Our third annual roundup of some recent important judicial decisions, with insurance insight provided by legal experts
Ostenda v. Behena Miranda
Commentary by Michael Foulds, Theall Group LLP
In Ostenda v. Behena Miranda the Ontario Superior Court of Justice considered: (1) whether an insurer was exposed to liability equivalent to that of a brokerage; and (2) whether the insurer was vicariously liable for the mistakes of the broker.
The case involved a plaintiff who was critically injured in a motor vehicle accident. The fleet motor vehicle policy under which the plaintiff, as an employee, was covered, did not contain uninsured or underinsured coverage (OPCF 44R). The plaintiff sued the broker and the insurer for failing to include the uninsured or underinsured coverage in the employer’s policy.
The plaintiff argued that the insurer had a duty to warn and advise the employer about potential gaps in coverage. In particular, the plaintiff argued that the insurer provided certain risk assessments to the employer, which supported the imposition of a duty of care. The insurer argued that since the employer was represented by a sophisticated and experienced insurance broker, it was up to the broker to advise the employer about coverage gaps.
The court dismissed the case against the insurer (the claims against the broker were not dealt with on the summary judgment motion). It found that there was no evidence of reliance by the employer on the insurer as to the scope of coverage the employer decided to procure. The risk assessments conducted by the insurer were for the purpose of underwriting the risk, and not for the purpose of becoming familiar with the employer’s business and insurance needs. Furthermore, the risk assessments contained a disclaimer that limited legal liability. The court was also concerned about the duplication of effort should the law impose liability upon insurers similar to that of brokers, and the associated costs which would ultimately be passed along to the customer.
The court also found that the insurer was not vicariously liable for the mistakes of the broker, as the evidence did not support a principal/agency relationship. In particular, there was no evidence that the broker had authority to bind the insurer.
Insurance Industry Implications:
- This case clarifies the respective obligations of insurers (and also brokers) with respect to providing insurance coverage advice.
- It also reinforces the notion that if insurers’ “risk assessments” are provided to insureds, there should be a clear disclaimer of liability.
Insurance for off-road vehicles
Bouchard v. Motors Insurance Company
Commentary by Claude Blouin, Blouin Dunn LLP
The Ontario Divisional Court recently decided a case involving an off-road vehicle operated on private property and a claim by its operator for Statutory Accident Benefits.
The Applicant was operating a pocket bike (a miniature motorcycle) on land occupied by the bike’s owner when she was involved in a collision with another pocket bike. She suffered significant injuries and applied for Statutory Accident Benefits under a policy covering her father’s automobile. As a listed driver on her father’s auto policy, she was able to advance her Statutory Accident Benefits (SABS) claim. Her father’s insurer took the position that she was not involved in an “accident” within the meaning of the SABS as the use or operation of an “automobile” did not directly cause her impairment.
Her insurer’s denial of her SABS claim was challenged at the Financial Services Commission of Ontario (FSCO), which decided at first instance that she was entitled to SABS, as the owner of the pocket bike had admitted that he sometimes operated it on his friend’s property.
The SABS does not define the word automobile. The Courts, and arbitrators, must go through a convoluted exercise of interpreting the Insurance Act, the Compulsory Automobile Insurance Act, the Highway Traffic Act, and the Off-Road Vehicles Act to determine whether a particular vehicle is an “automobile” giving rise to a SABS claim.
The FSCO arbitrator’s decision was successfully appealed to the Director of Arbitrations who ruled that the analysis required him to focus on the operation of the pocket bike at the moment of the incident. As the Applicant was operating the pocket bike on the owner’s property, Section 15(9) of the Off-Road Vehicles Act (ORVA) provided that insurance was not required.
The Applicant challenged that decision by way of Application for Judicial Review at the Divisional Court. A panel of three judges of the Superior Court of Justice dismissed the Application and confirmed the Director’s interpretation that the case turned on whether insurance was required in the circumstances and at the time of the accident. As the pocket bike was being operated on land occupied by its owner, it did not need to be insured and therefore did not fall under the expanded definition of automobile contained in the Insurance Act.
Insurance Industry Implications:
If an off-road vehicle is not an “automobile,” then it is unlikely to be excluded from coverage under a homeowner’s policy, but it will be excluded under an auto policy, unless, at the time and in the circumstances of the accident, the off-road vehicle is being operated on land other than that occupied by its owner.
Duty of Good Faith and Punitive Damages
Saskatchewan Government Insurance v. Wilson, 2012 SKCA 106
Commentary by Nigel Kent and David Buxton-Forman, Clark Wilson LLP
In this recent decision, the Saskatchewan Court of Appeal considered, among other issues, whether a breach of the duty of good faith could arise in the absence of damages flowing from a breach of an express term of the underlying insurance contract.
This was a case where the “no-fault benefits” payable by the insurer were not actually denied, but the insurer had issued a notice to the insured informing her that the benefits would terminate six months into the future. The insurer retracted its decision to deny benefits before the insured suffered any damage, following the initiation of legal proceedings by the insured in which the insurer was compelled to acknowledge, at least internally, that it had no legal or factual foundation for its decision. The Trial Court awarded punitive damages of approximately $15,300, broken down as $7,500 for breach of the duty of good faith and $7,800 as indemnification for the legal fees that the insured had been forced to incur to enforce coverage.
The Court of Appeal agreed with the trial judge’s analysis of SGI’s “bad faith” handling of the insured’s claim. However, it noted that the plaintiff did not claim for punitive damages in her pleadings and, therefore, an award of punitive damages could not be sustained. Nevertheless, the Court of Appeal concluded that, “while a breach of the duty of good faith typically walks hand-in-hand with a denial of benefits or other breach under the express terms of a contract of insurance, a breach of the implied duty of good faith does give rise to a separate cause of action.” Accordingly, the $7,800 legal fees represented reasonable “mitigation expenses” incurred by the insured as a result of the insurer’s breach and were collectible as damages, although not characterized as an award of punitive damages.
Insurance Industry Implications:
- The conclusion that a breach of the duty of good faith can, in and of itself, sustain an award of damages arguably increases the exposure of insurers in cases of this sort.
- It will be interesting to see whether this case, along with other recent Saskatchewan cases such as Branco v. American Home Assurance Co., represents a sea change in bad faith litigation in Canada. Regardless, the stakes now seem to be substantially higher and the insurance industry would be wise to pay attention to these developments.
Proving Broker Negligence
Zefferino v. Meloche Monnex Insurance Company, 2013 ONCA 127
Commentary by Shaun Frost, Guild Yule LLP
In Zefferino v. Meloche Monnex Insurance Company, the Ontario Court of Appeal upheld the dismissal of a lawsuit against an insurance broker after the plaintiff was unable to prove that the broker’s negligence caused his loss.
The plaintiff, Nicola Zefferino, alleged that his insurance broker failed to offer an optional income replacement benefit as part of his automobile policy. He claimed for loss of income after a car accident rendered him unemployable. The trial court found that the defendant’s offer of coverage did not meet Ontario’s statutory requirements for explaining optional income replacement coverage and was therefore a breach of duty. Despite that finding, the case was dismissed because the plaintiff did not establish that he actually would have purchased the additional coverage.
The Court of Appeal found no error in the lower court’s factual findings that the plaintiff habitually purchased basic coverage and that the subject policy was selected for its low price. The trial judge also drew an adverse inference from the plaintiff’s failure to call evidence from his wife, who renewed the policy, about whether the optional coverage would have been purchased. Despite the plaintiff’s bald and self-serving assertions that he would have purchased the coverage, both levels of court found nothing on the record to prove that he would have paid extra for the optional insurance.
Insurance industry implications:
- This decision reaffirms that for a plaintiff to succeed in a claim against his insurance broker, he must prove all elements of a negligence claim. That includes proving causation (but for the broker’s negligence, the plaintiff would not have suffered damages).
- Put another way, a plaintiff must prove that if given adequate advice, they would have paid higher premiums and been insured for the loss.
Punitive Damages: How Much?
Branco v. American Home Assurance Company
Commentary by David Tupper, Blakes, Cassels & Graydon LLP and Thomas Craig, student-at-law
When it comes to awarding punitive damages, there is much controversy surrounding what constitutes an appropriate amount. Critics claim that there is no basis in law for an individual to receive an award far in excess of an amount required for compensation just because the court happens to choose their claim as a means through which to deter others. In addition, defendants argue that they are unfairly being punished for who they are, rather than what they have done. In a recent decision from the Saskatchewan Court of Queen’s Bench,Branco v. American Home Assurance Company (Branco), Justice Acton affirmed the use of punitive damages by Canadian courts and, in doing so, assessed a record-breaking punitive damages award of $4.5-million.
In this case, the plaintiff sought payment of insurance benefits denied to him by the insurers. Branco, a Canadian citizen, was employed overseas as a welder by a subsidiary of the Saskatchewan-based Cameco Corp. In 1999, he suffered two injuries to his foot while at work, leaving him permanently disabled. When Branco submitted his claims to the insurers, he was denied. However, it was not the outright denial of the claims with which Justice Acton took issue, but rather, the calculated actions of the insurance companies in dealing with Mr. Branco.
In particular, Justice Acton indicated that certain actions on the part of the insurance companies were particularly blameworthy and warranted a significant punitive damages award in favour of Branco in order to deter similar conduct in the future. These blameworthy acts included:
- discontinuing Branco’s benefits for many months at a time in a “clear and blatant attempt to force [him] into accepting an unreasonably low cash settlement”;
- making Branco’s benefits contingent on him attending a vocational re-training program that was unreasonably far from his home and inappropriate based on his level of education;
- refusing responsibility and offering an “unjustifiably low” settlement offer, despite Branco’s medical assessment indicating that he qualified for coverage under the policy; and
- attempting to use one of the insurer’s own doctor’s failure to provide a prompt medical report as justification for discontinuing Branco’s monthly benefits.
Justice Acton explained that insurance providers have an obligation to act in good faith towards the insured and where this obligation is breached, punitive damages may be awarded. In the case of workers’ compensation and long-term disability insurance policies, which are “peace of mind” contracts meant to secure a psychological benefit for the insured, failure to make the payments in a prompt and reasonable manner is a clear breach of the duty of good faith. In the words of Justice Acton, “[t]o fail to pay the disabled individual for months or years on end and then provide a lump-sum payment with interest to date totally defeats the purpose of the policy.”
Furthermore, Justice Acton determined that a significant punitive damages award was necessary because previous awards against insurers who “exploit[ed] the vulnerability of insureds in times of disaster” had been ineffective. Specifically, Justice Acton referred to the previous case of Sarchuk v. Alto Construction Ltd. and Whiten v. Pilot Insurance Co., which assessed punitive damages against defendant insurance companies at $60,000 and $1-million respectively.
Insurance Industry Implications:
- The decision in Branco affirms punitive damages as a tool that courts may employ to deter industries from engaging in undesirable conduct.
- It also clearly places the insurance industry on notice that they are liable to incur significant penalties in instances where they unjustly withhold benefits from the insured.
Copyright 2013 Rogers Publishing Ltd. This article first appeared in the May 2013 edition of Canadian Insurance Top Broker magazine.