No coverage, no secrets – statutory third party insurers must disclose factual basis underlying denial of coverage when it directly impacts a plaintiff’s potentially recovery

The Ontario Superior Court of Justice ordered a statutory third party insurer to disclose the factual basis for its denial of coverage as it directly impacted the plaintiffs’ potential recovery.

Insurance law – Automobile insurance – Misrepresentation on application – Impaired driver – Third parties; Practice – Disclosure of documents – Examination for discovery.

Harris v. Stennett, [2025] O.J. No. 3889, Ontario Superior Court of Justice, September 8, 2025, C. de Sa J.

The Ontario Superior Court of Justice ordered the disclosure of the factual basis underlying a denial of the defendants’ insurance coverage in a liability action related to a single vehicle collision in which a plaintiff suffered injuries. The underlying liability action arose from a 2016 single vehicle collision involving a vehicle driven by the intoxicated defendant, Lerrell Stennett, owned by the defendant, Jouvaine Stennett, and insured by the statutory third party, the Personal Insurance Company (the “Insurer”).

The Insurer denied coverage to the driver and owner on the basis of material misrepresentation on application and non-cooperation with the Insurer. As a result of the denial, the Insurer was added to the litigation as a statutory third party. The only factual information disclosed by the Insurer in the litigation related to the denial of coverage was the two reasons for the denial.

The plaintiffs brought a motion seeking answers to various outstanding undertakings and refusals made by the Insurer on examination for discovery related to the basis of the Insurer’s denial of coverage.  If the Insurer’s denial of coverage was found to be valid, it reduced the Insurer’s exposure to damages from $1,000,000 to $200,000.

The Insurer argued the answers to the various outstanding undertakings and refusals related to insurance coverage were not relevant to the pleadings in the liability action, and a statutory third party was not required to define or explain its position regarding coverage during examinations for discovery in the liability action. The Insurer also took the position that some of the outstanding undertakings and refusals were protected by litigation privilege.

While the Court agreed the coverage issues were distinct from the liability issues to be dealt with in the main action, this did not mean that the information sought was not relevant to the issues of coverage engaged in liability action, or that the timely disclosure of the information underlying a denial was not required for the matter to move forward.

In the Court’s view, much of the information sought by the plaintiffs concerning the denial fell within the rationale of Rule 31.06(4) of the Rules of Civil Procedure requiring a defendant to disclose the availability of insurance and “the conditions affecting its availability.” The Court noted that it would be of little value to a plaintiff to know the conditions in the policy that affect the availability of the insurance without knowing the facts that caused the insurer to deny coverage based on those conditions.  Where relevant documents are protected by privilege, plaintiffs are still entitled to the factual information contained in those documents relevant to coverage.

This case was digested by Natasha Cooke 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].