Excluded Driver Endorsement
Making the denial of coverage stick
Each province has it’s own provisions regarding excluded drivers. The wording of the legislation is different in each jurisdiction. The interpretation of the excluded driver endorsement in Ontario can serve as a warning to brokers across Canada.
Section 240 of the Ontario Insurance Act provides that an insurer is not liable to any person while an excluded driver is driving an insured automobile with the exception of some limited accident benefits.
Standard form excluded driver endorsements are provided by FSCO for both the standard automobile owner’s policy (OPCF 28A) and the standard garage automobile policy (O.E.F. 78A). The obvious intent of the endorsement is to prevent high-risk drivers from operating insured vehicles. However, both brokers and insurers must take proper steps to ensure that the endorsement is upheld by the Courts. To rely on the terms of an excluded driver endorsement, or any endorsement for that matter, an insurer must, in accordance with ss. 232(3) and (5) of the Insurance Act, deliver or mail to the insured named in the policy:
- the policy or a true copy thereof; or
- if the policy is in standard form (i.e. OAP 1 and O.E.F. 78A) the insurer may issue a certificate instead of the policy; and
- every endorsement or other amendment to the contract.
It is not sufficient to simply indicate on the certificate of insurance that an excluded driver endorsement is included on the policy. The insured must receive a copy of the endorsement itself.
Current Case Law
In GMAC Leaseco Corp. v. Lombard Insurance, a 2009 decision of the Ontario Court of Appeal, GMAC Leaseco was the owner and lessor of a vehicle for which the insurance, in the usual way, was placed by the lessees directly. The vehicle was involved in an accident while being operated by an excluded driver and GMAC was named as a defendant in a civil action commenced by the injured parties. Despite the fact that both lessees had signed an excluded driver endorsement, and even though GMAC was provided with a certificate of insurance specifying that an excluded driver endorsement was included in the coverage, the Court found that the insurer still had a duty to defend and indemnify GMAC. The insurer had failed to provide GMAC with a copy of the excluded driver endorsement and therefore it could not rely on the endorsement to deny coverage.
“The OPCF28A endorsement has the harsh effect of denying insurance coverage when an excluded driver operates the [insured] motor vehicle. To gain the benefit or protection of such an endorsement, an insurer must take appropriate steps to ensure that the endorsement is brought to the insured’s attention,” wrote the court in its decision.
Extra caution is required when an insured amends his/her policy. In the recent decision in Chen Estate v. Chung, a summary judgment motion was brought by State Farm to confirm that it was entitled to rely on an excluded driver endorsement. The father was the named insured on the policy and his son was the excluded driver. The original policy was arranged on one vehicle and both the father and son signed an excluded driver endorsement. However, the owner’s daughter then called the broker and arranged for coverage on another vehicle, which is the vehicle that the son was driving when the accident occurred. State Farm argued that it was entitled to rely upon the excluded driver endorsement for all vehicles covered by the policy. The Judge dismissed the motion for summary judgment and held that there was an issue for trial on the basis that neither the owner nor his son had signed an excluded driver endorsement for the second vehicle.
In Traders General v. McCubbin, a 2009 decision of Mr. Justice Belobaba of the Ontario Superior Court of Justice, the Court made it clear that it will require an insurer to take all appropriate steps to ensure that its insured has fully understood all of the coverage implications of an excluded driver endorsement. The named insured in this case, an educated school teacher, had signed an excluded driver endorsement with respect to his son. The insurer mistakenly listed only one of the insured vehicles on the endorsement and the son was driving one of the other insured vehicles when the accident occurred.
A few days after the broker had received the signed excluded driver endorsement, he realized that all of the vehicles insured on the policy were not listed on the endorsement so he immediately e-mailed the correct form to the owner and he left a telephone message on the owner’s answering machine asking him to sign the new form with all of the vehicles listed. The owner testified that he thought that the excluded driver endorsement only pertained to claims that were made by his son, the excluded driver. He did not understand, nor did the broker ever explain to him, that the excluded driver endorsement also precluded third party liability claims made against him, as owner of the vehicle. He also testified that he did not receive the broker’s e-mail nor did he pick up the broker’s telephone message. Because of this, the Court denied the insurer’s application for summary dismissal on the basis of the inadequacy of the original excluded driver endorsement and directed that the matter proceed to trial. The Court acknowledged that the Ontario Insurance Act is consumer protection legislation and, therefore, the insured received the benefit of the doubt.
The endorsement has to be signed correctly. Any errors, even insignificant ones, will be construed against the insurer. In Singh v. General Accident Assurance Co. of Canada, a FSCO appeal decision from 2000, the insured mistakenly signed the form in the box allocated for the excluded driver. This was sufficient for Director’s Delegate Naylor to order that the insurer could not rely on the endorsement.
The Superintendant of Financial Services has indicated that the offering of an excluded driver endorsement is mandatory, not optional. To protect themselves and the underwriter, brokers should obtain independent, objective documentation to verify that the full ramifications of the excluded driver endorsement have been properly explained to the insured and to the excluded driver. A separate acknowledgement form, in properly worded language, is advisable to provide this secondary verification.
Brokers and insurers should therefore ensure that a copy of the policy itself, or in situations where the policy is in standard form, a certificate of insurance, is delivered or mailed to each insured, along with a copy of each and every endorsement, even after policy amendments are made.
James Dunn is a senior partner in the law firm of Blouin, Dunn LLP. He specializes in jury trial work in all areas of insurance defence litigation.
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the April 2011 edition of Canadian Insurance Top Broker magazine.