Topham, 31, who won £45 million, was approaching a left hand bend on Louth Road in North Cockerington on Christmas Day 2019, when he turned round to look for the teddy in the footwell of his BMW X6 and veered into the opposite carriageway.
The jury at Lincoln Crown Court was told that the child was upset and crying because of his teddy but rather than stopping his vehicle to find the bear Topham continued to drive.
As he went into the bend his car struck an oncoming Ford Fiesta head-on, the court heard.
Mary Jane Regler, 75, who was a front seat passenger in the Fiesta, was killed as a result. Her husband Rodney, who was driving, was seriously injured.
The couple were returning home after visiting their son for a family Christmas Day dinner.
Topham and his wife, who were in separate vehicles, had been visiting his wife’s parents and he had just left Rushmoor Country Park when the collision occurred, the jury heard.
Michael Cranmer-Brown, prosecuting, told the jury “It is accepted that the collision was entirely the fault of this defendant.
“On his own admission in interview for a few seconds leading up to the collision he did not have his eyes on the road and he was not actually looking where he was going.
“As a consequence of not looking where he was going , as he was approaching this right hand bend his BMW crossed into the opposite carriageway and collided with the Fiesta causing the death of Mrs Regler.
“The driving of Mr Regler was not in any way responsible for the collision.
“The defendant’s account is that his attention was diverted by his looking behind him into the rear passenger footwell so as to retrieve his two year old son’s teddy bear.
“He took a conscious decision to look behind him. He took his eyes off the road.”
The prosecutor said that the child was crying due to his teddy being missing.
“The defendant tried to find the teddy bear by putting his arm behind him and stretched back into the passenger footwell.
“He turned his attention from the road to look behind himself into the footwell to try to find the teddy, plainly not looking at the road and where he was going.
“Once he found it he passed it to his son. He said he couldn’t be sure how long he was looking behind him.
“The defendant said that when he turned his attention back to the road to his horror he found he was driving into the path of a vehicle coming in the opposite direction. It was Mr Regler’s Ford Fiesta.”
Mr Cranmer-Brown said Topham tried to swerve out of the way but it was too late to avoid a collision.
“Mr Regler coming in the opposite direction had no chance to react. He was driving at a steady speed between 30 and 40 mph. He was suddenly confronted by headlights on his side of the road right in front of him.
“He recalls saying out loud ‘For Christ’s sake he’s on my side of the road.’
“Mr Regler could do nothing to avoid a collision. The impact occurred wholly on the eastbound carriageway which was the correct carriageway for Mr Regler.”
Mr Regler, 77, survived but suffered serious injuries including fractures to his right heel and ankle, a fractured sternum, fractured ribs and three cracked vertebrae.
Mr Cranmer-Brown said that after the collision both drivers were tested and the results showed alcohol played no part in the collision
Matthew Topham, of Swinderby, denies causing the death of Mary Regler by dangerous driving on Christmas Day 2019.
The jury has been told that he admits the lesser charge of causing her death by careless driving.
Topham also denies causing serious injury to Rodney Regler by dangerous driving.
The trial continues.