Neutral Citation: 2001 ONFSCDRS 105

FSCO A00-000644

BETWEEN:

JEFFREY VERRETTE

Applicant

and

LIBERTY MUTUAL FIRE INSURANCE COMPANY

Insurer

REASONS FOR DECISION

Before:

Lawrence Blackman

Heard:

June 5, 2001, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances:

Michael Smitiuch for Mr. Verrette

Michael Nicolis for Liberty Mutual Fire Insurance Company

The Applicant, Mr. Jeffrey Verrette, was injured in a motor vehicle accident on December 24, 1999. It is not disputed that the car he was driving was not insured at the time of the accident. Mr. Verrette applied for statutory accident benefits payable under the 1996 Schedule,¹ from what appears to be the third-party insurer, Liberty Mutual Fire Insurance Company ("Liberty Mutual").

Relying on paragraph 30(1)(a) of the 1996 Schedule, Liberty Mutual declined to pay Mr. Verrette weekly income replacement benefits, asserting that the Applicant knew or ought reasonably to have known that he was operating his vehicle while it was not insured under a motor vehicle insurance policy. Mr. Verrette maintains that he was not aware nor could he have reasonably known that the car was uninsured. The parties were unable to resolve their dispute through mediation and Mr. Verrette applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended (the Insurance Act).

Accordingly, the issues in this hearing are:

Is Liberty Mutual not required to pay Mr. Verrette an income replacement benefit because Mr. Verrette knew or ought reasonably to have known that he was operating the automobile while it was not insured under a motor vehicle liability policy?
Is Liberty Mutual liable to pay a special award, pursuant to subsection 282(10) of the Insurance Act because it unreasonably withheld or delayed payments to Mr. Verrette?
Is Liberty Mutual liable to pay Mr. Verrette's expenses in respect of this arbitration pursuant to subsection 282(11) of the Insurance Act?
Is Mr. Verrette liable to pay Liberty Mutual's expenses in respect of this arbitration pursuant to subsection 282(11) of the Insurance Act?

Liberty Mutual is not required to pay Mr. Verrette an income replacement benefit.
Liberty Mutual is not liable to pay a special award.
The parties may now speak to the question of the expenses of this arbitration.

Legislative Framework

Part II of the 1996 Schedule provides for payment of weekly income replacement benefits to insured persons who meet the requisite employment requirements and who sustain the statutory degree of disability as a result of an accident. Paragraph 30(1)(a) of the 1996 Schedule, however, provides that the insurer is not required to pay such weekly benefits,

(a) if the driver knew or ought reasonably to have known that he or she was operating the automobile while it was not insured under a motor vehicle liability policy;

The wording of this exclusion provision differs from the 1994 Schedule,² section 58 of which exempted the insurer from payment of weekly benefits only,

(c) if, as a result of the accident, the driver is convicted of operating the automobile while it was not insured under a motor vehicle liability policy;

The equivalent provision in the prior 1990 Schedule³ being paragraph 17(1)(c), used identical wording as the 1994 Schedule.

Onus

In Jacobs and Economical Mutual Insurance Company (OIC A-004394, June 16, 1994), Arbitrator Palmer considered the meaning of the words "ought reasonably to have known" in an exclusion clause under the 1990 Schedule. I concur with her conclusion "that the use of the word 'reasonably' . . . means an individualized inquiry is called for, but only to the extent of the exercise of reason by an ordinary, rational person in the situation of the Applicant." I further find that the "evidence must convince the arbitrator, at least on a balance of probabilities, that an ordinary person" in Mr. Verrette's situation knew or ought reasonably to have known that he was operating the vehicle while it was not insured under a motor vehicle liability policy.

Findings

The following facts are largely uncontested, and I make these findings based on the oral and documentary evidence before me.

Mr. Verrette was born on December 20, 1977.

In October 1998, Mr. Verrette wished to purchase a 1989 Ford Mustang. Because of credit difficulties, his mother, Ms. Sheila Corkett, co-signed a loan to help him obtain the car. The approximate $1,400 cost of the vehicle was consolidated with Mr. Verrette's existing debts, for a total of some $8,000 being owed to TransCanada Credit ("TransCanada"). Mr. Verrette was to be responsible for the monthly payments of $231.31 to TransCanada.

Even though the Mustang was for Mr. Verrette's sole use, the ownership of the vehicle was put in Ms. Corkett's name. The Mustang was insured with Halifax Insurance Company ("Halifax"). Neither Halifax nor the insurance broker, however, were advised of Mr. Verrette's use of the Mustang. Mr. Verrette was not noted as a listed driver on the policy of insurance. The Applicant was to pay his mother for the car insurance and Ms. Corkett, in turn, was to pay the insurer. The insurance premiums came out of Ms. Corkett's bank account automatically every month. Mr. Verrette paid his mother in cash. No record of the latter payments was maintained.

Between October 1998 and the December 1999 accident, Mr. Verrette incurred between $6,000 and $9,000 in repairs and improvements on the Mustang, including approximately $3,000 for a stereo system and some $4,000 for painting and custom interior work.

In April 1999, Mr. Verrette was involved in an accident with the Mustang. Mr. Verrette and his mother concocted a story for Halifax that this was Ms. Corkett's car, which the Applicant was picking up for his mother when the accident took place. In his testimony, Mr. Verrette admitted to lying to Halifax. He endeavoured, however, to qualify this, by stating that Halifax had failed to ask him the precise question of whether he was driving the Mustang all the time.

In May 1999, Ms. Corkett again helped her son obtain a further loan for transmission work to be done on the Mustang.

Ms. Corkett's insurance coverage on the Mustang was renewed with Halifax effective September 12, 1999, the coverage to expire September 12, 2000. Ms. Corkett gave her son a copy of the "pink slip" sometime in either August or September 1999.

In September 1999, Mr. Verrette was living with his mother. His monthly liability to her at that point was $100 for the insurance on the Mustang and $100 for rent. Mr. Verrette was then working as shipping manager for Jaydan Diversified Inc. ("Jaydan") on a sub-contractor basis.

In the fall of 1999, Mr. Verrette did not have a good relationship with his mother. In or about the end of September, Mr. Verrette moved out of his mother's house. He testified that in the late fall of 1999 he was aware that his mother was declaring bankruptcy (his mother actually filed for bankruptcy on or about September 28, 1999). Mr. Verrette wanted his mother to sign over the ownership of the Mustang to him. Ms. Corkett said that she could not do that and he would have to speak to the trustee in bankruptcy, BDO Dunwoody ("BDO"). There was conflicting evidence as to what, if anything, was said between mother and son as to her continuing to pay the insurance on the Mustang.

In November 1999, BDO, being of the view that the Mustang was one of Ms. Corkett's assets, endeavoured to seize the car at Mr. Verrette's place of work. Mr. Verrette prevented the seizure. The police were called. Mr. Verrette showed them the loan payments that he was making, which evidently persuaded the police that BDO should not be allowed to take the vehicle. Mr. Verrette then spoke by telephone with Mr. Douglas Thode of BDO. Exactly what was discussed between Mr. Verrette and Mr. Thode goes to the heart of this dispute, and is dealt with below. However, Mr. Verrette testified, and I specifically find, that he never contacted Halifax prior to the accident date to determine whether the insurance on the Mustang was still in place.

On December 24, 1999, Mr. Verrette was driving the Mustang northbound on Erin Mills when he was involved in a car accident. His injuries included his right knee, neck, back and right shoulder. Mr. Verrette contacted Halifax following the accident. Shortly thereafter they advised that they no longer insured the Mustang. Halifax's records indicate that coverage on the Mustang had been removed on October 29, 1999 at Ms. Corkett's request. This had been confirmed by correspondence to Ms. Corkett on November 1, 1999 from Signature Insurance Brokers Inc.

Mr. Verrette applied to Liberty Mutual for accident benefits. His application for income replacement benefits was denied.

Mr. Verrette testified that he was not currently working due to injuries sustained in this accident. He testified that he has been unable to pursue educational and career choices and is in financial hardship.

The Insurer's Case

Liberty Mutual submits that Mr. Verrette knew or ought to have known at the time of the accident that the Mustang was not insured. Hence, it maintains that it is not required to pay weekly benefits to Mr. Verrette.

The Insurer first submits that Ms. Corkett told her son in or about September 1999 that she was not going to continue to insure the Mustang and that Mr. Verrette had one month to get the insurance on the vehicle in order. The Applicant's sister, Ms. Kimberly Corkett, testified that she overheard this communication. Liberty Mutual, therefore, argues that Mr. Verrette knew that the Mustang was not going to be insured after October 1999.

The Insurer further submits that Mr. Verrette conceded at the hearing that in the fall of 1999 he was aware that he now had to deal with BDO about the car. Liberty Mutual maintains that BDO never agreed to maintain the insurance on the Mustang, and hence, the Applicant should have known at the time of the December 1999 accident that there was no insurance on the vehicle.

The Applicant's Case

Mr. Verrette testified that his mother never advised him that she was going to cancel the insurance on the Mustang, nor did she tell him after doing so.

He further testified that in or about September 1999, he gave his mother $400 to cover the car insurance on the Mustang for the last four months of 1999.

Mr. Verrette also stated that Mr. Thode told him that BDO would be responsible for the insurance on the Mustang until it sorted out the question of the vehicle's ownership. His employer, Ms. Debbie Jansen, testified that while walking by Mr. Verrette's office, she overheard someone on the speaker phone indicate that the insurance would be their responsibility until matters were resolved.

Therefore, Mr. Verrette argues that at the time of the accident he believed that the Mustang was still insured with Halifax, relying on payments having been made either by his mother (with the $400 he had paid her) or by BDO (following Mr. Thode's purported assumption of responsibility). Accordingly, Mr. Verrette submits that he is entitled to payment of weekly income replacement benefits.

The Applicant further asserts that he is entitled to a special award because Liberty Mutual rushed to judgment in denying him weekly payments despite his consistent assertion that he had not been aware that the insurance had been cancelled and before having obtained a statement from his mother.

Decision

The parties both submit that this decision comes down to a question of credibility.

The parties further agree that the appropriate test in weighing the conflicting evidence is:

the harmony of the testimony with the preponderance of the probabilities that a practical and informed person would recognize as reasonable in the circumstances.⁴

I heard considerable conflicting evidence as to what Ms. Corkett may or may not have told her son in or about September 1999 about her plans to declare bankruptcy and what would happen to the insurance on the Mustang.

Two findings in this regard are necessary.

First, I accept the uncontradicted evidence of Ms. Corkett that she did not have any contact with her son from late October 1999 until after the car accident. I find that the reason for this was a falling out between mother and son, to which all members of the Applicant's family, as well as Ms. Jansen, attested. I also find that in the fall of 1999, Mr. Verrette was aware that his mother was declaring bankruptcy. I accept Mr. Verrette's testimony to the extent that in October 1999 it was his belief that it was no longer his mother but rather BDO that now had "control" over the Mustang and that he would have to deal with them to have the vehicle signed over to him. Mr. Verrette testified that he told BDO that he wanted the car signed over to him so that he could make the insurance payments. I note, without accepting, Mr. Verrette's testimony that Mr. Thode stated that it was BDO's responsibility to pay the insurance until the question of ownership was resolved.

I find implicit in this evidence an understanding by Mr. Verrette prior to the end of the fall of 1999, despite his protestations to the contrary, that his mother had or would be relinquishing her continuing commitment to be responsible for the insurance on the Mustang.

The only evidence that would be in harmony with "the preponderance of the probabilities that a practical and informed person would recognize as reasonable" as to why Mr. Verrette would expect that his estranged, bankrupt mother would have continued to have paid the monthly insurance premiums past October 1999 is his assertion that he had given her $400 in September 1999 to cover the payments to the end of the year.

I do not believe this.

There is no documentary or independent evidence that this sum was paid. Ms. Corkett denied receiving these monies. There is no evidence of any precedent for Mr. Verrette having made advance payments. Indeed, the Applicant conceded that he had fallen into arrears with his mother regarding rent "on occasion." I accept his mother's evidence that Mr. Verrette fell into arrears regarding his various obligations more than "on occasion." Mr. Verrette, himself, admitted having arguments with his mother about his arrears. While the complete records of TransCanada were not available, there is noted a significant lapse of payment with them between September 1999 (when only $100 was paid, not the requisite $231.31) and December 30, 1999 when the next payment was made. The Applicant failed to explain why he would pay his mother in advance while not keeping current with an institutional creditor. It is also far too convenient that the alleged $400 payment, coincidentally, would take care of insurance coverage until about a week after this accident.

I, therefore, do not accept that Mr. Verrette paid $400 for future insurance payments (as opposed to covering past and present payments), if indeed any payment was made by the Applicant to his mother in or about September 1999. Accordingly, I find that "an ordinary, rational person in the situation of the Applicant" would not reasonably have expected that Ms. S. Corkett would have continued to pay for insurance on the Mustang past October 1999.

Mr. Verrette also testified that in his November 1999 conversation with Mr. Thode immediately following BDO's thwarted attempt to seize the Mustang, the latter indicated that BDO had taken responsibility for continued insurance payments on the vehicle.

In this regard, I do not believe the evidence of Mr. Verrette and Ms. Jansen.

Rather, I accept the evidence of Mr. Thode that no such undertaking regarding insurance on the Mustang was ever given.

I found Mr. Thode to be a credible, independent and dispassionate witness. He was no longer with BDO, having moved on to work freelance after eight years with the company. I received no evidence or submission as to why Mr. Thode would choose to perjure himself. I found him to be a calm and thoughtful witness, with a good recollection of the important facts pertinent to this matter. Most importantly, I found his evidence to be "in harmony . . . with the preponderance of the probabilities that a practical and informed person would recognize as reasonable in the circumstances."

Mr. Thode testified that after the attempted seizure of the Mustang (that is, before the end of November 1999), he spoke to Mr. Verrette. Mr. Verrette indicated to him that he would come after Mr. Thode with a baseball bat if he tried to seize the vehicle again. Although Mr. Verrette denied threatening Mr. Thode in such a manner, the Applicant conceded that he was not "the nicest person" in the conversation. I also note the Applicant's apparent great love for the Mustang, the instances of anger noted in the Liberty Mutual and BDO records and Mr. Verrette's comment to Mr. Thode that they would never get his car. In light of this, I accept Mr. Thode's evidence (supported by contemporaneous written notes) that BDO realized in the fall of 1999 that they would have difficulty picking up the vehicle as the Applicant would not voluntarily hand it over. Obtaining a court order would require expending monies. BDO concluded that the cost of realizing on the Mustang would exceed its value. Hence, it would not make any economic sense for BDO to pay for the insurance on the Mustang.

While Mr. Thode agreed that in certain cases BDO would insure an asset, there was no concession in this case that there was reason to do so. Given the lack of any evidence or submission as to any logical reason why BDO would undertake to pay for the insurance, I do not accept the Applicant's self-serving evidence in this regard. Nor do I accept Ms. Jansen's evidence. She is a long-time friend of the Applicant, besides being his former employer. She evidently has long simmering issues with Ms. S. Corkett, which she illustrated by an uncalled for tirade against the Applicant's mother. I find Ms. Jansen neither independent nor credible.

Mr. Verrette's own evidence was contradictory. If he was, indeed, of the belief that the insurance on the Mustang had been paid by his mother to the end of December, it makes little sense as to why in October or November he was so anxious to immediately elicit an undertaking from BDO to pay the car insurance. Nor did his evidence indicate that he advised BDO of his belief that his mother was paying the insurance until the new year, and that they had several weeks to sort out ownership.

Furthermore, it does not make any sense why BDO would, in Mr. Verrette's own evidence, try to "extort" $350 in exchange for their having the ownership of the Mustang signed over to him, while at the same time giving an open-ended commitment to maintain the insurance payments for a vehicle of which Mr. Verrette had the sole use and which he had no intention of ever releasing.

Overall, Mr. Verrette's evidence was less than impressive. He had great difficulty conceding that his mother's co-signing his loans was an unselfish act on her part. Rather, he wished me to believe that not having him listed with Halifax as a driver of the Mustang (and presumably having the ownership and the insurance both in his mother's name) was in his mother's interest as well as his own. His failure to advise Halifax in April 1999 that he was the regular (indeed, the sole) driver of the Mustang was presented to me as being in his mother's, not his, interest. A large gap in payments to TransCanada belied his representation of himself as a responsible person who conscientiously paid his debts.

The Applicant submitted that it made no sense for him to drive without insurance and risk "one of the great loves of his life."

I find that "the harmony of the testimony with the preponderance of the probabilities that a practical and informed person would recognize as reasonable in the circumstances" would indicate that in the final months of 1999, Mr. Verrette was not a very responsible young man, and placed greater priority on paying $620.60 cash for Pirelli tires than meeting his existing debt obligations or having insurance in place on the vehicle that he was regularly driving, and that at best, he turned a deliberately blind eye as to whether Halifax continued to insure the Mustang.

An entry in Liberty Mutual's adjusting notes indicate that it was believed that a conviction for driving without insurance was required to make a denial of income replacement benefits "a sound one."

Under the 1996 Schedule, it is sufficient that the driver ought reasonably to have known that he was driving the automobile while it was not insured under a motor vehicle policy. I find that Mr. Verrette could not reasonably have expected that either his mother or BDO were paying for insurance on the Mustang in December 1999. Therefore, I am persuaded that "an ordinary, rational person in the situation of the Applicant" ought reasonably to have known that he was operating the Mustang at the time of the accident while it was not insured under a motor vehicle liability policy.

Accordingly, the unfortunate result for Mr. Verrette is that he is not entitled to payment of weekly income replacement benefits, in accordance with paragraph 30(1)(a) of the 1996 Schedule.

Special Award

I am not persuaded that there was any unreasonable delay or withholding of payments. I agree with the Insurer's position that it continued to investigate whether paragraph 30(1)(a) applied and that the new information forthcoming merely strengthened their initial valid concern.

EXPENSES:

I may now be spoken to, should the parties be unable to agree on the question of expenses of this arbitration proceeding.

July 13, 2001

Lawrence Blackman Arbitrator

Date