Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether the insured's breach of a marine policy warranty invalidated insurance coverage.

• Plaintiff insurer sought summary judgment to deny contractual indemnity and duty to defend.

• Defendants argued estoppel and waiver due to insurer’s conduct and delay in denying coverage.

• Critical evidence included early claims notes, expert opinion, and timing of insurer communications.

• The insurer's disposal of the damaged vessel before asserting denial of coverage was found prejudicial.

• Court declined to resolve factual disputes that might prejudice the insured in related tort litigation.

Facts and outcome of the case

Background and collision events

The case arose from a fatal boating accident on August 24, 2019, involving a 1999 Triton watercraft owned by Neil Borgatti, who died in the collision. His vessel struck another boat operated by Kevin Koch on Stoney Lake, Ontario, resulting in multiple injuries and deaths. At the time, the vessel was insured under a marine policy issued by Elite Insurance Company, operating as Aviva.

The insurance policy included a “Safety Equipment Warranty” requiring the vessel to carry legally mandated safety equipment in good working order. Aviva later alleged that Mr. Borgatti breached this warranty because the vessel lacked proper navigation lights at the time of the collision. The insurer argued that this breach voided coverage.

Subsequent litigation and insurer’s position

Following the incident, multiple tort actions were filed against the Borgatti Estate in both provincial and federal courts. Aviva initially appointed defence counsel for the Estate and paid claims under the policy, including physical damage and accidental death benefits. It wasn’t until February 2021—over a year after it had acquired knowledge of potential safety equipment issues—that Aviva issued a reservation of rights letter. Later in 2023, Aviva formally filed a federal court action seeking a declaration of no coverage.

Defendants’ arguments and evidentiary concerns

The Estate argued that Aviva was estopped from denying coverage due to its prior conduct, including the delay in asserting non-coverage and disposing of the insured vessel. The Defendants contended that Aviva had knowledge of the navigation light issue as early as September 2019, based on its own internal claims notes and discussions with witnesses, but continued to act as if the policy was in force.

The Defendants further argued that the insurer’s actions had prejudiced them. Most notably, Aviva had disposed of the vessel before alerting the Estate of a potential denial of coverage. This deprived the Estate of the opportunity to inspect and possibly preserve evidence relevant to the cause of the light failure—an issue that could support a defence under the Marine Insurance Act’s saving provisions.

The court’s analysis and ruling

The court declined to resolve whether there had been a breach of the Safety Equipment Warranty. It found that doing so could prejudice the Estate’s position in the ongoing tort litigation. Instead, the court focused on whether Aviva was estopped from denying coverage.

Relying on established estoppel principles, the court found that Aviva had sufficient knowledge of the potential breach as early as 2019, yet continued to treat the claim as covered. By making payments under the policy and failing to issue a timely reservation of rights letter, the court held that Aviva had led the Estate to believe coverage would not be denied. The court also accepted that the Estate was prejudiced by the loss of access to the physical evidence when the vessel was destroyed.

Outcome and costs

The court granted summary judgment in favour of the Defendants, declaring that Aviva is obligated to defend and indemnify the Estate under the policy. As the successful party, the Defendants were awarded $15,000 in costs, inclusive of disbursements and HST. No damages were awarded, as the case concerned a declaratory insurance dispute.