Dear Colleagues:

 

The SCC has just released a decision on promissory estoppel in relation to insurance coverage, see Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada (https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/19075/index.do). It is the first important case on promissory estoppel in quite awhile. From the headnote:

 

Per Wagner C.J. and Moldaver, Côté, Brown, Rowe and Kasirer JJ.:

 

“Promissory estoppel requires that (1) the parties be in a legal relationship at the time of the promise or assurance; (2) the promise or assurance be intended to affect that relationship and to be acted on; and (3) the other party in fact relied on the promise or assurance.

 

  To ground promissory estoppel, the requirement that a promise or assurance be intended to affect the parties’ legal relationship signifies that the promisor must know of the facts that are said to give rise to that legal relationship, and of the alteration thereto. The significance of intention depends entirely on what the promisor knows. A promisor cannot intend to alter a relationship by promising to refrain from acting on information that it does not have. Constructive knowledge arising from a breach of a duty to investigate is not enough, and to hold otherwise would be to unwisely and unnecessarily undermine the existing duty on insurers owed to insureds to investigate liability claims fairly, in a balanced and reasonable manner. However, where an insurer is shown to be in possession of the facts demonstrating a breach, an inference may be drawn that the insurer, by its conduct, intended to alter its legal relationship with the insured — notwithstanding the fact that the insurer did not realize the legal significance of the facts or otherwise failed to appreciate the terms of its policy with the insured.”

 

Karakatsanis J. disagrees that the “intention to vary legal rights requires the promisor’s actual knowledge of the facts underlying the legal right.  The jurisprudence has long established that the intent of the promisor in promissory estoppel must be interpreted objectively, based upon their words or conduct: a promise is intended to be binding when it would be reasonable for the promisee to interpret it as such. The objective approach considers whether, viewed objectively in light of the full context and including all the facts that the promisor knew or reasonably can be taken to have known, the promisor intended to alter legal rights. There are important doctrinal reasons to focus on the reasonable interpretation of the promisor’s conduct, and not on their subjective intent or actual knowledge. Promissory estoppel responds to inequity and reliance. Inequity is found where the promisor acted in such a way that the promisee reasonably interpreted the words or conduct as a promise and the promisee changed their position as a result. The person who relies on the promisor’s words or conduct should be able to rely on the entire context, including what the promisor could reasonably be assumed to know.”

Happy Reading,

 

 

Jason Neyers
Professor of Law
Faculty of Law
Western University
Law Building Rm 26
e. jneyers@uwo.ca
t. 519.661.2111 (x88435)