Axa Insurance v. Dominion of Canada General Insurance Company et al.

[Indexed as: Axa Insurance v. Dominion of Canada General Insurance Co.]

73 O.R. (3d) 391

[2004] O.J. No. 4492

Dockets: C40387 and C40430

Court of Appeal for Ontario,

MacPherson, Cronk JJ.A. and Lane J. (ad hoc)

November 4, 2004

Insurance -- Automobile insurance -- Interpretation -- Ownership, use or operation of automobile -- Insured using bungee cord to secure boat to trailer attached to automobile to transport boat from lake to cottage -- Cord becoming detached and striking insured's friend in eye -- Friend suing insured -- Coverage under insured's automobile insurance policy dependent upon damages arising out of ownership, use or operation of vehicle or trailer -- Accident arising from ordinary and well- known activity to which automobiles are put, that of transporting boats secured to trailers from waterways to homes or cottages -- Causal relationship existing between friend's injuries and ownership, use or operation of insured's automobile and trailer -- Automobile insurer required to respond to friend's action.

Insurance -- Excess coverage -- Insurer B's policy containing "Other Insurance" clause which provided "If you have other insurance not insured with us which applies to a loss or claim . . . our policy will be considered excess insurance and we will not pay any loss or claim until the amount of such other insurance is used up" -- B policy clearly providing excess coverage to that provided by Insurer A's policy -- No conflict existing between wording of policy and s. 277(2) of Insurance Act - Excess coverage provision applying to Insurer B's duty to defend as well as its duty to indemnify -- Insurance Act, R.S.O. 1990, c. I.8, s. 277(2).

WI and SS spent the day in WI's motorboat on a lake. When they returned to the public boat launch and recovery ramp, WI got out of the boat, backed his wife's van and an attached boat trailer into the water and positioned the boat on the trailer. He then returned to the van and drove out of the water onto level ground. Prior to setting out on the trip to his cottage, WI took steps to secure a hinged vinyl cushion, covering the shaft of the boat's motor, so that the cushion would remain stable during the trip. He took a bungee cord and attached it across the cushion to the port and starboard cleats in the rear of the boat. While he was checking the cord, it suddenly detached from the port cleat, snapped across the [page392] boat and struck SS, who was standing at the starboard side of the boat, in the eye. SS commenced an action against WI sounding primarily in negligence. WI had a standard automobile insurance policy with Axa which insured both the motor vehicle and any trailer attached thereto. Coverage was dependent upon the damages claimed in the litigation arising out of the ownership, use or operation of WI's vehicle or trailer. WI also had a boat liability policy with Dominion which insured both the boat and trailer. Coverage was dependent upon the damages arising out of the ownership, use, operation or maintenance of the boat or trailer. Dominion accepted that its policy applied to the litigation but, relying on an "Other Insurance" clause in its policy, contended that its policy was "excess" to the Axa policy and came into play only after Axa's duties to defend and indemnify were exhausted. Finally, WI had a homeowner's policy with Co-Operators which covered some watercraft. However, the watercraft coverage was limited to damages that did not arise directly or indirectly out of the ownership, use or operation of a motorized vehicle or trailer attached to a motorized vehicle. The application judge held that: Axa's policy had to respond; Axa had to defend and provide indemnity to WI; Dominion's policy also had to respond, but that policy provided only excess coverage and was, therefore, triggered only after Axa's coverage was exhausted; once Axa's coverage was exhausted, Dominion was liable to pay a pro rata share of the costs of defending WI; and the Co-Operator's policy did not apply to the litigation because of the exclusions in the policy. Axa and Dominion appealed.

Held, the appeals should be dismissed.

In determining whether SS's injuries arose from the ownership or directly or indirectly from the use or operation of the WI automobile and/or trailer, the test was: (1) Did the accident result from the ordinary and well-known activities to which automobiles are put? (2) Is there some nexus or causal relationship (not necessarily a direct or proximate causal relationship) between SS's injuries and the ownership, use or operation of the vehicle, or was the connection between the injuries and the ownership, use or operation of the vehicle merely accidental or fortuitous? An affirmative answer should be given to both of those questions. An "ordinary and well- known" activity for automobiles in Ontario is to transport boats secured to trailers from waterways to homes and cottages. Moreover, the injury to SS occurred, indirectly at least, from the ownership, use and operation of WI's automobile and attached trailer. WI was using the bungee cord to secure the boat to the trailer, with a view to making it safe for transport, when the accident occurred. As for the causation branch of the test, the securing of a cushion to a boat on a trailer attached to an automobile as a safety precaution necessary to prepare the boat for proper transport on a highway is an activity related to the ownership, use and operation of the automobile and trailer. Since the injury arose from the attempt to secure the cushion to the boat on the trailer, the causal link articulated in the second branch of the test was established. The application judge did not err in concluding that the Axa policy had to respond to the litigation.

Dominion's policy provided: "If you have other insurance not insured with us which applies to a loss or claim . . . our policy will be considered excess insurance and we will not pay any loss or claim until the amount of such other insurance is used up". The application judge did not err in finding that the Dominion policy provided excess coverage to that provided in the Axa policy. That was what the policy stated, and there was no conflict between the wording of the policy and s. 277(2) of the Insurance Act. The application judge's conclusion did not create a gap in coverage: Axa was responsible for the first $1 million of loss [page393] and Axa and Dominion were jointly responsible, on a pro rata basis, for any loss above $1 million. Dominion's excess coverage provision applied to both its duty to defend and its duty to indemnify. Dominion's policy stated that it "will not pay any loss or claim until the amount of such other insurance is used up". Axa's argument that the excess coverage provision applied only to the duty to indemnify for losses above $1 million and did not apply to Dominion's duty to defend WI amounted to an attempt to create a distinction, which did not appear in the policy, between a claim for indemnity and a claim for a defence. The excess insurance provision did not make that distinction, but referred only to a claim or a loss covered by other insurance. Since the claim for a defence was covered by Axa's policy, Dominion's policy was excess to Axa's policy in respect of both WI's claim for indemnity and his claim for a defence.

APPEALS from the judgment of Matlow J. of the Superior Court of Justice on an application to resolve insurance coverage issues.

Amos v. Insurance Corp. of British Columbia, 1995 66 (SCC), [1995] 3 S.C.R. 405, 10 B.C.L.R. (3d) 1, 127 D.L.R. (4th) 618, 186 N.R. 150, [1995] 9 W.W.R. 305, [1995] I.L.R. para. 1-3232, 13 M.V.R. (3d) 302, apld Other cases referred to Copley v. Kerr Farms Ltd. (2002), 2002 44900 (ON CA), 59 O.R. (3d) 346, 212 D.L.R. (4th) 700, 27 M.V.R. (4th) 189 (C.A.) Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, ss. 239(1), 267.1(1), 277(2),(3)

Geoffrey D.E. Adair, Q.C., for Axa Insurance. Christopher I.R. Morrison and Rajesh K. Datt, for Dominion of Canada General Insurance Company. Stan Raphael, Q.C., for Co-Operators Insurance Company. David R. Tenszen, for Stephen and Marla Simms. Jesse T. Glass, Q.C., for William Isen.

The judgment of the court was delivered by

MacPHERSON J.A.:--

A. Introduction

[1] There are two appeals from the judgment of Matlow J. dated June 25, 2003. The appeals present issues relating to the relationship among three insurance policies -- automobile, boat and homeowner -- in the context of a serious eye injury caused by a bungee cord.

B. Facts

(1) The parties and events

[2] On August 1, 1999, Dr. William Isen, Dr. Stephen Simms and their families spent a day together in Dr. Isen's 180- horsepower [page394] motorboat on Lake Muskoka. They returned to the public boat launch and recovery ramp in Gravenhurst at approximately 8:45 p.m.

[3] Upon arriving at the ramp, Dr. Isen got out of the boat and backed his wife's van and an attached boat trailer into the water and positioned the boat on the trailer. He then returned to the van and drove out of the water onto level ground.

[4] Prior to setting off on the journey to his cottage near Orillia, Dr. Isen took steps to secure a hinged vinyl cushion, covering the shaft of the boat's motor, so that the cushion would remain stable during the trip. He took a bungee cord and attached it across the cushion to the port and starboard cleats in the rear of the boat. While he was checking the cord, it suddenly detached from the port cleat, snapped across the boat and struck Dr. Simms, who was standing at the starboard side of the boat, in the eye.

[5] Dr. Simms and his wife Marla commenced an action against Dr. Isen sounding principally in negligence. Dr. Isen has three insurance policies that are potentially relevant to his defence of the lawsuit and to the payment of damages arising therefrom.

[6] Dr. Isen's policy with Axa Insurance ("Axa") is a standard automobile policy with a $1 million limit. This policy insures both the motor vehicle and any trailer attached thereto. Coverage is dependent upon the damages claimed in the litigation arising out of the ownership, use or operation of Dr. Isen's vehicle or trailer. Axa denies that its policy responds in the circumstances giving rise to the Simms' action against him.

[7] Dr. Isen's policy with Dominion of Canada General Insurance Company ("Dominion") is a boat liability policy, also with a $1 million limit. The policy insures both the Isen boat and trailer. Coverage is dependent upon the damages arising out of the ownership, use, operation or maintenance of the boat or trailer. Dominion accepts that its policy applies to the Simms- Isen litigation, thereby imposing on Dominion duties to defend and indemnify. However, relying on an "Other Insurance" clause in its policy, Dominion contends that its policy is "excess" to the Axa policy and comes into play only after Axa's duties to defend and indemnify are exhausted.

[8] Dr. Isen's homeowner's policy with Co-Operators Insurance Company ("Co-Operators") provides property and liability insurance to a $1 million limit. The policy covers some watercraft. However, the watercraft coverage is limited to damages that do not arise directly or indirectly out of the ownership, use or operation of a motorized vehicle or trailer attached to a motorized vehicle. [page395]

[2] The litigation

[9] The parties decided to resolve the insurance coverage issues early in the Simms-Isen litigation. Axa brought a notice of application and Dominion and Co-Operators brought a joint notice of cross-application. An agreed statement of facts was prepared.

[10] Matlow J. heard the application and cross-application on June 3, 2003. He delivered reasons for judgment on June 25, 2003. He concluded:

(1) Axa's policy must respond; Axa must defend and provide indemnity to Dr. Isen;

(2) Dominion's policy must also respond (Dominion conceded this). However, Dominion's policy provides only excess coverage and is, therefore, triggered only after Axa's coverage is exhausted;

(3) Once Axa's coverage is exhausted, Dominion is liable to pay a pro rata share of the costs of defending Dr. Isen; and

(4) Co-Operators' policy does not apply to the litigation because of the exclusions in its policy.

[11] Axa appeals conclusions (1), (2) and (3). Dominion appeals conclusion (4).

C. Issues

[12] The issues in the two appeals are:

(1) Did the application judge err by concluding that the Axa policy must respond to the Simms-Isen litigation?

(2) Did the application judge err by concluding that Dominion's policy must respond to the litigation on only an excess, as opposed to a joint first coverage (with Axa), basis?

(3) Did the application judge err by concluding that Dominion does not have a concurrent (with Axa) duty to defend?

(4) Did the application judge err by concluding that the exclusions in its policy absolved Co-Operators from responding to the litigation? [page396]

D. Analysis

(1) The Amos issue

[13] The material wording of Dr. Isen's policy with Axa is:

3.3 WHAT WE COVER

You . . . may be legally responsible for the bodily injury to . . . others . . . as a result of owning, using or operating the automobile. In that case, we will make any payment on your. . .behalf that the law requires, up to the limits of the policy.

[14] The policy also applies to trailers:

2.2.4 Trailers -- Any trailer used in connection with the automobile is insured for the following coverages: -- Liability . . .

(Italics in original)

[15] Axa acknowledges that the coverages in its policies have been drafted with a view to the requirements for standard automobile policies mandated by the Insurance Act, R.S.O. 1990, c. I.8 (the "Act"), including s. 239(1) which compels coverage for loss or damage:

(a) arising from the ownership or directly or indirectly from the use or operation of any such automobile; and

(b) resulting from bodily injury to . . . any person . . . .

[16] Axa submits, correctly, that the central issue in terms of the application of its policy is whether the injuries sustained by Dr. Simms arose from the ownership or directly or indirectly from the use or operation of the Isen automobile and/or trailer.

[17] The parties agree that the leading case interpreting the phrase "arises out of the ownership, use or operation of a vehicle" is Amos v. Insurance Corp. of British Columbia, 1995 66 (SCC), [1995] 3 S.C.R. 405, 127 D.L.R. (4th) 618, wherein Major J. formulated a two-part test, at para. 17:

1. Did the accident result from the ordinary and well-known activities to which automobiles are put?

2. Is there some nexus or causal relationship (not necessarily a direct or proximate causal relationship) between the appellant's injuries and the ownership, use or operation of his vehicle, or is the connection between the injuries and the ownership, use or operation of the vehicle merely incidental or fortuitous?

[18] In my view, an affirmative answer should be given to both of these questions in the present case. An "ordinary and [page397] well-known" activity for automobiles in Ontario is to transport boats secured to trailers from waterways to homes and cottages. Moreover, the injury to Dr. Simms occurred, indirectly at least (per s. 239(1)(b) of the Act) from the ownership, use and operation of Dr. Isen's automobile and attached trailer. Dr. Isen was using the bungee cord to secure the automobile's cargo (the boat) to the trailer, with a view to making it safe for transport, when the accident occurred.

[19] With respect to the second Amos question, the causation question, this court's recent decision in Copley v. Kerr Farms Ltd. (2002), 2002 44900 (ON CA), 59 O.R. (3d) 346, 212 D.L.R. (4th) 700 (C.A.) is instructive. In this case, an individual was injured while attaching a tomato wagon to a truck when a piece of equipment being used to secure the wagon struck him in the face. The case involved a determination of whether a tomato wagon was a motor vehicle for the purposes of a different provision, s. 267.1(1), of the Act. This court held that it was not. However, the court went on to consider, assuming that the tomato wagon was a motor vehicle, whether the injury to the plaintiff resulted from the ownership, use or operation of the motor vehicle. Doherty J.A. answered this question in the affirmative. He reasoned, at para. 39:

For the purposes of this question, it must be assumed that the tomato wagon was an automobile when the accident occurred. Based on this assumption, I have no doubt that Mr. Copley's bodily injuries arose directly or indirectly from the use or operation of the tomato wagon. Those injuries occurred while the tomato wagon was being connected to the truck. Connecting the tomato wagon to the truck so that the truck could pull the wagon is an integral part of the use of the tomato wagon. Indeed, it is an essential step in the process of using or operating the tomato wagon. Connecting the tomato wagon to the truck is as much a use of the tomato wagon as the starting of an automobile is a use of an automobile. Applying the principles set down in Amos v. Insurance Corp. of British Columbia . . . and assuming that the tomato wagon is an automobile, I would hold that Mr. Copley's injuries arose directly or indirectly from the use or operation of the tomato wagon.

[20] Similarly, the securing of a cushion to a boat on a trailer attached to an automobile as a safety precaution necessary to prepare the boat for proper transport on a highway is an activity related to the ownership, use and operation of the automobile and trailer. Since the injury arose from the attempt to secure the cushion to the boat on the trailer, the causal link articulated in the second branch of the Amos test is established. [page398]

(2) The excess versus pro rata coverage issue

[21] Dominion concedes that its boat liability policy provides coverage to Dr. Isen for the injury suffered by Dr. Simms. However, Dominion relies on the following provision in its policy:

OTHER INSURANCE

If you have other insurance not insured with us which applies to a loss or claim . . . our policy will be considered excess insurance and we will not pay any loss or claim until the amount of such other insurance is used up.

[22] Since Axa's automobile policy also covers Dr. Isen, Dominion asserts that this provision in its policy means that its coverage for Dr. Isen is only excess coverage -- it is triggered only after Axa's policy limit of $1 million is exhausted.

[23] Axa's response is invocation of s. 277(2) and (3) of the Act:

277(2) . . .[I]f the insured named in a contract has or places any other valid insurance, whether against liability for the ownership, use or operation of or against loss of or damage to an automobile or otherwise, of the insured's interest in the subject-matter of the contract or any part thereof, the insurer is liable only for its rateable proportion of any liability, expense, loss or damage.

(3) "Rateable proportion" as used in subsection (2) means,

(a) if there are two insurers liable and each has the same policy limits, each of the insurers shall share equally in any liability, expense, loss or damage; . . . .

Axa's position is that this provision requires Axa and Dominion to share equally in the costs of defending and indemnifying Dr. Isen - from the first dollar, not just for any losses above the $1 million limit on Axa's policy.

[24] The application judge rejected Axa's argument. He said:

The Dominion policy provides excess coverage to that provided by the AXA policy. This is what the policy states and I see no conflict between the wording of the policy and the Insurance Act.

[25] I agree with this conclusion. Excess insurance provisions are very common in the insurance industry. Axa's interpretation of s. 277(2) of the Act would set aside such provisions in many cases. I see nothing in the wording of s. 277(2) that would require, or even suggest, such a result. Contrary to Axa's argument, the application judge's conclusion does not create a gap in coverage; Axa is responsible for the first $1 million of loss and Axa and Dominion are jointly responsible, on a pro rata basis, for any loss above $1 million. [page399]

(3) The concurrent duty to defend issue

[26] Axa contends that the application judge erred by concluding that Dominion's excess coverage provision applied to both its duty to defend and its duty to indemnify. Axa submits that if it applies at all, it applies only to the duty to indemnify for losses above $1 million; it does not apply to Dominion's duty to defend Dr. Isen which, asserts Axa, is a primary obligation.

[27] The application judge rejected Axa's argument. He stated:

Dominion has no obligation to defend until it is determined that AXA's limits have been used up. If that occurs, Dominion is liable to pay the pro rata share of the defence costs. If there are special circumstances, further directions may be sought.

[28] I agree. Dominion's policy states that it "will not pay any loss or claim until the amount of such other insurance is used up" (emphasis added). Axa's argument amounts to an attempt to create a distinction, which does not appear in the policy, between a claim for indemnity and a claim for a defence. The excess insurance provision does not make this distinction, but refers only to a claim or a loss covered by other insurance. Since the claim for a defence is covered by Axa's policy, Dominion's policy is excess to Axa's policy in respect of both Dr. Isen's claim for indemnity and his claim for a defence. On the plain wording of Dominion's policy, Dominion does not have to pay any claim for defence costs until Axa's obligation to defend is "used up" [See Note 1 at the end of the document].

(4) The Co-Operators coverage issue

[29] The Co-Operators homeowner's policy has an exclusion clause:

PERSONAL ACTIONS LIABILITY

You are insured for legal liability arising out of your personal actions anywhere in the world, except claims for:

-- damage arising from the ownership, use or operation of any motorized vehicle, trailer or watercraft . . . . [page400]

[30] The application judge concluded that "the subject event is explicitly excluded by the wording of the Co-Operators policy" and, accordingly, Co-Operators was not required to defend or indemnify Dr. Isen.

[31] Surprisingly, Dominion challenges this conclusion. It submits that the application judge did not distinguish between the methodology to interpret a coverage clause (broad and expansive) with that of an exclusion clause (narrow and strict). The result, according to Dominion, is that although the accident arose out of the ownership, use or operation of a motor vehicle for the purpose of interpreting the coverage clause in Axa's policy (result -- Dominion wins), the same accident did not arise out of the ownership, use or operation of a motor vehicle for the purpose of interpreting the exclusion clause in the Co-Operators policy (result - Dominion wins again).

[32] This is sophistry. Although the case law supports the general proposition that coverage clauses should be interpreted generously and exclusion clauses strictly, the distinction cannot be stretched to provide two completely opposite interpretations to the same words in two insurance policies applying to the same accident.

E. Disposition

[33] I would dismiss both appeals.

[34] On Axa's appeal, costs should be awarded to Dominion, Dr. Isen and the Simms in the amounts of $7,500, $3,750 and $3,750 respectively, inclusive of disbursements and GST.

[35] On Dominion's appeal, Co-Operators is entitled to costs of $5,000, inclusive of disbursements and GST.

Appeals dismissed.

Notes

Note 1: I note, and Dominion concedes, that in certain circumstances a primary insurer may have an equitable claim against an excess insurer to contribute to defence costs before the primary insurer's limit is used up. An example would be a case where it is clear that the potential loss will be well above the primary insurer's limit. The application judge recognized this possibility; hence his observation, "If there are special circumstances, further directions may be sought."