Craig v. Allstate Insurance Co. of Canada, 2002 ONCA 44956

Craig et al. v. Allstate Insurance Company of Canada [Indexed as: Craig v. Allstate Insurance Co. of Canada]

59 O.R. (3d) 590

[2002] O.J. No. 2124

Docket No. C35933

Court of Appeal for Ontario,

Carthy, Weiler and Cronk JJ.A.

May 29, 2002

• Application for leave to appeal to the Supreme Court of Canada was dismissed February 20, 2003 (Gonthier, Major and Arbour JJ.). S.C.C. File No. 29307. S.C.C. Bulletin, 2003, p. 289.

Insurance -- Automobile insurance -- Underinsured motorist endorsement -- Insured injured in Florida in collision with school bus -- Florida action settled on payment to insured of U.S. $100,000 -- That amount was maximum sum recoverable under Florida's sovereign immunity legislation -- Insured covered by S.E.F. 44 Family Protection Endorsement in Ontario automobile insurance policy -- Plaintiff "legally entitled to recover" more than U.S. settlement amount despite statutory limits on amount recoverable from state or state agency in Florida action -- Limitation on ability of injured motorist to recover damages from tortfeasor or its insurer not equivalent of statutory bar to action or other absolute disentitlement to sue -- Fact that Florida [page591] tortfeasors had insurance in excess of statutory payment caps did not mean that tortfeasors were not "inadequately insured" for purposes of Endorsement -- Tortfeasor's excess insurance not available to injured plaintiff.

The minor respondent was injured in Florida when his tricycle collided with a school bus. At the time of the accident, the respondents were insured by the appellant under an Ontario standard form automobile insurance policy which included underinsured coverage with limits of Cdn. $1 million under the S.E.F. 44 Family Protection Endorsement. An action commenced by the respondents in Florida against the driver of the school bus and the school board was settled on payment to the minor respondent of U.S. $100,000 (the "U.S. Settlement Amount"), which was the maximum sum recoverable by him from the school board under Florida's sovereign immunity legislation, plus the aggregate sum of U.S. $100,000 paid to the other respondents. The respondents commenced an action in Ontario against the appellant seeking indemnification under the Endorsement for the difference between the limits thereunder of Cdn. $1 million and the U.S. Settlement Amount. The appellant moved under rule 21.01 of the Rules of Civil Procedure for the determination of (a) whether the minor respondent had a cause of action against the appellant for indemnity pursuant to the underinsured motorist provisions of the Endorsement and (b) if so, the amount of the limits available to him under the Endorsement. The motions judge concluded that the minor respondent had a cause of action against the appellant under the Endorsement and that the limits available to him were approximately Cdn. $700,000. The appellant appealed.

Held, the appeal should be dismissed.

The indemnification commitment of the insurer under s. 2 of the Endorsement is predicated on the existence of an "eligible claimant" who is "legally entitled to recover" compensatory damages from a motorist who is "inadequately insured". The minor respondent was an "eligible claimant" (as the appellant conceded). He was "legally entitled to recover" more than the U.S. Settlement Amount. The words "legally entitled to recover damages" require only that an insured person establish the quantum of his or her damages and that the uninsured or underinsured tortfeasor is at fault. An Ontario insured has a direct right of action under the Endorsement against his or her insurer without a prior judicial determination of liability against the tortfeasor, and without first exhausting all remedies against the tortfeasor. The sovereign immunity law of Florida does not prohibit tort actions by injured motorists. Rather, it operates to limit or restrict the recovery available to an injured motorist from the state, or a sta te agency, in that jurisdiction. It does not remove or extinguish all liability of a tortfeasor or its insurer. A limitation on the ability of an injured motorist to recover damages from a tortfeasor or its insurer is not the equivalent of a statutory bar to an action, a statutory or contractual immunity from suit provision, or other absolute disentitlement to sue or seek relief through the courts.

Moreover, s. 5(b) of the Endorsement establishes the conflict of laws rules which apply to a determination of the amount an eligible claimant is "legally entitled to recover". Section 5(b) provides that issues of liability are to be determined in accordance with the law of the place where the accident occurred, and that issues of quantum are to be decided in accordance with the law of the province governing the policy. In this case, application of s. 5(b) resulted in liability issues under the Endorsement being determined by the laws of Florida and issues of quantum being governed by the laws of Ontario. Florida's sovereign immunity law does not establish absolute immunity from suit in favour of the state. It does not [page592] establish a statutory bar to an action and does not prevent an injured motorist from obtaining a judgment for damages against a tortfeasor. It does not preclude all tort claims by injured motorists in deference to, or support of, an alternative tort compensation scheme. Application of the conflict of laws rules embodied in s. 5(b) of the Endorsement did not support the argument that the minor respondent was not "legally entitled to recover" more than the U.S. Settlement Amount.

The fact that, at the time of the accident, the Florida school board had in place a self-insured retention of U.S. $300,000 plus excess liability coverage of U.S. $700,000, did not mean that the tortfeasors were not "inadequately insured motorist[s]" within the meaning of the Endorsement. Florida's sovereign immunity legislation permits a state agency, in its discretion, to obtain insurance in excess of the payment caps under the statute. The Florida statute expressly states, however, that the state agency shall not be deemed to have waived any defence of sovereign immunity or to have increased the limits of its liability as a result of its obtaining insurance coverage for tortious acts in excess of the $100,000 or $200,000 waiver provided for in the statute. Accordingly, insurance purchased by a state agency in excess of the payment caps does not operate to increase the state agency's "limits of liability". It was also significant that the tortfeasors' excess insurance was not available to respond to the m inor respondent's claim in consequence of Florida's sovereign immunity law. The Endorsement is intended to make available to eligible claimants the difference or shortfall between their entitlement to damages and the amounts available from other sources.

The motions judge correctly concluded that the minor respondent was entitled to the difference between the damages recovered by the respondents from the at-fault tortfeasors, converted into Canadian dollars, and the Cdn. $1 million coverage under the Endorsement. Section 4 of the Endorsement provides that the insurer's maximum liability is the limit of coverage under the Endorsement as defined in s. 3. In this case, the limit was Cdn. $1 million. Accordingly, as the aggregate available amount recovered from the tortfeasors was U.S. $200,000 (Cdn. $297,800 at the conversion rate agreed upon by the parties), the sum of $702,200 remained available to the minor respondent under the Endorsement.

APPEAL from a judgment of Philp J. (2001), 26 C.C.L.I. (3d) 136 that the insured had a cause of action against the insurer under an underinsured motorist endorsement.

Beausoleil v. Canadian General Insurance Co. (1992), 8 O.R. (3d) 754, 92 D.L.R. (4th) 152, [1992] I.L.R. 1-2846, 35 M.V.R. (2d) 133 (C.A.); Chambo v. Musseau (1993), 15 O.R. (3d) 305, 106 D.L.R. (4th) 757, 49 M.V.R. (2d) 111 (C.A.); Michigan Millers Mutual Insurance Co. v. Bourke, 607 So. (2d) 418 (S.C. Fla. 1992); Somersall v. Friedman, [2000] O.J. No. 401 (C.A.); Walker v. Allstate Insurance Co. of Canada (1989), 67 O.R. (2d) 733 (C.A.); affg (1986), 56 O.R. (2d) 11, 30 D.L.R. (4th) 321, [1986] I.L.R. 1-2099, 41 M.V.R. 236 (H.C.J.), consd Other cases referred to Barton v. Aitchison (1982), 39 O.R. (2d) 282, 139 D.L.R. (3d) 627, [1982] I.L.R. 1-1584 (C.A.); Buchan v. Non-Marine Underwriters, Lloyd's London (1999), 44 O.R. (3d) 685, 45 C.C.L.T. (2d) 207 (S.C.J.); Chilton v. Co-operators General Insurance Co. (1997), 32 O.R. (3d) 161, 143 D.L.R. (4th) 647, [1997] I.L.R. 1-3423 (C.A.); Coombe v. Constitution Insurance Co. (1980), 29 O.R. (2d) 729, 115 D.L.R. (3d) 499, [1980] I.L.R. 1-1278 (C.A.) [Leave to appeal to S.C.C. refused (1981) S.C.C. File No. 16391]; Despotopoulos v. Jackson, [1992] I.L.R. 1-2793 (Ont. Gen. Div.); Joe v. Guardian Insurance Co. of Canada, [1999] O.J. No. 2729 (C.A.); Johnson v. Wunderlich (1986), 57 O.R. (2d) 600, 18 O.A.C. 89, 34 D.L.R. (4th) 120, [1987] I.L.R. 1-2155, 45 M.V.R. 184 (C.A.); MacKenzie v. Zurich Insurance Co. (1990), 71 O.R. (2d) 690, 65 D.L.R. (4th) 765, [1990] I.L.R. 1-2594 (H.C.J.); [page593] Non-Marine Underwriters, Lloyd's of Londo n v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, 185 D.L.R. (4th) 1, 253 N.R. 1, [2000] I.L.R. 1-3810 (sub nom. Lloyd's of London v. Scalera); Schneider v. Maahs Estate (2001), 56 O.R. (3d) 321, 206 D.L.R. (4th) 566, 21 M.V.R. (4th) 24 (C.A.); Thai v. Dao (1998), 39 O.R. (3d) 791, [1998] I.L.R. 1-3604, 37 M.V.R. (3d) 301, 5 C.C.L.I. (3d) 96 (Gen. Div.); Tolofson v. Jensen, [1994] 3 S.C.R. 1022, 100 B.C.L.R. (2d) 1, 120 D.L.R. (4th) 289, 175 N.R. 161, [1995] 1 W.W.R. 609, 22 C.C.L.T. (2d) 173, 32 C.P.C. (3d) 141, 7 M.V.R. (3d) 202; Wigle v. Allstate Insurance Company of Canada (1984), 49 O.R. (2d) 101, 6 O.A.C. 161, 14 D.L.R. (4th) 404, [1985] I.L.R. 1-1863, 30 M.V.R. 167 (C.A.) [Leave to appeal to S.C.C. refused (1985), 8 O.A.C. 320n] Statutes referred to Insurance Act, R.S.O. 1980, c. 218 Insurance Act, R.S.O. 1990, c. I.8 Rules and regulations referred to O. Reg. 535, R.R.O. 1980 (now Reg. 676, R.R.O. 1990) Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01 Authorities referred to Samis, L. "S.E.F. 44 Family Protection Coverage", [1987] Spec. Lect. L.S.U.C. 175 Flaherty, J."SEF 42 -- Underinsured Motorist Coverage and SEF 44 -- Family Protection Endorsement" in The Automobile Insurance Policy (Toronto: L.S.U.C., 1988)

Richard F.L. Rose, for appellant. Joseph J. Sullivan, for respondents.

The judgment of the court was delivered by

[1] CRONK J.A.: -- This appeal concerns the right of an insured person to claim against his insurer pursuant to an underinsured motorist coverage endorsement to the Ontario standard automobile insurance policy, when the insured's ability to recover damages from the tortfeasor is subject to limits imposed by statute in the jurisdiction in which the motor vehicle accident occurred.

[2] The respondent Jamie Craig, a minor, was injured in Florida when the tricycle that he was riding collided with a school bus operated by an employee of a local school board. At the time of the accident, the respondents were insured by the appellant, Allstate Insurance Company of Canada ("Allstate"), under an Ontario standard form automobile insurance policy, which included underinsured coverage with limits of Cdn. $1 million under the "Family Protection Endorsement" issued in a standard form endorsement known as the S.E.F. 44 (the "Endorsement"). [page594]

[3] An action commenced by the respondents in Florida against the school board and the driver of the school bus was settled on payment to Jamie Craig of U.S. $100,000 (the "U.S. Settlement Amount"), which was the maximum sum recoverable by him from the school board under Florida's sovereign immunity legislation, plus the aggregate sum of U.S. $100,000 paid to the other respondents. Only Jamie Craig's damages are relevant on this appeal.

[4] Thereafter, the respondents commenced this action in Ontario against Allstate, seeking indemnification under the Endorsement for the difference between the limits thereunder of Cdn. $1 million and the U.S. Settlement Amount. Allstate moved under rule 21.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for the determination of: a) whether Jamie Craig has a cause of action against Allstate for indemnity pursuant to the underinsured motorist provisions of the Endorsement and b) if so, the amount of the limits available to him under the Endorsement.

[5] By order dated February 21, 2001, Justice Philp concluded that Jamie Craig does have a cause of action against Allstate under the Endorsement, and that the limits available to him are approximately Cdn. $700,000. Allstate appeals that decision. I conclude that Jamie Craig is not precluded from advancing a claim under the Endorsement. Accordingly, for the reasons that follow, I would dismiss the appeal.

I. The Issues

[6] Allstate raises three issues on this appeal:

(1) whether Jamie Craig is "legally entitled to recover" more than the U.S. Settlement Amount;

(2) whether the Florida school board and its bus driver meet the definition of "inadequately insured motorist" under the Endorsement; and

(3) what is Allstate's maximum liability to Jamie Craig under the Endorsement.

II. The Agreed Statement of Facts

[7] The rule 21.01 motion proceeded on an agreed statement of facts. In part, it reads:

2. As a result of Florida Statute 768.28, Sovereign Immunity exists in this case for the . . . School Board and its employees which limits the Plaintiffs' recovery to $100,000.00 (US) per claimant or a maximum of $200,000.00 (US) for all claimants . . . [page595]

3. At the time of the subject accident, the . . . School Board had in place the following insurance scheme:

a) a self-insured retention of $300,000.00 (US); and thereafter

b) excess liability limits of $700,000.00 (US) with the Illinois Union Insurance Company;

[I]t is further agreed that the Illinois Union Insurance Excess Policy did contain provisions indemnifying the School Board for liability arising out of the use and operation of an automobile.

6. (e) It is agreed that the damages of Jamie Craig will exceed the amount recovered in Florida.

7. Although the parties agree that the Plaintiff's damages exceed the amount recovered in Florida, quantum has not been settled.

III. Analysis

[8] The Endorsement replaced its predecessor, the S.E.F. 42, for all new and renewal automobile policies in Ontario effective February 1, 1995. It is optional insurance coverage available to Ontario drivers over and above the coverage provided in the standard automobile insurance policy, on payment of an additional premium. It is different, and separate, from Ontario's compulsory uninsured motorist coverage. It provides coverage for insured persons in connection with underinsured motorists. (See L. Samis"S.E.F. 44 Family Protection Coverage", [1987] Spec. Lect. L.S.U.C. 175.)

[9] Section 2 of the Endorsement, containing the "Insuring Agreement" between the parties, states:

2. INSURING AGREEMENT

In consideration of the premium charged and subject to the provisions hereof, it is understood and agreed that the insurer shall indemnify each eligible claimant for the amount that such eligible claimant is legally entitled to recover from an inadequately insured motorist as compensatory damages in respect of bodily injury or death sustained by an insured person by accident arising out of the use or operation of an automobile.

(Emphasis added)

[10] Sections 3, 4 and 5 of the Endorsement, in material part, read as follows:

3. LIMIT OF COVERAGE UNDER THIS ENDORSEMENT

(a) The Insurer's maximum liability under this endorsement, regardless of the number of eligible claimants, or number of insured persons injured or killed, or number of automobiles insured under the policy shall be the amount by which the Limit of Family Protection Coverage exceeds the total of all limits of [page596] motor vehicle liability insurance, or bonds, or cash deposits, or other financial guarantees as required by law in lieu of such insurance, of the inadequately insured motorist and of any persons jointly liable therewith.

4. AMOUNT PAYABLE PER ELIGIBLE CLAIMANT

(a) The amount payable under this endorsement to any eligible claimant shall be ascertained by determining the amount of damages the eligible claimant is legally entitled to recover from the inadequately insured motorist and deducting from that amount the aggregate of the amounts referred to in paragraph 4(b), but in no event shall the Insurer be obliged to pay any amount in excess of the limit of coverage as determined under paragraph 3 of this endorsement.

(b) The amount payable under this endorsement to any eligible claimant is excess to any amount actually recovered by the eligible claimant from any source (other than money payable on death under a policy of insurance) and is excess to any amounts the eligible claimant is entitled to recover (whether such entitlement is pursued or not) from:

(i) the insurers of the inadequately insured motorist . . . ;

(ii) the insurers of any person jointly liable with the inadequately insured motorist for the damages sustained by an insured person;

5. DETERMINATION OF THE AMOUNT AN ELIGIBLE CLAIMANT IS LEGALLY ENTITLED TO RECOVER

(a) The amount that an eligible claimant is legally entitled to recover shall be determined in accordance with the procedures set forth for determination of the issues of quantum and liability by the uninsured motorist coverage provisions of the policy.

(b) In determining the amount an eligible claimant is legally entitled to recover from the inadequately insured motorist, issues of quantum shall be decided in accordance with the law of the province governing the policy and issues of liability shall be decided in accordance with the law of the place where the accident occurred.

(Emphasis added)

[11] The phrases "inadequately insured motorist""eligible claimant" and "legally entitled to recover" are used repeatedly in the Endorsement. The indemnification commitment of the insurer under s. 2 is predicated on the existence of an "eligible claimant" who is "legally entitled to recover" compensatory damages from a motorist who is "inadequately insured". When these elements are present, the insurer's indemnification obligation is triggered. In that event, s. 3 establishes the limit of coverage under the Endorsement, s. 4 provides the mechanism for determining the amount that each "eligible claimant" is entitled to [page597] recover under the Endorsement, and s. 5(b) identifies the conflict of laws rules which govern determination of the amount to be recovered.

[12] It is conceded that Jamie Craig is an "eligible claimant" under the Endorsement. No issue is taken with his status as an "insured person" under s. 2 of the Endorsement. Accordingly, the issues on this appeal concern the meaning of the terms "legally entitled to recover" and "inadequately insured motorist", as used in s. 2 of the Endorsement.

(1) Is Jamie Craig "legally entitled to recover" more than the U.S. settlement amount?

[13] Allstate argues that the liability of the Florida school board and its driver is a pre-condition to Allstate's liability under the Endorsement. It relies on conflict of laws principles which recognize that the substantive law that should be applied in tort cases is the law of the place where the activity occurred. It asserts that Florida's sovereign immunity law is substantive law, and that it applies to preclude Jamie Craig from seeking to recover damages in excess of the U.S. Settlement Amount. As a result, Allstate submits, no claim lies against it under the Endorsement. In my view, Allstate's argument is not sustainable, for two reasons.

[14] First, Allstate's position is inconsistent with the jurisprudence of this court regarding the meaning of the phrase "legally entitled to recover". In a series of cases involving underinsured or uninsured motorist coverage provisions in insurance regulations or policies, this court has held that the words "legally entitled to recover damages" require only that an insured person establish the quantum of his or her damages and that the uninsured or underinsured tortfeasor is at-fault. In consequence, an Ontario insured has a direct right of action under the Endorsement against his or her insurer without a prior judicial determination of liability against the tortfeasor, and without first exhausting all remedies against the tortfeasor. (Somersall v. Friedman, [2000] O.J. No. 401 (C.A.), leave to appeal to the Supreme Court of Canada granted, March 15, 2001, S.C.C. File No. 2001, p. 512; Chambo v. Musseau (1993), 15 O.R. (3d) 305, 106 D.L.R. (4th) 757 (C.A.); Johnson v. Wunderlich (1986), 57 O.R. (2d) 600, 34 D.L.R. (4th) 120 (C.A.); Beausoleil v. Canadian General Insurance Co. (1992), 8 O.R. (3d) 754, 92 D.L.R. (4th) 152 (C.A.); and Barton v. Aitchison (1982), 39 O.R. (2d) 282, 139 D.L.R. (3d) 627 (C.A.)). These principles have been applied in diverse circumstances. It is useful to review the governing case law in that regard. [page598]

[15] In Walker v. Allstate Insurance Co. of Canada (1986), 56 O.R. (2d) 11, 30 D.L.R. (4th) 321 (H.C.J.), leave to appeal to the Court of Appeal for Ontario dismissed (1989), 67 O.R. (2d) 733 (C.A.), a tortfeasor caused injury to the plaintiff while driving a motorcycle without the owner's consent, in breach of the tortfeasor's standard automobile policy. Liability of the tortfeasor's insurer was excluded in consequence of the policy breach and, hence, no money was recoverable under the tortfeasor's insurance policy. Nonetheless, the plaintiff was entitled to recover against her own insurer under her uninsured motorist coverage.

[16] In Beausoleil v. Canadian General, the plaintiff was injured in a motor vehicle accident in Massachusetts and suffered substantial damages. Although he commenced an action against the tortfeasors in Massachusetts, his maximum recovery in that jurisdiction was limited to $50,000. The plaintiff, therefore, sued his own insurer in Ontario on the underinsured motorist coverage provided in the S.E.F. 42. His direct action against his insurer was permitted to proceed although the tortfeasor's insurer's liability was limited. Grange J.A., for this court, observed that the plaintiff was not required to obtain a judgment or to exhaust his remedies against the tortfeasor in the United States as a pre-condition to an action in Ontario based on the S.E.F. 42 (at p. 758 O.R.).

[17] In both Johnson v. Wunderlich and Chambo v. Musseau, this court considered the interpretation of uninsured motorist coverage mandated by O. Reg. 535, R.R.O. 1980 (now R.R.O. 1990, Reg. 676), under the Insurance Act, R.S.O. 1980, c. 218 (now R.S.O. 1990, c. I.8), in the context of limitation period defences. In both cases, direct actions brought by injured plaintiffs against their own insurers were permitted, notwithstanding that the plaintiffs' actions against the at- fault motorists were proscribed by statute. These cases evidence a flexible approach to the assertion of claims relating to uninsured motorist coverage.

[18] Similarly, in the recent decision of this court in Somersall v. Friedman, injured plaintiffs who had voluntarily compromised their recovery rights against a tortfeasor by entering into a limits of liability contract, were found to be entitled to pursue an action directly against their own insurers under the Endorsement to recover the shortfall in their damages. In that case, Charron J.A. described the necessary elements of a direct action against an insurer under the Endorsement (at para. 18):

[T]he necessary elements of the action are (1) an eligible claimant (2) who is legally entitled to recover compensatory damages from a motorist (3) who is inadequately insured . . . As determined in Johnson v. Wunderlich, in order to prove that they are legally entitled to recover compensatory damages [page599] against [the tortfeasor], the appellants need only establish that [the tortfeasor] was at fault in the accident and damages caused by such fault in excess of [the tortfeasor's] insurance policy limits.

Charron J.A. continued (at para. 29):

[O]ne of the elements that must be established by the insured in a claim against the insurer is that the uninsured or underinsured person is "at fault". The determination of "fault" must be made in the context of all applicable laws. In my view, an insured could not successfully argue that an uninsured or underinsured motorist is "at fault" if the injuries caused by such alleged "fault" were sustained in a motor vehicle accident occurring in a jurisdiction governed by a "no-fault" regime, unless the insured can meet the requirements under the particular regime.

(Emphasis added)

[19] As I discuss later in these reasons, the sovereign immunity law of the State of Florida does not prohibit tort actions by injured motorists. Rather, it operates to limit or restrict the recovery available to an injured motorist from the state, or a state agency, in that jurisdiction. It does not remove or extinguish all liability of a tortfeasor or its insurer.

[20] My conclusion from this review of the case law is that injured plaintiffs have been permitted to sue their own insurers directly on underinsured or uninsured motorist coverage where their claims against the responsible tortfeasors have been restricted by a limitation on recovery, or precluded by the policy provisions or the expiry of a limitation period. In this case, the motions judge concluded (at para. 36):

In the case at bar the inability of the plaintiffs to recover from the tortfeasor was caused by the limitations imposed by the State of Florida's sovereign immunity law. In my view this is analogous to the plaintiffs being unable to recover from the tortfeasors in Walker v. Allstate, Johnson v. Wunderlich, Chambo v. Musseau and Somersall v. Friedman. While they were all legally entitled to recover from the tortfeasor, they were unable to do so.

I agree. A limitation on the ability of an injured motorist to recover damages from a tortfeasor or its insurer is not the equivalent of a statutory bar to an action, a statutory or contractual immunity from suit provision, or other absolute disentitlement to sue or seek relief through the courts.

[21] Allstate's position cannot be sustained for a second reason. A proper review of Florida's sovereign immunity law reveals that it does not effect the result urged by Allstate.

[22] Section 5(b) of the Endorsement establishes the conflict of laws rules which apply to a determination of the amount an eligible claimant is "legally entitled to recover". Section 5(b) provides that issues of liability are to be determined in accordance with the law of the place where the accident occurred [page600] (the lex loci delicti) and that issues of quantum are to be decided in accordance with the law of the province governing the policy (the lex fori). This contractual provision mirrors general conflict of laws rules in tort cases as established by the Supreme Court of Canada in Tolofson v. Jensen, [1994] 3 S.C.R. 1022, 120 D.L.R. (4th) 289. In this case, application of s. 5(b) results in liability issues under the Endorsement being determined by the laws of Florida and issues of quantum being governed by the laws of Ontario.

[23] Accordingly, what does applicable Florida law determine in this case?

[24] The sovereign immunity defence in Florida is not absolute. The relevant Florida statute permits actions against the state, its agencies or subdivisions, to recover damages in tort for personal injury, subject to the limitations specified in the statute. Section 768.28(5) of the statute establishes such a limitation by introducing a U.S. $100,000 cap on the payment by the state, its agencies or subdivisions, of any claim or judgment by any one person, and an aggregate U.S. $200,000 cap on all claims or judgments per occurrence. Thus, under Florida's sovereign immunity law, the right of an injured motorist to sue and recover damages from a state tortfeasor is preserved not eliminated, although the extent of potential recovery is limited. The Florida legislation also provides that a judgment may be obtained in an amount which exceeds the payment caps otherwise provided for under the statute, for the purpose of permitting a successful plaintiff to submit to the Florida legislature for payment tha t portion of a judgment that exceeds the statutorily prescribed caps. Finally, the Florida statute provides that the state, it[s] agencies or subdivisions, in their discretion, may obtain insurance coverage for tortious acts in excess of the payment caps established by the statute.

[25] The courts in Florida have recognized these features of the sovereign immunity legislation in that jurisdiction. They have confirmed that a judgment for tort recovery may be obtained in the courts and that, as a preliminary step in seeking compensation through the Florida legislature, such a judgment may be in an amount in excess of the sum the state, its agencies or subdivisions, can be required to pay (Michigan Millers Mutual Insurance Co. v. Bourke, 607 So. (2d) 418 (S.C. Fla. 1992)).

[26] Thus, Florida's sovereign immunity law does not establish absolute immunity from suit in favour of the state. It does not establish a statutory bar to an action against an insured tortfeasor. It does not prevent an injured motorist from obtaining a judgment for damages against a tortfeasor. It does not preclude all tort claims by injured motorists in deference to, or support of, an alternative tort compensation scheme. It is to be contrasted, [page601] in this regard, to the type of no-fault insurance legislation in the Province of Quebec referred to in the following cases relied upon by Allstate: MacKenzie v. Zurich Insurance Co. (1990), 71 O.R. (2d) 690, 65 D.L.R. (4th) 765 (H.C.J.); Buchan v. Non-Marine Underwriters, Lloyd's London (1999), 44 O.R. (3d) 685, 45 C.C.L.T. (2d) 207 (S.C.J.) and Thai v. Dao (1998), 39 O.R. (3d) 791, 5 C.C.L.I. (3d) 96 (Gen. Div.). Those cases involve legislation which removes liability. This case concerns a limit or restriction on liability. Accordingly, those cases are of little precedential value in relation to the issues on this appeal.

[27] I conclude, therefore, that the application of the conflict of laws rules embodied in s. 5(b) of the Endorsement does not support the argument that Jamie Craig is not "legally entitled to recover" more than the U.S. Settlement Amount. To the contrary, Jamie Craig established that the Florida school board and its driver were at fault in the accident and, for the purposes of the motion before the motions judge, also established that his damages exceed the U.S. Settlement Amount. On the record before this court, he also pursued the tortfeasors for damages to the extent permitted by Florida's sovereign immunity law and recovered the maximum damages allowed under the cap applicable to him as set out in the statute. He thus met the requirements of Florida's sovereign immunity regime, and meets the requirements identified by this court as necessary to be "legally entitled to recover" damages.

(2) Do the tortfeasors meet the definition of "inadequately insured motorist" under the endorsement?

[28] The parties agree that, at the time of the accident, the Florida school board had in place a self-insured retention of U.S. $300,000 plus excess liability coverage of U.S. $700,000. Allstate argues that the aggregate sum of U.S. $1 million was thus available to respond to Jamie Craig's claim, with the result that the tortfeasors are not "inadequately insured motorist[s]" within the meaning of the Endorsement. If this argument is accepted, it would follow that the Endorsement has no application and no claim could be made by Jamie Craig against Allstate.

[29] This argument depends on interpretation of the phrase "inadequately insured motorist" as it appears in the insuring agreement set out in s. 2 of the Endorsement. Section 1(e)(i) of the Endorsement defines the words "inadequately insured motorist". The part of the definition applicable to the facts of this appeal is as follows: [page602]

1(e)(i) the identified owner or identified driver of an automobile with respect to which the total motor vehicle liability insurance . . . of the owner and driver is less than the limit of family protection coverage.

(Emphasis added)

Under this definition, if the Florida school board's "total motor vehicle liability insurance" is equal to or greater than Cdn. $1 million (the limit of underinsured coverage under the Endorsement), the school board and its driver would not meet the definition of "inadequately insured motorist[s]" and Jamie Craig could not recover from Allstate under the Endorsement.

[30] Allstate argues that its liability is determined only by a "limits to limits" comparison, as envisaged by the s. 1(e)(i) definition of "inadequately insured motorist". It contends that the motions judge erred by treating the payment cap applicable to Jamie Craig under Florida's sovereign immunity law as an insurance limit, rather than as a sovereign immunity limit, for the purpose of assessing whether the Florida school board and its driver are "inadequately insured motorist[s]". Allstate further submits that the extent of actual recovery is irrelevant to determination of the adequacy of coverage and, accordingly, the trial judge erred by treating the amount of damages which Jamie Craig is legally entitled to recover as relevant to the question of whether the tortfeasors are adequately insured.

[31] On behalf of Jamie Craig, the respondents make two arguments. First, they submit that the school board's insurance policy is not a "motor vehicle policy" but, rather, is a general liability policy providing for excess coverage. Consequently, they assert, coverage under that insurance policy cannot defeat a claim under the Endorsement. Second, and in the alternative, the respondents argue that the doctrine of reasonable expectations should apply. Under this approach, a liberal construction of the Endorsement in favour of the insured is mandated.

[32] In rejecting Allstate's position, the motions judge stated (at paras. 15 and 40):

Because of the law of Florida the excess general liability insurance policy of Illinois, worth $700,000 [U.S.] was not available to the plaintiffs thereby rendering the tortfeasor, the School Board, in my view, inadequately insured for the purposes of this claim. Specifically, it is not deemed to have increased the limits of liability as a result of its obtaining insurance coverage for tortious acts in excess of the $100,000/$200,000 waiver set out in the [Florida sovereign immunity statute]. Such excess general liability insurance may very well have been expedient for other than motor vehicle liability claims such as "slip and fall" claims. But because of the Sovereign Immunity State Law its liability for damages caused by motor vehicles was clearly limited to $100,000/$200,000.

. . . . . [page603]

The agreement to indemnify is for the deficiency in coverage of the at-fault motorist to satisfy the claimant's damages. In the case at bar the $100,000.00/$200,000.00 limits provided by the Sovereign Immunity Law of the State of Florida are, it is agreed, insufficient to cover Jamie's damages. To interpret the meaning as submitted by the defendant's counsel would result in an absurd conclusion. While the insurer agrees to indemnify if the at-fault motorist's insurance is less than the complainant's insurance, its indemnification does not cover if there is a larger policy of insurance in existence which is not available to the claimant. In other words, if the at-fault motorist has insurance in a greater amount than the S.E.F. 44 coverage, but that insurance is not available to the injured plaintiff, the at-fault motorist is not an inadequately insured motorist. The logic of this defeats the purpose of the S.E.F. 44 coverage, that is, to protect insureds from tortfeasors who have insurance which is inadequate to cover the plaintiff's damages . . . .

I agree with the motions judge's conclusions, for the following reasons.

[33] As I noted earlier, Florida's sovereign immunity legislation permits a state agency, in its discretion, to obtain insurance in excess of the payment caps under the statute. Section 768.28(5) of the Florida statute expressly states, however:

[N]otwithstanding the limited waiver of sovereign immunity provided herein, the state or an agency or subdivision thereof may agree, within the limits of insurance coverage provided, to settle a claim made or a judgment rendered against it without further action by the Legislature, but the state or agency or subdivision thereof shall not be deemed to have waived any defense of sovereign immunity or to have increased the limits of its liability as a result of its obtaining insurance coverage for tortious acts in excess of the $100,000 or $200,000 waiver provided above . . . .

(Emphasis added)

Accordingly, insurance purchased by a state agency in excess of the payment caps established under s. 768.28(5) does not operate to increase the state agency's "limits of liability". The provisions of s. 768.28(5) were described in Michigan Millers as follows (at p. 422, per Overton J.):

In conclusion, section 768.28 authorizes the rendition of a judgment in excess of the amount the State can be required to pay due to sovereign immunity. Furthermore, the legislature has determined that, in addition to allowing discretionary recovery through a legislative claims bill, the limits of the sovereign immunity statute may be exceeded when insurance coverage is available.

(Emphasis added)

[34] The language of s. 768.28(5), and the Michigan Millers case, confirms that the payment caps established under Florida's sovereign immunity statute are limits on liability which function independently of any excess insurance purchased by the state tortfeasor. The insurance limits under the Endorsement similarly [page604] limit the insurer's liability. It was in this sense, in my view, that the motions judge compared the limits of liability under the Endorsement to the limits of liability under s. 768.28 of Florida's statute. On that comparison, the Florida school board and its driver are clearly "inadequately insured motorist[s]" under the definition of that term contained in the Endorsement.

[35] The parties agree that the Illinois Union policy is an excess general liability policy. The policy is entitled "Excess of Loss Agreement of Indemnity" and is expressed to:

[I]ndemnify the Insured, subject to the Limit of Liability of this excess insurance, in accordance with the applicable insuring agreements, exclusions and conditions of the Underlying Primary Insurance scheduled below.

"Primary Insurance" is described in s. 1(B) of the policy as "$300,000 combined single limit each claim/accident, including Self Insured Retention". The excess insurance is described in s. 1(A) of the policy as "Limits of Liability -- $700,000 combined single limit, each claim/accident excess of the Underlying Limits of $300,000 each claim/accident, including Self Insured Retention".

[36] While the Illinois Union policy includes provisions indemnifying the Florida school board for liability arising out of the use and operation of an automobile, it is a multiple peril policy which functions as an umbrella policy providing excess coverage for multiple risks. As confirmed by the language of the policy itself, which differentiates between the insured's primary and excess insurance, the policy is not designed or intended to serve as the primary or standard automobile insurance for the Florida school board. (See Joe v. Guardian Insurance Co. of Canada, [1999] O.J. No. 2729 (C.A.)).

[37] It is also significant that the tortfeasors' excess insurance is not available to respond to Jamie Craig's claim in consequence of Florida's sovereign immunity law. Allstate interprets s. 2 of the Endorsement, and the s. 1(e)(i) definition of "inadequately insured motorist", as requiring that all insurance of the tortfeasor be taken into account, including insurance unavailable to the injured plaintiff. The respondents argue that the wording of the Endorsement is ambiguous and, in interpreting the meaning of "inadequately insured motorist", this court should have regard to the reasonable expectations of the parties concerning coverage under the Endorsement.

[38] It is well-established that an insurance policy is a contract and that the ordinary rules of contract interpretation apply to determine the meaning of words that appear in the policy. Thus, the court is required to interpret an insurance policy, including any optional endorsements, by first having regard to the words actually used in the contract. (Schneider v. Maahs Estate (2001), 56 O.R. (3d) 321, 206 D.L.R. (4th) 566 (C.A.), at para. 13 per [page605] Laskin J.A. and Chilton v. Co-Operators General Insurance (1997), 32 O.R. (3d) 161, 143 D.L.R. (4th) 647 (C.A.), at p. 165 per Laskin J.A.). Where the words of a standard form policy or optional endorsement are ambiguous, regard may be had to the reasonable expectations of the parties, in accordance with rules of construction enunciated by this court in Wigle v. Allstate Insurance Co. of Canada (1984), 49 O.R. (2d) 101, 14 D.L.R. (4th) 404 (C.A.), at pp. 116-18 per Cory J.A., leave to appeal to the Supreme Court of Canada refused (1985), 8 O.A.C. 320n, and in Coombe v. Constitution Insurance Co. (1980), 29 O.R. (2d) 729, 115 D.L.R. (3d) 499 (C.A.), leave to appeal to the Supreme Court of Canada refused Feb. 13, 1981, S.C.C. File No. 16391.

[39] This court has recognized on numerous occasions that Ontario motorists have no real or meaningful opportunity to negotiate with an insurer concerning the contents of the Endorsement. Motorists can do no more than accept or reject the policy, including the wording of the Endorsement. They cannot modify the words of the policy or the Endorsement. (See Wigle v. Allstate Insurance Co. of Canada, at p. 119 O.R. per Cory J.A., for the majority, and Chilton v. Co-operators General Insurance Co., at p. 165 O.R. per Laskin J.A.). As observed by Iacobucci J. in his reasons concurring with the majority in Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, 185 D.L.R. (4th) 1: "[o]ne must always be alert to the unequal bargaining power at work in insurance contracts, and interpret such policies accordingly" (at p. 591 S.C.R., p. 31 D.L.R.). Regard must be had to those commercial realities when interpreting contested words in an insurance endorsement.

[40] In my view, it is unnecessary to apply the reasonable expectations principle to conclude from the words actually used in ss. 2, 3(a) and 1(e)(i) of the Endorsement that little purpose would be served by underinsured motorist coverage if, as Allstate argues, the "total motor vehicle liability insurance" referred to in s. 1(e)(i) and 3(a) includes coverage to which an injured motorist can have no resort, that is, insurance which is unavailable to the injured motorist. In that event, underinsured motorist coverage would be more illusory than real, and recovery under the Endorsement could be readily defeated by a tortfeasor acquiring multiple peril excess insurance which, by its terms or by operation of law (as in this case), may not respond to an injured motorist's claims.

[41] Underinsured motorist coverage is "[D]esigned to give relief to motorists who have the misfortune to be injured by the fault of an underinsured driver" (Beausoleil v. Canadian General Insurance Co., at p. 758 O.R. per Grange J.A., with reference to the S.E.F. 42). The purpose of such coverage is to provide financial [page606] relief to insured persons and their families for a deficiency or shortfall in an "at-fault" driver's insurance. (Schneider v. Maahs Estate; Chilton v. Co- Operators General Insurance Co.; and Despotopoulos v. Jackson, [1992] I.L.R. 1-2793 (Ont. Gen. Div.)).

[42] Allstate's interpretation of the insuring agreement in s. 2 of the Endorsement, and of the associated definition of "inadequately insured motorist" in s. 1(e)(i), does not conform with the purpose of the Endorsement and, if accepted, would dilute the underinsured motorist coverage which the respondents paid for upon purchase of the Endorsement. The Endorsement is intended to make available to eligible claimants, such as Jamie Craig"the difference or shortfall between [his] entitlement to damages and the amounts available from other sources" (per James M. Flaherty"SEF 42 -- Underinsured Motorist Coverage and SEF 44 -- Family Protection Endorsement" in The Automobile Insurance Policy (Toronto: L.S.U.C., 1988), at p. H-12). I conclude, therefore, that the interpretation urged by Allstate is to be rejected absent a clear contrary intention arising from the language of the Endorsement. The words actually used in the Endorsement do not require or invite such an interpretation.

(3) What is Allstate's maximum liability to Jamie Craig under the endorsement?

[43] The parties agree that Jamie Craig's damages are greater than the U.S. Settlement Amount. He claims against Allstate for the shortfall, that is, the difference between the underinsured motorist limit on the Allstate policy (Cdn. $1 million) and the U.S. Settlement Amount recovered from the Florida tortfeasors (U.S. $100,000). Allstate argues that there is no amount payable under the Endorsement because the school board and its driver are not "inadequately insured motorist[s]" and, in any event, the claimant is not "legally entitled to recover" more than the U.S. Settlement Amount. For the reasons set out above, I do not agree.

[44] The motions judge concluded that Jamie Craig was entitled to the difference between the damages recovered by the respondents from the at-fault tortfeasors, converted into Canadian dollars, and the Cdn. $1 million coverage under the Endorsement. I agree. Section 4 of the Endorsement provides that the insurer's maximum liability is the limit of coverage under the Endorsement as defined in s. 3. In this case, the limit is Cdn. $1 million. Accordingly, as the aggregate available amount recovered from the tortfeasors was U.S. $200,000 (Cdn. $297,800 at the conversion rate of $1.489 agreed upon by the parties at the time of payment), the sum of $702,200 remains available to Jamie Craig under the Endorsement. [page607]

IV. Disposition

[45] For these reasons, I would dismiss the appeal with costs on a partial indemnity basis. In order to comply with the rule that now requires this court to fix costs, the respondents are to file a bill of costs and written submissions with the court within ten days from the release of this court's decision, the appellant is to respond in writing within a further ten days after filing, and a reply may be submitted within five days thereafter.

Appeal dismissed.