The Insured’s Duty to Cooperate
September 29, 2004
The relationship between an Insured and an Insurer is contractual in nature. When legal proceedings are brought against an Insured in respect of matters covered by an insurance contract, an Insurer will often assist in the defence of the litigation.1
The majority of insurance contracts, or policies, contain a provision that imposes a duty on the Insured to cooperate with the Insurer in the defence of legal proceedings. An example of such a provision is as follows:
ASSISTANCE AND COOPERATION OF THE INSURED
The Insured shall cooperate with the Company and, upon the Company’s request, shall attend hearings and trials and shall assist in effecting settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of suits. Except at his own cost, the Insured shall not voluntarily make any payment, assume any liability or obligation or incur any expense, unless with the written consent of the Company.
Whether the Insured’s conduct meets the duty to cooperate depends on the circumstances of each case as they existed throughout the litigation. However, courts have generally held that the duty to cooperate includes the following:
(a) The Insured must assist the Insurer in securing the information, evidence and attendance of any witnesses and cooperate with the Insurer, except in a pecuniary way, in the defence of any action.2
(b) When the Insured assumes his or her own defence, he or she must provide the Insurer with timely updates as to the developments in the litigation to enable the Insurer to continually balance the risks of proceeding with the litigation versus settlement. To meet this requirement the Insured must do more than provide the Insurer with statements of account containing detailed descriptions of the legal services that have been provided.3
(c) The Insured must provide the Insurer with all relevant information that is not in the public domain regardless of whether the Insurer specifically requests such information.4
If an Insured breaches his or her duty to cooperate, the character of the breach must be examined. In the case of an inconsequential breach, an Insurer will not be exonerated from its responsibilities under the policy. If the breach is material and substantial, the Insurer may be released from both its duty to defend the Insured and from any liability to indemnify the Insured. However, in appropriate circumstances an Insured, who has committed a material and substantial breach of the duty to cooperate, may seek relief from forfeiture of these rights under the policy.
Whether an Insured’s conduct constitutes a "substantial and material breach" of the duty to cooperate depends on the facts of each case. However, courts have generally found that any conduct on the part of the Insured that hinders or compromises the Insurer’s ability to conduct the defence is a breach of the duty to cooperate.5
Examples of conduct that have been found to be a substantial and material breach of the duty to cooperate include where the Insured: failed to honour a reporting agreement;6 failed to disclose material facts;7 refused to submit to a psychological assessment despite the fact that it was a precondition to receiving disability benefits;8 refused to complete required medical examinations;9 and lied under oath at an examination for discovery.10 Further examples include any action that prevents or hinders the disclosure of information concerning: offer(s) to settle, the development of the plaintiff’s case against the Insured, the lack of good faith, the potential for a lengthy complex trial,11 or the existence of proceedings against the Insured.12
Generally, if an Insured has engaged in conduct that falls within the categories discussed above, if he or she can demonstrate that his or her conduct did not substantially prejudice the Insurer’s ability to manage his or her risk, raise a full or vigorous defence or reach a reasonable settlement, it may be found to be an inconsequential breach of the duty to cooperate.
The following conduct has been found to be an inconsequential breach of the duty to cooperate: where Insured’s failure to attend an examination for discovery was the result of lack of reasonable diligence by Insurer’s solicitors,13 and where the Insured’s non-disclosure did not materially prejudice the Insurer’s ability to bring a vigorous defence.14
Whether the Insured’s conduct meets the duty to cooperate depends on the circumstances of each case as they existed throughout the litigation. If the Insured can demonstrate that his or her conduct did not substantially prejudice the Insurer’s ability to manage risk, raise a full defence, or reach a reasonable settlement, it may be found to be an inconsequential breach of the duty to cooperate. However, if the Insured cannot do so, his or her Insurer may be able to stop participating in the defence of the legal proceedings and refuse to indemnify the Insured from any judgment against them.
1As mentioned in previous articles, in Québec the Insurer owes a duty to defend its Insured under all liability insurance policies. In the other provinces, whether or not the Insurer assumes a duty to defend will depend on the policy wording.
2Canadian Encyclopedic Digest, online: WestlawEcarswell
3Canadian Newspapers Co. v. Kansa General Insurance Co.  O.J. No. 3054 (Ont. C.A.; leave to appeal to S.C.C. dismissed S.C.C. Bulletin, 1997, p. 1107.) ["Kansa"].
5Axa Boréal Assurances Inc. v. Université Laval, (2003) R.R.A. 355 (C.A.).
6Op. cit. note 3.
8Haggart v. Nova Scotia Public Service Long Term Disability Plan Trust Fund,  N.S.J. No. 23 (N.S. S.C.; aff’d by the N.S. C.A. at  N.S. J. No. 445).
9Mononen v. Great-West Life Assurance Co.,  B.C.J. No. 1886 (B.C. C.A.).
10Richards v. Continental Casualty Co. (1993), 14 C.C.L.I. (2d) 202 (Alta. Q.B.).
12Op. cit., note 5.
13Reid v. Gore Mutual Insurance,  O.J. No. 750 (Ont. H.C.J.).
14Travellers Indemnity Co. v. Sumner Co. Ltd. (1960), 27 D.L.R. (2d) 562 (N.B. S.C.; aff’d by the SCC  S.C.R. viii).