November 17, 2011 by James E. Dunn
It is a statutory condition of every automobile insurance policy in Ontario that the insured shall not drive or operate, or permit any other person to drive or operate, a motor vehicle unless the insured or other person is authorized by law to do so.
Section 32(9) of the Ontario Highway Traffic Act provides that:
No person shall drive a motor vehicle on a highway while contravening a condition contained in his or her driver’s licence or imposed by the regulations.
Other Canadian jurisdictions have similar language within their Provincial Highway Traffic Acts.
Liability coverage, subject to the minimum limits obligation in the Ontario Insurance Act, is forfeited when an insured person uses or permits the use of the insured vehicle in a race or speed test, when the vehicle is used for an illicit or prohibited trade or transportation (e.g. transportation of narcotics), when the vehicle is used to carry explosives or radioactive materials and, when the vehicle is being operated by an insured who is not authorized by law. When an insured person is convicted of a Criminal Code offence for such infractions as impaired driving, blowing over eighty, refusing to blow, dangerous driving causing death or bodily injury and leaving the scene of an accident, entitlement to certain accident benefits is forfeited. Some say that such criminal convictions also jeopardizes an insured’s right to liability coverage on the basis that the use of the vehicle was not authorized by law. However, this is a controversial issue.
Careful consideration must be given when allowing young and novice drivers to operate an insured vehicle, especially in terms of liability coverage. For example, the law in Ontario provides for a system of graduated licensing which limits the rights of new drivers to drive on certain roads, to drive after certain hours of the day, and it restricts the number of passengers in a vehicle driven by a driver possessing a restricted licence. Additionally, young and novice drivers must maintain a zero blood alcohol level while driving. If any of these restrictions are not met at the time of the accident, the individual may be considered to be not authorized by law to drive the vehicle and therefore excluded from liability coverage. Other provinces, such as British Columbia, Nova Scotia, Manitoba and PEI, have also adopted a system of graduated licensing with similar restrictions and limitations.
Being found not authorized by law to drive may not entirely bar an insured from all insurance coverage under the auto policy. In the 2005 case of Gipson v. Pilot Insurance Co., the Ontario Superior Court of Justice had to decide whether the Plaintiff was entitled to accident benefits under the SABS (Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996) in a situation where he was not authorized by law to drive because he had a blood alcohol concentration above 0% while holding an Ontario Class G2 licence. The SABS has an exclusion for payment of income replacement benefits, non-earner benefits, housekeeping and home maintenance expenses, and educational expenses if an insured is driving at the time of the accident without a valid driver’s licence. Although it was clear that Gipson was driving while in breach of his G2 licence conditions, the Court held that this did not render his licence invalid. The SABS did not contain a definition of a valid driver’s licence, therefore the Court had to make use of the definition contained in the Highway Traffic Act. Gipson’s licence remained valid despite his breach of its conditions, as it was not expired, suspended or cancelled. The Court rejected the notion that applying the exclusion would recognize and protect Ontario’s graduated licensing system. Therefore, a driver’s licence must be expired, suspended or cancelled (or non-existent), in order for the exclusion to apply for accident benefits entitlement.
Given that the application of the Highway Traffic Act (including the graduated licensing system in Ontario) is limited to “highways,” the Ontario Court of Appeal in Shah v. Becamon was asked to determine whether an insurer owed a duty to defend and indemnify its insured when she was involved in an accident in a strip mall parking lot. The insured, Becamon, had a G1 licence which required that she be accompanied by a fully licensed driver with at least four years of driving experience. Despite the licence restriction, she got into her car and drove alone because her son was away and she needed milk. She drove along Wilson Avenue, a City of Toronto street, for about three kilometres, and then turned into a strip mall parking lot where she hit a pedestrian. The pedestrian sued and her insurer refused to defend her on the basis that she had violated her G1 licence condition. Both the trial judge and the Court of Appeal decided that the Highway Traffic Act, which required persons to operate vehicles with a driver’s licence, only applied to highways and, because the accident took place on a private parking lot, Becamon was not required by law to have a driver’s licence. Accordingly, the insurer’s position that she was not authorized by law was not upheld and it was required to both defend and indemnify her.
In Tut v. RBC General Insurance Company, a 2011 decision of the Ontario Superior Court of Justice, a 20 year old driver with a G2 driver’s licence had an accident while driving with a blood alcohol level of greater than 0%. He had consumed alcohol at a birthday party on the evening before the accident. His mother, the owner of the car that he was driving, was present at the party and she saw him drinking. The insurer denied coverage to both on the basis that the driver was not authorized by law because he had alcohol in his blood and because his mother permitted him to drive the vehicle when she knew that he had been drinking. The Court, however, said that the insurer failed to meet its onus to establish a breach of the Statutory Conditions. Even though the driver had no recollection of anything that occurred on the morning of the accident (he had been injured in the accident) the Court held that he had an honest and reasonable belief that he would not have driven if he had known that he still had alcohol in his system. He testified that his parents prohibited him from driving after drinking and that he would not have done so had he even thought that he had any remaining alcohol in his blood from the night before. From the mother’s standpoint, the Court also held that she was entitled to full coverage under the policy because she had a reasonable belief that her son no longer had any alcohol in his system after sleeping for about six hours after the party.
The Ontario case law therefore clearly establishes that an insurer has a heavy onus of proof in situations where it is alleged that an insured has breached the Statutory Condition by driving when not authorized by law to do so. It seems clear that every reasonable doubt will be resolved in favour of the insured in such cases because, otherwise, full indemnity rights and rights to defend under the policy are forfeited. In the right factual situation however, an insurer can successfully avoid coverage under the policy.
James Dunn is a senior partner in the law firm of Blouin, Dunn LLP. He specializes in jury trial work in all areas of insurance defence litigation.
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the May 2011 edition of Canadian Insurance Top Broker magazine.
This story was originally published by Canadian Insurance Top Broker.