Kahlon v. ACE INA Insurance

[Indexed as: Kahlon v. ACE INA Insurance]

Ontario Reports Court of Appeal for Ontario Lauwers, Huscroft and Trotter JJ.A. October 1, 2019

148 O.R. (3d) 318 | 2019 ONCA 774

Case Summary

Insurance — Automobile insurance — Action against insurer

Plaintiff seriously injured by an underinsured motorist while operating a tractor-trailer in Florida. He had his own automobile insurance as well as fleet coverage. Both policies restricted underinsured motorist coverage to passenger vehicles and light commercial vehicles. Neither insurer was obliged to provide underinsured coverage for the heavy commercial vehicle operated by the plaintiff.

Insurance — Automobile insurance — Exclusions

Plaintiff seriously injured by an underinsured motorist while operating a tractor-trailer in Florida. He had his own automobile insurance as well as fleet coverage. Both policies restricted underinsured motorist coverage to passenger vehicles and light commercial vehicles. Neither insurer was obliged to provide underinsured coverage for the heavy commercial vehicle operated by the plaintiff.

Insurance — Automobile insurance — Fleet insurance

Plaintiff seriously injured by an underinsured motorist while operating a tractor-trailer in Florida. He had his own automobile insurance as well as fleet coverage. Both policies restricted underinsured motorist coverage to passenger vehicles and light commercial vehicles. Neither insurer was obliged to provide underinsured coverage for the heavy commercial vehicle operated by the plaintiff.

Insurance — Automobile insurance — Interpretation and construction

Plaintiff seriously injured by an underinsured motorist while operating a tractor-trailer in Florida. He had his own automobile insurance as well as fleet coverage. Both policies restricted underinsured motorist coverage to passenger vehicles and light commercial vehicles. Neither insurer was obliged to provide underinsured coverage for the heavy commercial vehicle operated by the plaintiff.

Insurance — Automobile insurance — Underinsured motorist endorsement

Plaintiff seriously injured by an underinsured motorist while operating a tractor-trailer in Florida. He had his own automobile insurance as well as fleet coverage. Both policies restricted underinsured motorist coverage to passenger vehicles and light commercial vehicles. Neither insurer was obliged to provide underinsured coverage for the heavy commercial vehicle operated by the plaintiff.

Facts

The plaintiff was operating a tractor-trailer as an independent contractor in Florida. When he was delayed in a lineup, he alighted from his rig to investigate and was struck by a Florida vehicle whose policy limit was $20,000. The plaintiff was very seriously injured. He had his own automobile coverage through the defendant AllState. The commercial tractor trailer was insured by the defendant ACE. Both policies had family protection endorsements for underinsured vehicle coverage, but that of the ACE policy was limited to private passenger and light commercial vehicles. A motion judge granted summary judgment to the plaintiff and declared that AllState, and not ACE, was obliged to respond to the underinsured coverage claim. AllState appealed, and the plaintiff cross-appealed the decision that there was no underinsured coverage under the ACE policy.

Held

The appeal should be allowed; the cross-appeal should be dismissed.

The motion judge did not err in interpreting the endorsement in the ACE policy. The endorsement specifically excluded coverage for heavy commercial vehicles of the type that the plaintiff was operating when the accident occurred. The fact that the form used for the endorsement was not approved by the Superintendent of Financial Services did not render it unenforceable.

The motion judge erred in interpreting the AllState policy. The coverage provided to the plaintiff for automobiles other than his own domestic vehicle was subject to certain "Special Conditions", one of which limited gross vehicle weight to no more than 4,500 kilograms. The motion judge found that the special conditions did not mention underinsured automobiles and thus did not apply to underinsured automobiles. However, unlike mandatory uninsured coverage, underinsured coverage was optional. The underinsured coverage was provided by the endorsement, not by the policy. Because the endorsement did not qualify the use of the term "other automobile", the use of that term in the policy prevailed, including the Special Conditions. The exclusion of coverage for heavy commercial vehicles deprived the plaintiff of underinsured coverage under the AllState policy with respect to the accident. The doctrine of reasonable expectations was insufficient to sustain the plaintiff's claim. There was no authority to override contractual language to overcome the apparent harshness of the result.

APPEAL AND CROSS-APPEAL

From the judgment of Whitten J. (2018), 141 O.R. (3d) 384, [2018] O.J. No. 438, 2018 ONSC 784 (S.C.J.).

Sheldon A. Gilbert, Q.C., for appellant.

John Adair and Joseph A. Cescon, for respondent Kulwinder Singh Kahlon.

Patrick J. Monaghan, for respondent ACE INA Insurance.

The judgment of the court was delivered by

LAUWERS J.A.:

A. The Context

[1] Mr. Kahlon's corporation, Kohuja Transport Inc., owned and leased a tractor to Bell City Transport Systems Incorporated. Mr. Kahlon operated it as an independent contractor for Bell City Transport under fleet insurance provided by ACE INA Insurance.

[2] On May 24, 2011, Mr. Kahlon was in Florida operating the tractor with a trailer. He stepped out of the tractor when it was stopped in a lineup to determine the cause of the delay. A Florida-based domestic vehicle operated by a member of the MacDonald family struck Mr. Kahlon and he suffered serious injuries, including a traumatic brain injury. The insurance coverage available on the MacDonald vehicle was only $20,000; this was insufficient to cover the damages flowing from Mr. Kahlon's injuries, which go beyond pain and suffering to include future care, household care and numerous economic losses including the loss of future income and the loss of economic opportunity. The motion judge identified the situation as one of "underinsurance". ACE INA has been paying Mr. Kahlon's statutory accident benefits, which are not in issue.

[3] Mr. Kahlon had automobile insurance on his personal automobile through AllState Insurance Company of Canada.

[4] Both the AllState policy and the ACE INA fleet policy had attached OPCF 44R Family Protection Coverage endorsements (the "endorsement"), which provide insureds with coverage for a collision with an underinsured vehicle. If the endorsement applies, the insured person's coverage for injury from a collision with an underinsured automobile is "the amount that he or she is legally entitled to recover . . . as compensatory damages in respect of bodily injury . . . or death . . . arising directly or indirectly from the use or operation of [the] automobile": the endorsement, at s. 3. Recovery is limited to the amount by which the limit of family protection coverage exceeds the limit of the underinsured motorist's motor vehicle liability insurance: the endorsement, at s. 4.

[5] In a nutshell, this appeal considers whether truck drivers like Mr. Kahlon who are injured in motor vehicle accidents while on the job are able to access underinsured coverage under the insurance policies on their personal domestic automobiles.

B. The Judgment under Appeal

[6] The motion judge heard three motions under rule 21.01(1)(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The parties sought a determination as to whether either of AllState or ACE INA were obliged to provide underinsured coverage to Mr. Kahlon under the endorsement in their respective policies.

[7] The motion judge granted summary judgment to Mr. Kahlon and declared that AllState was obliged to respond to his underinsured coverage claim. The motion judge declared that ACE INA was not obliged to respond.

[8] AllState appeals. Mr. Kahlon cross-appeals with respect to underinsured coverage under the ACE INA policy.

[9] I would allow AllState's appeal and dismiss Mr. Kahlon's cross-appeal, for the reasons that follow.

C. The Positions of the Parties

[10] ACE INA's position is that any obligation it might have to provide underinsured coverage to Mr. Kahlon would flow from endorsement 11 attached to its fleet policy. But the endorsement contains an exclusion for commercial vehicles like the one Mr. Kahlon was driving when he was injured. Mr. Kahlon therefore does not have underinsured coverage under ACE INA's policy.

[11] AllState's position is that truck drivers like Mr. Kahlon do not have underinsured coverage under their personal automobile policies for injuries they sustain on the job as drivers of their trucks. AllState argues that this conclusion follows inescapably from a proper reading of the combination of the provincially prescribed Ontario Automobile Policy, also known as OAP1 (the "policy"), for Mr. Kahlon's domestic automobile, in particular, s. 2.2.3, and the provincially prescribed language of its endorsement, in particular s. 22.

[12] If AllState's argument is valid, it appears that the class excluded from underinsured coverage could include: people like Mr. Kahlon who operate an automobile with the gross automobile weight rating of more than 4,500 kg (policy, s. 2.2.3, Special Condition 1); those who operate an automobile in connection with the business of selling, repairing, maintaining, storing, servicing, or parking automobiles (Special Condition 3); those who operate an automobile to carry paying passengers (Special Condition 4); and those who use an automobile to make commercial deliveries (Special Condition 4).

[13] Because the broad practical reach of AllState's argument could exclude many from underinsured coverage, the panel advised the parties that it needed more evidence "about how Ontario-based truck drivers and other drivers of commercial vehicles obtain underinsured coverage, if in fact they do, and whether the interpretation urged by AllState would have a surprising impact on Ontario's insureds": reasons released November 9, 2018 and reported at (2018), 144 O.R. (3d) 141, [2018] O.J. No. 5907, 2018 ONCA 906. The panel reconvened to consider the evidence tendered by the parties and to hear further argument.

Fleet Insurance

[14] The parties filed supplementary affidavit evidence from three experts. Jason Foroglou is the director of Ivantage Insurance Brokers Inc., which is an AllState owned company. John Alaimo, whose evidence was presented by ACE INA, works in personal and commercial underwriting, "recently specializing in long haul transportation". Ed Knoblauch, whose evidence was also presented by ACE INA, is a claims consultant with experience in handling and supervising claims involving heavy vehicles and their operators. All three experts were cross-examined.

[15] Several contextual facts emerged from the supplementary evidence. First, the provision of insurance to commercial truck fleets is highly specialized and there are only a handful of insurers providing such coverage. AllState does not insure commercial vehicles.

[16] Second, until about 15 years ago commercial truck fleet insurers offered underinsured coverage under the predecessor to OPCF 44R. They no longer do so because of the increased risk posed by truck fleets travelling into the United States. Because underinsured coverage is not mandatory, the fleet insurers decided not to offer it. Consequently, the insurance market no longer provides underinsured coverage for truck fleets or their drivers.

[17] Third, claims under the endorsement are relatively rare but are obviously significant to those who make them. The total premium for the risk being assumed by the insurer in respect of underinsured coverage ranges from $20 to $40. The risk is not "underwritten", which means that it is not actually based on a risk assessment.

[18] Fourth, none of the experts were able to specify the class of persons who would be adversely affected by a decision of the court, apart from truckers. The list would capture many people who operate automobiles in their work. However, the panel has no evidence on how the insurance market addresses the needs of this class of persons for underinsured coverage.

D. The Issues

[19] There are two issues. The first is whether the motion judge correctly held that ACE INA is not obliged to provide underinsured coverage to Mr. Kahlon. The second is whether the motion judge correctly held that AllState is obliged to provide underinsured coverage to Mr. Kahlon. I address each issue in turn, after describing the nature of insurance coverage for underinsurance in Ontario.

E. Analysis

[20] It is common ground that Mr. Kahlon has underinsurance coverage under both the ACE INA and the AllState policies.

[21] Ontario law draws a distinction between the situation in which an insured person is injured in a collision with an uninsured automobile, on the one hand, and the situation in which an insured person is injured in a collision with an underinsured automobile, on the other. The motion judge was right to advert to this distinction. He relied on decisions of this court in Chomos v. Economical Mutual Insurance Co., 61 O.R. (3d) 28, at para. 35; and Pilot Insurance Co. v. Sutherland, 2007 ONCA 492, 86 O.R. (3d) 789, at para. 30.

[22] The first situation -- in which the collision is with an uninsured automobile -- is addressed by s. 265 of the Insurance Act, R.S.O. 1990, c. I.8 and by the policy. Coverage for collision with an uninsured automobile is a mandatory component of automobile insurance. The insured person's coverage for injury from a collision with an uninsured automobile includes "payment of all sums" that he or she is "legally entitled to recover from the owner or driver of [the] uninsured automobile . . . as damages for bodily injuries resulting from [the] accident": Insurance Act, s. 265(1)(a). See, also, the policy, s. 5.2.1.

[23] The second situation -- in which the collision is with an underinsured automobile -- is addressed by the endorsement. This is optional insurance coverage, not mandatory, and can be purchased by the insured person along with coverage under the policy. As noted earlier, the insured person's Family Protection Coverage for injury from a collision with an underinsured automobile is a calculated amount that reflects the difference between the underinsured vehicle's limit of coverage and the insured's own limit under the policy.

[24] With that background, I turn to the issues after a brief reference to the standard of review.

The Standard of Review

[25] Courts should strive to ensure that similar insurance policies are construed consistently: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, at para. 23. The interpretation of a standard form contract has precedential value, so that its "interpretation is better characterized as a question of law subject to correctness": Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, at para. 46. The standard of review applied to a motion judge's interpretation of a standard form insurance contract is therefore correctness. See, also, MacDonald v. Chicago Title Insurance Co. of Canada, 2015 ONCA 842, 127 O.R. (3d) 663.

Issue One: Is ACE INA Obliged to Provide Underinsured Coverage to Mr. Kahlon?

[26] Any obligation on ACE INA's part to provide underinsurance coverage to Mr. Kahlon would flow from the endorsement 11 attached to the truck fleet policy for Bell City Transport.

[27] ACE INA submits that its endorsement only applies to certain vehicles in the Bell City Transport fleet, which are identified in para. 22 of endorsement 11 as "PP/LC". The motion judge found, at para. 8, that this designation refers to passenger vehicles and light commercial vehicles. In addition, endorsement 11A to the ACE INA policy limits the underinsured coverage and specifically excludes that coverage for heavy commercial vehicles of the type Mr. Kahlon was operating when the accident occurred:

Amendment to OPCF 44R -- Family Protection Coverage

In consideration of the premium charge, it is hereby understood and agreed that the coverage provided by endorsement OPCF 44R -- family protection coverage is applicable only to private passenger and light commercial vehicles and is subject to a maximum limit per occurrence of $1,000,000.

It is further understood and agreed that there is no coverage provided by endorsement OPCF 44R -- family protection coverage for any automobile or trailer whose Gross Vehicle Weight exceeds 4,500 kilograms.

[28] Mr. Kahlon argued that ACE INA's endorsement 11A is not enforceable because the Superintendent of Financial Services had not approved the form under s. 227 of the Insurance Act.

[29] The motion judge disagreed. He noted, at para. 76: "The overall impression is that there is a certain fuzziness or ambiguity as to what is excluded, especially in light of the general introductory definition of 'automobile'." In that context he found, at para. 78, that endorsement 11A "does definitely focus the OPCF 44R endorsement". In his view: "It clears up any ambiguity and does not run afoul of any previous terms in the fleet policy." He concluded that "from an interpretation of contract point of view, the 11A endorsement is not ambiguous and survives notwithstanding lack of approval by the Superintendent".

[30] In reaching this decision the motion judge relied on the proposition that the use of an unapproved insurance form does not necessarily render the form unenforceable. He cited this court's decision in Royal & Sun Alliance Insurance Co. of Canada v. Intact Insurance Co., 2017 ONCA 381, 138 O.R. (3d) 539. In that case, the question was whether an endorsement that excluded coverage for a named driver was valid even though the form had not been pre-approved by the Superintendent as required by s. 227(1) of the Insurance Act. This court held, at paras. 23-25, that the exclusion was enforceable, despite its deviation from the approved form, in light of s. 126(2) of the Insurance Act, which provides that an insurance contract is not "void or voidable as against an insured, or a beneficiary or other person to whom insurance money is payable under the contract, by reason of a failure of the insurer to comply with a provision of this Act". Juriansz J.A. explained, at para. 24: "the role of the courts is to determine the validity of contracts of insurance as a matter of contract law and the consequence of a failure to comply with a provision of the Act is to be determined as specifically set out by the Act and its regulations".

[31] I agree with the motion judge's conclusion that ACE INA is not obliged to provide underinsured coverage to Mr. Kahlon. He properly applied this court's reasoning in Royal & Sun Alliance. An insurer is not legally required to provide underinsured coverage and there is no reason in principle why an insurer could not precisely tailor its offering of underinsured coverage, as ACE INA did in its fleet insurance policy.

[32] The motion judge did not err in holding that endorsement 11A in the ACE INA fleet policy was enforceable. ACE INA is not obliged to provide underinsured coverage to Mr. Kahlon for the Florida accident. I would therefore dismiss Mr. Kahlon's cross-appeal. But I add that I would have reached the same conclusion even without endorsement 11A based on my interpretation of the policy and the endorsement, as I explain in the next section of these reasons.

Issue Two: Is AllState Obliged to Provide Underinsured Coverage to Mr. Kahlon?

[33] As noted, Mr. Kahlon had insurance on his personal automobile through AllState that included the endorsement for underinsured coverage, which he now seeks to access in respect of the Florida accident.

[34] AllState accepts that, as a driver/occupant injured in a collision, Mr. Kahlon would ordinarily be entitled to underinsured coverage under the endorsement to his AllState policy. However, AllState asserts that Mr. Kahlon's entitlement is expressly made subject to the applicable conditions and exclusions that are contained in his domestic automobile insurance policy, particularly the provision that excludes coverage for heavy commercial vehicles.

[35] The motion judge disagreed. In his view, the exclusions in the policy do not apply to the endorsement for underinsurance. Accordingly, he found that AllState was liable to Mr. Kahlon for underinsured coverage in respect of the injuries he suffered in the Florida accident.

[36] In this section of the reasons I address the governing principles, then set out the text of the relevant insurance provisions. I next outline the motion judge's reasoning and then apply the governing principles.

(1) The Governing Principles for Interpreting Insurance Policies

[37] The burden of proof rests on the insured to establish a right to recover under the terms of the policy, and, once that is done, the onus shifts to the insurer to show that coverage is precluded: Progressive Homes, at para. 51; Shakur v. Pilot Insurance Co., 74 O.R. (2d) 673, at para. 30.

[38] The governing principles for the interpretation of insurance policies are found in Progressive Homes, at paras. 22-24, per Rothstein J., whom I quote and paraphrase: Where the language of the policy is unambiguous, the court gives effect to clear language, reading the contract as a whole. However, where the language is ambiguous, the court applies general rules of contract construction. The interpretation of the language should be consistent with the reasonable expectations of the parties, so long as the interpretation can be supported by the text of the policy. The court avoids interpretations that would give rise to an unrealistic result, or that would not have been in the contemplation of the parties when they entered into insurance contract.

[39] The rules of construction are to be applied in order to resolve ambiguity, not to create ambiguity where there is none. When the application of the rules of construction fails to resolve an actual ambiguity, courts will construe the policy contra proferentem -- against the insurer. The corollary is that coverage provisions are interpreted broadly, and exclusion clauses narrowly.

(a) Automobile Insurance Policies

[40] This court has said that "one of the main objectives of the regulatory automobile insurance scheme in Ontario is consumer protection and guaranteed compensation of victims": Royal & Sun Alliance, at para. 14. This court has also recognized that automobile insurance policies are more than commercial contracts and form part of an "integral social safety net": Abarca v. Vargas, 2015 ONCA 4, 123 O.R. (3d) 561, at para. 37.

[41] Laskin J.A. provided guidance on the interpretation of the standard language of the policy and the endorsement: "Unquestionably, if a provision of the S.E.F. 44 endorsement [a predecessor to the OPCF 44R endorsement] is ambiguous, the ambiguity should be construed against the insurer": Chilton v. Co-operators General Insurance Co., 32 O.R. (3d) 161, at para. 25. He explained why:

Although the wording of Ontario's automobile insurance policy and optional endorsements must be approved by the Commissioner of Insurance (Insurance Act, s. 227(1)), in practice the insurance industry drafts these standard forms and is responsible for their wording. Ontario insureds, the driving public, have no bargaining power over the provisions of the standard policy or the endorsements. They can either accept or reject the coverage offered by insurers but they can neither modify nor extend the terms of coverage. Often insureds do not even receive their policy until after they have purchased their insurance.

[42] Automobile insurance policies are understood to be contracts of adhesion: Somersall v. Friedman, 2002 SCC 59, at para. 47. Laskin J.A. added in Chilton, at para. 25: "These considerations support the principle of construing ambiguities in the policy against the insurer." Consequently, he noted that "[b]ecause the drafter could have avoided the ambiguous language, of the two parties, the drafter should bear the adverse construction": Chilton, at para. 24. Even so, the principles of interpretation should not lead a court to "strain to create an ambiguity where none exists": Chilton, at para. 26.

(b) The Relationship of the Policy to the Endorsement

[43] The endorsement is not a standalone insurance policy. It is linked to the automobile policy to which it is attached and with which it is purchased: Pilot Insurance Co. v. Sutherland, supra. In Pilot, Lang J.A. observed, at para. 21:

In any event, in my view, an endorsement is generally not understood to be a self-contained policy. As I have noted, the title of the Endorsement describes it as a "change form". An endorsement changes or varies or amends the underlying policy. While it may be comprehensive on the subject of the particular coverage provided in the endorsement, it is built on the foundation of the policy and does not have an independent existence. In any event, the Endorsement in this case is clearly not a stand-alone policy because it specifically provides that the policy terms remain in full force and effect, unless its terms are changed by the Endorsement.

And see, to similar effect, Cardinal v. Alberta Motor Assn. Insurance Co., 2018 ABCA 69, 66 Alta. L.R. (6th) 15, at para. 13, leave to appeal to S.C.C. refused [2018] S.C.C.A. No. 129.

[44] There are important differences between the policy and the endorsement to be taken into account in interpreting them. First, the coverage in the policy is mandatory for insureds and insurers, while underinsured coverage under the endorsement is optional for both insureds and insurers; an insured is not obliged to purchase underinsured coverage, nor is an insurer obliged to offer it.

[45] Second, while the policy covers automobiles, as does the endorsement, the endorsement has a mobility element. In Schneider v. Maahs Estate, 56 O.R. (3d) 321, at para. 26, Laskin J.A. observed: "the current form of coverage for named insureds and their families is portable, following them as passengers of other cars and as pedestrians". This flows from the definition of "insured person" in the endorsement. Since the underinsurance coverage is personal, it applies regardless of which vehicle the insured is driving, subject to any applicable exclusions: Olchowy v. ING Insurance Co. of Canada, 2011 ABQB 463.

(c) The Text of the Policy and the Endorsement

[46] The arguments in this appeal are deeply textual, which obliges me to lay out the text at some length.

[47] Mr. Kahlon's claim to underinsured coverage from AllState rests on the endorsement, which provides, in s. 3:

. . . the insurer shall indemnify an eligible claimant for the amount that he or she is legally entitled to recover from an inadequately insured motorist as compensatory damages in respect of bodily injury to or death of an insured person arising directly or indirectly from the use or operation of an automobile.

(Emphasis added)

[48] The endorsement defines "insured person":

"insured person" means

(a) the named insured and his or her spouse and any dependent relative of the name insured and his or her spouse, while

(i) an occupant of the described automobile, a newly acquired automobile or a temporary substitute automobile as defined in the Policy;

(ii) an occupant of any other automobile except where the person leases the other automobile for a period in excess of 30 days or owns the other automobile, unless family protection coverage is in force in respect of the other automobile; or

(iii) not an occupant of an automobile who is struck by an automobile; and[.]

(Emphasis added)

[49] The critical link between the AllState's policy and the endorsement is s. 22 of the endorsement form. It provides:

Except as otherwise provided in this change form, all limits, terms, conditions, provisions, definitions and exclusions of the policy shall have full force and effect.

[50] What are the relevant "limits, terms, conditions, provisions, definitions and exclusions of the policy" to which "full force and effect" must be given under s. 22 of the endorsement form? The answer requires careful reading of the policy and the endorsement.

[51] AllState's policy provides certain coverages in s. 2.1 for the "described automobile", which is Mr. Kahlon's domestic vehicle. Section 2.1 provides:

2.1 Described Automobile

A described automobile is any automobile or trailer specifically shown on your Certificate of Automobile Insurance.

Your Certificate of Automobile Insurance shows which coverages you have purchased for each described automobile. The coverages could include:

Liability,

Accident Benefits,

Uninsured Automobile,

Direct Compensation - Property Damage, and

Loss or Damage.

"Underinsured Automobile" is not listed as a coverage included in the policy language, as the motion judge noted.

[52] The policy extends its coverages to "Other Automobiles" under s. 2.2.3. It is common ground that the relevant "other automobile" is the heavy commercial vehicle Mr. Kahlon was operating at the time of the Florida accident. Section 2.2.3 provides:

2.2.3 Other Automobiles

Automobiles, other than a described automobile, are also covered when driven by you, or driven by your spouse who lives with you.

The following coverages apply to other automobiles if a premium is shown for the coverage on the Certificate of Automobile Insurance for a described automobile:

Liability,

-- Accident Benefits,

-- Uninsured Automobile, and

-- Direct Compensation - Property Damage.

[53] However, s. 2.2.3 of the policy then lists several "Special Conditions" that impose limits on the extension of the coverages to other automobiles:

Special Conditions: For other automobiles to be covered, the following conditions apply:

1. Both the other automobile and a described automobile must not have a manufacturer's gross vehicle weight rating of more than 4,500 kilograms.

2. Neither you nor your spouse is driving the other automobile in connection with the business of selling, repairing, maintaining, storing, servicing or parking automobiles.

3. The other automobile is not being used to carry paying passengers or to make commercial deliveries at the time of any loss.

There are additional Special Conditions that are not relevant to this appeal.

[54] This appeal proceeded on the basis that the first Special Condition has relevance to this appeal. The third and fourth catch the other commercial drivers referred to earlier.

(2) The Motion Judge's Reasoning

[55] As noted, the motion judge held that the exclusions in the policy do not apply to the endorsement. His reasoning is set out in paras. 84-87. He built on Laskin J.A.'s holding in Schneider that "the evolved OPCF 44 endorsement follows the individual insured instead of a particular vehicle". The motion judge pointed out that under s. 1.3 of the policy, "the automobile" can be "other automobiles driven by you": at para. 85.

[56] The motion judge then considered s. 2.1 of AllState's policy, which lists its coverages. Section 2.2.3 of the policy extends these coverages to "Other Automobiles", subject to the "Special Conditions", which prevent the extension of the listed coverages to the listed vehicles caught by the "Special Conditions". The motion judge held that s. 2.2.3 of the policy must be interpreted in alignment with the coverages in s. 2.1. Because s. 2.1 does not expressly refer to or list "Underinsured Automobile" coverage, the motion judge took the view "that those exclusionary words in para. 2.2.3 are with respect to uninsured vehicles, not underinsured": at para. 87.

[57] The motion judge concluded, at para. 88, that "the coverage for underinsured vehicles provided by Kahlon's AllState policy follows Kahlon into his incident in Florida in which he was so profoundly injured". He held that AllState was liable to provide Mr. Kahlon with underinsured coverage because [at para. 87] "the alleged limitation in [para.] 2.2.3 is inapplicable to underinsured coverage".

(3) The Principles Applied

[58] AllState's liability to provide underinsured coverage to Mr. Kahlon turns on whether the first Special Condition in s. 2.2.3 of the policy applies to preclude the extension of underinsured coverage under the endorsement to Mr. Kahlon because he was driving a heavy commercial vehicle when he was injured in the Florida accident. Section 22 of the endorsement is the critical link between the AllState's policy and the endorsement, which I repeat for convenience:

Except as otherwise provided in this change form, all limits, terms, conditions, provisions, definitions and exclusions of the policy shall have full force and effect.

[59] Reading the policy and the endorsement together, in my view, the relevant "limits, terms, conditions, provisions, definitions and exclusions of the policy" to which "full force and effect" must be given under s. 22 of the of the endorsement form are the Special Conditions in s. 2.2.3 of the policy, particularly the first one: "the other automobile . . . must not have a manufacturer's gross vehicle weight rating (GVWR) of more than 4,500 kilograms". The Special Conditions are a form of an exclusion clause, although the language operates by limiting the extension of coverage under the policy. Just as there is no extension of coverage under the policy for liability, accident benefits, uninsured automobile and direct compensation -- property damage to a vehicle to which the Special Conditions apply, there is no extension of coverage to an underinsured automobile.

[60] The motion judge made several errors in his analysis. He held that because the list of coverages in s. 2.1 of the policy did not mention "Underinsured Automobile", the Special Conditions in s. 2.2.3 did not apply to an underinsured automobile. There is a simple reason why s. 2.1 of the policy does not mention "Underinsured Automobile" in the list of coverages: The policy does not provide underinsured coverage. Underinsured coverage is optional and is only provided by the endorsement. Nothing relevant to the resolution of Mr. Kahlon's claim can, in the context, be drawn from the silence of the policy on the availability of underinsured coverage under it.

[61] On the motion judge's interpretation, no provision in the policy could limit coverage under the endorsement. In other words, s. 22 of the endorsement would be redundant. Such an approach to the construction of a contract is contrary to principle. This court held in Scanlon v. Castlepoint Development Corp., 11 O.R. (3d) 744, at para. 89, "[t]he court should strive to give meaning to the agreement and 'reject an interpretation that would render one of its terms ineffective'".

[62] From another perspective, it could be said that the motion judge treated the endorsement as a standalone insurance policy essentially independent from the AllState policy. As this court noted in Pilot, at para. 21, it would be wrong in principle to treat the endorsement as though it were a standalone insurance policy. The governing principles oblige the court to give effect to the terms of the insurance contract read as a whole.

[63] On the appeal, Mr. Kahlon's counsel supported the motion judge's approach, which he supplemented by drilling down deeper into the text. He made three intertwined arguments that rely especially on certain words in s. 22 of the endorsement:

Except as otherwise provided in this change form, all limits, terms, conditions, provisions, definitions and exclusions of the Policy shall have full force and effect.

(Emphasis added)

[64] First, Mr. Kahlon's counsel submitted that the highlighted words in s. 22 give paramountcy to the provisions of the endorsement over the policy, so that "the OAP.1 terms and conditions only apply to the OPCF-44R to the extent that they are not inconsistent with the terms of the endorsement". He asserted that this paramountcy "is particularly important in the case of a comprehensive endorsement that actually creates coverage". Accordingly, "[t]he Court must look to the 44R first and determine whether coverage is available, and only apply the terms and conditions of OAP.1 where they are not inconsistent with the terms of the 44R". He argued that the endorsement wording is sufficient to determine liability and cautioned against importing terms from the policy, because doing so "would elevate OAP 1 policy wording above the change form wording", contrary to the concept of paramountcy that he urged on the court.

[65] I agree with counsel's first argument that s. 22 does give a certain paramountcy to the endorsement over the policy. For example, the endorsement extends underinsured coverage beyond the policy to pedestrians under s. 1.6(a)(iii) of the definition of "insured person". I also agree that a reading of the endorsement alone would give Mr. Kahlon underinsured coverage as the driver of another automobile, but that is the beginning of the analysis, not the end; any reading of the endorsement is subject to the application of s. 22 of the endorsement.

[66] Counsel's proposed reading of s. 22 goes too far and is inconsistent with the reasoning of Lang J.A. in Pilot. At issue in that case was whether the policy's territorial limit applied to the endorsement, which did not have such a limit. Lang J.A. noted that the policy prevailed, in language that applies with necessary modifications to this case. She said, at paras. 17 and 18, of Pilot:

Since the Policy explicitly sets out a territorial limitation, and the change form or Endorsement does not set out a territorial limitation, it follows that the Policy's territorial limitation governs.

Unlike the motion judge, I do not see a significant difference between the "[e]xcept as otherwise provided" language employed in the Policy in this case and the "[s]ubject to all . . . limitation[s]" terminology employed in the policy in Pickford [Pickford Black Ltd. v. Canadian General Insurance Co., [1977] 1 S.C.R. 261]. Both clauses adequately express the same goal: the provisions of the Policy govern unless the Endorsement provides otherwise or, to put it the other way, the provisions of the Endorsement are subject to the limitations in the Policy. Thus, the Endorsement, aptly entitled the "Change Form", may change the Policy, but only to the extent set out in the Endorsement. Since, in my view, Pickford's reasoning applies to this case, the territorial limitation in the Policy must be read as though it forms part of the Endorsement.

[Underlining in original]

[67] The approach Lang J.A. took in Pilot flows from the plain language of s. 22: "all limits terms, conditions, provisions, definitions and exclusions of the Policy shall have full force and effect", subject to a qualification: "Except as otherwise provided in this change form". The endorsement is tethered to the policy, as s. 22 makes plain.

[68] Second, Mr. Kahlon's counsel enlisted the definition of "insured person" in the endorsement, and argued that the definition is especially important "because the insurance is granted to specific people, not specific vehicles". But this is an incomplete description of the definition. The insurance is granted to specific people while they are in specific vehicles, as I note below in addressing the third argument. Although the underinsured coverage is portable, as Laskin J.A. noted in Schneider, that portability is limited.

[69] Third, Mr. Kahlon's counsel argued that the term "other automobile" in the endorsement does not have the same meaning as the term "other automobile" in the policy, and that the endorsement's meaning must prevail. He pointed out that s. 2 of the policy refers to four specific "types" of vehicles to which the policy's coverages extend: the "Described Automobile" (s. 2.1); "Newly Acquired Automobiles" (s. 2.2.1); "Temporary Substitute Automobiles" (s. 2.2.2); and "Other Automobiles" (s. 2.2.3). By contrast with s. 1.6(a)(i) of the definition of "insured person" in the endorsement, which provides that the coverage applies to "an occupant of the described automobile, a newly acquired automobile or a temporary substitute automobile as defined in the Policy", that is not true for "other automobile" (emphasis added). Counsel argued forcefully that "the 44R does not incorporate the OAP.1 definition of 'Other Automobile', in direct contrast to how the other 3 categories of vehicles [the described automobile, a newly acquired automobile, or a temporary substitute automobile] within section 2 are treated". Because the endorsement "expressly incorporates those definitions but not [page335] with respect to 'Other Automobiles' in s. 2.2.3", Mr. Kahlon's counsel asked this court to infer that the endorsement pointedly does not use the defined term "Other Automobile" from s. 2.3.3 of the policy; this logically entails that the "Special Conditions" in s. 2.2.3 are likewise not applicable.

[70] The problem with this argument is that neither the policy nor the endorsement provides a technical definition of "other automobile". The term is used in a non-technical and generic way. This is shown by unpacking counsel's related argument based on the text of the endorsement:

Sub-paragraph (a)(ii) in the definition of "insured person" [in the endorsement] contains a specific limitation on what "other automobiles" are covered by excluding vehicles that the insured person "leases . . . for a period in excess of 30 days or owns". That limitation is different from the limitations on "Other Automobiles" found via the Special Conditions in s. 2.2.3.

[71] Section 1.6(a)(ii) of the definition of "insured person" in the endorsement is different from the definition of "other automobile" in the policy with respect to leased automobiles, because the endorsement extends underinsured coverage to a leased automobile "except where the person leases the other automobile for a period in excess of 30 days". On the other hand, the policy provides in Special Condition 5 that "the other automobile cannot be an automobile that you or anyone living in your dwelling owns or regularly uses". The policy then adds an explanatory note: "(For the purposes of this paragraph, we don't consider use of an automobile rented for 30 or fewer days to be regular use.)" This shows how the policy and the endorsement dovetail in a complementary fashion to provide coverage under the policy and under the endorsement if the insured person rents or leases the other automobile for 30 days or less. (I note that the differences pointed out by counsel are not relevant to Mr. Kahlon's claim.)

[72] As I see it, because the endorsement does not qualify the use of the term "other automobile", the use of that term in the policy prevails, including the associated Special Conditions. The "Special Condition" that excluded coverage for heavy commercial vehicles in s. 2.2.3 of the policy applies, and it deprives Mr. Kahlon of underinsured coverage under the AllState policy with respect to the accident.

[73] Next, counsel submits that to any extent that this court considers the provisions being analyzed to be ambiguous, that ambiguity should be resolved in favour of Mr. Kahlon based on the doctrine of contra proferentem. As noted earlier, in discussing the ACE INA policy and endorsement, the motion judge saw "a certain fuzziness or ambiguity as to what is excluded". As I have explained, there is no ambiguity, and counsel's attempts to wring ambiguity out of the language fail.

[74] Mr. Kahlon also asserts that he reasonably expected that his AllState policy would provide him with underinsured coverage for the Florida accident which he had when he was driving a heavy commercial vehicle. Mr. Kahlon clearly wants and needs underinsured coverage but that is not a sufficient basis on which to sustain his claim. In contractual interpretation, the assessment of reasonable expectations is objective, not subjective. It is to be based on the language of the contract under consideration and the context: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at paras. 49, 55; Dumbrell v. Regional Group of Companies Inc., 2007 ONCA 59, 85 O.R. (3d) 616, at para. 50.

[75] Apart from Mr. Kahlon's reasonable expectations, in the context the court must also take account of AllState's reasonable expectations. AllState does not provide insurance coverage for commercial vehicles. It would be an incongruous result to find AllState liable as the default insurer for underinsurance coverage for all of its customers engaged in the various commercial activities referred to earlier in this decision while they are on the job, simply because they have an AllState policy on their domestic vehicles. This is an "unrealistic result" that the court should not be quick to reach: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.

[76] I note, finally, that Canadian courts have not adopted the American approach to reasonable expectations under which judges are able to override contractual language in order to reach what they consider to be a just result. See Chilton, at paras. 28-35.

F. Disposition

[77] I would allow AllState's appeal, and as noted earlier, I would dismiss Mr. Kahlon's cross-appeal against ACE INA.

[78] Mr. Kahlon's personal circumstances are difficult. The refusal of truck fleet insurers to offer underinsured coverage under the endorsement leaves truck drivers like Mr. Kahlon "woefully unprotected", in the words of his appeal counsel. This outcome follows from the decision of the provincial government many years ago not to make underinsurance coverage mandatory.

[79] The underinsured coverage is not available "on the explicit terms of the Policy and the Endorsement" despite the "very tragic consequences": Pilot, per Lang J.A., at para. 39. This result could be described as harsh and unfair, as Laskin J.A. noted in Chilton, at paras. 21 and 39. However, courts have no authority to simply override contractual language in order to force the provision of coverage where none is contemplated by the existing language of the insurance policy and the endorsement, just because they might consider it good public policy to do so. This is the business of the provincial government, not the courts.

[80] Because the parties advised the court that they would agree on costs, I would make no costs award.

Appeal allowed; cross-appeal dismissed.

End of Document