The Ontario Court of Appeal recently held that an insurer which had defended its insured for 10 months, without a reservation of rights, could not rely on a policy exclusion to withdraw its defence.(1) The litigation had been at the discovery stage, although examinations had not been held, when the insurer had tried to withdraw coverage. The court was unsympathetic towards the insurer and held that it was estopped from withdrawing coverage.


The insured was involved in a dirt bike accident and was subsequently sued. The insured claimed coverage under his automobile and home policies. The automobile insurer presented the insured with a non-waiver agreement (which the insured did not sign) and a reservation of rights letter and ultimately denied coverage. The home insurer, Commonwell Mutual Insurance Group (CMAG), did none of the above. Instead, CMAG appointed a lawyer, who represented the insured. At the discovery stage, CMAG took the position that it had erred in defending the insured and sought an order that it was not obliged to continue the defence. It relied on two exclusions:

  • one relating to vehicles that must be registered under a government authority; and
  • the unauthorised use exclusion.

The application judge held that by defending the insured without a non-waiver agreement or a reservation of rights letter, CMAG could not rely on those exclusions to deny defending or indemnifying the insured. CMAG appealed.


The Ontario Court of Appeal dealt with three issues on appeal.

The first issue that the court dealt with was whether the application judge had failed to distinguish between a waiver and estoppel. The court found no such failure by the application judge because he had referred to the two doctrines disjunctively. The application judge's comment that "either waiver or estoppel would apply" was proof that he was saying that the application would fail on either basis.

Second, CMAG contended that the application judge had erred in applying each of the waiver and estoppel doctrines. The court disagreed with CMAG.

With respect to estoppel, the court rejected CMAG's claim that the litigation was not advanced enough for the insured to claim detrimental reliance. The court found that since the lawyer appointed by CMAG had defended the insured for 10 months and the litigation was at the discovery phase, the application judge had been entitled to conclude that the litigation was well advanced and that allowing CMAG to deny coverage would be detrimental to the insured.

Given that estoppel and waiver are redundant mechanisms, the court did not consider whether the application judge had erred in applying the doctrine of waiver.

Third, the court disagreed with CMAG that an appropriate application of waiver or estoppel would simply oblige CMAG to defend the insured, as opposed to also indemnifying him. The court reasoned that estoppel prevented CMAG from relying on the exclusions, whether to dispute its duty to defend or to dispute indemnification. The court noted that if some other legitimate basis for denying coverage were later discovered, CMAG could have the right to deny based on those new grounds.


Non-waiver agreements and reservation of rights letters are important tools to ensure that an insured clearly understands that they may be without coverage. An insurer may elect to disregard a policy breach or may even waive reliance on an exclusion. In those circumstances, the insurer cannot later change its mind. An insurer must be clear about its position and not leave the insured with a false sense of security that their interests are protected.

In this decision, the court did not find it necessary to distinguish between waiver and estoppel. Waiver requires knowledge and the unequivocal and conscious intention to relinquish the right to rely on a contract or obligation. Estoppel also requires knowledge, but the second ingredient is a course of conduct on which a party relies to its detriment. The court cautioned that when estoppel is claimed, it is a factual determination whether the court will infer or find prejudice or detriment from the circumstances.

Insurers and insureds alike should ensure that they appreciate the potential consequences applicable to waiver and estoppel and govern themselves accordingly.

For further information on this topic please contact Andrae I Shaw at Theall Group LLP by telephone (+1 416 304 0115) or email ([email protected]). The Theall Group LLP website can be accessed at www.theallgroup.com.


(1) The Commonwell Mutual Insurance Group v Campbell, 2019 ONCA 668.