Ontario Insurance Commission

Commission des assurances de l’Ontario

Neutral Citation: 1997 ONICDRG 108

Appeal P-006901 and P-008245

OFFICE OF THE DIRECTOR OF ARBITRATIONS

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Appellant

and

ROYAL INSURANCE COMPANY OF CANADA

Respondent

and

SADEGH MOVAHEDI

Respondent

Before:

Susan Naylor, Director's Delegate

Counsel:

James M. Flaherty (for State Farm)

Wayne Edwards (for Royal Insurance)

Michael Henry (for Mr. Movahedi)

APPEAL ORDER

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

The appeal is dismissed and the arbitrator's order dated June 13, 1995 is confirmed.

June 19, 1997

Susan Naylor

Director's Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

This case concerns which of two insurers - State Farm Mutual Automobile Insurance Company ("State Farm") or Royal Insurance Company of Canada ("Royal Insurance") - is liable to pay accident benefits to Mr. Movahedi. The central issue relates to accident benefit coverage in respect of a vehicle driven as a taxicab at the time of the accident. The appeal involves the interpretation of, and interaction between, the Insurance Act, R.S.O. 1990, c.I-8, the Statutory Accident Benefits Schedule - Accidents Before January 1, 1994, R.R.O. 1990, O. Reg. 672, and the Ontario Automobile Policy Form No. 1 - Owner's Policy (O.P.F. No. 1). For ease of reference, I shall refer to these respectively as the Act, the Schedule and the "Owner's Policy" or "the policy".

This appeal was heard in conjunction with that in Brown and State Farm Mutual Automobile Insurance Company, Brown and Simcoe & Erie General Insurance Company, (October 10, 1995, OIC A-013989 and A-012171), which involved similar facts but the statutory provisions applicable on or after January 1, 1994. Neither Mr. Movahedi nor Mr. Brown took a position on which insurer should pay their benefits.

II. BACKGROUND

The facts are straightforward. Mr. Movahedi was injured while driving a taxi-cab with a fare-paying passenger on board. He did not own the taxi-cab but rented it under an arrangement with its owner. The vehicle was insured under a fleet policy issued to Diamond Cabs by Royal Insurance but Mr. Movahedi was not listed as an insured under the policy. He owned a family vehicle for his personal use - a Honda Civic - which he insured with State Farm. He bought this insurance before he started to drive the taxi insured by Royal Insurance. He was named as an insured on the State Farm certificate of insurance.

Both the fleet policy and the personal vehicle policy are in the standard form of owner's policy (O.P.F. No. 1), approved by the Commissioner of Insurance under legislative authority. The fleet policy has an approved endorsement attached to it - O.E.F. 6A: "permission to carry passengers for compensation endorsement" - authorising the operation of the vehicle as a taxicab.

After his accident on February 26, 1993, Mr. Movahedi first applied to Royal Insurance, the insurer of the taxicab, for accident benefits. When Royal Insurance refused his claim, he turned to State Farm. State Farm paid Mr. Movahedi weekly income benefits for about six months until September 1993. It then took the position that no further benefits were payable but if they were, Royal Insurance was responsible. The arbitrator held that State Farm, not Royal Insurance, was liable to pay Mr. Movahedi's benefits. State Farm appeals this decision.

Although there was no evidence on point, no one disputed that vehicles operated as taxicabs attract a higher premium than private passenger vehicles. Taxis are rated separately under the classification system because they involve substantially higher risk.¹ It was accepted that the risk of exposure to payment of first party benefits is also higher, and that this is factored into the premium.

The arbitrator concluded that Mr. Movahedi must claim benefits from the insurer of his private passenger vehicle - which did not insure the risk of his driving a taxi - even though the accident involved a taxicab insured by Royal Insurance. This seems to fly in the face of fundamental insurance principles related to assessing risk and setting premiums. Understandably, that is the focus of State Farm's objection to the decision. Notwithstanding this, however, I find that the arbitrator's ruling is correct. I considered somewhat similar arguments in Portch and Royal Insurance Company of Canada and Markel Insurance Company of Canada, (December 17, 1997, P-008360 and P-007701) ("Portch") which was issued after the appeal in this case was heard.

III. THE LEGISLATION

The enhanced no-fault benefit scheme enacted in 1990 changed the rules for determining which insurance company must pay accident benefits in any given situation and to whom. The changes expanded the class of persons who could recover accident benefits under a particular automobile policy and made provision for overlapping coverage under more than one policy. The legislation sets out the order in which insurers must pay benefits where more than one insurer is involved. The previous legislative scheme made the insurer of the vehicle involved in the accident primarily responsible. Section 268(2) of the Act changes this approach. It requires a person to look to their own insurance policy, before seeking recourse under the policy of the owner of the vehicle in which they were an occupant or which struck them. This represented a very significant change and one that provided the foundation for the arbitrator's reasoning. The relevant part of section 268(2) states:

The following rules apply for determining who is liable to pay no-fault 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,

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.

(Emphasis added)

The priority rules, generally, provide that if someone is an insured under more than one policy for the purposes of section 268(2) but is a named insured under only one of these, he or she must claim against that insurer.² The additional complication in this case is that the State Farm policy lists Mr. Movahedi as a named insured, but the Royal Insurance policy does not.

State Farm argues that Mr. Movahedi is not an insured under its policy in respect of the accident because the policy expressly excludes him while he is driving a taxicab. Therefore, his only recourse is against Royal Insurance.

The provisions in section 268(2) come into play once coverage has been established under a particular motor vehicle liability policy.³ The content of accident benefits coverage is specifically legislated. Entitlement to accident benefits is determined by the rules set out in the Schedule, which is a regulation authorised under subsection 121(1) 9 of the Act. Section 268(1) of the Act incorporates the terms of the Schedule into every motor vehicle liability policy. It states:

Every contract evidenced by a motor vehicle liability policy shall provide for the no-fault benefits set out in the No-Fault Benefits Schedule,⁴ subject to the terms, conditions, provisions, exclusions and limits set out in that Schedule.

Section 2 of the Schedule identifies the people who are insured under a particular policy of automobile insurance and so entitled to claim statutory accident benefits from that insurer, subject to the priority rules. It states, in part:

In this Regulation,

"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,

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

(Emphasis added)

"Insured automobile" is defined as follows:

"insured automobile", in respect of a particular motor vehicle liability policy, means the described automobile and includes a newly acquired or temporary substitute automobile, all as defined by the policy;

(Emphasis added)

On a straightforward reading of subsection 2(c), Mr. Movahedi qualifies as an insured person under State Farm's policy. He was not an occupant of "the insured automobile" - the Honda Civic described in the policy, or a temporary substitute or newly acquired automobile. However, he was a named insured under that policy and the occupant of "any other automobile" i.e. the taxicab.

State Farm's argument on appeal - which is essentially the position it advanced at arbitration - breaks down into three components:

i. Mr. Movahedi is not an insured person under the State Farm policy because the taxicab he was driving does not qualify as "any other automobile" under the terms of paragraph 5.2.2. (iv) of the policy.

ii. The State Farm policy specifically excludes coverage under paragraph 5.12(c) of the policy when the vehicle is used as a taxicab.

iii. Even if the State Farm policy covers the operation of the taxicab, Mr. Movahedi should be treated as a named insured under the Royal Insurance policy under subsection 3(1) of the Schedule (paragraph 2.3 of the policy).

III. IS MR. MOVAHEDI AN INSURED PERSON UNDER THE STATE FARM POLICY?

State Farm argues that Mr. Movahedi is not an insured person in respect of the policy that insured his personal vehicle. It relies on provisions in the policy which extend coverage to automobiles other than the vehicle described in the policy, but exempt vehicles used for certain commercial purposes. It also relies on a specific exemption in the policy excluding liability if the automobile is being used as a taxicab.

The exclusions that State Farm relies on are contained in the standard Owner's Policy. Although the underlying basis of the relationship between an insured and an insurer is contractual, the form and content of automobile insurance contracts are strictly regulated. The form of motor vehicle liability policies must be approved by the Commissioner of Insurance, by statutory requirement.⁵

The Owner's Policy consists of a combination of legislated provisions - including in Part B, the terms of the Schedule - and other provisions approved by the Commissioner. Part B of the Owner's Policy deals specifically with accident benefits. It defines "insured person" in paragraph 2.2.3:

"Insured person", in respect of this Policy, means,

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

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

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

(emphasis added)

Subsection 2.2.3(c) of the policy mirrors the language of the Schedule. Subsection 2.2.3 (a) uses the term "the automobile" rather than "insured automobile".

"The automobile" is defined in Part E - General Provisions, Definitions and Exclusions. The relevant provisions of section 5.2.2 of the policy state, under the heading "automobile defined":

"the automobile", except where otherwise stated, means: for the purposes of Parts A (Third Part Liability), B (Accident Benefits) C (Loss or Damage to Insured Automobile and D (Uninsured Automobile Coverage):

(i) the Described Automobile: an automobile or trailer described in this Policy;

(ii) a Newly Acquired Automobile:...

and for the purposes of Parts A (Third Part Liability), B (Accident Benefits) and D. (Uninsured Automobile Coverage):

(iii) a Temporary Substitute Automobile:

(iv) any Other Automobile: other than the described automobile, which is of a gross vehicle weight of 4,500 kilograms or less, while personally driven by the insured or by his or her spouse if residing in the same dwelling premises as the insured, provided that

(a) the described automobile is of a gross vehicle weight of 4,500 kilograms or less;

(b) the insured is an individual or are spouses of each other;

(f) the other automobile is not used for carrying passengers for compensation or hire or for commercial delivery at the time of the loss;

(emphasis added)

Under these provisions, coverage is extended beyond the vehicle listed in the policy to other vehicles being driven by the insured and his or her spouse, in certain set circumstances. There is little doubt that these provisions are intended to apply to accident benefit coverage. Part E of the policy is stated to specifically apply to "every part of this policy" except where stated. To reinforce this, Part B expressly provides that it should be read subject to the provisions in Part E, sections 5.1 to 5.12. Paragraph 5.2.2 (iv) is expressly stated to relate to accident benefits under Part B of the policy as well as to third party coverage under Part A and uninsured automobile coverage under Part D, subject to the exceptions set out. Unlike paragraph 5.2.2(iv) (d) and (e), paragraph 5.2.2(iv)(f) is not qualified by the words "except for the purposes of Part B (Accident Benefits)".

State Farm's position, stated concisely, is that "any other automobile" in subsection 2(c) of the Schedule and paragraph 2.2.3 (c) of the Owner's Policy does not mean any other automobile, but "any other automobile" as qualified by the general provisions of the policy, and specifically, paragraph 5.2.2(iv) (f). On this construction, the taxicab that Mr. Movahedi was driving does not qualify because it was being used for carrying passengers for compensation or hire at the time of the loss.

In addition, State Farm points to a specific exclusion in relation to taxicabs. Section 5.12 states, in part, under the heading "excluded uses":

THE INSURER SHALL NOT BE LIABLE while,

(c) the automobile is used as a taxicab, public omnibus, livery, jitney or sightseeing conveyance or for carrying passengers for compensation or hire; provided that the following uses of the automobile by the insured shall be deemed not to be the carrying of passengers for compensation or hire:

(i) carrying another person, where the other person reciprocates;

(ii) carrying another person occasionally and infrequently, who shares the cost of the trip;

(iii) carrying a domestic servant of the insured or of his or her spouse;

(iv) carrying clients or customers or prospective clients or customers; or

(v) transporting children occasionally and infrequently to or from school, or school activities conducted within the educational program.

(Emphasis added)

Exclusions also apply where the vehicle is rented or leased to another and where it is used to carry explosives or radioactive materials. The exclusion in paragraph 5.12(c) appears intended to apply to Part B benefits. Only the exclusion of vehicles carrying explosives or radioactive material is made subject to the proviso "except as provided in Part B (accident benefits)".

These exclusions in the policy derive their authority from section 250(1) of the Act which states that:

The insurer may provide under a contract evidenced by a motor vehicle liability policy, in one or more of the following cases, that, except as provided in the ...Schedule, it shall not be liable while,

(c) the automobile is used as a taxicab, public omnibus, livery, jitney or sightseeing conveyance or for carrying passengers for compensation or hire;⁶

State Farm argues that it is not liable to meet Mr. Movahedi's claim under the policy because the vehicle he was operating was being used as a taxicab. It argues that the exception in paragraph 5.2.2. (iv) (f) and the express exclusion in paragraph 5.12(c) recognise the different risks involved in driving a taxicab and carve these additional risks out of the policy. The arbitrator rejected these arguments. He pointed out that the terms of paragraph 5.2.2 (iv) were considerably more stringent than that of the language of subsection 2(c) of the Schedule and paragraph 2.2.3(c) of the policy. The latter provisions extend coverage to the named insured, his or her spouse and a dependant of either of them while driving or riding as a passenger⁷ in any automobile other than "the insured automobile" (under the Schedule) or "the automobile", (under the policy). Under 5.2.2(iv)(f) of the policy, the named insured or his or her spouse residing in the same dwelling, must have been driving the vehicle in order for it to qualify as "any other automobile". They would not be covered if they were passengers in a vehicle driven by someone else.⁸

The arbitrator rejected an interpretation that would narrow the accident benefits protection afforded by the plain language of the Schedule, and concluded that any inconsistency between the terms of the policy and the Schedule must be resolved in favour of the broader provisions of the Schedule, by reason of subsections 268(1) and 227(5) of the Act.

The arbitrator also held that the exclusion under paragraph 5.12(c) of the policy, barring coverage "while the automobile is used as a taxicab" did not apply because Mr. Movahedi was injured while driving another automobile - the taxicab - and not "the automobile": a vehicle covered under the extended definition in the policy. However, he went on to say that even if Mr. Movahedi had been operating the vehicle described in the policy - his Honda Civic - as a taxicab, the exclusion still would not apply because it was not set out in the Schedule. The arbitrator held that where the terms of the policy conflict with the Schedule, the Schedule prevails. This reasoning has been followed in subsequent cases.⁹

I agreed with this reasoning in general in Portch. That case did not involve a taxicab but a heavy commercial vehicle. Mr. Portch was injured while driving his transport truck. He was not named on the fleet policy that insured it, but held insurance on two family cars. The insurer of his personal vehicles argued that it was not responsible for Mr. Portch's benefits because the vehicle he was driving was not covered under the extended definition of automobile under the policy. Paragraph 5.2.2(iv) excludes coverage of another automobile if it weighs more than 4,500 kilograms or was being used for commercial delivery at the time of the loss. I concluded that Mr. Portch was an insured person in respect of his personal vehicle insurance policy and must claim benefits under that policy, even though the accident involved his transport truck. In my view, the reasons I adopted in that case apply here.

State Farm's argument rests on the assumption that "any other automobile" in paragraph 2.2.3(c) of the policy incorporates the restrictive definition of "any other automobile" in paragraph 5.2.2 (iv). However, I agree with the arbitrator that the language should be given its ordinary meaning. The context of the words do not support State Farm's position. "Any other automobile" in paragraph 5.2.2(iv) forms part of the definition of "the automobile". There are two relevant parts to the definition of insured person under paragraph 2.2.3:

(a) which captures occupants of "the automobile", i.e. a vehicle described in the policy, a temporary substitute vehicle, a newly acquired vehicle and any other automobile driven by the insured or his or her spouse, subject to the qualifications in subsection 5.2.2(iv); and

(c) which refers to any other automobile in which the named insured or his or her family are occupants.

As I stated in Portch at page 15:

Since the definition of "the automobile" is expressly incorporated into the definition of insured person under section 2.2.3(a) of the policy, it is extremely clumsy to read subsection 2.2.3(c) as implicitly incorporating part of that definition.

Paragraph 5.12(c) of the policy also applies to "the automobile", the term defined in the policy. Since the vehicle Mr. Movahedi was driving does not fall within that defined term, subsection 5.12(c) does not appear to apply.

"Any other automobile" in subsection 2(c) of the Schedule is unqualified and there is no equivalent exclusion of taxicabs to that contained in paragraph 5.12 of the policy. Although I do not accept that there is a conflict between the language of the Schedule and the terms of the policy, properly construed, as they apply to this case, if there were, any such conflict would be resolved in favour of the broader terms of the Schedule.

Section 268(1) of the Act states that every policy shall provide for the accident benefits in the Schedule, "subject to the terms, conditions, provisions, exclusions, and limits set out in that Schedule".

It would have been a simple matter to have incorporated the desired provisions of the policy by reference or to have inserted the required limitations directly into the Schedule. I note that the Schedule's predecessor, "Schedule C" to the Insurance Act, R.S.O. 1980, c. 218 specifically qualified the meaning of insured person to exclude the insured and his or her family when they were the occupants of another vehicle that was used for carrying passengers for compensation or hire or for commercial delivery.¹⁰ Schedule C also expressly stated that "in so far as applicable, the general provisions, definitions, exclusions and statutory conditions of the policy also apply ". These provisions were not included in the Schedule.

I cannot find authority for the exclusion elsewhere in the Act. Section 250(1), which is the source of authority for the exclusion of vehicles used as taxicabs in the policy is made subject to an express proviso. The insurer may exclude coverage under its policy for the uses set out in section 250(1) "except as provided in the ...Schedule". I note that there was no such qualification under the section's predecessor. State Farm suggests that the language used means that the exclusion in the policy governs unless the Schedule expressly provides otherwise. I do not read the statutory language this way. If the Schedule does not set out the qualification in issue, then surely the Schedule provides for the benefits without it.

­State Farm essentially argues that accident benefits are provided under the umbrella of a contract of insurance, in which the outer parameters of coverage are determined, among other things, by the automobiles insured under the terms of the policy. If benefits are payable under the policy, they are subject only to the terms, conditions and exclusions set out in the Schedule. However, one must look at the scope of the policy to determine whether benefits are payable in the first place. The Commissioner of Insurance has been given express legislative authority to approve the content of policies, including the form of a standard owner's policy. Pursuant to that authority, the Commissioner has authorised a form of policy that excludes vehicles driven as taxicabs and does not extend coverage to other vehicles that are used for carrying passengers for compensation or hire. He has also approved an endorsement that covers taxicabs. To disregard the provisions of the policy would be to ignore the approved terms of the contract of insurance entered into by the parties and to fail to give effect to the Commissioner's statutory mandate.

State Farm relies on the decision of Justice Morin in Warwick et. al. v. Gore Mutual Insurance Company et. al, (December 12, 1995) 5546/92 (Gen. Div.) and on Gore Mutual Insurance Company v. The Co-operators General Insurance Company, (January 9, 1996) C23778 (Gen. Div.). Although these cases dealt with a different issue and did not involve a conflict between the Schedule and the policy, it is suggested that they represent a method of interpretation that is applicable here. These cases are cited for the proposition that in construing statutory requirements, one must consider the entire automobile insurance scheme - the Act, the Schedule and the policy.

In his decision in Warwick, Justice Morin stated:

…. 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 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.

(Warwick, page 14)

In Portch, at page 18, I accepted that, where possible, the provisions of the regulation and policy should be construed harmoniously. However, in the event of a conflict, the Schedule prevails:

The Commissioner's authority to determine the content of automobile policies is qualified by the terms of section 268(1) of the Act, which mandates that every policy shall provide accident benefits subject to the "terms, conditions, provisions, exclusions and limits set out in that Schedule." This includes the definition of the persons who are entitled to benefits under the policy. The definition of insured person under subsection 2(c) does not contain the limiting words [the personal vehicle insurer] seeks to put on them, and in my view, cannot reasonably be read so as to contain them. Accident benefits are governed by the Schedule and in so far as there is a conflict, the Schedule must prevail.

I did not hear any argument that convinced me that the approach I adopted in Portch was wrong. If anything, subsequent judicial developments after the appeal in this case was heard reinforce that view.

In Luu and Zurich Insurance Company, (April 7, 1996, OIC P96-00045A), the Director of Arbitrations considered the entire automobile insurance scheme in determining the territorial application of accident benefits under regulations applying to accidents under the 1994 Schedule. The 1994 Schedule defines "insured person" to include the named insured if involved in an accident "outside of Ontario". It does not contain any territorial limitation but the policy does. The Director of Arbitrations applied the territorial limitations in the policy to the 1994 Schedule. She held that the 1994 Schedule referred to insured persons in the specific context of a particular motor vehicle liability policy, and its language should be construed accordingly. The decision was upheld on judicial review by the Divisional Court in Luu v. Zurich Insurance Company, (March 17, 1997) 451/96, (Div. Ct.).

The Court of Appeal in Prasad v. GAN Canada Insurance Co., (May 5, 1997) C25640, (C.A.), a subsequent case dealing with similar facts, expressly disagreed with the reasoning of the Divisional Court that there was no conflict between the contractual provisions in the policy and the Schedule, and if there were, the more specific words of the policy should prevail. The unanimous judgement of the Court was delivered by Southey J.A. He held that the territorial restriction in the policy could not limit the coverage provided under the accident benefit regulations, by reason of subsection 268(1) of the Act. At page 4, he stated:

I agree with the decision of the learned judge that a territorial limitation inserted in the contract of insurance by the defendant could not effectively reduce the coverage under the Benefits Schedule. That coverage was required by statute, and could be limited only by statute.

In my view, this reasoning supports the interpretation of "any other automobile" in section 2(c) of the Schedule adopted here.

The decision of the Court of Appeal in Warwick et. al. v. Gore Mutual Insurance Co.¹¹ (January 22, 1997) C23617, (C.A.) was also issued after Portch. Ms. Warwick was listed as an occasional driver under her father's policy, but was injured while riding in another vehicle. The issue was which insurance company was required to pay her benefits - the insurer of her father's vehicles, having received an additional premium to list her as a driver, or the insurer of the vehicle in which she was an occupant. The Court of Appeal upheld Justice Morin's decision that the latter was responsible. The Court confirmed that contractual entitlement to no-fault benefits was determined by section 268(1) of the Act and the definition of "insured person" in section 2 of the Schedule, not by a broader statutory definition:

By making contractual entitlement to no-fault benefits "subject to the terms, conditions, provisions, exclusions and limits" in the Schedule, the Legislature, in s. 268(1) of the Act, intended that entitlement to these benefits would be determined by regulation.

(Warwick, page 12)

In the Court's view, the fact that a small additional premium had been paid to cover Ms. Warwick as a listed driver did not change the result. At page 16, the Court responded in the following terms to the argument that it should favour an interpretation that places responsibility on the insurer who receives the premium:

That may be so if liability for no-fault benefits is unclear, but it is not and the payment of an additional premium cannot override the terms of the statute and the Schedule.

Although the Court emphasised that it was dealing with a small premium payment, (as opposed to the significant risk differential between personal passengers vehicles and taxicabs) the judgement deals with principles of statutory interpretation relevant to this case. I do not find any ambiguity in State Farm's liability to Mr. Movahedi and in my view, the ordinary meaning of the Schedule must govern.

In summary, I agree with the arbitrator that the exclusions in paragraph 5.2.2 (iv) (f) and paragraph 5.12(c) of the policy do not operate to restrict the broad coverage set out in subsection 2(c) of the Schedule. I find that Mr. Movahedi is the "named insured....while the occupant of any other automobile". He is therefore an insured person in respect of the State Farm policy and an insured under section 268(2)1.i. of the Act.

IV. IS MR. MOVAHEDI A NAMED INSURED UNDER THE ROYAL INSURANCE POLICY?

Section 268(4) and (5) of the Act state as follows:

(4) If, under subparagraph i or iii of paragraph 1 or subparagraph i or iii of paragraph 2 of subsection (2), a person has recourse against more than one insurer for the payment of no-fault benefits, the person, in his or her absolute discretion, may decide the insurer from which he or she will claim the benefits.

(5) Despite subsection (4), if a person is a named insured under a contract evidenced by a motor vehicle liability policy or the person is the spouse or a dependant, as defined in the ...Schedule, of a named insured, the person shall claim no-fault benefits against the insurer under that policy and, if there is more than one such policy, the person, in his or her discretion, may decide the insurer from which he or she will claim the benefits.

Subsection 3(1) of the Schedule states:

If the insured automobile is made available for the regular use of an individual, whether or not a resident of Ontario, by a corporation, unincorporated association, partnership, sole proprietorship or other entity or is rented to an individual who is a resident of Ontario, this Regulation applies to the individual and his or her spouse and their dependants as if the individual were a named insured.

(Emphasis added)

The arbitrator held that Mr. Movahedi was a named insured under the State Farm policy, but was not a named insured under the Royal Insurance policy. The arbitrator held that, even though subsection 3(1) of the Schedule covered Mr. Movahedi so that its terms applied to him "as if he were a named insured", that did not make him a named insured for the purposes of the priority provisions of the Act. In restricting the application of subsection 3(1) to the Schedule, the arbitrator followed a line of decisions starting with Axa Home Insurance Company v. Western Assurance Company 1994 CanLII 19785 (ON CTPD), [1994] I.L.R. 1-3033, (Gen Div.). In that case, Justice Roberts specifically disagreed with the reasoning in Sittler and Canadian General Insurance Company, Sittler and Pilot Insurance Company, (December 3, 1993, OIC A-000951 & A-004495), upheld on other grounds (November 8, 1995, OIC P-000951 & P-004495). Sittler held that subsection 3(1) combined with section 270 of the Act gave Ms. Sittler the same rights as a named insured for the purposes of section 268 of the Act. In reaching her conclusion she relied on the principle of a fair return for the premium paid. State Farm urges me to adopt this approach here.

In Portch, I preferred the reasoning in Axa that while subsection 3(1) operates to protect the person for accident benefits, it does not make him or her a "named insured" when deciding which insurance company is responsible for paying those benefits. I have not heard any argument that persuaded me the analysis I adopted in Portch is wrong.

I therefore conclude that Mr. Movahedi is a named insured under the State Farm policy but is not a named insured under the Royal Insurance policy. Therefore, the Act requires him to seek recourse against State Farm, even though the accident involved the taxicab. Although I am unsure that this result was intended by the drafters, in my view, it is dictated by the express provisions of the legislation and regulations. The arbitrator's order is therefore confirmed.

June 19, 1997

Susan Naylor

Director's Delegate

Date

Footnotes

1. 1The unique nature of the taxi industry and its insurance problems have been the subject of a number of reports. In his Report of Inquiry into Motor Vehicle Accident Compensation in Ontario, 1988, Volume 1 at pages 239-240, Mr. Justice Osborne described the overall situation then, stating that taxis presented "a unique premium problem" and that the root cause of this was "horrendous loss costs". Although his report pre-dated the 1990 changes to tort and no-fault and dealt with all coverages, it provides a useful summary.
2. 2The Act, ss. 268(4) and (5). Subsection 268(5) also applies to the spouse or dependants of the named insured.
3. 3Warwick et. al. v. Gore Mutual Ins. Co. et. al. (January 22, 1997) C23617 (C.A.).
4. 4The name of the No-Fault Benefits Schedule was changed to the Statutory Accident Benefits Schedule and the term no-fault benefits replaced by statutory accident benefits by the Insurance Statute Law Amendment Act, 1993, s. 1(1).
5. 5Under section 227(1) of the Act, any motor vehicle liability policy, endorsement form or claims form must be approved by the Commissioner of Insurance, although he or she has a discretion in subsection 227(2) to approve a form of policy or endorsement that contains provisions that are inconsistent with the Act in certain circumstances. The Commissioner's authority to approve a standard owner's policy derives from subsection 227(5) which provides that he or she "may approve a form of owner's policy containing insuring agreements and provisions in conformity with this Part for use by insurers in general...".
6. 6Subsection 250(4) lists those situations sets out in the policy that are not considered the carrying of passengers for compensation or hire.
7. 7The Act, subsection 224(1) defines occupant, in respect of an automobile to mean "(a) the driver (b) a passenger, whether being carried in or on the automobile, (c) a person getting into or on or getting out of or off the automobile.
8. 8See also Addai-Agyekum and Coachman Insurance Company, Addai-Agyekum and Citadel General Insurance Company, (October 15, 1995, A-009690, appeal pending),which involved similar facts. Arbitrator Palmer noted that paragraph 5.2.2 (iv)of the policy did not mention dependants at all and only extended to a spouse if he or she was residing in the same dwelling premises as the insured contrary to the definition of spouse in subsection 224(1) of the Act.
9. 9See e.g. Boateng and Coachman Insurance Company, Boateng and Progressive Casualty Insurance Company of Canada, (January 13, 1996, OIC A-009580 and A-009581); Addai-Agyekum and Coachman Insurance Company, Addai-Agyekum and Citadel General Insurance Company, (October 13, 1995, OIC A-009690 and A-009691, appeal pending); Brown and State Farm Mutual Automobile Insurance Company (supra) and Aujla and Progressive Casualty Insurance Company of Canada, Aujla and Old Republic Insurance Company, (March 20, 1996, OIC A-951628 and A-951629, appeal pending).
10. 10Schedule C, subsection 3 (1)(b)(v).
11. 11This included the appeal in Gore Mutual Ins. Co. v. The Co-operators.