Neutral Citation: 1995 ONICDRG 202

File Nos. A-005358 and A-005359

BETWEEN:

ROBERT FINDLAY

Applicant

and

LAMBTON MUTUAL INSURANCE COMPANY

Insurer

and

GENERAL ACCIDENT ASSURANCE COMPANY OF CANADA

Insurer

DECISION

The Applicant, Robert Findlay, was injured in a motor vehicle accident on April 15, 1993. Mr. Findlay has no personal motor vehicle insurance policy.

The issue in this hearing is:

Which of two insurance companies, Lambton Mutual or General Accident, is responsible for paying statutory accident benefits to Mr. Findlay?

Lambton Mutual is responsible for paying statutory benefits to Mr. Findlay.

The hearing was held in Windsor, Ontario, on March 1 and 2, 1994, before me, Frederika Rotter, Senior Arbitrator.

Present at the Hearing:

For Lambton Mutual Insurance Company:

Barry Sullivan Barrister and Solicitor

For General Accident Assurance Company:

Stephen Schenke Barrister and Solicitor

The Proceedings Were transcribed by:

Dorothy Desjardins of Beryl MacMillan, Official Examiner

Witnesses:

Frederick Thomas Stothers, owner Ted's Auto Service, Windsor

Dennis Kokovai, Assistant Manager, Serbu Tire, Windsor

Darren Emery, vendor of motor vehicle

Karen App, claims adjuster for Lambton Mutual

Kevin George Armstrong, investigating police officer

Ishvarlal Kapadia, owner Traveller's Choice Motel, Windsor

Mark Erdelyan, parole supervisor

Documents before the Arbitrator:

The Exhibits before me are listed at Appendix A. Other documents and cases referred to are listed at Appendix B.

Evidence:

The facts in this case are largely undisputed. The accident victim, Robert Findlay, was a passenger in a red 1983 Ford Mustang driven by Mr. Gerald Robert St. Jean. The Mustang was purportedly insured under a policy issued by Lambton Mutual to a Ms. Beverly Fenn, when on April 15, 1993 it collided with a Lincoln owned by Ms. Judith Souliere and insured by General Accident. The accident occurred in Windsor, Ontario.

Mr. Findlay was injured in the accident and seeks statutory accident benefits under Ontario Regulation 672¹.

It was acknowledged by both insurers that Mr. Findlay has no personal motor vehicle insurance policy. Section 268 (2) of the Insurance Act, R.S.O. 1990, c.I.8, as amended, sets out the rules governing which insurer is liable to pay statutory accident benefits to persons involved in motor vehicle accidents. It provides as follows:

(2)1. In respect of an occupant of an automobile,

i. the occupant has recourse against the insurer of an automobile in respect of which the occupant is an insured,

ii. if recovery is unavailable under subparagraph i, the occupant has recourse against the insurer of the automobile in which he or she was an occupant,

iii. if recovery is unavailable under subparagraph i or ii, the occupant has recourse against the insurer of any other automobile involved in the incident from which the entitlement to no-fault benefits arose,

iv. if recovery is unavailable under subparagraph i, ii or iii, the occupant has recourse against the Motor Vehicle Accident Claims Fund.

General Accident claims that pursuant to subsection 1.ii Lambton Mutual is liable to pay statutory accident benefits to Mr. Findlay, since Lambton Mutual is the insurer of the vehicle in which Mr. Findlay was an occupant.

Lambton Mutual takes the position that the policy it issued is void ab initio-- a legal nullity. It claims that no contract of insurance has ever validly subsisted, and so it cannot be held liable to pay statutory accident benefits. It submits that Mr. Findlay has recourse to General Accident, under the provisions of subsection 1 .iii, as the insurer of the other automobile involved in the accident.

During the hearing, I heard a great deal of evidence about the ownership and use of the Ford Mustang. The evidence was largely undisputed, and I summarize my findings of fact, based on that evidence, as follows:

A 1983 red Mustang GT -- the vehicle involved in the accident, and in which Mr. Findlay was a passenger, was sold by a Mr. Darren Emery in October 1992. Mr. Emery testified at the hearing.

Mr. Emery indicated that he sold the car to a man who did not identify himself. I conclude from the evidence that the buyer was most likely Mr. St. Jean. The buyer told Mr. Emery that he was buying the car for his "girlfriend or wife".

Mr. Emery completed a bill of sale which indicates that the car was sold to Beverly Fenn of Sarnia, Ontario. Mr. Emery also completed the transfer portion of his motor vehicle ownership document, which indicates that the ownership was transferred to Beverly Fenn, and gave it to the male purchaser. Beverley Fenn subsequently purchased insurance for the car, from Lambton Mutual.

Documents obtained from the Ontario Ministry of Transportation (Exhibit 7) identify the vehicle in question (with licence plates and Vehicle Identification Number ("VIN")) and confirm that it is the car that was involved in the accident on April 15, 1993.

From documents filed and testimony at the hearing, I find that Mr. St. Jean had a safety inspection done of the car at Ted's Auto Service, in Windsor. He also purchased tires for the car, and had them installed, at Serbu Tires, in Windsor.

Mr. St. Jean rented a room at the Traveller's Choice Motel, in Windsor, from January 28 to April 22, 1993. The owner of the motel testified that Mr. St. Jean had a red car, and identified it as the car that was bought from Mr. Emery.

Mr. Mark Erdelyan testified that he worked for the John Howard Society from September 1989 to October 1993. He was Mr. St. Jean's parole supervisor and first started supervising him when he was released from prison on mandatory parole in October 1992.

Mr. Erdelyan explained that Mr. St. Jean had two sons in Sarnia who he wished to visit. The arrangements were that the children would be driven to Wallaceburg, where Mr. St. Jean would pick them up. He would drive the children to Windsor for the visits, and return them again to Wallaceburg for pick-up.

A condition of Mr. St. Jean's parole was that he required a travel permit if he wished to travel beyond the Windsor-Essex region. Mr. Erdelyan had the authority to approve Mr. St. Jean's travel arrangements. He testified that Mr. St. Jean required a separate travel permit for each one-way trip (i.e., 2 documents for a round trip). Mr. Erdelyan testified that Mr. St. Jean made roughly 4 or 5 such round trips during the winter of 1992-93, and accordingly obtained about 10 travel permits, prior to the motor vehicle accident in April 1993. Each permit described the vehicle to be used for travelling, and showed the license plate number.

Mr. Erdelyan testified that in every case, Mr. St. Jean utilized the same red Mustang -- the car involved in the accident.

To summarize, this evidence strongly suggests, and I find, that although the ownership of the vehicle was registered to Ms. Beverley Fenn, of Sarnia, Mr. St. Jean kept and drove the car in Windsor, and used it for out-of-town visits to his children.

Ms. Fenn had the car insured with Lambton Mutual on October 5, 1992. When she arranged for the insurance coverage, she indicated that she was to be the principal and only driver of the vehicle, and that the car would be driven in the Sarnia area. Ms. Karen App, a claims adjuster for Lambton Mutual, testified about her dealings with Ms. Fenn.

Ms. Fenn had been a customer of Lambton Mutual since September 1991, when she purchased insurance for a 1981 Ford LTD. The insurance on that car was cancelled in March 1992. In June 1992 Ms. Fenn re-applied for and obtained coverage for a 1980 Pontiac Firebird.

On October 5, 1993, Ms. Fenn contacted Lambton Mutual and had the 1983 Ford Mustang added to her policy, as an additional vehicle. Ms. Fenn obtained a multi-vehicle discount on her premium after adding the Mustang to the policy.

Ms. App testified that coverage for the Mustang was obtained by telephone. Ms. Fenn was not required to attend in person and sign an application for additional coverage.

Lambton Mutual did not require Ms. Fenn to confirm or indicate in writing that she was the owner of the vehicle before adding the Mustang to her policy. Ms. App commented that she would not have an insurable interest unless she was the owner of the car, and she would have no reason to insure it if she did not own it. Therefore, Lambton Mutual assumed that she was the owner of the car.

Ms. App also testified that Lambton Mutual only underwrites auto insurance locally -- in the Sarnia-Lambton district. The company does not write insurance policies for vehicles to be driven outside the area -- for example, in Windsor. Ms. App testified that if someone moves out of the area, they are advised to seek and purchase insurance elsewhere.

Ms. App testified that her next dealings with Ms. Fenn were in December 1993, when Ms. Fenn reported that her Firebird had been stolen. Although in theft cases, clients have the right to use a rental vehicle for 30 days Ms. App assumed Ms. Fenn would not need a rental car, since she already had another vehicle -- the Mustang.

However Ms. Fenn indicated that she did require a rental car, because the Mustang had "transmission problems" and was not operational.

Ms. App accordingly arranged a car rental for Ms. Fenn. In her subsequent dealings with Ms. Fenn, in connection with the car rental, Ms. App attended at Ms. Fenn's home in Sarnia from time to time.

Ms. App testified that she never saw the Mustang parked at Ms. Fenn's home, when she went there. She also testified that Ms. Fenn attended at the Lambton Mutual offices in Watford, on one occasion, in connection with the theft claim (at a time when she no longer had the rented car). Watford is about 26 or 27 miles from Sarnia. Ms. App testified that the Mustang was not parked in the parking lot, so she asked Ms. Fenn how she had gotten there. Ms. Fenn stated that some friends brought her over from Sarnia.

Ms. App testified that it did not seem reasonable that Ms. Fenn would continue with insurance coverage on the Mustang when it was not roadworthy. However, she felt it was the broker's job to deal with irregularities.

She testified that some time after January 14, 1993, she spoke to Larry Musselman of Lindsey Morden, an adjusting firm, in connection with the theft claim. At that time, she asked him to check whether the Mustang was anywhere to be seen.

Ms. App testified that she was beginning to have serious concerns about the theft claim in February 1993. She commented "everything in this file turns out to be wrong".

By March 1993, Lambton Mutual was also beginning to have "suspicions" about the Mustang. However, despite its suspicions, at that point Lambton Mutual could not take action to cancel or avoid the policy of insurance, because it had no firm proof that any of the terms of the contract were being violated.

The motor vehicle accident occurred on April 15, 1993. Ms. App testified that she did not learn until after the accident that the car was being operated by Mr. St. Jean, in Windsor.

When she learned of the accident, Ms. App testified that she contacted the adjusting firm Lindsey Morden, and requested that a senior adjuster be assigned to handle a complex case. Jim Dowie was assigned to investigate the case, and Ms. App subsequently concluded, as a result of his findings, that Ms. Fenn never did have possession of the Mustang.

Kevin George Armstrong is the police officer who investigated the accident. He testified that Mr. St. Jean was not very co-operative immediately after the accident. He did not produce the "paperwork" -- ownership and insurance documents -- for the Mustang. Officer Armstrong subsequently learned that Ms. Fenn was the registered owner of the car and after several unsuccessful efforts, succeeded in locating and speaking with her.

Officer Armstrong testified that on April 19, 1993, when he first told Ms. Fenn that her car had been involved in a serious accident, she appeared indifferent and exhibited "a great lack of interest" in the situation. She stated that she did not have the insurance information requested, and claimed that Mr. St. Jean had it. She did not suggest that Mr. St. Jean had stolen the vehicle or taken it without her knowledge or consent.

On April 20, 1993, the officer contacted Mr. St. Jean, who was still in hospital as a result of the accident. He indicated that he had the insurance documents in his hotel room in Windsor, but was able to provide the Lambton Mutual policy number that same afternoon.

Ms. App testified, and the exhibits filed show (Exhibit 12) that Lambton Mutual sent a letter to Mr. St. Jean dated April 26, 1993, reserving its rights to further investigate the accident, without prejudice. It indicated in this letter that there may have been a possible "material change in the risk" and/or a possible policy violation. Nevertheless, it supplied Mr. St. Jean with an accident benefits claim package.

The insurance policy itself was cancelled on April 28, 1993, and a balance of the insurance premium was refunded to Ms. Fenn, on the basis that the vehicle had been "totalled". (Exhibit 1, pp. 14-15)

Submissions and Findings:

Lambton Mutual argues that in this case, a valid insurance policy has never existed. It submits that the contract was invalid from the start, by reason of Ms. Fenn's "material misrepresentation" of vitally important facts. It argues that it never would have issued the insurance policy had it been aware of the true facts in this case.

Lambton Mutual submits that the first misrepresentation was in respect of the ownership of the Mustang vehicle. I find from the evidence that although Ms. Fenn was the registered owner, she never did have possession of the vehicle in Sarnia. I am satisfied that at all material times it was in the possession of Mr. St. Jean in Windsor.

Neither Ms. Fenn nor Mr. St. Jean gave evidence at the hearing. The evidence as to the whereabouts of the car during the period January - April 1993, came from third parties, who clearly had less than complete knowledge of the facts during the period in question. However, the witnesses who testified were reliable and credible, and had no interest in the outcome of this matter. Based on their evidence, I am persuaded, on the balance of probabilities, that at all material times, it was Mr. St. Jean and not Ms. Fenn, who had control and possession of the red Mustang.

I accept the submission of counsel for Lambton Mutual that in fact Mr. St. Jean was the beneficial, if not the legal owner of the car. From this it follows that I also accept Lambton Mutual's submission that Ms. Fenn did indeed misrepresent the true ownership of the car. Further, I accept that she also misrepresented the insurance risk to Lambton Mutual by indicating that she (and not Mr. St. Jean) was the principal -- indeed the only -- driver of the vehicle.

Finally, the policy of insurance shows that the vehicle was insured for the Sarnia district. The evidence is that Mr. St. Jean was living in Windsor, and required explicit permission to travel out of the Windsor area. Therefore, I find that Ms. Fenn misrepresented the territory in which the automobile was to be driven when she insured it under her policy with Lambton Mutual.

The issue I must determine is: what is the effect of this misrepresentation? Can it result in a finding -- as argued by Lambton Mutual -- that the entire insurance policy is void ab initioand never had any legal existence? Lambton Mutual argues that this is so and that therefore no policy exists under which the applicant Robert Findlay can claim accident benefits.

Lambton Mutual relies on the case Minister of Transport et al. v. London & Midland General Insurance Co. [1971], 3 O.R. 145, as authority for the proposition that in cases of misrepresentation of the ownership of a vehicle, an insurance contract can be considered void ab initio. I have carefully read that case, and do not agree that the reasoning in it can be extended and applied to the present case.

That case dealt with a motor vehicle liability claim by an injured third party. The insurer denied liability, relying on the defence that an insurance policy issued to someone other than the true owner does not cover the risk. The Ontario Court of Appeal said this defence is available to the Insurer where the named insured is not both in fact and law the owner of the car. The court came to this conclusion notwithstanding the provisions of (then) section 226(5) (now 258(5)) of the Insurance Act which provides:

It is not a defence to an action under this section that an instrument issued as a motor vehicle liability policy by a person engaged in the business of an insurer and alleged by a party to the action to be such a policy is not a motor vehicle liability policy, and this section applies with necessary modifications to the instrument.

I find that the decision in London and Midland is not applicable to the present case, because, on its facts, it does not deal with a claim for statutory or no-fault benefits. Furthermore, that decision has been distinguished in subsequent Ontario cases.

In Tame v. Canadian Surety Company [1981] I.L.R. 267, Rapson, J. posed the question:

What then happens to the innocent third party, the plaintiff, in any claim under the policy when it is clear that the named insured has no longer any interest in the motor vehicle or indeed may never have had an interest in the vehicle?

He concluded that a standard automobile insurance policy is actually a composite policy which covers three separate risks:

(a) third party liability;

(b) accident benefits; and

He found: (at p. 270)

The failure of the insured to have an insurable interest in the motor vehicle and consequently to have no insurable interest in Section C should not affect the totally different risks in Section B. An insurable interest in the motor vehicle is not necessarily required to support the separate insuring agreement under Section B.

Consequently, Rapson, J. found that coverage for accident benefits remained effective even though, in the case before him, the named insured had no insurable interest in the vehicle insured.

In Weavers Estate v. Biseau, 1992 CanLII 7435 (ON CTGD), [1992], 8 O.R. (3d) 781, Keenan, J. reviewed a number of cases which also distinguished the decision in London & Midland, and concluded: (at p. 786)

The legislative intent of s. 226(5) is to preserve a claim under s. 226(1) of the Insurance Actof an innocent victim by taking away from the insurer a defence to that claim that the policy was void ab initio. The right of action of an innocent victim is preserved as it is independent of an insured's right to indemnity from his/her insurer. The insurer can assert the defence of "void ab initio" on the grounds of fraud or misrepresentation against a claim by an insured or any party who was privy to the fraud or misrepresentation.

[emphasis added]

I find that the decision in Weavers Estate sets out the current state of the law regarding the circumstances when an insurer may assert the defence of "void ab initio". The defence may be available in the case of a claim by someone who was party to the fraud or misrepresentation, but it is not available in respect of an innocent third party, like Mr. Findlay.

This conclusion is further reinforced by section 233 of the Insurance Act which provides:

(1) Where,

(a) an applicant for a contract,

(i) gives false particulars of the described automobile to be insured to the prejudice of the insurer, or

(ii) knowingly misrepresents or fails to disclose in the application any fact required to be stated therein;

(b) the insured contravenes a term of the contract or commits a fraud; or

(c) the insured wilfully makes a false statement in respect of a claim under the contract, a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited. R.S.O. 1980, c. 218, s. 206(1).

(2) Subsection (1) does not invalidate such no-fault benefits as are set out in the No-Fault Benefits Schedule. 1990, c. 2, s. 44.

I find that section 233(2) explicitly protects the right to no-fault benefits set out in the Schedule. This specific legislative enactment supersedes and effectively removes the common law defence of void ab initio, in respect of claims for statutory accident benefits.

Accordingly, I conclude that Lambton Mutual is liable to pay statutory accident benefits to Mr. Findlay.

Expenses:

I exercise my discretion under section 282(11) of the Insurance Act to award Mr. Findlay the expenses he has incurred in respect to this hearing, as set out in Ontario Regulation 664, R.R.O. 1990. I remain seized of this matter in the event the parties cannot agree about the amount of expenses.

Order:

Lambton Mutual is liable to pay benefits to Mr. Findlay.
The Applicant is entitled to his expenses incurred in respect to the arbitration.

Frederika Rotter

Senior Arbitrator

Date

Appendix A

Exhibits:

Exhibit 1

Underwriting File Re: Lambton Mutual\Fenn

Exhibit 2

Additional Underwriting and Brokerage Brief

Exhibit 3

Brokerage File of Bert Hoogendam Insurance Inc. Re: Beverly A. Fenn

Exhibit 4

Theft Brief Re: 1980 Pontiac Firebird

Exhibit 5

Minister of Transport Safety Standards Certificate and Invoice from Ted's Auto Service, Ltd.

Exhibit 6

Documents from Serbu Tire

Exhibit 7

Documents from Ministry of Transportation - Office of the Registrar of Motor Vehicles

Exhibit 8

Police Report of Accident

Exhibit 9

Letter from Lambton Mutual Insurance to Beverly Fenn dated May 21, 1993 with cheque attached

Exhibit 10

Notes of Karen L. App of Lambton Mutual Insurance Company

Exhibit 11

Letter from Lindsay Morden Claim Services to Robert Gerald St. Jean dated April 26, 1993

Exhibit 12

Letter of Reservation of Rights from Lambton Mutual Insurance to Beverly Fenn dated April 26, 1993

Exhibit 13

Letter of Reservation of Rights from Lindsey Morden Claim Services to Robert Gerald St. Jean dated April 28, 1993

Exhibit 14

Documents from Traveller's Choice Motel

Exhibit 15

Travel Permits for Gerald Robert St. Jean

Appendix B

Cases referred to:

Bennett v. Thornhill, [1985] I.L.R. 1-1975

Czarnuch v. Devon Transport Ltd., [1988] I.L.R. 1-2367

Hansra v. York Fire & Casualty Insurance Co., 1982 CanLII 2005 (ON HCJ), [1982] I.L.R. 1-1554

Iaquone v. Constitution Insurance Co. of Canada, 1984 CanLII 6002 (ON HCJ), [1984] 9 C.C.L.I. 293 (Ont. S.C.)

LaForme et al. v. Wabisa Mutual Fire Insurance Company et al., [1988] I.L.R. 1-12367 (Ont. S.C.)

Kloppenburg v. Pitts Insurance Company, [1980] I.L.R. 1-1242 (H.C.J.)

Martin, executor of the last will and testament of Frank Douglas Weavers, Margaret Weavers and William M. Weavers v. Biseau, York, Hogan Auto Leasing and Fireman's Fund Insurance Co. of Canada; State Farm Mutual Automobile Insurance Co., third party, 1992 CanLII 7435 (ON CTGD), [1992] 8 O.R. (3d) 781

McCormick v. Dickson, [1991] O.J. No. 2066

Minister of Transport for Ontario v. Economical Mutual Insurance Co., 1973 CanLII 806 (ON HCJ), [1973] 1 O.R. (2d) 459 (H.C.J.)

Minister of Transport et al. v. London & Midland General Insurance Co., [1971] 3 O.R. 145 (Court of Appeal)

Murphy v. Casualty Co. of Canada et al., 1987 CanLII 197 (NL CA), [1987] 26 C.C.L.I. 311 (Nfd. S.C.)

Negash v. H. Later & Company Limted et al., [1985] I.L.R. 1-1856

Tame v. Canadian Surety Company, [1981] I.L.R. 1-1378

Footnotes

Prior to January 1, 1994, Ontario Regulation 672 was called the No-Fault Benefits Schedule. After that date it became the Statutory Accidents Benefits Schedule - Accidents Before January 1, 1994. In this decision, the term "Schedule" will be used to refer to Regulation 672.

Robert Findlay v. Lambton Mutual Insurance Company and General Accident Assurance Company of Canada, 1995 ONICDRG 202

Case Summary