British Columbia Insurance Blog

Nova Scotai's cap on non-monetary damages arising from motor vehicle accidents was upheld by Court of Appeal

Michael Thomas — Thu, 11 Feb 2010 08:54:11 -0800

These were two unsuccessful appeals which were heard together of a decision dismissing a challenge to the statutory and regulatory cap on damages for minor injuries arising from motor vehicle accidents.

Hartling v. Nova Scotia (Attorney General), [2009] N.S.J. No. 599, December 15, 2009, Nova Scotia Court of Appeal, M. MacDonald C.J.N.S., M.J. Hamilton and D.R. Beveridge JJ.A.

This matter concerns two appeals which we heard together challenging the province’s addition of s. 113B of the Insurance Act, R.S.N.S., c. 231 (the “Act”) and the corresponding regulations. The legislative changes capped non-monetary damages for “minor injuries” at $2,500.00.

The appellants in the first appeal appealed a dismissal of their challenge of the minor injury legislation on the following bases: (1) the definition of a minor injury discriminates against individuals with certain types of pain and discomfort, and is therefore contrary to s. 15(1) of the Canadian Charter of Rights and Freedoms (the “Charter”); (2) s. 113B(1)(a) of the Act discriminates on the basis of gender by disproportionately affecting women with minor injuries as a result of an automobile accident; (3) the Limitation Regulations discriminate against individuals suffering from certain forms of chronic pain, as compared to individuals who are not deemed to have minor injuries; and (4) the regulations expand beyond what the legislation intended.

The government’s position was that the legislation is constitutionally valid and reflects public policy designed to contain sky-rocketing insurance premiums.

The Court dismissed the first appeal and held that the legislation is valid and is not discriminatory as contemplated by the Charter. The regulations do not run afoul with the Act. The Court found that the Appellants were treated differently from other automobile accident victims who avoid the cap on the enumerated ground of a physical disability. The Appellants are disadvantaged by the minor injury cap because of the monetary limit and because they will be denied an independent judicial assessment and the right to seek full recovery for their injuries from a wrongdoer. However, the disadvantages do not trigger s. 15 of the Charter. The evidence fell short of establishing that the legislation perpetuates or is a result of prejudice or stereotyping sufficient to trigger s. 15 of the Charter. The legislation is sufficiently attentive to the appellants’ needs, capacity, and circumstances. The Appellants’ ability to seek recovery for wage loss, costs of future care, legal costs and/or aggravated and punitive damages remains intact.

With respect to discrimination on the basis of gender, the Court held that any disadvantages in that regard are due to pay equity issues unrelated to minor injury cap. The legislation does not trigger s. 15 of the Charter in this respect.

The regulations' expansive definition of the scope of a minor injury was consistent with the Insurance Act and the clear legislative intent to reduce rapidly rising premiums.

In the second appeal, the Appellant asserted that individuals who have purely mental injuries, such as post-traumatic stress disorder, would be discriminated against because of the wording of the legislation which could be read to mean that mental injuries would automatically be deemed to be a “minor injury”. The Court of Appeal denied her leave to appeal on the basis that her appeal was moot. The Chambers judge in the court below had found that her post-traumatic stress disorder was a physical rather than a mental injury.

This case was originally summarized by Kim Yee and originally edited by David W. Pilley.

Paraplegia caused by herpes is not an accident and therefore not covered by a group insurance policy.

Michael Thomas — Mon, 08 Feb 2010 09:18:05 -0800

This was a successful appeal by an Insurer from a determination that an Insured’s paraplegia resulting from a complication of genital herpes was covered under a group insurance policy.

Co-operators Life Insurance Co. v. Gibbens, [2009] S.C.J. No. 59, December 18, 2009, Supreme Court of Canada, McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.

The Respondent had unprotected sex with three women and contracted genital herpes and a rare complication of that condition called transverse myelitis which resulted in total paralysis from his mid abdomen down. The Respondent was not aware that any of the women that he had intercourse with had herpes. However, he did know that contracting a sexually transmitted disease was a potential risk of having intercourse. He claimed for compensation under a group insurance policy on the basis that the paralysis resulted “directly and independently of all other causes from bodily injuries occasioned solely through external, violent, and accidental means, without negligence” on his part. The policy did not contain a definition of the word “accident”.

The trial judge found in the Insured’s favor and held that the paralysis was accidental as the Insured did not expect to become a paraplegic as a result of engaging in unprotected sexual intercourse. The Court of Appeal upheld the trial judge’s decision and found that the Respondent’s condition did not arise “naturally”, but rather it was a result of an external factor or “unlooked-for mishap”.

The Supreme Court of Canada allowed the appeal and held that the loss was not covered by the policy. The Court considered the meaning of the term “accident” and held that it should be given its ordinary meaning as it would have been understood by the average person applying for insurance. In ordinary speech the term “accident” does not include ailments which flow from natural causes. The causal chain which led to the injury was the sexual transmission of herpes which led to the development of transverse myelitis. Transverse myelitis is a rare complication, but is a normal incident of herpes. To conclude that the acquisition of herpes was an “accident” despite the absence of any mishap or trauma would be contrary to the intent of the policy which was not intended to be a comprehensive health insurance policy for infectious diseases.

This case was originally summarized by Kim Yee and originally edited by David W. Pilley.

Contingencies must be applied to a deduction of future entitlement to insurance benefits.

Michael Thomas — Thu, 04 Feb 2010 09:25:16 -0800

The Defendant sought and was awarded a deduction from a cost of future care award pursuant to 83(5) of the Insurance (Vehicle) Act.

Sauer v. Scales, [2009] B.C.J. No. 2490, December 11, 2009, British Columbia Supreme Court, B.I. Cohen J.

The Plaintiff stated that ICBC had initially paid some chiropractic and physiotherapy expenses under Part 7 of the Act, but then discontinued benefits on the basis that the accident did not cause the injuries. The Plaintiff argued that the application was therefore an abuse of process and the Defendant should be stopped from seeking the deduction.The Plaintiff was injured in a motor vehicle accident and received a tort award from the Defendant. The Defendant sought a deduction from the cost of future care award pursuant to s. 83(5) of the Insurance (Vehicle) Act, R.S.B.C. 1996, c. 231 (the “Act”). The Defendant argued that the costs of future care covered by Part 7 of the Act are to be deducted from an award of damages regardless of whether the Plaintiff has claimed for or received benefits under Part 7. The Defendant took the position that all of the items enumerated in the cost of future care award, except for $5000 which was awarded for upkeep of the family cabin, were expenses which fell under s. 88 of the Act. Section 88 of the Act outlines which benefits ICBC will pay for the event that an insured is injured. An adjuster for ICBC deposed that the Plaintiff had received $7,859.00 as a reimbursement for physiotherapy and an advance of $20,000.00.

After reviewing a number of authorities, the Court held that Plaintiff’s entitlement to s. 7 benefits had to be estimated and that amount deducted from the tort award. Certain contingencies must be taken into account in doing so. Section 88(1) of the Act states that ICBC is only obliged to pay for “all reasonable expenses incurred by the insured.” The fact that ICBC has the ability to deem certain expenses as unreasonable despite the Court’s award for such items as part of a tort award must be considered. According to the legislation and payment schedules, the amounts permitted for treatments and the frequency of visits for treatments was significantly less than the amounts awarded to the Plaintiff for these items. It was not known whether ICBC would in fact make payments to the Plaintiff beyond the amounts and frequency specified in the legislation and payment schedules. Taking these things into account, the Court held that $25,000.00 was deducted from the award as well as $20,000.00 for the advance.

This case was originally summarized by Kim Yee and originally edited by David W. Pilley.

A tenant exclusion endorsement is not enforceable in a Standard Mortgage Clause.

Michael Thomas — Tue, 02 Feb 2010 10:51:56 -0800

Tenant Exclusion Endorsement inconsistent with Standard Mortgage Clause and therefore unenforceable.

Hum v. Grain Insurance and Guarantee Co., [2009] A.J. No. 1351, December 4, 2009, Alberta Court of Queen's Bench, R. Stevens J.

The Applicants sought a Declaration of Coverage, as mortgagees, under the Standard Mortgage Clause in a fire insurance policy. The policy was issued by the Respondent Insurer to an Insured who was not a party to the proceedings. The Insurer had denied coverage on the basis of a Tenant Exclusion Endorsement which provided that loss and damage caused directly or indirectly by vandalism or criminal or malicious acts was excluded. The fire had been deliberately set by the property's tenant. The Applicants argued that the Standard Mortgage Clause was all encompassing and should prevail over the Tenant Exclusion Endorsement. The Court agreed finding that while the Tenants Exclusion Endorsement expressly excluded coverage for loss or damage resulting from malicious or criminal acts, it was inconsistent with the Standard Mortgage Clause which protected the Applicants from any act of the occupants and expressly stated that it superseded any policy provisions in conflict with it. The Tenant Exclusion Endorsement was therefore unenforceable.

This case was originally digested by Cameron B. Elder and originally edited by David W. Pilley.

An insurer's right to subrogate under a standard mortgage clause requires that the insurer has no liability to the mortgagor.

Michael Thomas — Mon, 01 Feb 2010 09:25:09 -0800

Insurer's right to subrograte under Standard Mortgage Clause requires fulfillment of two preconditions, (1) the insurer must make payment of the loss award, or part of it, to the mortgagee; and (2) the insurer must establish a claim that it has no liability to the mortgagor.

Pinder v. Farmers' Mutual Insurance Co. (Lindsay), [2009] O.J. No. 4964, November 26, 2009, Ontario Court of Appeal, D.R. O'Connor A.C.J.O., R.A. Blair and R.G. Juriansz JJ.A.

This appeal raised the question of whether the subrogation right of an insurer under the Standard Mortgage Clause in a home insurance policy may be exercised simply on the insurer paying the loss award to the mortgagee without the insurer establishing that it has no liability to the insured.

The Respondent Insurer had insured the home of the Appellant Insureds. The Insureds had a mortgage with the Bank of Montreal. The Insureds submitted a claim to the Insurer seeking indemnity for repairs to the house, damage to its contents, and additional living expenses following a fire. The Insurer denied their claim on two grounds:

1) the Insureds had voided the policy by failing to notify the Insurer of a material change in the risk, namely, a change in the heating system of the premises; and

2) the Insureds had made wilfully false statements with respect to their contents claim and their claim for alternative living expenses, thus vitiating their right to recover.

The Bank of Montreal submitted a Proof of Loss seeking payment of the mortgage under the Standard Mortgage Clause and the Insurer paid that claim. The Insurer then, relying on its right of subrogation under the Standard Mortgage Clause, claimed the sum it had paid to the Bank of Montreal from the Insureds. The motions judge granted summary judgment against the Insureds in the amount paid by the Insurer to the Bank of Montreal. The Insureds appealed seeking an Order dismissing the Insurer's Motion for Summary Judgment directing that the two Actions be tried together (the Insureds had commenced a separate proceeding against the Insurer seeking a Declaration that the policy was valid and enforceable).

The Court of Appeal held that there are two preconditions to the Insurers' entitlement to subrogation under the Standard Mortgage Clause. First, the Insurer must make payment of the loss award, or part of it, to the mortgagee. Second, the Insurer must establish a claim that it has no liability to the mortgagor insured. The Court found that this conclusion flows from the construction of the Standard Mortgage Clause and is not dependent on the specific facts of the case.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

Damage to a vacated rental property may not be covered by a home insurance policy.

Michael Thomas — Fri, 29 Jan 2010 09:18:28 -0800

Insureds were denied coverage on a home insurance policy for failing to advise the Insurer that their tenants had moved out and not returned the keys.

Wu v. Gore Mutual Insurance Co., [2009] O.J. No. 5201, December 2, 2009, Ontario Superior Court of Justice, M.J. Nolan J.

The Insureds held a policy of insurance on a home they rented to tenants. They were covered for fire and loss of rental income. The Insureds' property was severely damaged by a fire on or about October 10, 2006. The Insureds' tenants had moved out of the property on August 5, 2006 and the Insureds had not replaced them. When the tenants moved out of the property, they only returned the keys to the front door. The Insureds did not change the back door locks nor advise the Insurer that the previous tenant had failed to return the back door keys. The Insurer denied coverage on the basis of an exclusion clause which provided that the Insurer would not insure direct or indirect loss or damage "occurring after your dwelling has, to your knowledge, been vacant, even if partially or fully furnished, for more than thirty consecutive days". The Insurer also denied coverage on the basis that the Insureds had breached statutory condition no. 4 of the Insurance Act, R.S.O. 1990, C1.8, which requires an Insured to advise an Insurer of any change material to the risk within the control and knowledge of the Insureds. The Insureds disagreed with the decision of the Insurer to deny coverage and commenced this action.

The Court found that the damage caused by the fire occurred after the rental property had, to the Insureds' knowledge, been vacant for more than thirty consecutive days. Further, the Court found that the Insureds should have advised the Insurer when the last tenants moved out and that they had not returned all of the keys.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

A misrepresentation about medical history may void a disablity insurance policy. Even if the misrepresentation is not related to the disabling condition.

Michael Thomas — Wed, 27 Jan 2010 08:57:41 -0800

Insured's appeal of a finding that his long-term disability policy was void for material misrepresentation was dismissed.

Fernandes v. RBC Life Insurance Co., [2009] O.J. No. 5240, December 8, 2009, Ontario Court of Appeal, E.A. Cronk, S.E. Lang and R.G. Juriansz JJ.A.

The Plaintiff Insured appealed the dismissal of his action against the Defendant Insurer. The Insured held a long term disability policy with the Insurer. The Insured subsequently became disabled as a result of meningitis. He applied for long term disability benefits but his application was rejected by the Insurer who took the position that the Insured had materially misrepresented his medical history on the initial questionnaire.

The trial judge found that the policy was void ab initio because the Insured had not disclosed material facts. In particular, the Insured had not disclosed the identity of his attending physician or his consultation with that physician four or five months prior to the date of the insurance application regarding lumbar pain. The trial judge found that had the Insured not misrepresented his medical history, the coverage offered would have been subject to full exclusions for back and hip related ailments. The Insured's appeal, which was on the basis that the trial judge had committed errors of facts, was dismissed.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

A restaurant that allows an intoxicated patron to leave with sober companions may not be liable for over-serving the patron.

Michael Thomas — Tue, 12 Jan 2010 15:08:17 -0800

A restaurant joined as a third party by the Defendant insurance company sought a summary judgment under Rule 22 of the New Brunswick Rules of Court. Granting the motion the judge held that based on the evidence the restaurent had fulfilled the requirements placed on a commercial host under the circumstances and did not see any reason to doubt the claim against the restaurant would be dismissed at trial.

Feaver Estate v. Briggs, [2009] N.B.J. No. 371, November 12, 2009, New Brunswick Court of Queen's Bench, D.H. Russell J

Feaver was struck by a car driven by Briggs after leaving a party held at the third party's restaurant. The Defendant, Unifund Assurance Company, joined the restaurant alleging they were liable to the deceased in that they allowed him to consume alcohol, and become intoxicated to the extent that he was unable to ensure his own safety.

The Feavers attended a staff party at the restaurant where, in her affidavit, Mrs. Feaver said her husband consumed approximately six beers during the evening, and was feeling good but was not drunk. Blood samples taken from Mr. Feaver suggested he had consumed closer to 18 to 20 bottles of beer during the evening.

The restaurant owner's affidavit also stated that Mr. Feaver appeared fine and did not display any visible signs of intoxication when he left. Mr. Feaver left in the company of his wife and another couple, who were responsible for him. The restaurant owners knew the group were going to walk to a nearby restaurant along a sidewalk, and that they were going to be driven home by a group called Operation Red Nose after leaving the second restaurant.

The judge held that Unifund could argue the third party restaurant owners should have known Mr. Feaver had consumed up to 18 beers despite the assertion of Feaver's wife that he had four to five and lacked signs of intoxication. However, even if Feaver was visibly intoxicated, the third party owners knew he was in the hands of three other people, including his wife, that he was going to be walking along a sidewalk adjacent to their establishment, and that he was to be driven home at the end of the evening. On the strength of that evidence the judge felt that there was no foreseeable risk to Mr. Feaver when the third party owners allowed the group to walk to the other restaurant, and as a result the claim against the third party would be dismissed at trial. The judge granted the summary judgment against the Defendant Unifund Insurance under Rule 22.

This case was originally summarized by Neil J. MacDonald and originally edited by David W. Pilley.

An out of province insurer may not be entitled to conduct money to compensate a represenative for attending at an Examination for Discovery.

Michael Thomas — Fri, 08 Jan 2010 15:00:10 -0800

The insured Plaintiff brought a motion that he not be required to pay attendance money in order to conduct an oral examination for discovery of a knowledgeable person produced by the Defendant. The Defendant insurance company argued unsuccessfully that it did not reside in Manitoba and its designated knowledgeable person was in Vancouver.

MacAngus v. Royal and Sunalliance Insurance Co. of Canada, [2009] M.J. No. 382, October 30, 2009, Manitoba Court of Queen's Bench, M. Kaufman J.

The Plaintiff's boat was insured by the Defendant insurance company. As a result of a collision, the boat was destroyed. The Plaintiff claimed $38,439 plus pre-judgment interest pursuant to the policy. The Defendant Insurer denied coverage on the grounds the driver of the boat was impaired, and in the alternative that the accident was caused by an illegal or an intentional act of the driver.

This motion was brought as a result of the Plaintiff wishing the Defendant to produce a knowledgeable person pursuant to the Manitoba Rules of Court. While the Plaintiff did not designate a specific person for the Defendant to produce, he suggested that the insurance adjuster retained by the Defendant to investigate the claim could be the local knowledgeable representative . The Defendant Insurer argued that there was no suitable local representative and that it wished to bring a knowledgeable representative from Coast Underwriters Limited in Vancouver.

The Defendant maintained that it had no offices in Manitoba and it conducted no business in Manitoba. The Defendant's managing general agent was Coast Underwriters Limited in Vancouver, who issued the policy in question from its Vancouver office. It also submitted that the policy was brought to Coast Underwriters by the Winnipeg office of Marsh Canada, an insurance broker.

The Insurer was licensed under the Manitoba Insurance Act, and section 22(2) outlines who will be deemed an insurer carrying on business within the province. The Court held that the Defendant met several of the criteria for carrying on business in the province contained within s. 22 of the Insurance Act. The judge went on to say that it would be inconsistent with the intent of the Insurance Act to allow the Defendant to sell insurance in Manitoba and then to behave as a disconnected stranger when an insured seeks indemnity.

The judge held that the term "residence" was a flexible term to be interpreted in the context of a case, and that in conjunction with the Manitoba Insurance Act he was persuaded that the Defendant resided in the province of Manitoba for the purposes of the Rules of Court. Accordingly, no conduct money needed to be paid.

This case was originally summarized by Neil J. MacDonald and originally edited by David W. Pilley.

A broker may be negligent if he or she does not fully explain the limitations of an insurance policy.

Michael Thomas — Thu, 07 Jan 2010 13:53:17 -0800

The insureds' action against its insurance broker for breach of its duty of care was allowed. The broker did not fully explain to the insured the limitations of the policy that they had purchased.

Sampson v. AA Munro Insurance, [2009] N.S.J. No. 493, September 14, 2009, Nova Scotia Small Claims Court, Adjudicator E.K. Slone

The insureds purchased a policy of insurance for their trailer through their insurance broker, AA Munro Insurance, . In the spring of 2009 the river where their trailer was parked flooded and destroyed their trailer. When they attempted to claim against their policy for the full replacement value of the trailer, they discovered that their policy only entitled them to the depreciated value of the trailer.

The insureds claimed that when they spoke to AA Munro Insurance they were clear in their desire for replacement value insurance. The court found that there was more than one way for the broker to insure the trailer. The more expensive option would have been through a so-called trailer policy, which would have provided for full replacement value. The less expensive option was to use a standard automobile policy which provides for a depreciated amount only, in the event of theft or damage. The broker insured the trailer under the latter.

Before agreeing to the coverage the insureds received a fax from the broker quoting the premium on the policy. The fax read, in part, "$30,000 value Replacement Cost." The insureds concluded from this that they had replacement value insurance. The broker claimed that it needed to know the replacement cost to know how much insurance to arrange, but that this did not mean that the coverage would be for replacement value.

The court found that most people reading those words would conclude that they had replacement value insurance, It held, citing the Supreme Court of Canada's decisions in Fine's Flowers Ltd. v. General Accident Assurance Co, (1977), 17 O.R. (2d) 529, and Fletcher v. Manitoba Public Insurance Co, [1990] 3. S.C.R. 191, that it is the duty of an insurance broker to explain the coverage being offered, and in particular match it up with the customer's needs. In this case the broker did not fully explain to the insureds the limitations of the policy they would be getting. In doing so, the broker was in breach of its duty of care.

The insureds were awarded the difference between the replacement value of their trailer ($33,900.00) and the amount their insurance company actually paid them for the trailer ($28,465.00), amounting to $5,435.00.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.

A vehicle driven with the consent of the insured owner is insured under the owner's insurance policy.

Michael Thomas — Mon, 04 Jan 2010 13:46:32 -0800

An appeal by insurer from a finding that it was responsible for coverage of damages arising from a motor-vehicle accident was allowed. The trial judge had erred by failing to consider s. 114 of the Insurance Act R.S.N.S. 1989 c. 231 and the prevailing jurisprudence, which holds that if an operator drives an owner's vehicle with the consent of the owner, the owner's insurance will respond to any claim for damages.

Royal & Suh Alliance v. Baltzer, [2009] N.S.J. No. 505, November 4, 2009, Nova Scotia Court of Appeal, J.W.S. Saunders, L.L. Oland and J.E. Fichaud J.J.A.

On October 5, 2003, Clements was driving a truck owned by the Baltzers when he collided with a vehicle driven by the Clarks. The Clarks brought an action against the Baltzers, Clements and Royal & Sun Alliance, the Section "D" insurer of the Clark vehicle.

By consent, the parties sought a preliminary determination of the issue of whether Clements was operating the vehicle in question with the consent, express or implied, of the Baltzers. Clements was a friend of the Baltzers and also a mechanic. Over the years he had done maintenance on their truck. He did not have a vehicle of his own and on several previous occasions, with the Baltzers' consent, he had used the truck. Several weeks after the accident the Baltzers produced a document, dated October 4, 2003, which purported to set limits on Clements' use and operation of the truck. The document was signed by Mr. Baltzer and Clements.

The trial judge found as a fact that Clements had used the truck with the consent of the Baltzers. She did not accept that the document was executed prior to the accident on October 5, 2003. She then went on to consider s. 248(3) of the Motor Vehicle Act, R.S.N.S. 1989 and found that the principle of the Baltzers' vicarious liability was rebutted, as Clements was not driving in the course of employment with the Baltzers or acting under their instructions. She therefore concluded that the uninsured motorist provisions in the Clarks policy was engaged and Royal & Sun Alliance was responsible for responding to the claims by Clark and his passengers.

On appeal Royal & Sun Alliance argued that the trial judge had erred by failing to consider s. 144 of the Insurance Act to determine that the Baltzers' insurer was responsible to pay any damages occasionsed by Clements's use of the vehicle. The Court of Appeal agreed. It noted that the judge had correctly found that Clements was driving the vehicle with the consent of the Baltzers. According to s. 114 of the Insurance Act, and the jurisprudence, it would therefore be the Baltzers' insurance which would be called upon to respond to any claims. The judge incorrectly applied s. 248 of the Motor Vehicle Act, which deals with tortuous liability for accidents, not insurance coverage. The appeal was allowed and the order requiring Royal & Sun Alliance to respond to the claim was reversed.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.

Whether an insured was prejudiced by an insurd's failure to comply with a proof of loss procedure may not be suitable for summary judgement.

Michael Thomas — Tue, 29 Dec 2009 13:29:33 -0800

An application by the insurer seeking summary judgment on the grounds that there was no genuine issue for trial was dismissed. Although the insured was not in technical compliance with the proof of loss procedure, the issue of whether the insurer was prejudiced by the insureds actions remained. There were triable issues raised by the facts and the law.

Louis Jones Construction Ltd. v. Royal & Sunalliance Insurance Co. of Canada, [2009] O.J. No. 4721, November 2, 2009, Ontario Superior Court of Justice, Master C.U.C. MacLeod

The insured was the owner of a truck-mounted concrete boom truck that collapsed on a construction site. The accident was reported to the insurer, but the insured advised it was seeking recovery from the truck manufacturer and distributor. It started an action against those parties on June 29, 2005. However, it advised the insurer that, should it be unsuccessful in the claim, it would be seeking recovery under the policy.

On September 9, 2005 the insurer wrote to the insured confirming that the loss was covered by the policy and that the insurer was prepared to pay the cost of repairing the truck minus the deductible. The letter confirmed that the insurer was aware that the insured was seeking to recover the loss without recourse to the insurer. The letter also confirmed that the claim could be "re-opened for processing" anytime before the one year limitation period expired on January 5, 2006.

The insured never filed a proof of loss form, but it did start an action against the insurer on December 25, 2005. The main action against the manufacturer and distributor is scheduled for February 2010. Should the insured be unsuccessful in that action then it sought, in the action at bar, to recover from the insurer under the policy.

The insurer argued that the insured could not succeed in the action against it because it did not submit a proof of loss to initiate the claim and specifically elected to pursue remedies against the other parties in the main action. As there was never a claim advanced under the policy, there was never a denial of the claim and therefore no breach of contract on which to sue.

The insured argued that it issued a formal claim within the limitation period, by serving the Statement of Claim. Further, it argued that the insurer had, in fact, denied the claim when it issued its Statement of Defence. The Insured argued that it would be open to the court to conclude that a breach of contract occurred when the claim was defended. Lastly, it argued that the insurer's position concerning a failure to complete a formal proof of loss is merely a question of form over substance and that the court has liberal powers under s. 129 of the Insurance Act to relieve from forfeiture.

The court held that, although the insured was not in technical compliance with the proof of loss procedures under the policy, it was difficult to see how the insurer had been prejudiced by the insured's actions. While the formal proof of loss might not have been filed, the insurer was immediately on notice of the loss, had all the information that would be contained in a proof of loss, and had been kept fully aware of the status of the main action. The court was not persuaded that the insured could not succeed in its arguments and, therefore, there were triable issued raised by the facts and the law. Accordingly, the summary judgment motion was dismissed.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.

An insured must be fully informed of the impliations of an excluded party clause for the clause to be effective

Michael Thomas — Mon, 21 Dec 2009 13:40:02 -0800

An application by the insurer for a delcaration that it had no duty to defend or indemnify the insured and his son was dismissed in part. There was no coverage for the son, as he was an excluded driver under the policy. Although the son was an 'excluded driver' under the policy the evidence did not establish that the insurer took all appropriate steps to make sure that the insured understood the implications of having his son listed as an excluded driver. Therefore, a trial of an issue was directed on the 'excluded driver' endorsement. Further, there was also no evidence that the insured's son drove the car without the insured's consent or that the insured allowed his son to drive while he was unauthorized by law to do so.

Traders General Insurance Co. v. McCubbin, [2009] O.J. No. 4478, October 28, 2009, Ontario Superior Court of Justice, E.P. Belobaba J.

The insured owned a pick-up truck insured by the insurer. His son was an 'excluded driver' under the policy. His son used the truck, accompanied by another driver, and was involved in a motor-vehicle accident. Both the insured and his son were sued by the occupants of the other vehicle.

The insurer brought an application for a declaration that it had no duty to defend or indemnify either the insured or his son. The insurer argued that there was no coverage on three grounds: (1) The son was an 'excluded driver'; (2) The son drove the truck on public roads without the insured's consent; and (3) The insured allowed the son to drive while in breach of the conditions on his G-1 driver's license.

On the first ground, the court agreed that the insurer had no duty to defend or indemnify the son, as he was clearly listed as an 'excluded driver'. However, the insured argued that he understood this to mean that his son had no coverage, not that he was not himself protected from third party liability. The court questioned whether the insurer had taken adequate steps to bring the coverage implications to the insured's attention. The form that was originally sent to the insured, clearly explaining the implications of having an excluded driver on the policy, only listed another vehicle owned by the insured, not the truck in question. Although the insurer sent a revised form, listing the truck, the insured had left the country and claimed he did not receive it prior to the accident. Since the evidence was unclear, the court was not prepared to make a finding on the evidence that the insurer had taken all the appropriate steps to ensure the insured fully understood the coverage implications of having his son listed as an 'excluded driver'. The court directed the trial of an issue on the 'excluded driver' endorsement.

On the second ground, the court found that although both the insured and his son had sworn affidavits that the son did not have express consent to drive the vehicle, he did have implied consent. Email evidence suggested that when the insured found out that his son was using the truck on some public roads, he simply told his son to "be careful." The court found that, at the very least, the insured had acqueised and had impliedly consented to his son using the truck on public roads.

On the third ground, the court found that the insured did not allow his son to drive while unauthorized to do so. The son had his G-1 license, which required him to have another driver in the vehicle with more than four years driving experience. At the time of the indicent there was another driver with the son, but he had less than the requisite experience. The court found that it could not be stated that the insured allowed his son to drive his truck in breach of the liscensing requirements since he could not have known that his son's passenger lacked the requisite experience.

The court directed a trial of an issue under Rule 38.10(1)(b) with regard to the coverage implications of the 'excluded driver' endorsement in relation to the insured. It also declared that the son was not covered and that the insurer had no duty to defend or indemnify him in the upcoming actions.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.

An insurer is not responsible to protect the interests of parties independent to the contract of insurance.

Michael Thomas — Wed, 16 Dec 2009 09:12:21 -0800

The motion by the Lawyers Professional Indemnity Company ("LawPro") for an order striking the fourth party claim of a law clerk ("Rosso") was allowed where the Court held that Rosso had no cause of action against LawPro as he had no contractual relationship with Lawpro and LawPro did not owe him a duty of care.

1013952 Ontario Inc. (c.o.b. Silverado Restaurant and Nightclub) v. Sakinofsky, [2009] O.J. No. 4158, October 8, 2009, Ontario Superior Court of Justice, H.M. Pierce J.

Sakinofsky, a lawyer, was sued for professional negligence after an action commenced by one of his clients was dismissed for delay. Sakinofsky took the position that his former law clerk, Rosso, was responsible for the loss because Rosso failed to meet the necessary deadlines to keep the action active. Sakinofsky commenced third party proceedings against Rosso on this basis. Rosso commenced a fourth party claim against LawPro claiming contribution and indemnity for any liability found against him in the claim commenced by Sakinofsky. LawPro brought a motion seeking an order striking Rosso's fourth party claim on the basis that it disclosed no cause of action against it.

The Court held that there was no genuine issue for trial arising from either Rosso's claim for contribution and indemnity from LawPro under Sakinofsky's policy of insurance or from his allegations of misrepresentation. Rosso conceded he was not a named insured under the policy issued to Sakinofsky and that he never understood LawPro would be liable to him directly as there was no contractual relationship between them. The policy specifically excluded coverage for law clerks. Any right of coverage for the errors of Sakinofsky's staff belonged to Sakinofsky who was the sole insured under the policy. Rosso did not establish that he relied on representations by either Sakinofsky or LawPro to the effect that he would be covered under the policy.

The Court held that there was no genuine issue with respect to Rosso's direct claim of negligence against LawPro as LawPro did not owe Rosso a duty of care. The Court noted that an insurer is not obliged to minimize the liability of a party adverse in interest or to protect his interest, relying upon Overload Tractor Services Ltd. v. British Columbia (Insurance Corp. of British Columbia, [1988] B.C.J. No. 94 (BCSC). In this case, LawPro owed Rosso no duty of care and, consequently was not obligated to take into account his interest.

In the result, LawPro was granted summary judgment dismissing Rosso's claim against it.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

The jurisdiction where a contract is created may be the appropriate forum to determine the extent of coverage available under the contract. Regardless of where the damages occurred.

Michael Thomas — Mon, 14 Dec 2009 11:39:33 -0800

An application alleging lack of jurisdiction was dismissed where the court found that Saskatchewan was the more appropriate forum to try an action that involved the interpretation of an insurance contract made in Saskatchewan between Saskatchewan parties using Saskatchewan law and where the relevant evidence and witnesses were in Saskatchewan.

Saskatchewan Mutual Insurance Co. v. Homegrown Advertising Inc., [2009] S.J. No. 596, September 15, 2009, Saskatchewan Court of Queen's Bench, G.M. Currie J.

The Saskatchewan Mutual Insurance Co. ("SMI") provided Homegrown Advertising Inc. ("Homegrown") with a commercial general liability policy. Homegrown was retained to assist in marketing a company in Illinois and was sued in an Illinois class action for sending unwanted faxes. Homegrown settled the action for $5 million but it was agreed the judgment would only be satisfied to the extent of available insurance proceeds. Homegrown took steps to register the judgment against SMI in both Illinois and Saskatchewan. SMI commenced an action against Homegrown seeking a declaration that it had no duty to defend Homegrown in the Illinois class action as Homegrown did not have coverage for the claim. Homegrown took the position that the Saskatchewan courts did not have jurisdiction.

The Court held that Saskatchewan was the more appropriate forum in which the action should be tried. Factors supporting this determination included the fact that the action involved the interpretation of a contract made in Saskatchewan between Saskatchewan parties, and that the interpretation would be conducted under Sasakatchewan law. The Illinois Court had been alerted to SMI's application in Saskatchewan and, therefore, it was likely that the Illinois Court would await the Saskatchewan Court's decision before proceeding. In the result, the Court dismissed Homegrown's application and found that the Saskatchewan courts had jurisdiction to hear SMI's action.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

an insurer's obligations are owed to their insured, not a third party contracted by their insured to repair damaged property.

Michael Thomas — Mon, 14 Dec 2009 09:04:16 -0800

The action by a homeowner ("Cirillo") against his insurer ("Wawanesa") for outstanding monies sought by a contractor who performed repairs on Cirillo's home after it was damaged by fire was dismissed where the court found that Wawanesa had no contractual relationship with the contractor and had fulfilled all of its obligations to Cirillo under the policy.

TGA General Contracting v. Cirillo, [2009] O.M. No. 4377, October 15, 2009, Ontario Superior Court of Justice, G.P. DiTomaso J.

Cirillo's home was extensively damaged in a fire. TGA General Contracting ("TGA") was retained to repair the damage. TGA was not fully paid for its work and commenced a lien claim against Cirillo for $153,000. Cirillo took the position that Wawanesa was responsible for all outstanding amounts owed to TGA and sued Wawanesa for payment of those amounts. Wawanesa contended that it had fully indemnified Cirillo under the Policy. Wawanesa further contended that it had no connection with TGA who had been retained by Cirillo and was Cirillo's contractor.

Cirillo's action against Wawanesa was dismissed. The court found that it was readily apparent that the sole reason Cirillo commenced an action against Wawanesa was to force Wawanesa to satisfy TGA's account. The court held that TGA was not entitled to any payment from Wawanesa directly as there was no contract between Wawanesa and TGA. Similarly, there was no agreement between Cirillo and Wawanesa that Wawanesa would pay TGA's account. The guaranteed replacement cost endorsement in the Policy merely provided coverage up to the lowest estimate of repair with materials of like kind and quality. Cirillo was advised of this limit and provided with the lowest cost estimate. Cirillo did not take issue with the scope or cost of repairs based on that estimate. Cirillo did not take issue when Wawanesa made final payment pursuant to that lowest cost estimate. Following the final payment, Wawanesa had no further obligation to Cirillo. Any further dealings with TGA were solely the responsibility of Cirillo.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

A defendant may be entitled to indemnification for legal costs arising from a frivolous claim.

Michael Thomas — Fri, 11 Dec 2009 11:08:49 -0800

The City of Penticton ("Penticton") was successful in obtaining an order declaring that it was an insured under a policy of insurance issued by AXA Pacific Insurance Co. ("AXA") and that AXA was liable under that policy to indemnify the City against all costs and expenses incurred by the City in defending four actions (the "MVA Claims") arising from a motor vehicle accident which occurred at an intersection under construction.

Penticton (City) v. AXA Pacific Insurance Co., [2009] B.C.J. No. 2021, October 14, 2009, British Columbia Supreme Court, K.M. Ker J.

A MVA occurred at an intersection under construction by Peters Bros. Construction Ltd. (the "Contractor"), an independent contractor hired by the City to undertake repairs to certain roadways in the city. The Contractor was required to purchase a policy of liability insurance naming the City as an additional insured. AXA was the insurer for the policy in issue. The pleadings in the MVA Claims alleged that the MVA occurred as a result of the Contractor's negligence in removing a stop sign at the intersection and replacing it in the wrong location. Ultimately, the MVA Claims were settled and the City was not required to contribute to the settlement. However, the City sought a declaration that AXA was liable to pay the defence costs incurred by the City.

The Court noted that AXA would only have the duty to defend the City if the Statements of Claim in the underlying actions alleged a state of facts that, properly construed, would support an action that could potentially fall within coverage: Non-Marine Underwriters, Lloyds of London v. Scalera, 2000 SCC 24. The policy issued by AXA provided coverage to the City as an additional insured "but only with respect to liability which arises out of the operations of the Insured". The Court noted that each and every claim in the underlying actions flowed back to the movement of the stop sign and the conduct of the Contractor in removing and improperly relocating the sign and therefore was attributable to matters that "arise out of the operation of the insured". The Court concluded that had the Contractor not been working on the construction contract at the particular intersection in issue and had it not removed and relocated the stop sign, there would not have been any claims. Thus, the liability at issue in each of the MVA claims arose "out of the operations of the Contractor". As a result, the Court concluded that all of the claims alleged a state of facts which, if proven, arose out of the operations of the Contractor and, therefore, fell within the coverage afforded by AXA's policy.

The Court rejected AXA's argument that defence costs should be apportioned between covered and non-covered claims. The Court cited from RioCan Real Estate Investment Trust v. Lombard Insurance Co., [2008] O.J. No. 1449 (S.C.J.), where the Court concluded that where there is a duty on an Insurer to defend some, or only one, of the claims against an insured and that claim embodies the true nature of the claim, a duty to defend the entire claim arises. The Court further noted that where the covered and non-covered claims are so intertwined that there is no rational or practical basis for distinguishing costs related to the covered and arguably non-covered claims, an Insurer is obliged to fund the defence of the whole claim relying on the decision in SREIT (Park West Centre) Ltd. v. ING Insurance Co. of Canada, 2008 NSSC 183.

In the result, Penticton was successful in obtaining an Order that AXA indemnify it for all defence costs incurred in defending the MVA Claims.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

A car damaged by a fire resulting from a mechanical failure may not be covered by ICBC

Michael Thomas — Mon, 07 Dec 2009 14:11:49 -0800

The Plaintiff sought a declaration that Insurance Corporation of British Columbia was liable to indemnify him for loss to his vehicle resulting from a fire. Because the fire resulted from a mechanical failure, a statutory exclusion clause applied to exclude coverage.

Swailes v. Insurance Corporation of British Columbia, [2009] B.C.J. No. 1928, September 28, 2009, British Columbia Supreme Court, P.J. Pearlman J.

The Plaintiff claimed for a declaration of entitlement to insurance benefits and for general and special damages following a refusal by ICBC to pay insurance benefits for the total loss of his leased vehicle due to a fire. ICBC denied coverage on the basis of the exclusion set out in s. 132(1)(b) of the Insurance (Vehicle) Regulation, B.C. Reg. 447/83, which excludes coverage for loss or damage caused by a “mechanical fracture, failure or breakdown”.

Based on the opinion of an expert witness, the Court found that the plaintiff spun the tires of his vehicle excessively, causing both a build up of heat in the rear fender wells and the snapping of the left rear axle “U” joint. The damage to the rear axle immobilized the plaintiff’s vehicle, causing the heat to build up in the fender wells to the point where rubber tire residue, plastic and fibreglass materials in both wheel wells ignited, causing the fire. The Court acknowledged the expert’s evidence that if the plaintiff’s vehicle had remained drivable, and the plaintiff had brought it to a stop within 30 seconds after he had ceased spinning the rear tires, a fire would likely still have occurred. However, it was the mechanical damage to the rear axle that immobilized the plaintiff’s vehicle and created the condition which caused the heat to build up in the rear fender wells to the point where ignition occurred. But for the broken left rear axle “U” joint, the fire would not have occurred, bringing the loss within the exclusion clause.

The Plaintiff nevertheless contended that the loss fell within the exception to the exclusion clause which provided that the exclusion clause did not apply if “the loss or damage is coincidental with other loss or damage for which indemnity is provided under comprehensive or collision coverage or is caused by fire, theft or malicious mischief.” He argued that no matter the cause of the fire, the exclusion clause had no application, or in the alternative, that any loss caused by mechanical failure was coincidental to the fire loss therefore the exception applied. The Court held that the exception to the exclusion only applied if the loss or damage neither consisted of, nor was caused by mechanical fracture, failure, or breakdown of the vehicle. Because the fire damage was caused by mechanical failure or breakdown of part of the vehicle, the exception did not apply and ICBC was not liable to indemnify the Plaintiff.

This case was originally summarized by Emily M. Williamson and originally edited by David W. Pilley.

A third party cannot recover directly for benefits provided to an insured under the Ontario SABs

Michael Thomas — Fri, 04 Dec 2009 14:00:10 -0800

A third party service provider sought to recover payment directly from an insurer for services provided to insured persons under the Statutory Accident Benefits Schedule. The service provider was unable to establish that any exception to the doctrine of privity was contemplated by the provisions of the Insurance Act.

MedCentra Inc. v. Economical Mutual Insurance Co., [2009] O.J. No. 4003, August 14, 2009, Ontario Superior Court of Justice, L.B. Roberts J.

MedCentra Inc. (“MedCentra”) was a third party service provider which provided MRI examinations to persons who were involved in motor vehicle accidents and who were insured persons under standard automobile policies of insurance Economical Mutual Insurance Company (“Economical”). MedCentra directly billed Economical for the MRI services provided to persons insured through Economical pursuant to the direct billing provisions set out in section 44 of the Statutory Accident Benefits Schedule (SABS). Economical paid for some but not all of the services performed by MedCentra. MedCentra sought to compel payment from Economical directly for the MRI examination services that it rendered to individuals insured by Economical. The issue for determination on this motion for summary judgment was whether MedCentra was entitled to bring an action directly against Economical to compel payment of any amounts that might be owing to MedCentra for MRI services rendered to persons insured by Economical.

To be entitled to recover payment directly from Economical for services rendered to insured persons, MedCentra would have to establish that it met the test of the principled exception to the doctrine of privity of contract. The “critical and cumulative” factors necessary to satisfy the test were set out by the Supreme Court of Canada in Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd, [1999] 3 S.C.R. 108:

(a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? and,

(b) Are the activities performed by the third party the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?

The Court found no evidence that Economical or any of the insured persons to whom MedCentra provided services intended to confer any benefit on MedCentra, let alone the benefit of direct billing. The Court further found that any attempt by an insured person to confer the benefit of direct billing on MedCentra would be invalid because of the prohibition contained in section 65 of the SABS against an insured person making any assignment of benefits under the SABS. The option of allowing a service provider to bill an insurer directly was within the insurer’s discretion alone. The Court agreed with Economical’s submission that MedCentra could not be in a better position than an insured person under the SABS and thus could not be in a position to compel Economical to extend the benefit of direct billing to it.

The Court also found that to allow MedCentra to compel payment directly from Economical would undermine the statutory benefit regime provided under the Insurance Act and would be contrary to the explicit statutory provisions that kept the claims dispute process between insurers and insured persons. The provision allowing for direct billing at the option of the insurer did not change the basic nature of the claims process, namely, that claims are made by the insured person and any resulting dispute is between the insured person and the insurer, and not between the service provider and the insurer.

In the result, MedCentra had no right to bring an action directly against Economical for payment for the examinations provided to insured persons. There was no contractual relationship between Economical and MedCentra and no basis on which to relax the doctrine of privity of contract.

This case was originally summarized by Emily M. Williamson and originally edited by David W. Pilley.

Criminal negligence falls within the intentional / criminal act exclusion.

Michael Thomas — Sun, 29 Nov 2009 13:46:13 -0800

The parents of an infant who died after being dropped by her caregiver were unsuccessful in their action against the caregiver’s insurer to recover their judgment against the caregiver. The caregiver was convicted of criminal negligence and the Court held that the policy exclusion for liability resulting from all criminal acts or wilfully negligent acts applied to exclude coverage in the circumstances.

Wong Estate v. Liberty Mutual Insurance Co., [2009] A.J. No. 1073, May 25, 2009, Alberta Court of Queen's Bench, G.A. Verville J.

A seven and half month old infant (the “Infant”) was cared for at a day nursery operated by the insured caregiver (the “Caregiver”) in her home. The Caregiver dropped the Infant, who suffered serious injuries which resulted directly in her death. The Caregiver was charged and convicted of the offence of criminal negligence causing death. The Infant’s parents (the “Parents”) subsequently brought an action against the Caregiver and obtained a consent judgment against her. The Caregiver filed a proposal in bankruptcy. At the relevant time, the Caregiver was insured by the Defendant insurers under a Homeowners Insurance Policy which included coverage for the day nursery. The Defendants denied coverage to the Caregiver on the basis of an exclusion in the policy which excluded coverage for claims arising from bodily injury caused by any criminal act or wilful negligence by an insured. The judgment remained unsatisfied and the Parents brought this action to recover the judgment from the Defendants. The sole issue was whether the Defendants could rely on the exclusion clause.

The Parents argued that the term “criminal act” was not defined in the policy and was ambiguous as written and in the face of s. 529(2) of the Insurance Act, R.S.A. 2000, c.I-3 which allows an insurer to specifically exclude coverage for unintentional criminal acts and otherwise provides that coverage may only be denied in relation to criminal acts committed with the intent to bring about loss or damage.

The Court reviewed a number of decisions from other provinces interpreting similar exclusion clauses and cited with approval the judgment of the Ontario Court of Appeal in R.E. v. Wawanesa Mutual Insurance Co., 2007 ONCA 92, citing Buttar v. Safeco Insurance Co. of America 1986 CanLII 1260 (B.C. S.C.), wherein the Court stated:

In any event there is no authority for the proposition that the exclusionary clause in the policy is to be read as if “criminal act” applies only to criminal offences carried out with the intent of causing the loss. The exclusionary clause is not so worded. It does exclude criminal acts causing the loss. There is no ambiguity or uncertainty in the language used. Criminal acts causing the loss are excluded. In addition wilful acts causing the loss are excluded.

In the result, the Court found that the words “any criminal act” in the policy exclusion were clear and unambiguous and did not require a modifier for clarity. Section 529(2) of the Insurance Act did not apply because the “any criminal act” exclusion “otherwise provided”. Therefore, the “criminal act” exclusion applied and the Parents could not recover their judgment against the Defendants.

The Court further found that the Defendants were not entitled to rely on the “wilful act” exclusion as the incident had been characterized as an “unintentional act committed with no degree deliberation” in the reasons for judgment convicting the Caregiver.

This case was originally summarized by Emily M. Williamson and originally edited by David W. Pilley.