In Pridmore v. Drenth, the Ontario Court of Appeal upheld the Ontario Superior Court of Justice’s decision finding that insurance coverage was available following an accident involving an ATV, despite the fact that a statutory condition had been breached.

The owner of the ATV gave his son permission to drive the ATV on off-road trails located near their home. The trails were accessible via Central Lane, a laneway located behind their home.  Both the owner and the son thought that laneway was an “alley” or “private laneway”. However, the laneway was considered a “highway” pursuant to the Highway Traffic Act. The son possessed a G1 driver’s licence and was not permitted to operate the ATV on any road considered a “highway”.

On the date of loss, after operating the ATV for some time that day, the son opted to drive the ATV on the shoulder of a different highway (i.e. on a road other Central Lane). The ATV struck a culvert and flipped over.

Coverage for the son was denied on multiple grounds. Coverage for the owner was denied on the basis that he had violated Statutory Condition (“SC”) 4(1) by permitting his son to operate the ATV on a highway when he did not possess the proper class of driver’s licence.

SC 4(1) provides the following:

The insured shall not drive or operate or permit any other person to drive or operate the automobile unless the insured or other person is authorized by law to drive or operate it.

A motion for summary judgment was brought by Novex, the insurer of the ATV, where the central issue was whether the owner of the ATV had breached SC 4(1) in granting the son permission to use the ATV.   The insurer argued that the owner had granted the son permission to drive on the shoulder of a highway, either as a result of not knowing that the shoulder constituted a highway, or with the knowledge that the son would operate the ATV in violation of SC 4(1) by driving on a highway.

The motion judge first noted that the case law pertaining to the definition of “permit” within the context of SC 4(1) was “knowledge, wilful blindness, or at least a failure to take reasonable steps to inform oneself of the relevant facts”. He found that a breach of SC 4(1) had occurred when the owner permitted his son to operate the ATV on Central Lane even though he was precluded from doing so unless accompanied by a properly licenced driver.

The motion judge then applied the reasonable foreseeability test to assess whether a vehicle would be operated in breach of the statutory conditions of an insurance policy. He found that the mistaken belief held by the parties with respect to whether Central Lane was a highway was relevant. Given that neither the owner nor the son knew that Central Lane was a highway, permission had not been given to operate the ATV on a highway. Further, he found that the owner did not know and ought not to have known that the son would operate the ATV on any highway other than Central Lane.

Consideration was then given with respect to whether the owner’s breach of SC 4(1) “tainted” the entire trip. The motion judge concluded that it did not, as the breach of a statutory condition must be determined at the specific time of the incident, and the incident had occurred on Bird Road, a highway on which the son had not been given permission to drive.

Finally, the motion judge considered whether, if the owner permitting the son to drive on the laneway did “taint the entire trip”, relief from forfeiture was warranted. The motion judge concluded that relief from forfeiture was warranted in the circumstances.

On appeal, the insurer argued that the court made a palpable and overriding error in finding that the owner did not give the son permission to operate the ATV on the shoulders of roads; erred in finding that the owner was entitled to coverage despite the breach of SC 4(1); and erred in granting the owner relief from forfeiture.

Issues 1 and 2 were considered to be so closely intertwined that they were considered together.  Writing for a unanimous panel which included Justices Benotto and Copeland, Justice Eileen Gillese found that the findings of the court were not “clearly wrong” nor were they “unsupported by the evidence,” concluding that there was no basis for appellate interference with the motion judge’s determination that the owner was entitled to third-party coverage.

Given the lack of basis for appellate interference with the motion judge’s findings, there were no grounds upon to interfere with the motion judge’s exercise of discretion in granting relief against forfeiture.

The takeaway is unsettling for insurers. Not knowing that a laneway behind one’s house is considered a highway and thus impermissible to use by an unlicensed driver is apparently an excusable misunderstanding.  What are the natural implications of this decision?   Not knowing that an ATV, e-bike, or other means of motorized conveyance is or is not an automobile depending on its location of use, all of which could lead to the extension of coverage into areas not contemplated by the parties to the insurance contract. 

Rachel Jadd is a lawyer at the firm and the author of this blog. If you have any questions about this decision or a similar file, please contact Rachel at 416-777-5311.