State Farm Mutual Automobile Insurance Company v. Pilot Insurance Company, 1996 ONICDRG 122

Ontario Insurance Commission / Commission des assurances de l’Ontario

Neutral Citation: 1996 ONICDRG 122 Appeals: P-010819 and P-010820

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY Appellant/Respondent

and

PILOT INSURANCE COMPANY Respondent/Appellant

and

SARAH L. FISHER Respondent

Before: David R. Draper, Director's Delegate Counsel: Todd J. McCarthy (for State Farm) Grant E. Black (for Pilot)

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. The arbitration decision, dated July 17, 1995, is rescinded and the following order is substituted:

Pilot Insurance Company is responsible for paying any accident benefits to which Ms. Fisher is entitled as a result of her accident on December 31, 1993.

2. No appeal expenses are payable.

July 16, 1996

David R. Draper Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Sarah Fisher was injured in an automobile accident on December 31, 1993. She was driving an automobile owned by her friend, Dusty Dowdle, and insured by Pilot Insurance Company ("Pilot"). At the time of the accident, Ms. Fisher was 18 years old. She did not have her own automobile insurance, but she was listed as a driver in her parents' policy with State Farm Mutual Automobile Insurance Company ("State Farm"). Pilot and State Farm were unable to agree which company was responsible for paying Ms. Fisher's accident benefits under Ontario Regulation 672, Statutory Accident Benefits Schedule - Accidents Before January 1, 1994 (the Schedule). However, they agreed to share the cost of her benefits pending the determination.

In a decision dated July 17, 1995, the arbitrator concluded that Ms. Fisher was an "insured" under the State Farm policy and, therefore, was entitled to accident benefits from State Farm. He went on to consider whether she also qualified under the State Farm policy as a dependant of her parents, the named insureds. The arbitrator found, however, that Ms. Fisher was not a dependant at the time of the accident.

State Farm appealed the arbitration order, claiming the arbitrator erred in law in concluding that Ms. Fisher qualified under its policy as an "insured." Pilot responded to the appeal, but also appealed the arbitrator's conclusion that Ms. Fisher was not a dependant at the time of the accident. Ms. Fisher did not respond to either appeal.

II. INSURANCE COVERAGE

Briefly stated, the issue is whether someone who is not a named insured, but is listed as a driver in an automobile insurance policy, is entitled to claim accident benefits under that policy if she is injured while an occupant in another vehicle. The arbitrator concluded that she is. Since then, two Justices of the Ontario Court (General Division) have come to the opposite conclusion.¹

A. The Arbitration Decision

The arbitrator found an "unavoidable conflict" between the Insurance Act and the Schedule in applying the priorities rules to the facts of this case. Section 268(2) of the Insurance Act establishes the following priorities:

268.--(2)The following rules apply for determining who is liable to pay statutory accident benefits:

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. . .

[emphasis added]

At the time of the accident, Ms. Fisher was an occupant of an automobile - Dusty Dowdle's car, insured by Pilot. Pilot claimed, however, that Ms. Fisher was "an insured" under the State Farm policy and, therefore, had recourse against State Farm according to section 268(2)1.i.

"Insured" is defined in section 224(1) of the Insurance Act for the purposes of Part VI of the Act, " Automobile Insurance":

"insured" means a person insured by a contract whether named or not and includes every person who is entitled to accident benefits under the contract whether or not described therein as an insured person;

Section 270 of the Insurance Act gives rights to people insured by the contract, even if they are not the named insured, or policyholder:

270. Any person insured by but not named in a contract to which section 265 or 268 applies may recover under the contract in the same manner and to the same extent as if named therein as the insured, and for that purpose shall be deemed to be a party to the contract and to have given consideration therefor.

The arbitrator found that although Ms. Fisher was not a named insured under the State Farm policy, she was an "unnamed insured" within the meaning of section 224(1). In his view, this suggested that her first recourse was against State Farm.

The complication was that Ms. Fisher did not fit within the definition of "insured person" in section 2 of the Schedule with respect to the State Farm policy. Section 2 provides:

"insured person", in respect of a particular motor vehicle liability policy, means,

(a) in respect of accidents in Ontario, an occupant of the insured automobile,

(b) in respect of accidents outside Ontario, a person living and ordinarily present in Ontario who is an occupant of the insured automobile,

(c) the named insured, his or her spouse and any dependant of either of them while the occupant of any other automobile,

(d) any person who is not the occupant of an automobile or of rolling stock that runs on rails who is involved in an accident in Ontario involving the insured automobile,

(e) the named insured, his or her spouse and any dependant of either of them who is not the occupant of an automobile or of rolling stock that runs on rails who is involved in an accident,

(f) the named insured, his or her spouse and any dependant of either of them who is not involved in an accident but who suffers psychological or mental injury as the result of an accident involving a physical injury to his or her spouse, child, grandchild, parent, grandparent, brother or sister or a dependant of the named insured or of his or her spouse.

The arbitrator felt that this created a conflict: "If the Schedule definition of 'insured person' prevails over the definition of 'insured' in section 224(1), then Sarah has accident benefit coverage under the State Farm policy only if I determine that Sarah is a dependant of her parents within the meaning of section 2(c) and section 3(2) of the Schedule." (p.7)

Starting on page 8 of his decision, the arbitrator looked at two previous arbitrations dealing with the distinction between the definition of "insured" in the Act and "insured person" in the Schedule:

In Cattrysse [Cattrysse and Westminster Mutual Fire Insurance Company and Anglo Canada General Insurance Company, (June 21, 1993, OIC A-001618 and A-001789)] the Applicant was described as the principal driver in a policy held by his parents. He was injured while a passenger in a friend's insured motor vehicle and the issue was which insurer should pay accident benefits. Arbitrator Palmer concluded that the applicant was entitled to accident benefits under the policy in which he was described as a principal driver. She said:

Section 224's definition tells us that "insured" includes people entitled to no-fault benefits under the contract whether or not described therein as an insured person. The definition is expansive. It draws a wider circle than those persons described in section 2 of the Schedule. [Emphasis added by Arbitrator Palmer]

Later she said:

When Westminster Mutual accepted the premium for the 1987 Mustang, it did so knowing that section 268 of the Insurance Act sets out rules for determining which insurer is liable to pay no-fault benefits. The underlying principle of section 268 is that persons insured under contracts of automobile insurance in Ontario will look to the insurer chosen by them for accident benefits should they be so unfortunate to be injured in an accident. To paraphrase the relevant part of the section -- after an accident, an occupant of an automobile looks first to the insurer of an automobile in respect of which he is an insured, that is, his own insurer. [Emphasis added by Arbitrator Palmer]

In Tripone [Dani Tripone and Guardian Insurance Company and Liberty Mutual Fire Insurance Company, (May 16, 1994, OIC A-004757)] the applicant was struck by a motor vehicle while riding his bicycle. He was listed as the principal driver of a vehicle owned by his father. Senior Arbitrator Rotter found that the applicant was an "insured" under his father's policy and therefore entitled to accident benefits under that policy. She said:

I find that the definition of an "insured person", as set out in the Schedule, cannot be considered without reference to the provisions and definitions set out in the Act. A basic principle of statutory interpretation is that subordinate legislation must be construed in the context of and in harmony with the general scope and purpose of the Act.

Further on she said:

The general scheme of the legislation, as set out in section 268, requires that individuals look first to their own carrier of insurance for statutory accident benefits. Section 268 specifically provides that "[every contract evidenced by a motor vehicle liability policy" should provide for the statutory accident benefits set out in the Schedule.

The arbitrator concluded that the definition of "insured" in section 224(1) of the Act must prevail over the definition of "insured person" in the Schedule and, therefore, "Sarah's first right of recourse for accident benefits is against State Farm, the Insurer of the automobile in respect of which she is an unnamed insured" (p.9).

B. The Subsequent Court Decisions

Mr. Justice Morin considered the situation of a listed driver in the Warwick case. Wendy Warwick was injured in an accident in which she was a passenger in an automobile driven by David Kelly and insured by Gore Mutual. At the time of the accident, she was living with her parents, but was not financially dependent on them. Her father had an automobile policy issued by State Farm that listed Wendy as an "occasional driver." The parties agreed that Mr. Kelly paid a premium in respect of Wendy, part of which was for accident benefits.

State Farm accepted that Wendy was insured for accident benefits under its policy, but only while she was an occupant of a described vehicle. Because she was an occupant of Mr. Kelly's car at the time of the accident, State Farm claimed that she must look to the insurer of that vehicle according to section 268(2)1.ii of the Insurance Act.

Mr. Justice Morin considered the legislation, the policy, the arbitration decision in Cattrysse, and the court decision in Axa Home Insurance Company v. Western Assurance Company (1994), 1994 CanLII 19785 (ON CTPD), 21 C.C.L.I. (2d) 120 (General Division). He concluded as follows:

In my view it would be inappropriate to determine the issue on this motion by reference only to the provisions of the Act. While generally it may be said that the plaintiff is an "insured" of State Farm as defined by Section 224(1) of the Act, to go directly from Section 224 to Section 268(2)1.i and conclude that State Farm is liable to pay accident benefits to the plaintiff would be to turn a blind eye not only to a Regulation that was promulgated for the express purpose of dealing with accident benefits but also to the specific wording of the policy issued by the insurer.

In my view, it would be inappropriate in circumstances such as these to deprive the parties of access to the Regulation and to the actual policy of insurance that has been prescribed by law. In my view in determining matters of conflict between two or more insurers it is incumbent upon the court to consider not only the provisions of the Act but rather the entire scheme of automobile insurance legislation.

It seems clear that under the Regulation the plaintiff is not an "insured person" under the State Farm policy. She was not at the time of the accident an occupant of the vehicle insured by State Farm (Condition (a) of the definition of insured person under Section 2 of the Regulation) nor was she a dependant of the named insured under the policy (Condition (c)).

On the other hand the plaintiff in the circumstances of this case is an "insured person" under the Gore policy as defined by Section 2.4 of the policy under Part B Statutory Accident Benefits.

Mr. Justice Gibson considered a similar situation in Gore Mutual v. Co-Operators. Mary Beth O'Grady was injured while driving her fiancée's car, which was insured by Gore Mutual. She was listed on the Gore Mutual policy as an "additional driver/occasional driver." Her father had an automobile policy issued by Co-Operators, insuring his van. Mary Beth O'Grady was not a dependant of her father at the time of the accident, but was listed on his policy as an "additional driver/occasional driver." Both insurers charged a premium to include Mary Beth O'Grady on their policy.

Ms. O'Grady initially applied to Co-operators for accident benefits. Co-operators took the position that she did not qualify for benefits under its policy because she was not a dependant of her father at the time of the accident. She then applied under the Gore Mutual policy. Gore Mutual paid accident benefits, but claimed that Co-operators should pay because Ms. O'Grady initially opted to claim under its policy. Gore Mutual argued that because she was listed on both policies, Ms. O'Grady was an "insured" under both policies and, according to section 268(4) of the Insurance Act, could claim under either policy.

Mr. Justice Gibson considered two arbitration decisions (presumably Cattrysse and Tripone), but not the Warwick decision. He disagreed with the arbitration decisions, stating that it was clear under section 268(1) of the Act, that a particular automobile insurance policy provides for benefits subject to the terms and conditions of the Schedule. Because Ms. O'Grady did not fall within the definition of "insured person" in section 2 of the Schedule with respect to the Co-operator's policy, she had to look to Gore Mutual as the insurer of the vehicle in which she was an occupant.

Mr. Justice Gibson went on to consider the contractual nexus between Ms. O'Grady and the two insurers. He felt that "if any great weight is to be attached to there being a more substantial nexus to one policy or the other, in some respects the closer nexus is more probably with Gore, since the vehicle that she was driving was insured with Gore" (p.8).

C. Analysis

The parties agreed that the court decisions in Warwick and Gore Mutual v. Co-Operators are contrary to the arbitration decisions in Cattrysse, Tripone and this case. It was not suggested, however, that I was bound to follow the court decisions. In any event, I adopt the comments of the Director in Sittler and Canadian General Insurance Company, (August 11, 1995, OIC P-000951, V-000951, P-004495 and V-004495), that arbitrators are not strictly bound by trial-level court decisions because they have a concurrent jurisdiction.

In my view, the issue in this case is whether section 268(2), when read with sections 224(1) and 270, extends coverage beyond the scope of the policy itself. I conclude that it does not. A claim for accident benefits is made under a particular motor vehicle policy. Priority does not become an issue unless coverage exists under two separate policies.

The named insured has an obligation to advise the insurer of the people in his or her household who will be driving the vehicle.² The characteristics of the listed drivers may affect the rate charged for the policy. The scope of the coverage, however, is set out in the policy. I agree with Mr. Justice Gibson that section 268(1) makes it clear that the statutory accident benefits that must be included in every motor vehicle liability policy are subject to the provisions of the Schedule:

268.--(1) Every contract evidenced by a motor vehicle liability policy shall provide for the no-fault benefits set out in the No-Fault Benefits Schedule, subject to the terms, conditions, provisions, exclusions and limits set out in that Schedule.³

[emphasis added]

Section 121(1)9 of the Insurance Act authorizes the Lieutenant Governor in Council to make regulations "establishing benefits for the purposes of Part VI that must be provided under contracts evidenced by motor vehicle liability policies and establishing terms, conditions, provisions, exclusions and limits related to such benefits." The Schedule is the relevant regulation, and provides that benefits are paid with respect to "insured persons." According to the definition of "insured person" in section 2 of the Schedule, the only people who are covered under the policy while they are in another vehicle are the named insured, his or her spouse, and his or her dependants (s.2(c)). This coverage is not extended to others, including listed drivers.

For these reasons, State Farm's appeal is allowed. This means that Ms. Fisher can only recover accident benefits from State Farm if she was a dependant of her parents at the time of the accident. If she was a dependant, she would qualify as an "insured person" under her parents' policy (State Farm) according to section 2(c) of the Schedule, and under the Pilot policy as an occupant of the insured vehicle (s.2(a)). The priority rules in section 268(2) would then operate to determine which policy took priority. If she was not a dependant, Ms. Fisher can only recover from Pilot.

III. DEPENDENCY

The arbitrator concluded that Ms. Fisher was not a dependant of her parents at the time of the accident. Section 3(2) of the Schedule provides an interpretation of "dependant":

3. • (2) For the purposes of this Schedule, a person is a dependant of another person if the person is principally dependent for financial support on the other person or the other person's spouse.

Pilot appealed, submitting that despite absences from the family home, Ms. Fisher remained principally dependent for financial support on her parents.

The arbitrator appropriately considered whether Ms. Fisher was principally dependent for financial support on either or both of her parents. As he stated, the determination of dependency is based on an assessment of the person's actual situation at the time of the accident, but is not limited to a mere snapshot of the circumstances on the day of the accident. Pilot's contention is that the arbitrator erred in evaluating the evidence. I find no such error.

Ms. Fisher's situation was complicated. She was 18 years old at the time of her accident. Determining when a young adult moves from dependence to independence can be difficult. The arbitrator found that at the time of her accident, Ms. Fisher remained in contact with her parents, but was essentially living on her own:

I find that at the time of the accident, Sarah was not principally dependent on either of her parents for financial support. There was no indication that she slept in her parents' house in the previous two and a half months. She had two meals there; one on her birthday and one at Christmas. The only financial support from her parents was the rides to work, Christmas and birthday presents and $5 to $20 in lunch money. Otherwise, Sarah supported herself through her own work and the help of friends. Although her parents hoped that she would change her ways and return home, at the time of the accident Sarah was making plans to obtain social assistance so she could live with Dusty. (p.14)

In my opinion, there was ample evidence to support the arbitrator's findings. My role on appeal is not to second-guess the arbitrator's evaluation of the evidence.⁴ He was in a better position to consider all of the evidence. For example, it is clear from the decision that the arbitrator accepted Ms. Fisher's testimony in preference to the written statements that she gave to the insurance adjusters. It is difficult for me to question this assessment, particularly in the absence of a transcript.

It is also my view that the arbitrator's findings support his conclusion that Ms. Fisher's independence at the time of the accident was more than a temporary aberration. Mr. and Mrs. Fisher might have hoped that their daughter would return home at some point, but at the time of the accident, she was living independently.

Therefore, Pilot's appeal is dismissed.

IV. EXPENSES

Both insurance companies asked for an award of expenses against the other. I agree with the decision of the Director in Chapman and Allstate Insurance Company of Canada and Wellington Insurance Company, (October 6, 1994, OIC P-001897 and P-001898) that there is no authority to make this type of order. My authority to grant expenses comes from section 283(7) of the Insurance Act, which makes section 282(11) applicable to appeals. Section 282(11) states:

282.--(11) The arbitrator may award to the insured person such expenses incurred in respect of an arbitration proceeding as may be prescribed in the regulations to the maximum set out in the regulations.[emphasis added]

Section 282(11.2) allows an award in favour of an insurer, but it specifies that the award is "to be paid by the insured person to the insurer" if the insured person commences a proceeding that is frivolous vexatious, or an abuse of process.

I find nothing in the legislation to allow me to make an award of expenses against one insurer in favour of another. Therefore, no expenses are payable with respect to this appeal.

July 16, 1996

David R. Draper Director's Delegate

Date

APPENDIX A

Cases cited:

1. Wendy Warwick, et al. v. Gore Mutual Insurance Company and State Farm Mutual Automobile Insurance Company, unreported decision, dated December 12, 1995, Court File 5546/92 (G.R. Morin J.).

2. Gore Mutual Insurance Co. v. Co-Operators General Insurance Co., (1996) 1996 CanLII 8071 (ON CTGD), 27 O.R. (3d) 248 (Gibson J.).

3. Dani Tripone and Guardian Insurance Company and Liberty Mutual Fire Insurance Company, (May 16, 1994, OIC A-004757).

4. Axa Home Insurance Company v. Western Assurance Company (1994), 1994 CanLII 19785 (ON CTPD), 21 C.C.L.I. (2d) 120 (General Division).

5. Cattrysse and Westminster Mutual Fire Insurance Company and Anglo Canada General Insurance Company, (June 21, 1993, OIC A-001618 and A-001789).

Footnotes

1. 1Wendy Warwick, et al. v. Gore Mutual Insurance Company and State Farm Mutual Automobile Insurance Company, unreported decision, dated December 12, 1995, Court File 5546/92 (G.R. Morin J.); and Gore Mutual Insurance Co. v. Co-Operators General Insurance Co., (1996) 1996 CanLII 8071 (ON CTGD), 27 O.R. (3d) 248 (Gibson J.)
2. 2See Ontario Application for Automobile Insurance Owner's Form (O.A.F. No. 1).
3. 3The wording of section 268(1) was subsequently amended.
4. 4See Calogero and The Co-Operators General Insurance Company, (February 13, 1992, OIC P-000251) and the numerous appeal decisions that have followed it.