David Polowin Real Estate Ltd. v. The Dominion of Canada General Insurance Co. Big Canoe v. The Economical Insurance Group Duclos v. Wawanesa Mutual Insurance Co. Farquhar v. Liberty Mutual Insurance Co. Johnston v. Federation Insurance Co. of Canada Matthews v. Belair Insurance Co. Shaw v. Zurich Canada Insurance Woods v. ING Halifax Insurance Co. [Indexed as: David Polowin Real Estate Ltd. v. Dominion of Canada General Insurance Co.]
76 O.R. (3d) 161
[2005] O.J. No. 2436
Dockets: C40447, C40475, C40487, C40488, C4048
C40490, C40501, C40910 and C40911
Court of Appeal for Ontario,
Laskin, Simmons, Cronk, Armstrong JJ.A. and
Then J. (ad hoc)
June 15, 2005
*Application for leave to appeal to the Supreme Court of Canada was dismissed with costs January 26, 2006 (Fish, Abella and Charron).
Insurance -- Automobile insurance -- Statutory conditions -- Insurer not breaching statutory condition 6(7) by reducing its payment to insured by deductible where it elects to take title to salvage in total loss claims.
Judgments and orders -- Stare decisis -- Court of Appeal decision in area of automobile insurance wrongly decided -- Decision questioned by courts in two other jurisdictions -- Consistency of interpretation among provincial appellate courts in area of automobile insurance desirable -- Insureds not having governed their conduct on basis of decision -- Decision of relatively recent vintage -- Reviewing panel of Court of Appeal having broader record before it than panel which decided issue wrongly -- Reviewing panel deciding not to apply stare decisis and to overrule decision.
Each appellant insurer issued a standard Ontario automobile policy to its respondent insured. The policy provided that the insurer would pay any damage to the insured's car less any applicable deductible. Each insured's car was damaged beyond repair in an automobile accident. Each insurer paid its insured the actual cash value of the car less the policy deductible and took title to the salvage. Statutory condition 6(7) in Statutory Conditions -- Autombile Insurance, O. Reg. 777/93 passed under the Insurance Act, R.S.O. 1990, c. I.8, which is included in every Ontario automobile policy, stipulates that if the insurer pays the actual cash value of the automobile, the salvage, if any, shall vest in the insurer. The insured brought class proceedings, alleging a breach of statutory condition 6(7) and conversion. The insurers moved to dismiss the actions. The motion judge found that the principle of stare decisis required him to follow McNaughton Automotive Ltd. v. Co- operator s General Insurance Co., in which the Court of Appeal held that when a car is damaged beyond repair and the insurer elects to take title to the salvage, the insurer is not entitled to reduce its payment to its insured by the amount of the deductible. The insurers appealed.
Held, the appeals should be allowed. [page162]
Statutory condition 6(7) must be interpreted by applying the "modern approach" to statutory interpretation: the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of the legislature. The court should take into account all relevant and admissible indicators of legislative meaning, and should adopt an interpretation that complies with the legislative text, promotes the legislative purpose and produces a reasonable and sensible meaning.
McNaughton was wrongly decided. In McNaughton, the court wrongly assumed that statutory condition 6(7) quantified the insurer's payment obligation when the insurer elected to pay the actual cash value of the car and take the salvage. Statutory condition 6(7) does no more than give an insurer the option to acquire the salvage when it indemnifies the insured for the damaged car. It does not prescribe the amount the insurer must pay to meet its indemnity obligation. That amount is set out in the policy itself and may be reduced by a deductible when the policy so provides. That conclusion was supported by the following observations: (1) The wording of statutory condition 6(7), the wording of the insurer's payment obligations in ss. 6 and 7 of the policy, the context in which those words are found, and the chart at the end of s. 8 show that statutory condition 6(7) was not meant to prescribe how much an insurer must pay an insured when the insured's car is damaged beyond repair and the insure r takes the salvage; (2) Interpreting statutory condition 6(7) as prescribing the amount insurers must pay when they take the salvage gives insureds a windfall in total loss claims. An interpretation that produces windfall results should be avoided; (3) Insurance premiums are cost sensitive to deductibles: the higher the deductible, the lower the premium. Because of this cost sensitivity, the respondents' interpretation of statutory condition 6(7) does not produce sensible results; (4) Although the respondents argued that insurers cannot apply a deductible when they take title to the salvage, they acknowledged that insurers can apply a deductible when they leave the salvage with their insureds. But this position produces a perverse incentive because it encourages insurers to settle claims by leaving insureds with the salvage. An interpretation of statutory condition 6(7) that will produce this kind of incentive is not desirable; (5) Deductibles are a well-understood and well-accepted feature of automobile ins urance policies. A reasonably informed insured would fully expect the insurer to apply a deductible in total loss cases, including those cases where the insurer acquires the salvage; (6) The insurer may apply a deductible in partial loss cases. The insurers' interpretation of statutory condition 6(7) achieves consistency of treatment between partial and total loss cases;. (7) The insurers' interpretation of statutory condition 6(7) is consistent with and reflects the common law principle of subrogation. Conversely, the respondents' interpretation of statutory condition 6(7) requires the insurer to over-indemnify the insured before claiming the salvage. (8) Section 8 of the policy, which lists the statutory conditions, contains a paramountcy clause, stating "If there is a discrepancy between these conditions and the wording in the policy, these conditions prevail." The two sections immediately preceding s. 8 expressly provide for the application of deductibles in property damage claims, and give examples of th e application of deductibles in total loss claims. It would be incongruous to interpret statutory condition 6(7) to eliminate deductibles where the insurer takes the salvage in total loss claims, when the immediately preceding sections of the policy have expressly provided for deductibles in these cases; and (9) The legislative history does not reflect any conscious legislative intent to change the right to apply deductibles in total loss cases, a right that had existed for many years. [page163]
McNaughton should be overruled. The reasoning in McNaughton has been questioned by two courts in other jurisdictions. In the automobile insurance context, a strong case can be made for consistency of interpretation among provincial appellate courts. Although the precise ruling in McNaughton has been reversed by legislation, that case and these appeals raise the broader question of the interpretation of statutory conditions in a standard automobile insurance policy. This broader question is likely to recur in the future, and it would be unfortunate if future courts interpreting one of the statutory conditions were encumbered by the panel's erroneous interpretation in McNaughton. Although stare decisis generally promotes the value of certainty, that value has limited application on the question at stake in these appeals, as insureds have not governed their conduct on the basis of McNaughton when buying automobile insurance. The case for overruling is more compelling because McNaughton is of relatively recent vintage. Better to correct an error early on than to let it settle in. The record on these appeals was broader than that before the McNaughton panel. It is a relevant consideration that, with numerous class certification motions pending, a substantial amount of money is potentially at stake. Finally, the court should not be less willing to depart from its own decisions because the Supreme Court of Canada can correct errors made by a provincial appellate court. If these appeals were dismissed because of stare decisis, it was not obvious that the appellants would obtain leave to appeal to the highest court.
APPEALS from the orders of Haines J. of the Superior Court of Justice dated July 14, 2003 and October 21, 2003 dismissing motions to dismiss class proceedings.
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