Canadian Underwriter

Why the court says this auto insurer did not properly terminate policy

April 30, 2019   by Greg Meckbach

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An auto insurance company cannot necessarily treat a policy as invalid under common law if it discovers the client made a material misrepresentation on the application, the Court of Appeal for Ontario has ruled.

In Merino v. ING Insurance Company of Canada, released Apr. 25, the Court of Appeal for Ontario overturned a 2017 ruling by Justice Gregory Verbeem of the Ontario Superior Court of Justice. The result is that ING (renamed Intact in 2009) owes Karla Merino more than $2 million.

Merino, a pedestrian, was catastrophically injured Sept. 12, 2002 after being hit by a Jeep driven by Timothy Klue.

Klue and his wife, Sonia Abou-Khalil, had applied for an ING auto policy in May of 2002.

Initially ING issued a policy, but then the insurer discovered some information provided on the application form was incorrect.  So ING sent Klue and Abou-Khalil a registered letter in July explaining their coverage is void from its inception date.

Abou-Khalil signed acknowledging receipt of that letter.

The couple said they did not drive the jeep and considered it uninsured. They did not insure it with a different carrier but instead left it in the driveway. But on the day of the accident, Klue used the jeep after losing his job and consuming some alcohol.

After the accident that injured Merino, she filed a lawsuit. An ING adjuster sent Merino’s lawyer a letter stating ING did not insure either Klue or Abou-Khalil.

Merino was awarded damages in a lawsuit against  Klue or Abou-Khalil, but that judgement has yet to be satisfied. So now Merino is suing ING, claiming the jeep that hit her on Sept. 12, 2002 was in fact insured by ING.

In the lower court, Judge Verbeem ruled in favour of ING. He reasoned that an insurer, upon its discovery of a material misrepresentation or non-disclosure made in an application, may rescind the contract and treat is as void ab initio (or invalid to begin with). That finding was overturned on appeal.

ING did not terminate the policy in the jeep in accordance with Ontario Regulation 777/93, which contains the statutory conditions for auto insurance, wrote Justice Kathryn Feldman of the Court of Appeal for Ontario. The regulation says that insurer may, subject to section 12 of the Compulsory Automobile Insurance Act, and sections 237 and 238 of the Insurance Act, give notice they are terminating a contract. If the termination is given for a reason other than non-payment, the termination does not take effect for 15 days if the notice is given by registered mail. But the letter from ING in July 2002 did not give Klue and Abou-Khalil 15 days’ notice.

When they applied for their insurance in May 2001, Klue signed a form at his broker’s office. The application form was not signed by Abou-Khalil.

The form indicates the applicants had no previous accidents or insurance claims, no history of convictions for motor vehicle related offences in the last three years and had not had their licences suspended within the previous six years.

But the ING investigation revealed that Abou-Khalil. had an at-fault loss in 2001, two speeding convictions, one careless driving conviction and a licence suspension for an unpaid fine.

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4 Comments » for Why the court says this auto insurer did not properly terminate policy
  1. Andrew Lau says:

    The appeal court judge is one of the reason why auto insurance is so expensive. The policy was void in July, acknowledged by the insured, then auto loss occurred in September in the same year. It does not make sense.

  2. Normand Haas says:

    That is the most and absolute God awful decision ever rendered on the insurance industry. Therefore, a signature on an auto application is completely irrelevant as the signature was the piece that enacted the insurer’s authority to VOID a policy for misrepresentation. This indicates a new procedure for our industry that VOIDING a policy is no longer an option and all cancellations no matter what the reason is must be done by Registered Letter giving consumers the 15 days of coverage cancellation notice to legally cancel a policy for misrepresentation. Then we cry wolf on the cost of auto insurance. Totally lunacy!!

  3. Frank Cain says:

    In the OAP-1 auto booklet wording – 1.7.4, cancellation deals with non-payment ‘or – any other reason’, and termination by the insurer is again dealt with in the Statutory Conditions. In both instances, the word “contract” is used. In the case in point, it is clear ING was taking the view that because of the misrepresentation, there was in fact no contract. Contract is accepted as being the culmination of offer and acceptance based on good faith. By the claimant’s deliberate action of misinforming the insurer to hide the truth, the promise of good faith was broken, voiding the policy from the beginning. There was no ‘contract’ by which to apply its conditions.

    It is time for the OAP-1 booklet to set out the conditions under which a policy is made void ‘ab initio’ in order to better deal with ‘contract’ and what it has to convey between the parties.

  4. Bob says:

    Intact should apply for leave to appeal to the Supreme Court on this one. Voiding ab initio means there was no contract to begin with so how could the appeal judge rely on a term of the policy if there was no policy? That said, the judge is clearly trying to help out an innocent plaintiff here as the Fund only pays $200,000.

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