Outside the Policy Scope

Insureds should not be able to seek coverage for punitive damages under their automobile policy, Stephen G. Ross, of Rogers Partners LLP, told delegates at the Ontario Insurance Adjusters Association (OIAA)’s 2008 conference.

He stressed that to cover an insured when they have been found guilty of a wrongdoing that warrants a punitive damage is to shift the punishment from the insured to the insurer. This goes against public policy, he argued.

This became a “live” issue, Ross said, when the Ontario Court of Appeal in 2006 made its decision in McIntyre v. Grigg. In this case, Andrew Grigg, a Hamilton Tiger-Cat football player, got drunk, drove, went off of the road and struck two pedestrians. He was not criminally convicted.

“The issue was whether or not the civil system could impose a penalty against this wrongdoer to show its outrage,” Ross said. The court found Grigg made a deliberate choice to drink and drive. His conduct amounted to disrespect for the lives of others — enough to warrant censure and punishment. The Court of Appeal decided Grigg should pay punitive damages.

But the court’s dissenting opinion expressed concern. “This is an auto case and he may have coverage for that,” Ross said. “If he has coverage for that, then all of the objects of punitive damages are thwarted: You are trying to punish someone, but the punishment is being offloaded to the insurer.”

In essence, “the minority said I would not award punitive damages in a case like this,” Ross continued. “So, looking at this in the aftermath — as to whether or not there should be coverage for punitive damages in an automobile policy — you have to look at some of the objectives of punitive damages. And, in my view, the primary objective is to punish the wrongdoer.”

Ross said coverage for such punitive damages under an auto policy “would just undo the intent of the damages.”

He also pointed out that there are situations which would constitute a breach of auto policy conditions and potentially place the insured outside of the scope of coverage. These include a driver possessing a G2 or G1 licence and having alcohol in their system; and the breach of “other automobile” restrictions.

Section 4(1) of the Insurance Act says you have to be properly licensed to operate a vehicle, and “if you have a sip of alcohol you’re in breach of your G1 or G2 license and therefore are not properly licensed and an insurer can deny you coverage all together,” Ross said.

The breach of “other automobile” restrictions constitutes a situation where absolute liability provisions may not apply at all, Ross continued.

In the 2006 Ontario Court of Appeal case Winch v. Kedgh, Keogh (his name was improperly spelled in the title of the proceeding) was driving a cube van with a gross weight of more than 4,500 kilograms. While Keogh’s auto policy insured “other vehicles” driven by him, it contained an exclusion of heavy commercial vehicles.

“Because he breached his policy, he’s not entitled to indemnity coverage,” Ross said. In this case, the Court of Appeal also flatly denied the plaintiff indemnity up to the minimum limits because, “this was someone [Keogh] who had no right to coverage what-soever because of the type of vehicle he was driving.”