When is a Marine Insurer Estopped from Denying Coverage?

A boat is insured with Aviva, the boat is involved in a collision with its lights off resulting in several deaths, litigation ensures, and after a lengthy delay Aviva denies coverage and seeks a declaration from the Court to that effect.

These were the facts before the Court in Elite Insurance Company (Aviva) v. Borgatti Estate, 2025 FC 1471.

Ultimately, Justice Southcott rejected Aviva’s motion and granted summary judgement in favour of the boat owners on the basis that Aviva was estopped from denying coverage because it sent its reservation of rights letter long after it suspected a breach of warranty and after it made payments under the policy. The case offers a helpful overview of the law pertaining to estoppel and a reminder that: 

"when a claim is presented to an insurer and its investigation of the facts giving rise to the claim indicates that coverage is questionable, the insurer should advise the insured at once and, in the absence of a non-waiver agreement or an adequate reservation of rights letter, the insurer defends the claim at risk of being estopped from denying coverage."

Justice Southcott also made some other interesting findings, namely, that in situations where the insured is facing litigation as well a coverage dispute, the insurer in the coverage dispute cannot seek factual findings that would prejudice its insured in the underlying litigation. Specifically, he stated that:

“[87] Later in these Reasons, I will return to the Defendants’ argument that Aviva’s generation of the Schouffoer Report results in prejudice or detrimental reliance relevant to the Defendants’ efforts to invoke the doctrine of estoppel. For present purposes, I rely on the jurisprudence canvassed above to support a decision to decline to adjudicate the question whether Mr. Borgatti breached the Safety Equipment Warranty. Regardless of whether Aviva’s generation of the Schouffoer Report supports the Defendants’ estoppel arguments or any other theory on the basis of which Aviva should be precluded from relying on the Safety Equipment Warranty, I am satisfied that it would not be in the interest of justice for the Court to make findings in this Motion that, if such findings should favour Aviva, could operate to the Defendants’ detriment in the underlying tort litigation.

[88] In so deciding, I have considered the fact that the Defendants concede that the navigation lights on the Borgatti Vessel were inoperable at the time of the Collision. However, it is also clear from the pleadings in the Borgatti Limitation Action that the Defendants deny that Mr. Borgatti has liability for the Collision. Adjudication of the arguments advanced by Aviva in support of their position that Mr. Borgatti breached the Safety Equipment Warranty, in particular in reliance on the Schouffoer Report, would require the Court to make findings beyond the operability of the lights on the Borgatti Vessel, which could be relevant to liability.”