From the Supreme Court of Canada

Estoppel Denied in Canada

On September 8, 2011 an application for leave to appeal from the judgment of the Court of Appeal for Ontario, Number C51114, 2010 ONCA 868, dated December 10, 2010, was dismissed with costs.

Mr. Lamadeleine, the insured, operated a business, R. Conrad Lamadeleine Courtiers/Brokers Inc., that sold investments in insurance companies.

In 2001, some of his clients, including several of the applicants, brought an action against him and the company following an investment in an insurance company that went bankrupt.  Mr. Lamadeleine subsequently declared bankruptcy, and the action against him was stayed.

Mr. Lamadeleine had malpractice insurance with Lloyd’s.  Shortly after giving evidence on an examination for discovery, Mr. Lamadeleine received a letter from the insurer refusing to insure him based on new facts that had arisen on discovery.  Those facts seemed to indicate that he had overstepped his professional mandate by selling shares without being licensed to do so.

The insurance policy covered only professional services relating to personal insurance for which Mr. Lamadeleine held the appropriate licences.  A motion by counsel for the insurer for removal as the lawyers of record allowed a default judgment rendered against the company, which had no counsel to represent it.  Mr. Lamadeleine’s right of action was subsequently assigned to the clients who had filed an application seeking indemnification from the insurer.

The clients argued that the principle of promissory estoppel prevented the insurer from denying coverage.  The Superior Court dismissed the application and the Court of Appeal dismissed the appeal. The Supreme Court agreed.

Lessons

Insurance is a contract in Canada and in the US. When an insured breaches the contract, as did Mr. Lamadeleine, by selling products for which he was not licensed will have no coverage for the errors or omissions for the business he conducted he was not licensed. Estoppel is an equitable remedy and the Supreme Court of Canada understood that one who does not act fairly is not able to obtain insurance coverage by the force of equity applying the maxim that no one may profit from his own wrong.

About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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