the claim.
The court noted that an argument could be advanced that had the insurer replied by requesting additional information, it may be estopped from asserting that the time clock had begun upon the initial submission of the claim:
Even where the court determines that the insurer had “sufficient evidence” to make the necessary assessment by a given date, the conduct of the insurer after that date may estop it from asserting that it had sufficient evidence on the earlier date. I think Ingram, supra, is best understood as a case where the insurer, by its conduct, was estopped from claiming that it had sufficient evidence of the relevant facts at a point in time when it was still requesting additional information concerning those facts from the insured:
Also see a 2001 Alberta decision. 10
The general principles of interpretation should also be considered in this submission.