Divisional Court Splits on Whether MVA Plaintiff Can Provide Corroborative Evidence of “Change in Function”

Posted on July 5, 2013 by Stephen Cavanagh

In Gyorffy v. Drury, 2013 ONSC 1929 (CanLII), the majority of a Divisional Court panel held that on a “threshold motion” under the Insurance Act, the injured plaintiff can, himself or herself, provide the corroborative evidence required by s. 4.3(5) of Reg. 461/96. The latter provides:

…

In addition to the evidence of the physician, the person shall adduce evidence that corroborates the change in the function that is alleged to be a permanent serious impairment of an important physical, mental or psychological function.

At trial, the jury had awarded general non-pecuniary damages of $39,000 (so, $9,000 after the Insurance Act deductible). The trial judge, Justice Gordon D. Lemon then had to decide a “threshold motion”. He found that the plaintiff “was credible and had suffered a ‘permanent serious impairment of an important physical, mental or psychological function’.” However, he dismissed the action on the basis that the plaintiff had not met the requirements of s. 4.3(5) of the Regulation, quoted above, in that the only evidence at trial on the issue of the plaintiff’s “change in function” had been from the plaintiff himself and from three physicians. Justice Lemon reasoned that the plaintiff could not corroborate his own evidence, nor could his testimony corroborate that of the physicians.

In the Divisional Court, Justices Alison Harvison-Young and R. Dan Cornell held that s. 4.3(5) does not preclude a plaintiff himself or herself from providing the necessary corroboration. They said that the trial judge’s approach offended s. 15 of the Charter, in that plaintiffs who have no close family or other acquaintances (the elderly, recent immigrants) who could speak to their change in function would be barred from recovering damages in otherwise meritorious cases.  

The majority allowed the appeal and awarded the plaintiff damages of $9,000.

Justice Ted Matlow dissented. He would have dismissed the appeal. He said:

The corroboration that was required by section 4.3(5) was independent evidence that lent support to the primary evidence adduced by the plaintiff with respect to “the change in the function” specified. The only evidence, and therefore the only primary evidence on this issue, was the evidence of the plaintiff himself. Therefore, as a matter of logic, his evidence was not capable of corroborating his own evidence. It would be apt to apply, in these circumstances, the story of the proverbial person who tried to pull himself up by his own bootstraps.

It does not seem to me that Justice Matlow’s concerns were fully addressed in the reasons of the majority. Counsel for the respondent made the point that the section could not have intended that the evidence of physicians be corroborated because typically, any evidence that they are able to give with respect to a change in function on the part of the plaintiff will come from the plaintiff himself or herself. Thus, allowing a plaintiff to provide testimony corroborative of the physicians’ evidence amounts to self-corroboration. The majority reasons do not really come to grips with this problem. The majority acknowledged that a medical report will likely contain self-serving evidence from the plaintiff as to a change in function and that that evidence is really hearsay. But Justices Harvison-Young and Cornell felt that allowing the plaintiff to provide the necessary corroboration means that “those statements will be subject to cross-examination in open court. It is open for the trier of fact to reject such evidence and conclude that a change in function has not been established.”

This approach seems to me to give rise to the very “bootstrap” criticism raised by Justice Matlow.

It should be noted that the Ontario Trial Lawyers’ Association intervened in this case and the submissions made by its counsel were obviously quite persuasive for the majority.

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Justice Brown Encourages Use of Junior Lawyers At Trial…But Not At Expense of Opposing Party

Posted on June 7, 2013 by Stephen Cavanagh

In Graat v. Adibfar, 2013 ONSC 3264 (CanLII), Justice David Brown fixed costs following the six-day trial of a medical malpractice action. The jury had dismissed the plaintiff’s claim and the defendant doctor sought costs of $74,732.59. The plaintiff suggested that $15,000 would be a reasonable figure.

His Honour came closer to the defence figure: he allowed costs totalling $55,437.84. However, along the way, he made some interesting observations.

  • When a plaintiff [or presumably, any party] serves a jury notice, that party must reasonably expect that in the event she does not succeed at trial, her liability for costs may well be higher than had the trial proceeded before a judge alone.
  • If a party takes the position going into a mediation that it is not prepared to engage in settlement discussions, then it should only expect to recover a modest amount for that step in the proceeding. $500 was allowed here instead of the sum of almost $3,000 that had been claimed.
  • Counsel for the defendant did not file any time dockets. As a result, its claim for time expended in trial preparation by a junior lawyer was reduced by half and allowed only at the hourly rate for a legal clerk ($50/hour).
  • With respect to time claimed for junior counsel at trial, Justice Brown said the following:

As to the fees claimed for junior counsel at trial, since junior counsel did not conduct any of the examinations or make any of the statements to the jury, I think fees should be allowed only at the rate of a legal clerk – i.e. $50/hour. I do not want to be misunderstood in this finding. I think it good mentoring for law firms to bring junior counsel to the counsel table at a trial; that is the only way junior lawyers can learn the craft of advocacy. But the costs of that training should not be borne by the opposing party. As to the hours claimed for trial work by the second person, I think using 10 hours per day over the course of the 6 day trial would be reasonable. [Emphasis added]

What if junior counsel at this trial had conducted examinations or made statements to the jury? Would fees have then been allowed for that counsel’s time, in addition to the amount claimed by the senior counsel? Or would this still fall within Justice Brown’s concept of “mentoring”, such that the junior counsel’s time should still not have to be paid for by the opposing party?

Or would there be an argument, in that situation, that the senior counsel’s fees should be reduced somewhat, to reflect the fact that some of the work at trial had not had to be done by him?

This is probably not the last we’ve heard on this subject.

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Justice Quinn Clarifies Privilege Issues in Insurance Cases

Posted on May 30, 2013 by Stephen Cavanagh

I was happy to read the reasons of Justice Joseph W. Quinn in Panetta v. Retrocom et al., 2013 ONSC 2386 (CanLII) because, to my mind, they bring a great deal of clarity to what I find is an often-misunderstood topic: privilege issues in insurance cases.

We all know that in the wake of General Accident Assurance Company v. Chrusz, 1999 CanLII 7320 (ON CA), the “dominant purpose” test has become well-established in relation to litigation privilege. It must be shown that the document in question was created for the dominant purpose of litigation, actual or contemplated.

That approach has also been endorsed by the Supreme Court of Canada in Blank v. Canada (Minister of Justice), 2006 SCC 39, [2006] 2 SCR 319.

So far, so good. But it seems to me that in applying the dominant purpose test, courts have sometimes focused inappropriately on whether, objectively speaking, litigation was likely at a given point. In my view, that question is irrelevant in an insurance context, in third party liability situations.

What has, I think, contributed to some confusion about privilege in insurance cases is a failure to differentiate between first and third party claims. Justice Quinn makes clear the distinction between the two and the implications for questions of privilege.

In a first party situation, the dispute stems from a contractual relationship between insurer and insured. Chrusz was such a case. When an insurer begins the process of adjusting a claim, it is rarely the case that documents are being created for the dominant purpose of anticipated litigation. As Justice Carthy said in Chrusz:

In my view, an insurance company investigating a policy holder’s fire is not, or should not be considered to be, in a state of anticipation of litigation. It may be that negotiations and even litigation will follow as to the extent of the loss but until something arises to give reality to litigation, the company should be seen as conducting itself in good faith in the service of the insured.

In a potential third party claim situation, on the other hand, the only reason for the insurance company to become involved and to begin creating documents, is to prepare to respond to a claim of some sort against its insured by a “third party” (i.e., someone outside the contractual relationship between insurer and insured). It might very well be the case that no claim is ever made against the insured but that does not change the fact that the sole reason for the insurer to take statements from witnesses, have photographs taken etc. is its apprehension of litigation against its insured. Whether or not that apprehension is reasonably held is, in my view, irrelevant. The “dominant purpose” test is satisfied in all such cases, by definition.

Justice Quinn understands this. Panetta was a slip and fall action. The plaintiffs were husband and wife and the wife had fallen in the parking lot of a Walmart store. The plaintiffs sought production of various documents on which one of the defendants (the owner of the premises) had claimed privilege.

Justice Quinn reviewed a number of cases, including some that have held that, for litigation privilege to arise, there must be a “substantial likelihood” of litigation or at least a “reasonable prospect” of litigation. His Honour disagreed and, in my view, he was quite correct. He said:

[60] As soon as the female plaintiff fell and was injured on March 5, 2008, she was in an adversarial position with all of those who ultimately were to become defendants and with their insurers.

[61] I think that, in third-party or tort claims (as opposed to claims by an insured against his or her own insurer), there is no preliminary investigative phase where privilege does not attach to notes, reports and files of adjusters. In third-party insurance claims, the sole reason for any investigation by or on behalf of an insurer is because of the prospect of litigation. It is naive to think otherwise; and the fact that the investigation may be used to arrive at a pre-lawsuit settlement does not detract from the point that I make. The prospect of litigation inherently includes the prospect of settlement.

[62] I agree with the submissions of Wahlman that there is no purpose for the creation of documents by an insurer in a tort context other than: (1) for anticipated litigation; (2) for setting reserves; or (3) for seeking legal advice. For completeness, I would add, as a corollary to (1): for the purpose of settlement, which I see as inextricably entwined with “anticipated litigation”.

This, I think, correctly states the law. For litigation privilege to exist in a third party liability scenario, litigation need not be “likely”, nor need there be a “reasonable prospect” of it. The privilege arises from the circumstances in which the documents come into existence and, in a third party claim situation, the only reason for their creation is potential litigation.

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Cases Take Different Approaches to Exclusion of Plaintiffs from Each Other’s Examination for Discovery

Posted on May 9, 2013 by Stephen Cavanagh

In a recent ruling, Mr. Justice Robert Smith was asked to order that three plaintiffs in a personal injury action be examined for discovery in the absence of each other. The case is Heasley v. Labelle, 2013 ONSC 2601 (CanLII). One of three plaintiffs had been injured when struck by a school bus and the other two were her daughter and granddaughter, who were advancing FLA claims.

The defence argued that there were issues of credibility such that it was in “the interests of justice” that the plaintiffs be questioned separately. The plaintiffs responded that they wished to be present at their examinations, to support one another.

Justice Smith dismissed the motion. He relied primarily on a decision of the Court of Appeal in Liu Estate v. Chau 2004 CanLII 8234 (ON CA), (2004), 69 O.R. (3d) 756 (Ont. C.A.), which had dealt with the exclusion of a party during some of the testimony given at trial. That case emphasized the right of a party to be present during examinations for discovery.

His Honour also considered a rather old B.C. Court of Appeal decision, Sissons v. Olson, [1951] B.C.J. No. 77 (C.A.), which had held that the onus on the party seeking to exclude another party from an examination for discovery is lower than it would be at trial. Although that case has been followed in Ontario, Justice Smith found that he was bound to follow Liu Estate rather than the Sissons line of cases. He stated the rule this way:

To summarize, each co‑party has an inherent and fundamental right to be present at all parts of the litigation process, including discovery and at trial. A co‑party will only be excluded if the moving party shows there is sufficient evidence to demonstrate a real risk of tailoring, parroting, intimidation, disturbance of the proceeding, or where the ends of justice require exclusion. The onus on the moving party is to present sufficient evidence of the above factors to overcome a co‑party’s fundamental right to be present at all parts of the litigation process. The nature of the relationship between the co‑parties by itself is not enough to constitute cause for exclusion.

In contrast, a different approach was taken by Master Joan Haberman in a case that Jill Alexander sent to me recently: DiMartile et al. v. GMCL, 2012 ONSC 3149 (CanLII). That decision was rendered about a year ago. It was an employment case, in which each of four plaintiffs was suing GMCL as a result of changes having been made to their pension plans. As the Master noted, a central part of the case was the allegation that misrepresentations had been made to the plaintiffs and relied upon by them, to their detriment. She said, “it will be critical to get a clear picture of what it is each understood, and how and why each relied on these representations to their detriment.”

The Master referred to the B.C. Sissons case (supra) and said that it “has been followed repeatedly by Ontario courts, even in cases that do not involve co-parties and is often referred to as the leading case in favour of the less stringent approach to motions of this kind.”

She also explored why an examining counsel might want to examine separately opposing parties who are aligned in interest:

[60] There is an art to putting together questions for an effective examination for discovery and for setting the right tone at each stage of this event. Depending on the nature of the case, examining counsel may want to start off gently, gaining the party’s trust and making him comfortable enough to speak easily and openly. As more contentious issues arise, the tone may change and become more confrontational. This is all a matter of strategy and works best when the party being examined does not see what is coming next.

[61] Similarly, the line of questions may be designed to elicit a series of responses, each of which, in isolation, may appear to be benign. When the answers are gathered together, however, and wrapped up as the factual foundation for the final few questions on which the case may turn, the element of surprise may be critical, all the more so when credibility is in issue. This is not trickery – it is legitimate strategy designed to lead to an accurate and honest series of responses.

[62] Allowing co-parties to sit in on the discovery of one another interferes with this process. After the first plaintiff has been examined, the others will know:

• The precise questions that will be asked of them;

• The order in which the questions will likely be asked;

• How they will be asked – counsel’s approach, either to gain their trust or throw them off their pace;

• Where the first plaintiff may have gotten caught, so that the response can be modified in order to avoid the same pitfall;

• What admissions are being sought, thereby providing time to figure out how to avoid making them; and

• How various responses may be challenged.

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C.A. Upholds Contractual Incorporation of One-Year Limitation Period Into Property Insurance Policy

Posted on May 8, 2013 by Stephen Cavanagh

In Boyce v. The Co-operators General Insurance Company, 2013 ONCA 298, the Court of Appeal has reversed the decision of Mr. Justice Michael Quigley, a ruling that I discussed in a comment last year. The Court of Appeal held that Justice Quigley had been wrong to conclude that the contract of commercial insurance in this case was not a “business agreement” and therefore, that Co-operators could not contract out of the two-year limitation period that would otherwise apply.

The issue in the case was whether an action brought against an insurer more than one year but less than two years after a loss was prescribed by the one-year limitation period contained in the statutory condition that appears in s. 148 of the Insurance Act. That section appears in Part IV of the Act, which deals with “Fire Insurance”. Since a true policy of “insurance against loss of or damage to property arising from the peril of fire” is rare these days (most property policies are multi-peril), the question that always comes up is whether the one-year limitation period in the statutory conditions for Fire Insurance policies can validly be incorporated into the policy as a contractual term.

In my post about Justice Quigley’s decision, I discussed some of the older caselaw. Essentially, the cases have held that it is possible for the statutory condition to become a contractual term, “provided that the insured is not in any way misled by the description of the conditions as ‘Statutory Conditions’.”

On this point, I said in my earlier post that I thought it was “very unlikely that the old approach [taken by the Court of Appeal in International Movie Conversions Ltd. v. ITT Hartford Canada] would still be followed.”

Wrong.

In fact, the Court cited that very case as authoritative, quoted the same passage that I had referred to and held that the language in the policy was “clear and unambiguous”.

What was novel about this case is that it was the first to consider this venerable issue in the context of the provisions of s. 22(5) of the Limitations Act, 2002, which allows parties to vary or exclude statutory limitation periods by agreement. The section only applies to “business agreements”.

Justice Quigley had found that the Co-operators’ insurance policy was not a “business agreement” but rather, was a “peace of mind” contract. The Court of Appeal said that the latter might be true, but it was irrelevant. The determination is to be made “solely by reference to the definition of ‘consumer’ in the Consumer Protection Act, 2002“. That Act says that a consumer “means an individual acting for personal, family or household purposes and does not include a person who is acting for business purposes.” Since the policy in question in this case was for a business, the Court of Appeal rejected the argument that it was not a “business agreement”.

Finally, the Court also disagreed with Justice Quigley as to what the formal requirements are for contracting out of a statutory limitation period. He had expressed the view that there were several requirements, which he drew from a review of other decisions. To these, he added his own requirement, that “any agreement to forego the statutory protection contained in the Limitations Act, 2002 ought, at a minimum, to be signed by the person(s) foregoing such a right in order to make clear that he/she understands the forfeiture of that statutory right.”

The Court of Appeal enunciated a much more liberal test: “A court faced with a contractual term that purports to shorten a statutory limitation period must consider whether that provision in ‘clear language describes a limitation period, identifies the scope of the application of that limitation period, and excludes the operation of other limitation periods.”

This decision certainly gives new life to the legitimacy of the practice of incorporating statutory conditions into insurance policies as contractual terms .

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C.A. Penalizes Insurer For Refusing to Mediate

Posted on May 8, 2013 by Stephen Cavanagh

In Williston v. Hamilton (Police Service), 2013 ONCA 296, the Court of Appeal considered whether to make an “augmented award of costs” on the basis that the defendant, the City of Hamilton, had refused requests to engage in mediation pursuant to s. 258.6 of the Insurance Act. The trial judge, Mr. Justice James A. Ramsay, had denied the plaintiff’s request. However, the Court of Appeal saw things differently: it increased the partial indemnity costs award made at trial from $60,000 to $80,000.

The underlying lawsuit arose out of a motor vehicle accident. The defendant had refused to participate in mediation. In-house counsel at the City of Hamilton had responded to the plaintiff’s overtures by saying that “it would pass the request for mediation onto its principals, but would not recommend mediating until further discovery, production, and a medical exam had been done.”

(The Court of Appeal noted that the City’s letter had not identified who the “principals”were and “did not suggest that the legal services division of the City was not in a position to accept the request for mediation on behalf of the insurer.”)

Section 258.6(1) of the Insurance Act requires insurers to participate in mediation in motor vehicle cases, if requested to do so:

A person making a claim for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile and an insurer that is defending an action in respect of the claim on behalf of an insured or that receives a notice under clause 258.3(1)(b) in respect of the claim shall, on the request of either of them, participate in a mediation of the claim in accordance with the procedures prescribed by the regulations.

The main basis of Justice Ramsay’s refusal to penalize the City of Hamilton was his finding that it was not an insurer. However, this had apparently not been argued before him by the City. In the Court of Appeal, the plaintiff was allowed to adduce additional evidence which showed that the City was, in fact, insured. The Court found that the legal services division of the City of Hamilton was authorized to respond on behalf of the City’s insurer. Accordingly, the Court of Appeal was satisfied that there had been a refusal by the insurer to comply with its obligations under s. 258.6(1) and that an augmented costs award was warranted.

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Recent “Additional Insured” Cases Take Differing Approaches to Allocation of Defence Costs

Posted on May 8, 2013 by Stephen Cavanagh

Georgian Downs Limited v. State Farm Fire and Casualty Company, 2013 ONSC 2110 (CanLII) is a recent decision on the subject of additional insureds, about which I have written in earlier posts. (See particularly here.)

The decision of Justice Gregory M. Mulligan suggests that insurers should reconsider the hard-nosed approach that they often seem to take in additional insured cases.

Here, the underlying action was a slip and fall claim. The plaintiff sued the property owner and the snow removal contractor with which it had a maintenance contract.

The reasons say only that the contract “required [the contractor] to have insurance” but do not indicate whether that obligation was defined any more precisely. In any event, it was apparently the case that the contractor’s insurer, State Farm Fire and Casualty Company, added the owner as an additional insured under the contractor’s policy, “but only with respect to liability arising out of [the named insured contractor’s] work”.

(Unfortunately, the reasons do not disclose the source of this limitation on the scope of coverage. Presumably, there was an additional insured endorsement that set it out but, as I have noted in previous posts, courts frequently seem to confuse the roles of insurance certificates, additional insured endorsements and provisions in underlying contracts. In addition, the reasons in this case contain no analysis of what is meant by “liability arising out of [the named insured’s] work”. A number of U.S. cases have shown that the meaning of such language is not necessarily as straightforward as Ontario cases usually assume.)

State Farm settled the underlying claim for $65,503.50 and the property owner was not required to contribute to that payment. However, following the settlement, the owner sued State Farm for reimbursement for its defence costs in having to defend the action. Justice Mulligan granted the relief sought.

State Farm had refused to undertake the owner’s defence because, while allegations of negligence in failing to maintain an ice-free parking lot had been made in the statement of claim, there were other allegations made against the owner that State Farm felt did not arise out of the work of the contractor, its named insured.

State Farm argued, in the alternative, that it should only be required to defend potentially covered claims and that the defence costs should be apportioned accordingly.

Justice Mulligan reviewed the jurisprudence and, applying it to this case, concluded that despite the other allegations made against the owner, the “true nature of the claim” was the failure to maintain an ice-free parking lot and that therefore, State Farm was not entitled to apportionment of defence costs. It was ordered to indemnify the additional insured owner for all of its costs.

However, in another recent decision on this issue, apportionment was granted. In Riocan Property Services Inc. v. Dominion of Canada General Insurance Co., 2013 ONSC 2474 (CanLII), Mr. Justice Timothy D. Ray was dealing with an application by the additional insured (Riocan) for an order requiring the insurer of a snow removal contractor with which it had a contract, to pay the defence costs of an underlying slip and fall action in which both Riocan and the contractor were defendants.

Here, coverage for the additional insured, Riocan, was limited to “the operations performed by or on behalf of [the snow removal contractor]”. Once again, the reasons do not say where this limitation appeared.

It was evidently conceded by the insurer, Dominion of Canada, that it was responsible to pay for some of Riocan’s defence, but not more than fifty percent. It argued that portions of the underlying claim did not fall within the coverage extended to the additional insured.

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Witness Statements Must Be Produced?

Posted on April 12, 2013 by Stephen Cavanagh

In Portelance v. Williams, 2013 ONSC 1928 (CanLII), Justice Lynne Leitch dismissed a motion for leave to appeal a ruling of Justice Johanne Morissette, dealing with production of documents.

Justice Morissette had ordered the defendant “to provide a summary of the facts, including observations, with respect to injuries and liability contained in any of the investigation or other reports listed in Schedule B of the defendants’ affidavit of documents and to provide will say statements of witnesses they intend to rely on which are contained in Schedule B of the defendants’ affidavit of documents”.

The defendant moved for leave to appeal, arguing that “what has been ordered to be produced is beyond the scope of documentary discovery and confuses the issue of oral discovery”.

I don’t disagree with the first part of the order. Disclosure of “facts, including observations” relating to injuries and liability is not unlike requiring that defendants provide details of surveillance footage, which has been the law for a long time.

I have some reservations though, about the second part of Justice Leitch’s ruling: production of “will say statements”. Unfortunately, it is not quite clear from the reason just what sort of document is being referred to. Are these statements of witnesses that have been reduced to writing and signed by the witnesses? Or taped transcriptions of interviews? Or perhaps a third party’s summary of something told to him or her by the witness in a telephone conversation?

Justice Leitch said that “[t]he moving party [the defendant] cannot take issue with the fact that pursuant to Rule 31.06(2) and (3) on an examination for discovery, the plaintiffs would have been entitled to the information which Morissette J. has ordered to be delivered.” But I don’t think that’s correct. Nothing in either subrule contemplates a document being produced. In fact, subrule 31.06(2), which deals with “identity of persons having knowledge”, only covers that subject: “the names and addresses of persons who might reasonably be expected to have knowledge of transactions or occurrences in issue in the action, unless the court orders otherwise.”

It is true that the caselaw has added a gloss to that subrule, whereby an examining party is also entitled to a summary of the information that the examinee has from these “persons having knowledge”. So, it is certainly the case that information can be obtained in the course of oral examinations.

Still, I do not agree that the plaintiffs would have been entitled to production of privileged witness statements (as these presumably were) in the course of oral examinations for discovery. And it seems to me that there is no basis set out in Justice Leitch’s reasons according to which these documents could be said to have lost their privileged quality.

Unfortunately, it does not appear from the reasons as if the motion was argued on the basis of privilege. So, while Justice Leitch expressed the view that Justice Morissette’s decision “does not have the widespread and profound impact which the moving parties asserts [sic]”, in upholding an order for production of the privileged document as opposed to a summary of the facts that it contained, Justice Leitch does not seem to have  focused on the issue of privilege. (In fact, Rule 30, which deals with discovery of documents, was not even referred to.) If the two decisions are good law, they might very well have a greater impact than Justice Leitch believed.

So, in my respectful opinion, both rulings are incorrect in relation to the production of “will say statements”.

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C.A. Says Statutory Conditions Don’t Apply to Uninsured Auto Coverage

Posted on February 24, 2013 by Stephen Cavanagh

Last Friday, the Court of Appeal ruled that the statutory conditions in a standard automobile policy do not apply to the uninsured automobile coverage that is mandated by s. 265 of the Insurance Act.

In Bruinsma v. Cresswell, the plaintiff was injured when the car that he was driving was in a collision with an uninsured automobile. He claimed under the uninsured coverage against the insurer of the vehicle that he had been driving.

The plaintiff’s driver’s licence had been suspended at the time of the accident. In fact, the car that he was driving belonged to his girlfriend, but he had previously owned it himself and had transferred it to her after his licence had been suspended.

The girlfriend’s insurer, CAA, denied coverage on the basis that the plaintiff  had breached the provisions of statutory condition 4(1) by driving while not authorized to do so.  (The girlfriend knew that he was unlicensed so if the statutory condition had applied to her, she would also have been in breach of it.)

However, the Court of Appeal held that the statutory conditions in the auto policy do not apply to uninsured coverage, “except as otherwise provided in the contract” and that there was nothing in the contract that extended the reach of the conditions to that coverage. In making this finding, it relied upon s. 234(3) of the Insurance Act, which provides as follows:

Except as otherwise provided in the contract, the statutory conditions referred to in subsection (1) do not apply to the insurance required by section 265 or 268.

Section 265 of the Act requires that every contract evidenced by a motor vehicle liability policy must include uninsured automobile coverage. (Section 268 deals with statutory accident benefits.)

The Court noted that until January 1, 1994, (the effective date of Bill 164), the Act had not said that the statutory conditions do not apply to uninsured automobile coverage.

CAA also relied on s. 1.4.5 of the policy (“O.A.P. 1”) itself. It says:

You agree not to drive or operate the automobile, or allow anyone else to drive or operate the automobile, when not authorized by law.

Justice Hoy, writing for the Court, said that this provision is essentially the same as statutory condition 4(1) and in her view, both were to be considered “statutory conditions”.

The judge who had heard the motion from which this appeal was taken thought that there was “an irreconcilable conflict” between s. 243(3) of the Act and s. 10 of the Uninsured Automobile Coverage Schedule set out in Reg. 676. That section says:

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.

However, the Court of Appeal did not agree that a conflict exists between this provision and s. 234(3) of the Act, because of the opening words: “in so far as applicable”. Justice Hoy was of the view that by enacting s. 234(3), the legislature had “signified that the statutory conditions are not applicable to uninsured automobile coverage unless the contract itself explicitly provides otherwise”.

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Superior Court Judge Strikes Down Limitation Period in Underinsured Endorsement

Posted on February 22, 2013 by Stephen Cavanagh

Schmitz v Lombard

In a recent decision, Mr. Justice Martin James of the Superior Court has ruled that the limitation period contained in s. 17 of the underinsured automobile endorsement, OPCF 44R “cannot operate as a limitation defence and that the limitation period applicable to a claim pursuant to OPCF 44R is to be determined in accordance with section 4 of the Limitations Act, 2002“. It has not yet appeared on CanLII so a link has been provided above to a PDF version of the case.

The reasons are quite brief. The issue seems to have been whether s. 22 of the Limitations Act, 2002 supersedes the limitation period found in s. 17 of OPCF 44R.

The latter provides as follows:

Every action or proceeding against the insurer for recovery under this change form shall be commenced within 12 months of the date that the eligible claimant or his or her representative knew or ought to have known that the quantum of claims with respect to an insured person exceeded the minimum limits for motor vehicle liability insurance in the jurisdiction in which the accident occurred, but this requirement is not a bar to an action which is commenced within 2 years of the date of the accident.

Section 22 of the Limitations Act, 2002 reads:

A limitation period under this Act applies despite any agreement to vary or exclude it, subject only to the exceptions in subsections (2) to (6).

As Justice James notes, the Act says that “[a] limitation period under this Act may be varied or excluded by an agreement made before January 1, 2004” and, by implication, cannot be varied or excluded if the agreement was entered into after January 1, 2004.

It seems that everyone agreed that the s. 17 limitation period was a contractual one; the question evidently was, when had the contract been entered into? The defendants said that the endorsement pre-dated January 1, 2004 and that section 22 therefore did not apply. The plaintiffs argued that an automobile insurance contract renews annually and that s. 22 therefore did apply. Justice James sided with the plaintiffs, saying, “I prefer to view the underinsured motorist coverage endorsement as a component or part of the larger, comprehensive agreement between the insurer and the insured that renews annually. It appears to me that the contractual limitation period in this case is caught by section 22.”

The Court of Appeal’s recent decision in Roque v. Pilot Insurance Co. 2012 ONCA 311 (CanLII) was cited to the court. In that 2012 decision, the Court applied the limitation period in s. 17 of the OPCF 44R, resulting in the dismissal of the action. The validity of the provision was not questioned and it appears to have been on that basis that  James distinguished it. (He said that in Roque, “the precise point raised by this motion was not addressed”.)

Saying that discoverability was now “an overarching policy consideration implicit in [the Limitations Act, 2002], Justice James directed struck down s. 17 of OPCF 44R as a limitation period and held that s. 4 of the Limitations Act, 2002 governed.

The latter section and s. 5 read as follows:

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered. 2002, c. 24, Sched. B, s. 4.

5. (1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). 2002, c. 24, Sched. B, s. 5 (1).

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved. 2002, c. 24, Sched. B, s. 5 (2).

(3) For the purposes of subclause (1) (a) (i), the day on which injury, loss or damage occurs in relation to a demand obligation is the first day on which there is a failure to perform the obligation, once a demand for the performance is made. 2008, c. 19, Sched. L, s. 1.

(4) Subsection (3) applies in respect of every demand obligation created on or after January 1, 2004. 2008, c. 19, Sched. L, s. 1.

On what date would s. 5(1)(a) start the limitation period running for a claim against an insurer that had issued an underinsured endorsement? What is it that the plaintiff would have to “discover”? Under s. 17 of OPCF 44R, in the words of Master Dash, endorsed by the Court of Appeal in Roque, “[t]he plaintiff’s case runs from when he has a body of evidence accumulated that would give him a ‘reasonable chance’ of persuading a judge that his claims would exceed $200,000.” Under Justice James’ formulation,  perhaps the argument that Court of Appeal rejected in Roque will now find favour. There, the plaintiff made the following submission:

Section 17 of OPCF 44 should be interpreted to mean that the limitation period begins to run when the plaintiff’s damages have been quantified by settlement or judgment. Only then can it be said that the plaintiff “knows” for certain that the available insurance under the defendant’s policy is less than that available under his own coverage.

The Court of Appeal held that that interpretation did not accord with the clear language of s. 17 of OPCF 44R, which started the limitation period when the claimant knew or ought to have known that the quantum of his or her claims would exceed $200,000. But it might now be a different story if the Limitations Act, 2002 applies. And in fact, that was one of the concerns that counsel for the defendant raised in Schmitz, that the underinsured insurer would become involved far too late in the process. That would suggest an apprehension that the limitation period would start to run long after the claim was known to have a value of at least $200,000.

Unfortunately, the mechanics of applying ss. 4 and 5 of the Limitations Act, 2002 to underinsured coverage were not really fleshed out in Schmitz. But they will undoubtedly receive scrutiny in future cases.

Posted in Auto, Discoverability, Insurance News, Limitation Periods | Comments Off on Superior Court Judge Strikes Down Limitation Period in Underinsured Endorsement