In Pederson v. Allstate Insurance Company of Canada, 2023 ABKB 198, the plaintiff was injured in a rear-end motor vehicle accident, where the negligent operator fled the scene. The owner defendant alleged the vehicle was stolen prior to the accident (the “defendant”).
Ultimately, the defendant’s insurance company, Allstate, denied coverage following a determination that the defendant had lied about the stolen vehicle at the liability trial. In fact, the negligent operator had the defendant’s consent to operate the vehicle.
The plaintiff had additional coverage through her SEF 44 policy with Economical, (collectively “Economical”) and together they sought judgment against Allstate. Economical argued Allstate was willfully blind as it has the necessary facts to determine the defendant had lied and failed to fully investigate the defendant’s allegation of a stolen vehicle.
Allstate argued it could not declare a breach of policy until the liability trial as the defendant did not waver in their allegation that the vehicle was stolen. The Court held Allstate did not have full knowledge of the material facts until the liability trial.
Economical argued it could rely on estoppel to hold Allstate liable. However, the Court determined that to was unlikely the plaintiff and Allstate had a legal relationship. Further, the Court held that the insurer’s duty to defend an insured is not a promise to indemnify the insured. Lastly, the Court held that there was no evidence of the Plaintiff’s detrimental reliance on Allstate defending the defendant, as there was no evidence of prejudice against the plaintiff.
The Court further held that an insurer’s duty to investigate was owed to the defendant and could not be extended to the plaintiff. Further, Allstate had no obligation to conduct further investigations and did not have full knowledge of the defendant’s breach until the liability trial – where findings of fact on credibility and liability were made.
Economical further argued Allstate’s non-waiver agreements (“NWAs”) should not be enforceable as Allstate should not benefit from endorsing false statements from it’s insured. However, the Court disagreed and held entering the NWAs were a reasonable approach given Allstate’s suspicion of the defendant’s allegations and the NWAs further provide evidence that Allstate did not have fully knowledge of the material facts.
Following the finding that the defendant had lied, the Court held this amounted to fraud and the defendant knowingly made a misrepresentation to their insurer that resulted in significant costs to Allstate in defending the claim – costs that would have been avoided if the defendant had been honest.
The Court held Allstate was not liable for the judgment and Economical’s claim against Allstate was dismissed.
Should an insurer have insufficient facts to make a determination regarding an insured’s coverage, the insurer will not be penalized for waiting until a finding of facts occurs to allow an insurer to deny coverage – provided the insurer did not have sufficient knowledge to prevent coverage prior to the finding of facts. In other words, just because an insurer has defended, does not mean coverage can not be denied following a determination on the facts.
Zoë Botting