Neutral Citation: 1997 ONICDRG 234

OIC A96-001617

ONTARIO INSURANCE COMMISSION

BETWEEN:

HARINDER PAL MANDER

Applicant

and

GENERAL ACCIDENT ASSURANCE CO. OF CANADA

Insurer

DECISION ON A PRELIMINARY ISSUE

Issue:

The Applicant, Harinder Pal Mander, was involved in a motor vehicle accident on April 26, 1996 and applied for statutory accident benefits under the Schedule¹. The Insurer, General Accident Assurance Company of Canada ("General Accident"), has refused to pay income replacement benefits to the Applicant on the ground that section 58(3)(a) of the Schedule applies. That section states the insurer is not required to pay income replacement benefits "in respect of a person who has made, or who knows of, a material misrepresentation that induced the insurer to enter into the contract of automobile insurance or intentionally failed to notify the insurer of a change in the risk material to the contract." The parties were unable to resolve their disputes through mediation, and Mr. Mander applied for arbitration under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The preliminary issue in this hearing is:

1. Is the Insurer entitled to rely upon the exclusion contained in section 58(3)(a) of the Schedule to deny the Applicant income replacement benefits?

Result:

1. The Insurer is not entitled to rely upon the exclusion in section 58(3)(a) of the Schedule.

Hearing:

The hearing was held at the offices of the Ontario Insurance Commission in North York, Ontario, October 7, 8 and 9, 1997, before me, David Leitch, Arbitrator.

Present at the Hearing:

Applicant: Harinder Pal Mander

Mr. Mander's Representative: Parmanand Prashad, Barrister and Solicitor

General Accident's Representative: Gregg Heckel, Barrister and Solicitor

Witnesses:

Baljit Singh Bajwa

Sukhwant Pandher

Lynn Gow

Harinder Pal Mander

Exhibits:

The exhibits are listed in the Appendix to this Decision.

Reasons for Decision:

Introduction

The Insurer's refusal to pay the Applicant income replacement benefits is based on the exclusion contained in section 58(3)(a) of the Schedule. That section disentitles the Applicant to such benefits if he is "a person who has made, or who knows of, a material misrepresentation that induced the insurer to enter into the contract of automobile insurance or who intentionally failed to notify the insurer of a change in the risk material to the contract." To discharge its onus of proving that this exclusion applies, the Insurer called evidence to the effect that the Applicant made or was aware of misrepresentations regarding the ownership and use of the vehicles covered by the contract of insurance and failed to disclose his history of automobile insurance.

The Applicant denied making or being aware of any misrepresentation or omission and testified that any misinformation contained in the application for insurance was supplied by the insurance broker through whom the policy had been renewed. The Applicant also argued that even if there had been a misrepresentation, it was not material or that the Insurer had waived it or was estopped from relying upon it. In order to determine these issues, a detailed review of the evidence is necessary.

The Insurer's Evidence

The Insurer called two witnesses: Mr. Sukhwant Pandher of Belmont Insurance Brokers, the insurance broker, and Ms. Lynn Gow, an underwriter at General Accident. Mr. Pandher testified that in early December, 1995, he received a telephone call from a person who identified himself as Sukhjinder Rai. Mr. Rai said that he needed to renew his automobile insurance policy which had been issued by General Accident and wanted to give his business to "a community person." Mr. Pandher indicated that he could handle Mr. Rai's business on behalf of General Accident, obtained Mr. Rai's driver's licence and policy number and made an appointment to meet Mr. Rai.

Prior to that appointment, Mr. Pandher confirmed with General Accident that Mr. Rai was a policyholder with no record of prior accidents or tickets.

Mr. Pandher first met Mr. Rai at an office in Malton, Ontario on December 7, 1995. Mr. Rai was accompanied by two other men who waited while he and Mr. Pandher entered a separate office to conduct their business. Mr. Rai and Mr. Pandher spoke in both the English and Punjabi languages and understood each other without difficulty. Mr. Pandher told Mr. Rai that he needed to update certain information and produced a blank Ontario Application for Automobile Insurance Owner's Form (OAF 1). Mr. Pandher then proceeded to complete the form using information either contained in the renewal certificate Mr. Rai had brought with him or supplied orally by Mr. Rai.

Part 1 of the form identifies Mr. Rai as the applicant for insurance and as the lessee of a vehicle leased from Ford Credit Canada Ltd. Part 2 states the policy period: December, 1995 to December, 1996. Part 3 describes the automobile as a 1993 Ford Aerostar Window Van (the Van) which was to be used for pleasure, ie, not for business, farm, commercial or commuting purposes which were the other possible purposes identified on the form. Part 3 also contains the following questions and answers:

Is the applicant both the Registered Owner and the Actual Owner of the described automobile(s)? Yes No X If No, give details. Lessead (sic) vehicle under name Rai Sukhjinder. [emphasis in the original]

Part 4 contains the following question and answer:

Percentage use by Each Driver 100%

Are any other persons in the household or business licensed to drive?

Yes No X

Parts 5 and 6 of the form deal with previous insurance claims and history of convictions. They contain the handwritten entries: no accident, no claims, no tickets. Part 8 indicates no at-fault claims or conviction surcharges and rates the applicant in Class 01 with 6 stars, the best possible rate for premium calculation purposes.

Part 11 of the form is entitled "Declaration of the Applicant - Read this section carefully before you sign." This part of the form requires the Applicant to supply truthful information. It does so using the language of section 233(1) of the Insurance Act as set out below with the addition of the highlighted words:

Where

1. 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; or

2. the Insured contravenes a term of the contract or commits a fraud; or

3. the Insured wilfully makes a false statement in respect of a claim under the contract.

a claim by the Insured, for other than such statutory accident benefits as are set out in the Statutory Accident Benefits Schedule, is invalid and the right of the Insured to recover indemnity is forfeited.

Mr. Pandher told Mr. Rai to read Part 11 and also told him that a lie could void the policy. Mr. Rai read Part 11 as requested and then signed three documents: the completed application form, a void cheque and a General Accident Monthly Payment Plan Authorization Card. Mr. Pandher testified that he was not concerned about whether Mr. Rai's signature looked like his name or about the fact that both the void cheque and authorization card named Mander Transport Inc., not Mr. Rai, as the payor. Mr. Pandher issued Mr. Rai a 30-day liability certificate and they parted company.

Mr. Pandher never saw Mr. Rai again after their meeting on December 7, 1995 but he did speak to Mr. Rai over the telephone with regard to two requests for amendments to the policy and with regard to the accident that gives rise to these proceedings.

Mr. Rai's first request for an amendment to the policy, made less than a month after the December meeting, was to substitute a 1982 Mercedes 300SD Four Door (the Mercedes) for the Van described in the completed application form. Mr. Pandher's evidence was that, in requesting this substitution, Mr. Rai supplied the serial number of the Mercedes but "didn't say it was his car." The request was granted by General Accident. The Mercedes was the vehicle involved in the accident in which Mr. Mander was involved.

Mr. Rai's second request for an amendment to the policy, made on February 6, 1996, was to list his brother-in-law, Mr. Mander, the Applicant, as an occasional driver. Mr. Rai told Mr. Pandher that Mr. Mander was now living with him and that Mr. Mander had been previously insured by Progressive Insurance. While this request was also granted, Mr. Pandher understood that General Accident requested an "experience letter" from Progressive Insurance regarding Mr. Mander's insurance history. Mr. Pandher never saw such a letter before leaving his position at Belmont Insurance Brokers Limited.

Mr. Pandher spoke to Mr. Rai over the telephone for the last time in connection with the reporting of the accident of April 26, 1996. Mr. Pandher was no longer with Belmont Insurance Brokers Limited but assisted someone from that company to obtain the details of the accident and prepare the notice of loss to forward to General Accident.

Lynn Gow, General Accident's underwriter, produced from the Insurer's files a series of Certificates of Automobile Insurance and other documents relating to policies issued to Sukhjinder Rai. These documents cover the period December 9, 1994, when Mr. Rai first became insured by General Accident, to August 16, 1996 when General Accident informed Mr. Rai by registered letter that the contract was "void ab initio" due to his "misrepresentation or fraudulent omission to communicate information to the Company that is considered to be a material fact to the insurance contract." Ms. Gow had no direct contact with Mr. Rai, all information obtained from him having been communicated through insurance brokers.

The first Certificate (not issued through Mr. Pandher) was for the period December, 1994 to December, 1995. It names Mr. Rai as the lessee and principal driver of the Van which was to be used for pleasure. The second Certificate confirms the renewal of the policy through Mr. Pandher on the same terms for the period December, 1995 to December, 1996. Two other Certificates confirm the amendments in early 1996, the first substituting the Mercedes for the Van and the second adding Mr. Mander as an occasional driver and changing the use to "pleasure or commute under 16 km one way."

With regard to the addition of Mr. Mander as an occasional driver, Ms. Gow produced a memo requesting this change from Belmont Insurance Brokers Limited, dated February 13, 1996, to General Accident, marked "received February 15, 1996." After supplying details about Mr. Mander's driver's licence, the memo supplies the following additional information about Mr. Mander:

no accidents, no tickets, no suspensions, no canc previous insurance with Progressive - policy # was insured continuously for 4 years up to approx. 1-2 months ago Harinderpal Mander and wife just move in with insured

Ms. Gow testified that upon receiving this request for amendment, General Accident ordered an "Autoplus" search and attempted to obtain an "experience letter" regarding Mr. Mander's insurance history with Progressive Insurance. A letter dated March 29, 1996 was eventually received from Mr. Mander's previous insurance broker stating that no claims had been reported through that broker but this was not acceptable to General Accident. After waiting and not receiving an acceptable "experience letter," General Accident reduced Mr. Rai's premium rating down to one star. This change is reflected in the last Certificate prepared by the Insurer on April 25, 1996, one day before the accident, but made effective February 6, 1996, the day Mr. Pandher received the request from Mr. Rai to add Mr. Mander as an occasional driver.

This last Certificate also reflects a further, important amendment made to the policy just prior to the accident. Ms. Gow testified that as a result of one of General Accident's periodic checks of Ministry of Transportation records, it discovered that Mr. Rai was no longer licensed to drive in Ontario, having moved to another province. General Accident communicated this information to Belmont Insurance Brokers Limited who, in turn, sent a letter, dated April 25, 1996, to Mr. Rai.

That letter reads as follows:

Recently, the General Accident obtained a copy of your Motor Vehicle Record from the the Ministry of Transportation. Currently, it shows that you are not licenced (sic) in this province. Please be advised that while your licence is expired or suspended, there would be no coverage under the above noted policy while you operate the vehicle. Please provide our office with a copy of your reinstated licence immediately.

As well, until we are in receipt of your reinstated licence, the 2nd driver - Harinderpal Mander - will be rated as principal operator & the appropriate premiums will be charged back to the date he was added onto the policy.

As a result of the accident of April 26, 1996, General Accident conducted further investigations and came to the conclusion that the policy was void ab initio. Ms. Gow identified the following as material facts which, in the Insurer's view, Mr. Rai had either misrepresented or failed to disclose.

First, the lessee of the Van and the owner of the Mercedes had, in both cases, not been Mr. Rai as shown in the application for insurance but Mander Transport Inc., a company wholly owned by Mr. Mander. These facts were material to the insurance policy because only the owner of the vehicle has an insurable interest and because the owner, in this case, was a business which might use the vehicle for business purposes and allow more than one person to drive it. These facts would affect premium calculations both because business use would involve a different rating classification (O7 rather than 01) and because employees' drivers' histories and records would become relevant.

Second, Mr. Mander had not held automobile insurance since April, 1995 and had had two previous claims, a not-at-fault accident in July, 1990, and a comprehensive claim in November, 1992. In her oral evidence, Ms. Gow testified that the previous claims would have had no effect on the premium calculation but that the gap in Mr. Mander's insurance coverage would have affected the premium calculation. However, in a memo prepared at the request of the Insurer's counsel just prior to the hearing, Ms. Gow wrote:

When we would have received the autoplus record showing Mr. Mander's insurance history, we would have cancelled the policy for non-disclosure.

Applicant's Evidence

In responding to the Insurer's allegations of misrepresentations, the Applicant gave a very different account of the meeting of December 7, 1995 with Mr. Pandher. The meeting involved all three men, Mr. Pandher, Mr. Rai and himself, but did not last more than a few minutes. Mr. Rai produced the renewal certificate and Mr. Mander signed the application form in blank, the void cheque and the authorization card. Apart from a new address, none of the information contained in the application form was supplied by either Mr. Mander or Mr. Rai. Mr. Pandher said that he could obtain the information needed to complete the blank form from the renewal certificate or General Accident. Mr. Pandher gave Mr. Rai a liability slip and the meeting ended.

Mr. Mander agreed that the Van was leased throughout by his company, Mander Transport Inc., not by Mr. Rai, and that the completed application form contained inaccurate information in this regard. This misunderstanding was not, however, the result of any misrepresentation made by either him or Mr. Rai at the meeting of December 7, 1995 as no questions were put to them by Mr. Pandher. Rather, Mr. Rai had been incorrectly named as the lessee when the Van was originally leased. This was not, however, done because Mr. Rai had a better driving record than Mr. Mander and could obtain a better insurance premium but because Mr. Mander intended the Van to be used, and it was, in fact, used exclusively by Mr. Rai for non-business purposes.

Similarly, while the Mercedes was owned by Mander Transport Inc., it was used by Mr. Rai for non-business purposes. It had been bought in September, 1995, repaired and put into use when the Van was turned in at the end of 1995 or early 1996. By then, Mander Transport Inc. had sold its trucks and was not doing any business although Mr. Mander sometimes used the name in order to generate business expenses for income tax purposes.

Mr. Rai had Mr. Mander listed as a driver of the Mercedes in February, 1996 when he went to stay in Vancouver. Mr. Rai was single and would move back and forth between Ontario, where he lived with Mr. Mander and Mr. Mander's wife, who is Mr. Rai's sister, and British Columbia, where he lived with other family members. Mr. Rai was currently residing in B.C. and did not testify at the hearing.

On cross-examination, Mr. Mander acknowledged that he had been examined under oath at Adjusters Canada in May, 1996 and testified there that the Van was sometimes used for business purposes. The transcript of the May, 1996 examination shows that Mr. Mander later denied that the Van was used in this way. At the hearing before me, Mr. Mander stated that there were problems with the English/Punjabi interpretation provided at the May, 1996 examination and that he was under medication for the accident at that time.

The Applicant also called Mr. Baljit Singh Bajwa as a witness. Mr. Bajwa testified that he went with Mr. Rai and Mr. Mander when they met with Mr. Pandher on December 7, 1995. He took no part in the meeting but did observe the three of them meeting together for less than 10 minutes. On cross-examination, Mr. Bajwa testified that he had sometimes seen Mr. Mander driving the Van.

Analysis:

The Insurer in this case relies upon the exclusion contained in section 58(3)(a) of the Schedule. That section reads as follows:

58— (3) The insurer is not required to pay income replacement benefits under Part II, education disability benefits under Part III, disability benefits under Part V or loss of earning capacity benefits under Part VI,

a) in respect of any person who has made, or who knows of, a material misrepresentation that induced the insurer to enter into the contract of automobile insurance or who intentionally failed to notify the insurer of a change in the risk material to the contract; or

Section 58(3)(a) is clearly the relevant statutory exclusion where the claim is, as here, for statutory accident benefits. The forfeiture provision contained in section 233(1) of the Insurance Act, while repeated in the application form, has no application because section 233(2) states:

(2) Subsection (1) does not invalidate such statutory accident benefits as are set out in the Statutory Accident Benefits Schedule.

Nor could any misrepresentations by Mr. Rai about his ownership interest in the vehicles invalidate coverages not based on ownership or render the policy "void ab initio."²

But while section 58(3)(a) is the relevant provision, I find that it is not applicable because while misrepresentations were made, they had ceased to be material by the time of the accident. In addition, I find that the Insurer did not rely upon any non-disclosures with respect to Mr. Mander's insurance history.

I find that Mr. Rai and Mr. Mander made misrepresentations (or that Mr. Rai made misrepresentations of which Mr. Mander was aware) concerning the identity of the lessee of the Van and the use to which it was to be put. In particular, I find that they misrepresented the facts that the Van was leased by Mander Transport Inc. and that it was used, in part at least, for . business purposes. I further find that Mr. Rai and Mr. Mander made these misrepresentations intentionally in order to obtain a better premium and that this was the effect of their misrepresentations. While Mr. Rai and Mr. Mander had this reason for making these misrepresentations, the evidence suggested no reasons why either Mr. Pandher or the broker before him would have made up or misdescribed these particulars in taking the applications.

I accept the view that "information which substantially affects the premium is material to the contract"³ and I find that the aforesaid misrepresentations substantially affected the premium General Accident charged in the first instance.

These findings alone would support the conclusion that the exclusion in section 58(3)(a) applies because they relate to the insurer's original decision to "enter into the contract of insurance."

Yet these findings do not tell the whole story. The amendments made to the policy after December, 1995 created an entirely different scenario by the date of the accident in April, 1996.

The evidence discloses that by that date, Mr. Mander's business was no longer operating, the Van had been replaced by a Mercedes passenger vehicle, Mr. Rai was no longer licensed to drive in Ontario and was out of the province, Mr. Mander had replaced Mr. Rai as the principal driver of the Mercedes and General Accident had retroactively increased its premiums to reflect Mr. Mander's unknown insurance history and the vehicle's use for commuting.

Though there may have been no explicit representation by Mr. Rai about who the registered owner of the Mercedes was, Mr. Pandher was undoubtedly misled in this regard through the earlier misrepresentations about who the lessee of the Van was. Nevertheless, by the date of the accident, the Insurer was well aware that Mr. Rai's lack of authority to drive in Ontario effectively made Mr. Mander the actual or beneficial owner of the Mercedes. The application form itself recognized that there can be a difference between "the Registered Owner" and "the Actual Owner" and the case-law provides examples of how both kinds of owners can have insurable interests.⁴

Nor does the Insurer's evidence show that had it been aware that Mander Transport Inc. was the registered owner of the Mercedes, it would have charged a higher premium than it actually charged. In particular, had the Insurer discovered that Mander Transport Inc. was the registered owner of the Mercedes, it might have also discovered that Mander Transport Inc. was inactive by the time the Mercedes was acquired and that the Mercedes was not used for Mander Transport Inc.'s business purposes. There is no evidence before me that the Mercedes was used for business purposes. Again, the case-law demonstrates that ownership registration is not always material to the risk⁵ and, on the evidence before me, I am unable to find that it was material here.

The Insurer's evidence also does not disclose that it relied upon any non-disclosure made by Mr. Rai or Mr. Mander regarding Mr. Mander's insurance history. Rather, it took independent steps to determine Mr. Mander's insurance history and, after failing to receive acceptable documentation in that regard, retroactively increased the premium charged. It led no evidence that Mr. Mander's true insurance history would have generated a higher premium than it charged. Nor does Ms. Gow's written statement that "we would have cancelled the policy for non-disclosure" seem believable given the Insurer's ultimate decision to continuing insuring at a higher premium despite its refusal to accept either Mr. Mander's or Mr. Mander's previous insurance broker's versions of his insurance history. The Insurer cannot, in my view, rely upon non-disclosure of this information if it never accepted or relied upon the disclosures that were made and later increased the premium to reflect its continuing doubts about the adequacy of those disclosures.

These findings generate a question about the proper interpretation of the section 58(3)(a) exclusion. On one interpretation of the exclusion, the insurer "entered into the contract of automobile insurance" in December, 1995 and can now deny Mr. Mander statutory accident benefits because he made or was aware of the material misrepresentations made at that time. On another interpretation of the exclusion, these misrepresentations, however material they may have been in December, 1995, were rendered immaterial by the amendments made to the policy prior to the accident and consequential premium adjustments or opportunties to refuse coverage.

The section 58(3)(a) exclusion should be narrowly construed.⁶ A misrepresentation, once found, must be examined to determine its materiality, not its morality. In my view, any misrepresentation or non-disclosure relied upon by the Insurer under section 58(3)(a) must be material to the risk covered by the contract of insurance at the time of the accident. Since the evidence does not support such a finding in this case, I conclude that the Insurer cannot rely upon the exclusion contained in section 58(3)(a) of the Schedule.

Order:

1. The Insurer is not entitled to deny the Applicant statutory accident benefits due to the application of the exclusion in section 58(3)(a) of the Schedule.

David Leitch Arbitrator

Date

Appendix

List of Exhibits:

Exhibit 1 Ontario Application for Auto Insurance, December 7, 1995

Exhibit 2 void cheque of Mander Transport

Exhibit 3 General Accident Monthly Payment Plan Authorization card

Exhibit 4 Certificate of Auto Insurance - December, 1994

Exhibit 5 Certificate of Auto Insurance - December, 1995

Exhibit 6 Certificate of Auto Insurance - January 2, 1996

Exhibit 7 Certificate of Auto Insurance - January, 1996

Exhibit 8 Certificate of Auto Insurance - January, 1996

Exhibit 9 Broker's Memo, February 13, 1996

Exhibit 10 Certificate of Auto Insurance, February 28, 1996

Exhibit 11 Broker's letter, March 29, 1996

Exhibit 12 Certificate of Auto Insurance, April 25, 1996

Exhibit 13 Voiding letter from General Accident

Exhibit 14 Belmont Insurance letter

Exhibit 15 2 certificates issued by United Insurance Brokers Inc.

Exhibit 16 Statement from General Accident, undated

Exhibit 17 Memo from General Accident to Belmont Insurance

Exhibit 18 Citizenship card and social insurance number

Exhibit 19 Transcript of Adjusters Canada

Exhibit 20 Non-waiver Agreement

Exhibit 21 Ownership certificate for Mercedes Benz car

Footnotes

1. 1The Statutory Accident Benefits Schedule —Accidents after December 31, 1993, and before November 1, 1996, called "the Schedule" in this decision. The Schedule is Ontario Regulation 776/93, as amended by Ontario Regulation 635/94 and 781/94.
2. 2See Findlay and Lambton Mutual Insurance Company and General Accident Insurance Company (December 22, 1995), Appeal P-005358 and P-005359.
3. 3Dong Le and The Dominion of Canada General Insurance Company, (December 20, 1994), OIC A-005561.
4. 4See Long v. Commercial Union Assurance Co. of Canada, 1981 CanLII 1647 (ON HCJ), 32 O.R. (2d) 388 (H.C.) and Prowse et al. v. Sullivan et al.; Gore Mutual Insurance Company, Third Party; Mulvill et al., Fourth Parties, 1997 CanLII 12093 (ON CTGD), 32 O.R. (3d) 91 (Ontario Court - General Division).
5. 5See Bank of Nova Scotia v. Scottish & York Insurance Co. Ltd. et al. [1988] I.L.R. 1-2313 (Alberta Queen's Bench) and Fink v. Saskatchewan Government Insurance (1994) 21 C.C.L.I. 152 (Sask. Queen's Bench).
6. 6See Traganis and Security National Insurance Company (July 30, 1993), OIC A-001198 and Conway and Royal Insurance Company of Canada (June 16, 1995), OIC A-008945.