Colliers provided property management services to a condominium corporation. The client instructed Colliers to accept an offer from a natural gas supplier to enter into a long-term price agreement. Colliers failed to act promptly on the offer, and soon the cost of natural gas rose sharply. Another contract was secured, but at $50,000 more than the original offer. The client insisted that Colliers reimburse it for the additional cost, and Colliers instructed its insurance broker to report the loss to its errors and omissions insurer.

Without consulting with the insurer, Colliers admitted liability and promised to compensate the client. On learning of the admission, the insurer denied coverage on the grounds that Colliers had breached the conditions of the policy with respect to the conduct of claims.

In September 2003, the Court of Queen's Bench for Saskatchewan heard an application from Colliers for an order granting it relief under the policy. Among other arguments, Colliers claimed that it had acted in good faith with both the client and the insurer. Practically speaking, Colliers had no defence, so its admission had in no measurable way compromised the insurers. The court agreed with Colliers and granted the application.

Lloyd's appealed the ruling of the trial court. The Court of Appeal for Saskatchewan heard the appeal in February of 2004. The appeal court found that the actions of Colliers had prevented Lloyd's from negotiating with another supplier and with the condominium corporation. The court agreed with the insurer that Colliers had breached the insurer's fundamental rights and the fundamental terms of the policy. Accordingly, the appeal was allowed and the trial court order overturned. Most liability policies contain a condition that prohibits an insured party from any acts or admissions that may adversely affect the insurer's handling of the claim. Breach of this condition may permit the insurer to terminate its defence and any liability for damages.

To avoid such a denial, no admission should be made without the consent of the insurer.

The insurer will expect to make its own investigation of the circumstances giving rise to the loss and may wish to consult with legal counsel before consenting to any admission by the insured.

This may put the insured in an uncomfortable position, particularly if an impatient claimant is a valued client. The insured should be wary of making any unilateral admission until a full investigation has been completed. We have seen cases where an admission is made for damages that appear to be within the policy deductible, only to find later that damages have risen beyond the deductible threshold and coverage is therefore compromised by the admission. A coroner's inquest or other judicial hearing, even any criminal proceedings flowing from the accident, will likely precede civil actions. Defendants in the civil trial will be instructed to make no admissions that might compromise other proceedings.

If it appears that the circumstances will result in multiple or mass claimants or may attract the attention of regional or national media, it may be necessary to implement an emergency plan. Media attention must be managed in a thoughtful and forthright manner to minimize damage to the insured's brand or business reputation. Circumstances involving multiple claimants usually require the services of a large specialty adjusting firm whose experience should help in securing the insurer's co-operation.

The auto policy contains similar conditions, but the insurer may not deny a loss for breach of the condition at the injured third party's expense.

You can read this verdict at:

http://www.canlii.org/sk/cas/skca/2004/2004skca66.html.