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Top 5 Canadian court rulings of 2019 for P&C insurance

December 20, 2019   by Greg Meckbach

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Tragedies, mishaps and financial disasters often lead to court disputes, resulting in rulings from judges. Sometimes judges disagree with one another and appeals get filed with higher courts, but the end results often provide lessons for the industry.

Here are five key rulings from Canadian courts in 2019.

Ontario Corporation Number 1009329 (Enterprise Rent-A-Car) v. Intact Insurance Company

If your client owns vehicles that it rents or leases to others in Ontario, don’t assume the renters have their own coverage, even if they are listed on an existing private passenger auto policy.

This Court of Appeal for Ontario ruling, released Nov. 21, is over the vicarious liability of lessors (the owners that let others drive their vehicles for a fee). Bill 18, which was passed into law in 2006, brought in section 277 of the Insurance Act. That section – designed to address lessors’ concerns – has several rules on who is liable if the driver of a rental vehicle is found at fault in an accident.

The Enterprise Rent-A-Car decision arose in June, 2013. Adi Perets rented an Enterprise vehicle and was involved in an accident. As a result, Perets was named in a lawsuit in 2015. In 2017, Enterprise settled. But Enterprise ended up more liable than it anticipated because Perets had no rental coverage on her parents’ policy – even though she lived with her parents and was a listed driver on their policy.

But under the standard Ontario auto policy, only the named insureds and spouses who live with them – not necessarily all listed drivers – have liability coverage if they rent a different vehicle.

After Enterprise settled the lawsuit arising from the accident involving the use of its vehicle by Perets, Enterprise took Intact (the insurer of the vehicle owned by Perets’ father) to court, arguing Intact should be the first insurer in the priority scheme. Enterprise argued there is a conflict between the Ontario Auto Policy and Section 277 of the Insurance Act and Section 277 takes precedence.

Section 277 stipulates that the if the lessee is a named insured under a motor vehicle liability policy, it’s that policy that responds first.

The court ruled there is no conflict. Although Section 277 (1.1) establishes priorities among insurers, it does not create insurance coverage where none is available.

Section 277 is not applicable to the situation, Justice Edward Morgan of the Ontario Superior court of Justice ruled in 2017. The ruling was upheld in 2018 by divisional court and again this year by the Court of Appeal for Ontario.

Monk v. Farmers’ Mutual Insurance Company (Lindsay)

This Court of Appeal for Ontario ruling, released July 19, was significant in two ways.

First, it comes as a wakeup call to insurers who put in exclusions for “making good faulty workmanship” or property “while being worked on” on home insurance policies. In the case of Farmers’ Mutual, those exclusions appear to be much narrower than what the insurer contemplated.

Second, the Monk ruling shows how meticulous notetaking can save a broker’s bacon in the event of a dispute.

Diana Monk had her log home in Bracebridge insured by Farmers Mutual. She hired a contractor to do some work (cleaning, grinding, sanding and finishing the log exterior ) on her home in 2008.  In 2011, Monk wanted to file a claim for about $125,000 worth of damage she alleged resulted from that work.

Eventually she sued both the insurer and Muskoka Insurance Brokerage Ltd.

The insurer relied, successfully, on the statutory condition requiring the client to report damage “forthwith” and to provide a proof of loss “as soon as practicable.” The insurer also relied – without success – on exclusions for faulty workmanship and property while being worked on.

Had the court found that Monk had reported the loss in the spring of 2009, she would probably have had a valid claim.

But the brokerage and the client disagreed on when she first reported the loss to that brokerage.

Monk says she did speak to her broker twice in 2009 and a third time in 2010 about the loss, and someone from the brokerage told her the loss would be excluded.

But the brokerage said it found out for the first time of her claim on Sept. 2, 2011.

Weighing the conflicting evidence, Justice Edward Koke of the Ontario Superior Court of Justice found that the client first brought the loss to the attention of her broker in 2011 – not in 2009. The finding was upheld on appeal.

Both the insurer and client appealed the ruling and lost. Ultimately the insurer does not have to pay out on the claim. But it’s possible Farmers Mutual would not have been able to rely on the exclusion had the court found the claim had been filed on time.

Monk’s lawsuit against the brokerage alleged the brokerage failed to ensure she was properly advised in a timely way that she had a valid claim against Farmers. The lawsuit against the insurer alleged breach of contract.

Monk said she reported her claim to the brokerage for the first time in 2009. The brokerage said its staff were first told in 2011. The trial judge preferred the brokerage’s evidence, reasoning that had the client reported the claim to the brokerage in 2009, there would have been some notes or records confirming these conversations. This was based on the judge’s finding that the broker’s file was thoroughly documented and that the broker handling the file was a diligent note taker.

On appeal, one of Monk’s arguments was that the trial judge failed to properly assess the evidence, but the court of appeal for Ontario saw no manifest error in how the evidence was assessed.

Farmers Mutual pointed to two exclusions. One was for “the cost of making good faulty material or workmanship.” The other was for loss or damage to property “while being worked on, where the damage results from such process or work (but resulting damage to other insured property is covered).”

Justice Koke ruled the exclusions do not apply, a finding upheld on appeal. In interpreting the faulty workmanship exclusion, a court must take into account the reasonable expectation of both the insurer and the insured. “A homeowner expects to be covered for unexpected or resulting damages which are not directly related to the scope of his or her contract with a contractor,” wrote Justice Koke.

Ferro v. Weiner

This Court of Appeal for Ontario ruling, released Jan. 28, is not the first coverage dispute arising over the term “household” and it probably won’t be the last.

Household is a key word in a homeowners policy and typically expands coverage to people other than the named insured, said Robert Smith, an insurance defence lawyer with Dolden Wallace Folick LLP, in an earlier interview. Smith was commenting in general and not on any particular case.

Ferro v. Weiner arose from a tragedy in 2010.

Enid Weiner (who died in 2011) owned a cottage at Lake Eugenia. In 2010 she was living in a nursing home. Enid’s son, Scott Weiner, used the cottage.

A graduation party was held in May, 2010 for one of Scott Weiner’s daughters at the cottage. Dean Ferro fell out of the canoe and drowned.

Scott was among the people named as a defendant in a lawsuit arising from the drowning. Scott had liability coverage from his home insurer, TD, which settled the lawsuit with the Ferro family. Enid Weiner’s cottage was insured by Intact. TD argued Intact should share the cost of defending Scott Weiner in the lawsuit, reasoning that Scott was a member of Enid Weiner’s household.

Originally, Justice Pamela Webner of the Ontario Superior Court of Justice ruled in 2018 that Scott was a member of his mother’s household but that finding was overturned on appeal.

The fact that Scott is Enid’s son and the fact that he uses her cottage on a regular basis doesn’t put him in the same household, Justice Bradley Miller wrote for the Court of Appeal for Ontario.

“The existence of a household is evidenced by the extent to which its members share the intimacy, stability, and common purpose characteristic of a functioning family unit,” Justice Miller of the Court of Appeal for Ontario wrote in 2019 in Ferro v. Weiner.

Members of a household “typically share a residence and resources, and integrate their actions and choices on an ongoing and open-ended basis,” added Miller.

Originally, Justice Hebner based her ruling in part, on the fact that Scott took an ownership interest in the cottage, attended the cottage when he wished and cared for the cottage as an owner would.

Orphan Well Association v. Grant Thornton Ltd.

This Supreme Court of Canada ruling, released Jan. 31, does not involve an insurer but could spur demand for pollution liability insurance, suggested Miles Foxworth, a Toronto-based underwriter with Lloyd’s insurer Beazley Canada, in an earlier interview with Canadian Underwriter. Beazley was not a party in that case.

Orphan Well means a trustee in bankruptcy cannot “walk away” from a bankrupt company’s oil and gas wells, or the environmental liabilities associated with them.

As such, it affects the risk that banks and credit unions take on when then lend to any company having any sort of regulatory obligation, Foxworth said earlier.

The Orphan Well ruling overturns an earlier Alberta Court of Appeal ruling against the province’s own energy regulator.

Grant Thornton was a trustee in bankruptcy to Alberta oil and gas company, Redwater, which went into receivership in 2015. At the time, Redwater owed about $5.1 million to a bank. The trustee’s job was to take Redwater’s remaining assets (which included 84 oil wells) and do its best to pay anyone owed money by Redwater. Many of Redwater’s oil wells were inactive, so as the trustee, Grant Thornton told the regulator it intended to take possession of some, but not all of those wells.

Alberta energy law required Redwater to remediate oil and gas wells before abandoning them. That would include plugging and capping oil wells to prevent leaks, dismantling surface structures and restoring the surface to its previous condition.

Where judges disagreed was on whether Alberta energy law conflicts with the federal Bankruptcy and Insolvency Act. In the end, the Supreme Court of Canada ruled the laws are not in conflict, and that some environmental obligations – enforced by a provincial regulator – are not claims provable in bankruptcy.

Initially, the Alberta Court of Queen’s Bench ruled that if the regulator got its way, then the regulator’s claim against Redwater’s assets would be put ahead those of secured creditors. Grant Thornton argued this would put it offside federal bankruptcy law but the Supreme Court of Canada disagreed.

So now in cases like these, secured creditors “are second to any sort of regulatory obligation,” Foxworth told Canadian Underwriter shortly after Orphan was released.

“The implications are vast among many many industries,” Foxworth said. “You may have a strip mall that had a dry cleaner that leaked and is now leaching throughout the neighbourhood. If that property owner of that strip mall goes bankrupt, the creditors who gave them the loan are now going to have to take on that exposure of cleaning up that site before they can get their debt back.”

ING Insurance Company of Canada, also known as, or formerly, ING Halifax Insurance Company v. Karla Garay Merino

This Court of Appeal for Ontario ruling, released April 25, probably came as a shock to some Ontario auto underwriters who thought they knew what they should do on discovering, after binding a policy, that information provided on the application form was incorrect.

As a result, Intact owes Karla Merino more than $2 million – the amount awarded by a court in 2011 in a separate lawsuit against a Jeep owner, arising from an accident. ING had told the owner of the vehicle that hit Merino – two months before the accident – that it considered the policy void.

ING (which is now known as Intact) applied for leave to appeal the ruling to Supreme Court of Canada, which announced Sept. 26 it will not hear an appeal.

Merino was catastrophically injured in September, 2002 while walking through a crosswalk. The Jeep was driven by Timothy Klue.

Where judges disagreed was whether the Jeep was insured by ING.

The driver had been issued a policy shortly after submitting his application in May, 2002. But ING later discovered some information provided on the application form – about Klue’s wife’s driving record – was incorrect.  So in July, 2002, ING sent Klue and his wife a registered letter explaining their coverage is void from its inception date. After that, the couple considered the Jeep uninsured. Nonetheless, Klue drove the vehicle the date of the accident.

After being awarded $2 million in 2011, Merino had to go back to court to get a ruling that Klue was in fact covered by ING. This was so she could actually collect the full $2 million on the judgement.

Initially, in a 2017 ruling, Justice Gregory Verbeem of the Ontario Superior Court of Justice ruled that Klue was not insured by ING. He reasoned that an Ontario auto insurer may rescind a contract – treating it as void ab initio, or invalid to begin with – if the insurer discovers there was a material misrepresentation or non-disclosure made in an application.

That finding was overturned on appeal. The Court of Appeal for Ontario ruled that ING could only terminate in accordance with the provision of Ontario Regulation 777/93, paragraph 11.  This allows the insurer to give notice they are terminating a contract. But unless the termination is for non-payment of premium, the termination does not take effect for 15 days if the notice is given by registered mail. The letter sent to Klue and his wife, in 2002, did not give them 15 days’ notice. So the policy remained in effect at the time of the accident, the Court of Appeal for Ontario reasoned. This despite the fact that the couple did consider their vehicle uninsured after they got their letter from ING.

Key to the ruling was that Klue was not found to have knowingly misrepresented his wife’s driving record when he applied for the insurance in 2002.

Both Klue and his wife were at the broker’s office when they filled out the application but only Klue – and not his wife – actually signed the paper.

Klue was examined for discovery in 2006 – four years after he and his wife made the application. Klue said he did not recall why his wife did not sign the application form and took the position that he was not signing on his wife’s behalf.

In his original ruling, Justice Verbeem noted that Section 12 of the Compulsory Automobile Insurance Act lets an insurer terminate a policy under one of four conditions – one of them being material misrepresentation or non-disclosure.

“The provisions of the CAIA do not prescribe that a ground to terminate a contract of automobile insurance cannot also be a ground to rescind the contract,” Justice Verbeem wrote at the time.

That section states that where a contract of automobile insurance has been in effect for more than sixty days, the insurer may only terminate the contract for specific reasons. One is non-payment of premium. Another is if the insured as knowingly misrepresented or failed to disclose in an application for insurance any fact required to be stated therein.

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1 Comment » for Top 5 Canadian court rulings of 2019 for P&C insurance
  1. Brijanand Goberdhan FIIC ACII says:

    The ING “Ab Initio” decision leaves a lot to be desired. For one, it begs the question “How do you terminate a contract that in the spirit and intent of the law did not ever come into existence?” I bet a lot of Underwriters felt frustrated after this decision. I think the Supreme Court did a disservice in not hearing an appeal.

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