Fleets of Fancy

Underwriters of fleet policies, as well as risk and insurance managers whose responsibilities include fleet policies, should take note of a case handed down earlier this year by Alberta’s Court of Queen’s Bench. The case relates to the little-considered area of relief from forfeiture, along with policyholders’ obligations under fleet endorsements and the insurer’s duty to defend.

The case discussed is Northbridge General Insurance Corporation v. 943240 Alberta Ltd. et al, decided March 6, 2014 by Justice J. T. McCarthy of the Court of Queen’s Bench.

In order to understand the judgment, some facts are necessary: The policyholder, a family-owned gas servicing company, entered into an insurance contract (the policy, SEF No. 21 B-1, Blanket Basis Fleet Endorsement Policy) with an endorsement that provided blanket coverage for fleet vehicles.

The endorsement required the policyholders to submit a list of vehicles owned or leased by the policyholder at the inception of the policy. The policyholder would then pay an advance premium based on the vehicle list. At the end of the policy term, the policyholder was required to provide an “updated vehicle list.”

In theory, the insurer would use the updated vehicle list to adjust the insurance premiums (i.e., based on the updates to the vehicle list, the insurer would reimburse the policyholder or request additional payments).

Important to the court was that any vehicles the policyholder owned prior to the start of the policy, but that were not included on the initial vehicle list, would not be covered by the policy. Aside from that exception, the policy covered all of the policyholder’s vehicles.

Early in the placement of the policy, one of the insured’s trucks was tangentially involved in a car crash. (The insured’s truck received a broken tail-light lens in the collision, but the results were catastrophic for a passenger in the other vehicle.)

The policyholder had purchased the truck in 2006, before entering into the policy. The policyholder provided a list of vehicles to the insurer at the inception of the policy and an updated list at a later date. However, the truck was not included in any of the policyholder’s vehicle lists.

ARGUMENTS FOLLOWING DENIAL OF BENEFITS

The insurer denied coverage on the basis that the policyholder did not include the truck in the list of vehicles given by the brokerage at the policy’s inception. In response to the insurer’s denial of coverage, the policyholder raised a number of arguments:

1. Alleging the insurer breached Section 612(3) of Alberta’s Insurance Act.

The section requires an insurer to deliver to the policyholder a true copy of any “amendment” to an insurance contract. The policyholder argued that its vehicle list submissions amended the insurance contract because the list fundamentally changed coverage otherwise provided by the policy.

If successful, this argument would have held that the insurer was required to provide the policyholder with a revised policy, including a clear description of the vehicles covered by the policy. The argument goes along that since the insurer did not provide a revised policy, the insurer was in breach of the Insurance Act and, therefore, could not deny coverage.

The court found the insurer was not in breach as the list of vehicles was not an “amendment” to the policy. Rather, the court held that vehicle lists are schedules to a policy that the insurer merely uses to calculate premiums. Updated vehicle lists are not used by the insurer to determine coverage.

The court held the intent of the policy was to cover all automobiles owned by the insured, except those previously owned and undisclosed. Therefore, so long as the policyholder provided a proper vehicle list at the outset of the policy, then the policyholder would have blanket coverage of all of its vehicles, regardless of any additions and deletions throughout the course of the policy.

In the result, the insurer was found not to have breached the policy. 

2 Relief from forfeiture.

The court considered the availability of both common law and statutory relief from forfeiture (under Section 521 of Alberta’s Insurance Act), and found that the policyholder was not entitled to relief under either category.

In regards to statutory relief from forfeiture, the court stated it is only available when there is an imperfect compliance with a term or condition of an insurance contract in the proof of loss.

The court held that Section 521 did not apply in this case because the issue was related to proof of coverage.

The court also found common law relief from forfeiture is only available after coverage has already been established. Denying the insureds the requested relief, the court stated, “… the Truck was never covered by the Policy and therefore no coverage is being forfeited… There can be no loss of insurability when there is no insurability in the first place.”

3. Even if there is no liability coverage for the truck, the insurer has a duty to defend the policyholder in a separate court proceeding related to tort claims arising from the accident.

The court held that the insurer did not have a duty to defend, relying on the oft-cited Supreme Court of Canada case, Nichols v. American Home Assurance, handed down in 1990.

The Alberta court’s holding was based on the principle that the duty to defend only arises with respect to claims that may result in legal liability for which there is insurance coverage. The court found that since the insurance contract does not cover the truck, no duty to defend is triggered.

4. Confusion as to which vehicles were covered under the policy.

The policyholder argued the policy identifies an “Auto Schedule” or “Schedule of Automobiles” as schedules that set out the specific scope of coverage under the policy. The policyholder noted the policy does not actually include any document by either of those names, and instead uses “Lists of Vehicles” and other named schedules.

The policyholder argued it was confusing to know what document the insured should refer to when trying to determine which vehicles were covered. As such, the insurer could not rely on confusing documents and schedules that were not correctly described in the covering language.

Further, the insurer provided its own list of vehicles with different versions of the policy. These showed only one VIN (vehicle identification number), but stated that a number of vehicles of certain class were covered.

The policyholder argued this should demonstrate there was insufficient certainty in the subject matter of the insurance: the policyholder’s covered vehicles.

By extension, the policyholder should be able to rely on the lists provided by the insurer as covering a certain number of vehicles within a class at any one time, rather than only specific vehicles within that class.

AMBIGUITY IN DOCUMENTS

IRRELEVANT

In finding the name of the document referred to in the covering language was effectively immaterial, the court simply noted the following: (a) the onus to provide the list comprising the “Schedule of Automobiles” was on the policyholder; (b) neither the Insurance Act nor the policy requires the insurer to provide the policyholder with any schedule or list of vehicles covered; and (c) the truck was never listed or described anywhere. Therefore, the court held, any ambiguity or inconsistency in the documents is irrelevant.

Moreover, the court did not regard the lists provided by the insurer to the insured as being an important aspect of describing the subject matter of the insurance.

In other arguments, the policyholder provided Ontario case law in support of its position, and argued that the provision of a pink card showing blanket coverage should be comb
ined with the above factors to demonstrate a broader covering intent.

Unfortunately for the policyholder and the injured party, the court distinguished the Ontario case, holding that there, the policyholder did not have knowledge or control of the relevant information. (In that case, the insurer had failed to provide the policyholder with information that indicated that one driver was not covered by the policy.)

Conversely, in the case at bar, the court held the policyholder was the only party with knowledge of the relevant information, and, in fact, only the policyholder had knowledge of which vehicles it owned.

In the result, the court agreed with the insurer on all arguments, and, thus, found that the insurer was not obligated to indemnify or defend the policyholder.

IMPLICATIONS OF DECISION

The significance of this case resides in the court’s strict construction of the relief from forfeiture provisions in Alberta’s Insurance Act, and refusal to grant relief for what was effectively a minor clerical error by the policyholder’s representative.

With respect to His Lordship, the decision relates to what knowledge was in the possession of the policyholder, and this was not considered within the context of the documents the insurer provided at its own initiative. Specifically, the policyholder, in fact, relied on schedules provided by the insurer, and these only listed one VIN, but stated that a number of vehicles were afforded coverage.

Which of those vehicles on the list were provided coverage was, with respect, only within the knowledge of the insurer. Without a complete list being provided to the policyholder by the insurer, that knowledge could not be in the insured’s knowledge.

Further, evidence was tendered to demonstrate that the insurer did not maintain its own list of the vehicles covered, and merely relied on the list provided by the policyholder’s representative.

The insurer, however, did make abbreviated lists and issued them to the policyholder, which relied on those lists as a representation that a number of vehicles were covered rather than specific vehicles.

Ultimately, this is what the policyholder felt a blanket fleet endorsement was to accomplish: to provide coverage for a number of vehicles within a certain class, even if certain vehicles were taken in and out of service over time. This is, of course, a business reality required to ensure proper maintenance and retirement of vehicles worn through usage.

Fleet and risk managers should take a specific look at the lists provided to and by insurers.

In situations where ambiguity in lists or schedules provided by insurers is present, a prudent practice is likely to ask for confirmation of exactly which vehicles are afforded coverage.

McLennan Ross is a member of The Arc Group of Canada, a network of independent insurance law firms across Canada.