Insured successfully opposes denial of coverage on the basis of estoppel

The Court found in favour of the insured estate and declared that an insurer was estopped from denying coverage. The insured had detrimentally relied on actions taken by the insurer and was prejudiced by a lost opportunity to inspect evidence before it was advised the insurer was reserving the right to deny coverage.

Insurance law – Liability insurance – Watercraft accidents – Duty to defend – Breach of policy – Estoppel; Practice – Summary judgments; Duties and liabilities of insured.

Elite Insurance Co. v. Borgatti Estate, [2025] F.C.J. No. 1474, Federal Court, September 8, 2025, R.F. Southcott J.

Summary judgment application by the plaintiff insurer for a declaration there was no coverage under an insurance policy for claims arising from a watercraft collision. The defendant insured estate claimed that the insurer should be prevented from denying coverage based on waiver, estoppel, and/or laches.

The underlying action involved a collision between the insured vessel and another watercraft in 2019, resulting in multiple injuries and fatalities. The owner of the insured vessel was killed. The insured vessel was insured under a policy with coverage for physical damage, liability, and accidental death benefits. A few days after the collision, the insurer began investigating the circumstances. Within a couple years, multiple legal actions had been commenced against the insured and other parties. In early 2021, the insurer sent a reservation of rights letter to the insured estate noting that coverage may not be available if a warranty was not strictly complied with, appointed defence counsel, and then sent subsequent reservation of rights letters.

In late 2023, the insurer denied coverage under the policy to the estate on the basis that a Safety Equipment Warranty was breached by the insured by failing to ensure the navigational light system was properly working. The insurer then filed this action.

The insured opposed the action but did not dispute that the navigation lights were not working at the time of the collision. The insured argued that the insurer was aware in 2019 and 2020 of circumstances which could suggest a breach of the warranty but did not advise the insured of the possible breach until early 2021. In the interim period, the insurer paid the estate claims for physical damage and accidental death benefits, appointed defence counsel, and disposed of the vessel without the insured having the opportunity to inspect it.

After finding that the issues were appropriate for summary judgment, the Court found that the insured was entitled to coverage, and the insurer was obligated to defend and indemnify them in accordance with the policy. The Court declined to make findings in the motion with respect to whether the warranty was breached, which could operate to the detriment of the insured in the underlying tort litigation. The Court found that the insurer was estopped from denying coverage because the insurer did not properly advise the insured that failure of the navigational light system could result in a denial of coverage before paying the physical damage claim and disposing the vessel. These actions suggested a promise to the insured and detrimental reliance. At the time the first reservation of rights letter was issued in February 2021, the insurer was already estopped from denying coverage.

This case was digested by Mark A. McPhee and edited by Steven W. Abramson of Harper Grey LLP.  If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected] or review their biographies at http://www.harpergrey.com.