*Since the writing of this blog the decision has been affirmed (not overturned).

In Vlanich v. Typhair, 2016 ONCA 517, two plaintiffs were injured in a motor vehicle accident in June 2008 involving an underinsured taxi owned by Aces Taxi and operating in the Township of North-Grenville. The Township had enacted a bylaw which required licensed taxis to carry a minimum of one million dollars in third party liability insurance. State Farm insured the plaintiff’s vehicle with a standard policy including an OPCF 44r endorsement which provided coverage in the event that the at-fault motorist was underinsured or uninsured.

Aces Taxi had provided a bylaw officer with documentary proof that it carried the required $1,000,000 liability insurance in 2005 when it first applied for and received a taxi licence. On January 13, 2006, Aces Taxi’s insurer sent a cancellation notice to the Township that insurance would be cancelled on January 22, 2006.

Aces Taxi applied for a taxi licence in 2006 and completed a taxi license application on February 6, 2006 including a declaration that Aces Taxi complied with all bylaws. At the time Aces Taxi had no insurance.

Aces Taxi subsequently obtained insurance with third party liability limits of $200,000 and submitted a taxi licence renewal application on January 2, 2008.  This application again included a declaration that Aces Taxi complied with all bylaws. Aces Taxi also included a pink slip as proof of insurance which did not contain any reference to the amount of third party liability insurance.

State Farm commenced a third party claim against the Township on the basis that they had negligently failed to enforce the bylaw to ensure that Aces Taxi had the require insurance coverage. The plaintiffs amended their claim to include this relief as well. The third party claim was decided by way of summary trial with the result binding on the parties in the main action.

Decision at First Instance
At trial, Justice Kershman found that the Township owed the plaintiffs a duty of care, but had not fallen below the standard of care in enforcing the bylaw. Justice Kershman held that the Township’s practice of accepting declarations and pink slips as “proof of insurance” was sufficient to satisfy the standard of care. State Farm appealed from this decision.

Court of Appeal
The Court of Appeal ultimately dismissed the appeal, however, in coming to its finding, the Court performed a detailed examination of the duty of care owed by a public authority to a specific member of the public.

Justice Kershman had accepted that the Township owed a duty of care to the plaintiffs without performing any significant analysis. The Court of Appeal held that the correct starting place for establishing a duty of care for public authorities should have been through an analysis of the two-part Anns/Cooper test as refined by the Supreme Court in Cooper v. Hobart.

1) was the harm that occurred the reasonably foreseeable consequence of the defendant’s act? Under this branch of the test, the Court confirmed that the case for a prima facie duty of care could be made out by establishing either:

a) that the circumstances of the case fall within, or are analogous to, one of the categories of cases in which the courts have previously recognized a duty of care; or
b) that there was reasonably foreseeable harm and a sufficient proximate relationship between the parties. Proximity is determined by “looking at expectations, representations, reliance, and the property or other interests involved” to “evaluate the closeness of the relationship between the plaintiff and the defendant” and by asking “whether it is just and fair having regard to that relationship to impose a duty of care in law upon the defendant”.

2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here?
The Court confirmed that this part of the test is concerned with broad policy considerations outside of the relationship of the parties for which the duty of care should not be established.

Prima Facie Duty of Care
The Court held that the circumstances of this case did not fall within any previously recognized categories and must be examined as a new duty of care.

The Court held that the Township bylaw which regulated taxi licensing established a general standard to the benefit of the public as a whole. Accordingly, the Court held that the Township owed a duty to the public at large to enforce the by-law.

The Court of Appeal then considered the Supreme Court of Canada decisions of Cooper and Edwards to determine that this general duty to the public did not necessarily give rise to a private law duty owed to individual members of society. In Cooper, the British Columbia Registrar of Mortgage Brokers had a duty to regulate mortgage brokers. Plaintiffs had suffered economic losses investing with non-compliant mortgage brokers. In Edwards, the Law Society of Upper Canada licensed and regulated lawyers. The plaintiffs had allegedly suffered losses caused by improper use of a lawyer’s trust account. In both cases, the Supreme Court held that the regulatory agencies owed a duty to the public at large to enforce the regulations. However, the Court held that this general duty did not give rise to a private law duty to individual members of the public that interacted with the individual licensees.

Based on similar logic, the Court of Appeal concluded that the Township’s licensing scheme did not create a “close and direct” relationship capable of giving rise to a duty of care between the Township and an individual member of the public who may interact with a licensee. The Court held that there must be “something more” than a general licensing scheme to create a sufficient nexus to establish proximity between the public authority and an individual member.

The Court distinguished the current case from prior building inspection cases which had established a duty of care to specific individuals. In building cases, the municipality had enacted building code legislation which established acceptable safety standards. If the inspector negligently misses the fact that the building has not been built to code, there is direct and immediate safety risk to the owner and immediate economic loss as the building has to be restored to code. The municipality has provided “something more” than a general licensing scheme by inviting the individual members to rely on their safety inspections and has assumed the risk of a faulty inspection. The Court held that the Township’s taxi regulation was not safety regulation and did not set a standard to avoid risk of physical damage or harm. Ensuring that Aces Taxi had complied with the regulation would not have prevented the physical damage or injury to the Plaintiffs.

Similarly, the Court dismissed the plaintiffs suggestion that if the licence had been suspended in accordance with the legislation then the accident would never have occurred. The Court held that this was too far removed from the “immediate and direct nexus” contemplated by the Anns/Cooper test.

Residual Policy Considerations
At the second branch of the Anns/Cooper test, the Court held that there were residual policy reasons to negate the imposition of a duty of care even if proximity had been established under the first branch.

The Court considered the fact that there was already a legal remedy in the form of the essentially industry standard OPCF 44r which allowed the plaintiffs protection against underinsured drivers. The Court also held that there would be a significant burden on the Township and other municipalities if the they were found liable for negligent enforcement of licensing bylaws.

Standard of Care
Although the Court found no duty of care owed, they went on to consider the standard of care for the sake of completeness. The Court held that the trial judge had not erred in determining that the Township had met the applicable standard of care. The legislation required the applicant to provide “proof of insurance”. The Township accepted signed declarations with pink slips as proof of insurance. The trial judge held that this practice might have some shortcomings, but did not amount to the level that it was unreasonable. The Court accepted that there had been no palpable and overriding error in concluding that the Township had acted reasonably and in good faith.

This case is a reminder that duty of care should not be automatically assumed in public authority and municipality cases. The case law is clear that the Anns/Cooper test is still the foremost authority for establishing duty of care. If the case is not analogous to prior established case law then the full analysis must be undertaken. Similarly, this case is strong guidance by the Court of Appeal that public licensing schemes will generally not give rise to a private law duty of care owed by the public authority to individuals that interact with licensees.

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