Payment Of NEBs In Underlying AB Claim Does Not Preclude The Same Insurer From Denying Coverage In The Tort Context When Vehicle Taken Without Consent
Jan 31, 2018
The case of Wagner v Fellows, 2017 ONSC 6979 is a recently decided motion at the outset of trial regarding whether actions taken by an insurer in the accident benefits context have any bearing on positions which the same insurer takes in the context of uninsured/underinsured coverage in a tort action.
The plaintiff was a 15 year old passenger in a vehicle being operated by a 16 year old with a G1 license. There was no fully licensed adult in the vehicle, contrary to the terms of the driver’s G1 license. The driver lost control of the vehicle and crashed into a field. The plaintiff did not have access to any insurance through his family, so he applied to Dominion, the insurer of the vehicle, for accident benefits. Dominion paid accident benefits to the plaintiff, and ultimately settled the claim for a lump sum payment prior to the tort action going to trial. Dominion was named as a defendant in the tort action through the uninsured/underinsured provisions of the policy, and Dominion also separately defended the owner of the vehicle. The Motor Vehicle Accident Claims Fund (“the Fund”) defended the driver.
At the tort trial, Dominion was alleging that the driver had taken the vehicle without the consent of the owner, and that the plaintiff as an occupant “knew or ought to have known that the vehicle was being operated without consent”. As such, Dominion alleged that the plaintiff had no access to coverage through the exclusions contained in s. 1.8.2 of the OAP 1:
Except for certain Accident Benefits coverage, there is no coverage under this policy for a person who, at the time he or she willingly becomes an occupant of an automobile, knows or ought reasonably to know that the automobile is being used or operated by a person in possession of the automobile without the owner’s consent.
In a trilogy of cases (Taggert (Litigation Guardian of) v. Simmons, Foster v. Young, McArdle v Bugler), the Ontario Court of Appeal held that a “person insured under contract” for the purposes of uninsured motorist coverage under s. 265(1) of the Insurance Act, incorporated the definition of “insured” under s. 224(1) of the Insurance Act. The definition under s. 224 includes “every person who is entitled to statutory accident benefits under the contract whether or not described therein as an insured person”. The result was that if an insurer was obliged to pay accident benefits to an individual, that insurer was also liable for UIM coverage.
It was initially unclear how the exclusion in s. 1.8.2 of the OAP 1 would apply to UIM coverage as there is no mention of a vehicle being operated without consent in s. 265(1) of the Insurance Act. Section 1.8.2 of the OAP 1 does not specifically reference UIM coverage. However, in Shipman v. Dominion of Canada General Insurance, 2004, the Ontario Court of Appeal had the opportunity to examine the effect of s. 1.8.2 of the OAP 1 in the circumstances of a UIM claim. In that case, a pedestrian plaintiff was injured when she was struck by a motor vehicle being driven without the owner’s consent. The plaintiff moved for a declaration that she was entitled to coverage for personal injury under the uninsured provisions of the owner’s policy. It was undisputed that Dominion, as the insurer of the vehicle being driven without consent, was liable to pay statutory accident benefits to the plaintiff. At first instance, it was concluded that s. 265 of the Insurance Act provides a complete code for uninsured automobile claims, and that by virtue of their obligation to pay SABS to the plaintiff, Dominion was also liable for UIM coverage. Nowhere in s. 265 of the Insurance Act did it specify that an occupant of a vehicle or a pedestrian struck by a vehicle being operated without consent would be disentitled to coverage under the owner’s policy. The first instance judge concluded that s. 10 of Regulation 676 and s. 1.8.2 of the OAP 1 could not override the complete code for UIM claims outlined in s. 265. Section 10 of Regulation 676 states:
In so far as applicable, the general provisions, definitions, exclusions and statutory conditions as contained in a motor vehicle liability policy also apply to payments under the contract under subsection 265 (1) of the Act.
On appeal, Dominion argued that s. 10 of Regulation 676 should be read to incorporate the s. 1.8.2 exclusion into UIM coverage under s. 265. The Court of Appeal agreed. As such, Dominion, which was paying statutory accident benefits to the plaintiff pedestrian in that case, was not liable to provide UIM coverage for a vehicle being driven without the consent of the owner.
In Wagner v Fellows, the Fund did not attempt to dispute that s. 1.8.2 could operate in the circumstances of a claim where the underlying insurer is paying accident benefits. However, both the Fund and the plaintiff sought declaratory relief for a finding that Dominion was precluded from relying on s. 1.8.2 of the OAP by virtue of having paid non-earner benefits to the plaintiff in the accident benefits context. Under s. 31(1)(c) of the SABS, Dominion would not have been required to pay the plaintiff non-earner benefits in the AB context if he “knew or ought to have known that the vehicle was being operated without consent”. Dominion had initially maintained a denial of non-earner benefits under s. 31(1)(c), but had ultimately allocated part of a lump sum settlement of the AB claim to non-earner benefits in the Settlement Disclosure Notice. The Fund argued that by paying non-earner benefits, Dominion had effectively conceded that the plaintiff had not known and could not reasonably have known, that the vehicle was in the possession of the driver without the owner’s consent.
The court was not asked to determine the consent issue on the merits, but rather to address the more narrow issue of whether Dominion could take two seemingly contradictory approaches to coverage in the AB and Tort context. In coming to the conclusion that Dominion was not precluded from raising a consent defence in the context of the underinsured/uninsured tort claim, Justice Mullins agreed with the reasoning of Justice Stinson in Anand v. Belanger, and relied on the language of the settlement release and the existence of a privacy screen between AB and Tort.
The full and final release signed by the plaintiff in the AB context included an express provision that the settlement did not constitute an admission of liability on the part of the Dominion. Additionally, given the live AB and Tort claims with Dominion, a privacy screen was maintained between the two departments throughout the course of the claims. Plaintiff’s counsel had required that Dominion continue to maintain the privacy screen even after the settlement of the AB claim.
Justice Mullins held that it would be inappropriate to characterize Dominion’s actions in the settlement as a concession or admission of liability:
The insurer negotiated and paid a lump sum settlement in exchange for a release from its potential liability to pay more and further statutory accident benefits. When all of the documents before this court are reviewed, it is clear that the insurer settled the plaintiff’s claim for statutory accident benefits via negotiations which were intended to be without prejudice to the insurer’s legal liability. The release explicitly states that the settlement was without admission of liability. The insurer was required to maintain a firewall.
The mere circumstance of an insurer choosing to settle a claim ought not to be taken to constitute an admission of a legal liability to pay, other than to pay the amount agreed upon in the settlement. To hold otherwise would fly in the face of the wording of the settlement documents and lay waste to the concept of settlement privilege. Day in, day out, under the auspices of our courts at pre-trials and in the practise of personal injury law, without prejudice settlements of claims to tort damages and accident benefits are made and are to be encouraged and protected.
It should also be noted that the Fund and the Plaintiff took the position that Dominion’s inconsistent positions amounted to an abuse of process which the court should disallow in the context of the tort action. Justice Mullins dealt with this argument succinctly:
There was no litigation on the merits of the applicability of the exclusion [in s. 31(1)(c) of the SABS] relied upon by this insurer, such that this proceeding could reasonably be perceived as an attempt to re-litigate the issue. The circumstances are not at all comparable to those in the cases cited by the moving parties.
As such, Wagner v Fellows stands for the proposition that an accident benefit insurer with an appropriate privacy screen in place, and an appropriate full and final release and Settlement Disclosure Notice (or Minutes of Settlement) with language regarding admissions of liability in a settlement will not be precluded from taking a different position in the context of a coverage dispute in a collateral tort proceeding.
Postscript: in a subsequent decision (Wagner v. Fellows, 2017 ONSC 7309), Madam Justice Mullins was asked to rule on several issues, it being agreed by the parties that an assessment of the Plaintiff’s damages would be left to be decided by a jury in the future. On the coverage issue, Justice Mullins found as a fact that the Plaintiff had occupied the vehicle operated by driver on one previous occasion, and on the occasion of the accident, while he may not have consciously applied his mind to the subject, he ought reasonably to have known that the driver was operating the vehicle without the owner’s consent. As such, it followed that the Plaintiff was excluded from coverage under the Dominion policy. Justice Mullins also ruled that the owner was not negligent in the management of her keys, and the driver had taken the vehicle without the owner’s consent. In combination, these rulings rendered the Fund solely liable to the Plaintiff for all damages.
Richard Kreder is the author of this blog and member of the Coverage practice group. If you have a question about this decision or a similar file, please contact Richard.