Royal & SunAlliance Insurance Company of Canada v. Eustachio (Steve) Giordano, 2007 ONFSCDRS 202

Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2007 ONFSCDRS 202

Appeal P06-00014

OFFICE OF THE DIRECTOR OF ARBITRATIONS

ROYAL & SUNALLIANCE INSURANCE COMPANY OF CANADA

Appellant

and

EUSTACHIO (STEVE) GIORDANO

Respondent

BEFORE:

David Evans

REPRESENTATIVES:

Jean-Claude Rioux for Royal and SunAlliance

Rikin Morzaria for Mr. Giordano

HEARING DATES:

November 14, 2006 and August 28, 2007

APPEAL ORDER

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

1. The appeal is allowed. Paragraph 1 of the arbitrator’s order dated April 12, 2006 is amended to read as follows:

Pursuant to s. 30(1)(b) of the SABS–1996, Mr. Giordano is precluded from proceeding to arbitration for income replacement benefits and housekeeping expenses.

2. If the parties are unable to agree on appeal expenses, a hearing may be requested in accordance with Rule 79 of the Dispute Resolution Practice Code.

October 19, 2007

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Royal appeals the arbitrator’s order that Mr. Giordano may claim income replacement benefits and housekeeping expenses for injuries arising out of an accident on May 13, 2003, even though they arose while he was driving without a valid driver’s licence.

II. BACKGROUND

Clause 30(1)(b) of the SABS–1996¹ provides that an insurer “is not required to pay an income replacement benefit … or a benefit under section … 22 [housekeeping and home maintenance] in respect of a person who was the driver of an automobile at the time of the accident … (b) if the driver was driving the automobile without a valid driver’s licence….” Mr. Giordano’s licence had expired in 2002.

Mr. Giordano’s licence was suspended several times for medical reasons related to his seizure disorder, most recently in October 2000. His licence was reinstated in January 2002 by a temporary licence expiring March 20, 2002, subsequently replaced by a permanent licence expiring May 16, 2002. The arbitrator noted Mr. Giordano’s testimony that, upon receiving his permanent licence, he did not read the expiry date on the licence, but placed it in his wallet and assumed it was valid for four or five years. A notice of renewal, normally sent out 60 days before expiry, was not sent because of a strike. Instead, notices were published in newspapers and on the radio that licences expiring during the strike would be extended to August 3, 2002. The arbitrator accepted Mr. Giordano’s testimony that he thought he would receive a notice of renewal before his licence expired. He also accepted that Mr. Giordano did not know the expiry date on his licence until a policeman told him in hospital following the accident and that he was not aware of the Ministry’s announcement extending driver’s licences.

In considering s. 30(1)(b), the arbitrator drew an analogy with the criminal law concept of “strict liability offence” and the defence of due diligence as set out in R. v. City of Sault Ste. Marie, 1978 CanLII 11 (SCC), [1978] 2 S.C.R. 1299. He noted that ss. 30(1)(a) and (d) of the SABS specifically import a driver’s state of mind with the words “if the driver knew or ought reasonably to have known” if he or she was operating an uninsured automobile or operating it without the owner’s consent. However, he found that, while superficially the omission of those words in s. 30(1)(b) suggested the legislature’s intent to make the insured’s state of mind irrelevant to this exclusion, it only affected the onus: “Once the insurer proves that the driver’s licence was not valid, the onus is on the driver to prove that he reasonably believed that his licence was valid or that he took all reasonable steps to avoid the expiry of his licence.”²

In arriving at this conclusion, the arbitrator was referred to several cases where the “due diligence defence” was considered as a defence to charges under provincial highway traffic acts. In these cases the words in the offence which the courts considered were driving a motor vehicle while not “the holder of a subsisting operator’s licence”,³ “driving while suspended”,⁴ and driving “while his license or privilege of obtaining a license is cancelled or suspended.”⁵

With respect to cases dealing with the Insurance Act, the arbitrator was referred to

cases dealing with breach of statutory condition: “The insured shall not drive or operate or permit any other person to drive or operate the automobile unless the insured or other person is authorized by law to drive or operate it.”⁶ In these cases the courts considered the driver’s state of mind in determining whether they should grant relief from forfeiture.

In a case considering a similar statutory condition,⁷ the court considered whether the insured made reasonable and prudent inquiries that his son’s licence was reinstated.⁸

The arbitrator found that a driver’s state of mind is a criterion in considering s. 30(1)(b):

The term “valid driver’s licence” is defined in the Ontario Highway Traffic Act.⁹ I find that the words “the driver was driving the automobile without a valid driver’s licence” used in section 30(1)(b) of the Schedule are similar to the words used in offences under provincial Highway Traffic Acts. In cases dealing with those offences, the courts have determined that the offences described by those words include a consideration of the driver’s state of mind and whether he reasonably ought to have known that his driver’s licence was expired, cancelled or suspended, even though the words in the offence do not refer to the driver’s state of mind. Having regard to the principle that statutes are presumed to operate together harmoniously and to reflect a consistent view of the subject in question, I find that the driver’s state of mind is subsumed within the notion of driving an automobile without a valid driver’s licence. It is therefore a criteria I must consider to determine whether the exclusion in paragraph 30(1)(b) of the Schedule applies to the facts of this case. Having regard to the test formulated in R. v. Sault Ste. Marie, I find that the exclusion does not apply where the insured proves that he reasonably believed that his licence was valid, or he took all reasonable steps to avoid the expiry of his licence.¹⁰

The arbitrator concluded that Mr. Giordano had a reasonable belief in the validity of his licence because he had not received notice of its expiry. He was not satisfied that a reasonable person would have known about the Ministry of Transportation’s policy to extend the expiry of licences. Based on evidence in the Quarrie case, cited above, he noted that few people are aware of the expiry dates on their driver’s licence and found that the reason for this is that people rely on the Ministry of Transportation to mail out the renewal notices. The arbitrator found that Mr. Giordano relied on the Ministry of Transportation to send him a renewal notice prior to the expiry of his licence. Accordingly, the arbitrator concluded, “I find that a reasonable person in Mr. Giordano’s circumstances would have done what Mr. Giordano did and put the licence in his wallet without reading the expiry date.”¹¹

III. ANALYSIS

After the initial hearing of the appeal in this case, I became aware of the Supreme Court of Canada’s decision Lévis (City) v. Tétreault; Lévis (City) v. 2629‑4470 Québec inc., [2006] 1 S.C.R. 420, 2006 SCC 12, issued the day after the arbitrator issued his decision. The Supreme Court found that due diligence involves more than mere passivity. Accordingly, a driver has a duty to know when his or her licence will expire and cannot rely on administrative practices such as expiry notices in the face of a legal obligation to have a valid licence.

Then, the Court of Appeal issued its decision Williams v. York Fire & Casualty Insurance Company, 2007 ONCA 479. MacFarland J.A. found that Quarrie, one of the cases the arbitrator relied on, was incorrectly decided. Accordingly, a further day of hearing was arranged for the parties to make submissions regarding these decisions.

The Court of Appeal in Williams held that the court in Quarrie was incorrect in finding s. 129 of the Insurance Act gives a court the power to relieve from forfeiture with respect to statutory conditions that apply before an accident; the court’s discretion under s. 129 is only in relation to things or matters required to be done after a loss has occurred. It left for another day whether or not a licence suspension breaches the policy.¹² The issue in Williams is not directly on point, since many arbitral cases have confirmed that arbitrators cannot provide relief under s. 129.¹³ What is interesting is that the court in Quarrie implicitly found that Mr. Quarrie was in breach of the statutory condition by driving without a licence.¹⁴

Turning to the issues at hand, I remain unconvinced that on the facts of this case it is necessary to bring the whole machinery of the Sault Ste. Marie defence into the analysis of the exclusionary clause. The issue is simply whether or not the exclusion applies, and if a licence has expired, there is no doubt the insured was driving without a valid driver’s licence, since he was driving without any licence at all. However, I will not dwell further on the matter, since, if an applicant cannot even pass the due diligence defence, then the exclusion applies. And I find that the Lévis case removes any foundation for that defence in this licence expiry case.

In Lévis, the court reiterated the due diligence test for strict liability offences as set out by Dickson J. in Sault Ste. Marie: “The defence will be available if the accused reasonably believed in a mistaken set of facts which, if true, would render the act or omission innocent, or if he took all reasonable steps to avoid the particular event.”¹⁵ The focus below is on the first branch of the test: reasonable belief. As will be seen, the reasonable belief has to be based on an active inquiry. Although the arbitrator referred to the second branch by asking whether Mr. Giordano “took all reasonable steps to avoid the expiry of his licence,” the expiry date was already set and no steps could be taken to prevent its expiry. The only reasonable step he could have taken was to renew it, and since he believed he did not yet have to do so at the time of the accident, the focus remains on his belief.

Turning to the application of the test in Lévis, an individual charged with driving with an expired licence and a company charged with driving a vehicle with an expired registration had been acquitted on the grounds of due diligence and, in the company’s case, on the additional ground of the defence or excuse of officially induced error. These acquittals stood until the Supreme Court overturned them.

The case of the individual accused in Lévis, Tétreault, is particularly germane. A police officer had pulled him over and noted that his driver’s licence had expired. At his trial on a charge of driving a vehicle without a valid driver’s licence, he stated that, given his age, he had been driving for only a few years, so he was unaware that the date appearing on his licence was the date the licence expired rather than a payment due date. Mr. Tétreault pointed out that new licences issued by the SAAQ¹⁶ now distinguish between the two dates. The Municipal Court of the City of Lévis accepted that the offence was one of strict liability subject to the defence of due diligence. The Supreme Court agreed, so the only issue in dispute was the application of the defence. Lebel J. spoke for the unanimous court at para. 30:

In Mr. Tétreault’s case, the judgments of the courts below confused passivity with diligence. The accused did no more than state that he expected to receive a renewal notice for his licence and that he had confused the licence expiry date with the due date for paying the fees required to keep the licence valid. He proved no action or attempt to obtain information. The concept of diligence is based on the acceptance of a citizen’s civic duty to take action to find out what his or her obligations are. Passive ignorance is not a valid defence in criminal law. Consequently, the acquittals are unfounded in this case.

Mr. Giordano did not look at the expiry date, so he made no attempt to obtain information. The Sault Ste. Marie defence is only available if the person “reasonably believed in a mistaken set of facts which, if true, would render the act or omission innocent....” Based on the findings in Lévis, it is not reasonable to mistakenly believe that one’s licence is valid without looking at the expiry date and without taking any step other than to await an expiry notice in the mail. To be reasonable, the belief has to be based on more than an assumption, and Mr. Giordano did not engage in the active inquiry required by Lévis.

Additionally, the arbitrator found that the insured was entitled to depend on receiving an expiry notice. Implicitly, the arbitrator appears to have been considering the defence or excuse of officially induced error. The court in Lévis considered this defence along with the defence of due diligence in relation to the corporate accused, which was charged with operating a motor vehicle with an expired registration. Both defences were based on the same allegations of fact, namely that the company was misled. The company alleged that a representative of the SAAQ had it pay registration fees corresponding to a 15‑month period and had told it that a renewal notice would be sent to it before the period expired. Because of an error, the SAAQ sent the notice to the company with an incomplete address and the postal service returned it to the sender.

The Supreme Court found the company had not met the defence of due diligence because it did nothing when it failed to receive a notice although it knew the date the registration would expire.

The court also considered the defence of officially induced error. Lamer C.J. proposed the principles of the defence in R. v. Jorgensen, 1995 CanLII 85 (S.C.C.), [1995] 4 S.C.R. 55 at paras. 28-35. They include that the person who committed the act considered the legal consequences of his or her actions, that the advice obtained came from an appropriate official, and that the person relied on the advice in committing the act. LeBel J. in Lévis agreed that the defence is now part of the criminal law¹⁷ and stated that various factors will be taken into consideration in the course of this assessment, including the efforts made by the accused to obtain information, the clarity or obscurity of the law, the position and role of the official who gave the information or opinion, and the clarity, definitiveness and reasonableness of the information or opinion. He concluded:

Nor has the respondent established that the conditions under which the defence or excuse of officially induced error is available have been met in this case and justified a stay of proceedings. The issues raised related at most to administrative practices, not to the legal obligation to pay the fees by the prescribed date. Two fundamental conditions that must be met for this defence to be available were therefore missing. In the circumstances, the respondent could not have considered the legal consequences of its conduct on the basis of advice from the official in question, nor could it have acted in reliance on that opinion, since no information regarding the nature and effects of the relevant legal obligations had been requested or obtained.

The same fundamental conditions are missing with respect to Mr. Giordano. In fact, he did not even receive advice from any official but simply assumed, as had Mr. Tétreault, that he would receive a notice. He could not have considered the legal consequences of his conduct on the basis of advice from any official, nor could he have acted in reliance on that advice, since he had not requested or obtained any information regarding the nature and effects of the relevant legal obligations. Accordingly, I find that the arbitrator erred when he stated that because drivers expect to receive renewal notices, they will be excused if the notices are not sent. With respect to both accuseds in Lévis, the Supreme Court rejected this position.

The appeal is allowed, and an order will be substituted that Mr. Giordano is precluded from proceeding to arbitration for income replacement benefits and housekeeping expenses.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, a hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

October 19, 2007

David Evans Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule – Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2Arbitration decision, p. 7.
3. 3R. v. Christman [1984] A.J. 675 (Alberta Court of Appeal, October 1, 1984).
4. 4R. v. Bellomo [1995] O.J. No. 313 (Ont. Ct. of Justice, Prov. Div., February 13, 1995).
5. 5R. v. MacDougall 1982 CanLII 212 (SCC), [1982] 2 S.C.R. 605 (S.C.C., February 18, 1982).
6. 6Spezzano v. Spezzano [2002] O.J. No. 225 (Ont. Sup. Ct. of Justice, June 4, 2002), Henckel v. State Farm Mutual Automobile Insurance 1997 CanLII 12129 (ON CTGD), 33 O.R. (3d) 253 (Ont. Ct., Gen. Div., April 9, 1997) and Quarrie v. State Farm Mutual Automobile Insurance Company 1997 CanLII 16248 (ON CTGD), 32 O.R. (3d) 421 (Ont. Ct., Gen. Div., January 17, 1997). [Footnote in the original.]
7. 7Ratajczak v. Hemstra, [1985] O.J. No. 1784 (Ontario District Court, March 7, 1985). [Footnote in the original.]
8. 8Arbitration decision, p. 6.
9. 9“Valid driver’s licence” is defined in Ontario Regulation 340/94 made under the Highway Traffic Act, R.S.O. 1990, c. H.8, as meaning “a driver’s licence that is not expired, cancelled or under suspension.”
10. 10Arbitration decision, p. 6.
11. 11Ibid., p. 10.
12. 12For similar reasons, I will not be considering cases that deal with licence suspensions, such as Bodo and Royal Insurance Company of Canada, (OIC A96–001102, October 23, 1997).
13. 13As was noted by the arbitrator in Bodo.
14. 14The court was aware of earlier cases that had found a breach of statutory conditions in similar situations.
15. 15Sault Ste. Marie, at p. 1326.
16. 16The Société de l’assurance automobile du Québec.
17. 17Acceptance of the defence stays the prosecution.