Kereluik v. Jevco Insurance Company [Indexed as: Kereluik v. Jevco Insurance Co.]

111 O.R. (3d) 395

2012 ONCA 338

Court of Appeal for Ontario,

Cronk, Juriansz and Epstein JJ.A.

May 22, 2012

Insurance -- Automobile insurance -- Interpretation and construction -- Phrase "authorized by law" in s. 4(1) of O. Reg. 777/93 concerned with validity and terms of insured's licence to drive and not applying to personal undertaking given by insured to police officer as condition of release from custody on impaired driving charge -- Statutory Conditions -- Automobile Insurance, O. Reg. 777/93, s. 4(1).

K was arrested for impaired driving causing bodily harm and was released from custody subject to his undertaking, given to a police officer, to abstain from the possession and consumption of alcoholic beverages. He was subsequently involved in a second motor vehicle accident in which he allegedly injured D. He was impaired at the time of the accident. On the date of the second accident, he was insured by Jevco and held a valid driver's licence. No express conditions attached to his licence. D sued K for damages. Jevco took the position that K's breach of the undertaking meant that he was not "authorized by law" to drive within the meaning of s. 4(1) of O. Reg. 777/93 (statutory condition four to the standard form automobile insurance policy). AXA, which provided underinsured automobile insurance coverage to D, applied successfully for declarations that Jevco was required to defend and indemnify K. Jevco appealed.

Held, the appeal should be dismissed.

The application judge did not err in finding that the phrase "authorized by law" is concerned with the validity and terms of an insured's licence to drive at the time of the relevant motor vehicle accident. Nothing in the language or legislative history of condition four suggests that the phrase is intended to apply to breaches of the law not directly connected with violations of driving licence conditions. [page396]

APPEAL from the order of Rady J. of the Superior Court of Justice on July 14, 2011 declaring that the insurer was required to defend and indemnify the insured.

Cases referred to Gipson v. Pilot Insurance Co. (2005), 2005 1495 (ON SC), 74 O.R. (3d) 133, [2005] O.J. No. 239, [2005] O.T.C. 54, 20 C.C.L.I. (4th) 199, 14 M.V.R. (5th) 90, 136 A.C.W.S. (3d) 740 (S.C.J.), distd Other cases referred to Northover v. Regier, [2000] I.L.R. I-3889 (Ont. S.C.); Peet v. Ethier, [1987] S.J. No. 625, [1988] I.L.R. Â1-2290 at 8865 (C.A.), affg 1987 9929 (SK QB), [1987] S.J. No. 305, 26 C.C.L.I. 42, [1988] I.L.R. Â1-2261 at 8763, 6 A.C.W.S. (3d) 135 (Q.B.); Vanderwal v. State Farm Mutual Automobile Insurance Co. (1994), 1994 10575 (ON CA), 20 O.R. (3d) 401, [1994] O.J. No. 4421 (Div. Ct.) Statutes referred to Criminal Code, R.S.C. 1985, c. C-46 [as am.] Highway Traffic Act, R.S.O. 1990, c. H.8 [as am.] Insurance Act, R.S.O. 1970, c. 224, s. 205 Insurance Act, R.S.O. 1990, c. I.8 [as am.], ss. 118 [as am.], 234(1) Rules and regulations referred to Statutory Conditions -- Automobile Insurance, O. Reg. 777/93, s. 4(1)

W. Colin Empke, for appellant. James E.S. Allin, for respondent Paul Kereluik. Jerry F. O'Brien, for intervenors Concetta Deabreu, Antonio Deabreu and Adriano Deabreu. John A. Nicholson, for intervenor AXA Insurance (Canada).

The judgment of the court was delivered by

[1] CRONK J.A.: -- This appeal concerns the narrow issue whether the phrase "authorized by law" in s. 4(1) of Statutory Conditions -- Automobile Insurance, O. Reg. 777/93, enacted under the Insurance Act, R.S.O. 1990, c. I.8 (the "Act"), extends to a personal undertaking given by an insured to a police officer as a condition of release from custody on an impaired driving charge. By operation of s. 234(1) of the Act, s. 4(1) of O. Reg. 777/93 constitutes statutory condition number four (Condition Four) to the standard form automobile insurance policy in use in Ontario.

I. Background

[2] The pertinent background facts are undisputed.

[3] On February 26, 2003, the respondent, Paul Kereluik, was arrested for impaired driving causing bodily harm following a motor vehicle accident. He was released from custody subject to his undertaking, given to a peace officer, "to abstain from the [page397] possession and consumption of any alcoholic beverages" (the "Undertaking"). A breach of the Undertaking constituted a criminal offence.

[4] On December 12, 2003, the respondent was involved in a second motor vehicle accident in which he allegedly injured the intervenor, Concetta Deabreu. At the time of the second accident, the respondent was impaired. He was charged with impaired driving and breach of his Undertaking. He was subsequently convicted of both charges, as well as the impaired driving charge from the earlier accident.

[5] On the date of the second accident, the respondent was insured under a valid, standard motor vehicle insurance policy (the "Policy") issued by the appellant, Jevco Insurance Company ("Jevco"). He also held a valid Ontario driver's licence, issued by the Ministry of Transportation of Ontario. No express conditions attached to his licence.

[6] Following the second accident, Ms. Deabreu and various family members commenced a negligence action against the respondent, claiming damages for losses allegedly occasioned by the accident. For several years, Jevco provided the respondent with a defence to the action.

[7] However, after Jevco learned of the respondent's breach of the Undertaking, it notified him that it would no longer fund his defence or indemnify him in respect of any damages that might be awarded against him in the Deabreu action. Jevco took the position that the respondent's breach of the Undertaking constituted a breach of Condition Four of the Policy, resulting in the forfeiture of his automobile insurance coverage under the Policy. In particular, Jevco maintained that, by reason of his breach of the Undertaking, the respondent was not "authorized by law" to drive at the time of the second accident, within the meaning of Condition Four.

[8] Condition Four of the Policy states:

The insured shall not drive or operate or permit any other person to drive or operate the automobile unless the insured or other person is authorized by law to drive or operate it.

[9] The intervenor, AXA Insurance (Canada) ("AXA"), provided underinsured automobile insurance coverage to Ms. Deabreu. When Jevco denied coverage to the respondent, AXA applied to the Superior Court of Justice for declarations that Jevco was required to defend and to indemnify him under the Policy, up to the $1 million limits of the Policy, in connection with the Deabreu action. [page398]

II. Application Judge's Decision

[10] The application judge granted the declarations sought. She concluded that on the date of the second accident, the respondent was "authorized by law" to drive within the meaning of Condition Four since (1) he held a valid Ontario driver's licence; (2) he was in compliance with the terms of that licence; (3) the licence contained no alcohol-related condition or prohibition; and (4) his licence was in good standing.

[11] Jevco appeals.

III. Discussion

[12] I agree with the application judge's interpretive analysis and with her ruling that the respondent is entitled to a defence and to indemnification from Jevco in respect of the Deabreu negligence action.

[13] As the application judge noted, there is considerable jurisprudential support for the proposition that the phrase "authorized by law" as used in Condition Four is concerned with the validity and terms of an insured's licence to drive at the time of the relevant motor vehicle accident. See, for example, Vanderwal v. State Farm Mutual Automobile Insurance Co. (1994), 1994 10575 (ON CA), 20 O.R. (3d) 401, [1994] O.J. No. 4421 (Div. Ct.); Northover v. Regier, [2000] I.L.R. I-3889 (Ont. S.C.); Peet v. Ethier, 1987 9929 (SK QB), [1987] S.J. No. 305, [1988] I.L.R. Â1-2261 at 8763 (Q.B.), affd [1987] S.J. No. 625, [1988] I.L.R. Â1-2290 at 8865 (C.A.). These authorities suggest that the legal authority to drive, at any given time, depends on the existence of a valid licence issued by the responsible regulatory authority and compliance with the conditions attaching to the licence.

[14] In this case, the respondent held a valid driver's licence, issued by the appropriate Ontario licensing authority, at the time of the second accident. His licence was unconditional. In particular, it contained no term regarding the possession or consumption of alcohol similar to the prohibition contained in the Undertaking.

[15] In my view, nothing in the language or legislative history of Condition Four suggests that the phrase "authorized by law", as used in Condition Four, is intended to apply to breaches of the law not directly connected with violations of driving licence conditions.

[16] Jevco points out, correctly, that the regulation of driving behaviour in Ontario, including drinking and driving, is governed both by provincial law (the Highway Traffic Act, R.S.O. 1990, c. H.8) and federal law (the Criminal Code, R.S.C. 1985, c. C-46). It therefore submits that driving conditions imposed under either body of law come within the intended scope of the phrase "authorized by law" in Condition Four. [page399]

[17] I would not accede to this argument. If Jevco's urged interpretation of Condition Four was to be accepted, the breach of any driving-related prohibition or restriction imposed under any law, including the criminal law, would result in the forfeiture of automobile insurance coverage because the breach would render an insured unauthorized at law to drive or operate a vehicle within the meaning of Condition Four. For example, on Jevco's interpretation of Condition Four, if terms of bail applicable to an insured who has been charged with impaired driving included the imposition of a curfew, the breach of the curfew terms -- even a minor or technical breach -- could trigger the loss of the insured's automobile insurance. Such a sweeping interpretive result should not be countenanced absent a clear expression of such intention by the legislature.

[18] I also regard Jevco's proposed construction of Condition Four as inconsistent with s. 118 of the Act. That provision, as applicable to motor vehicle insurance policies, provides that unless the relevant insurance contract otherwise stipulates, the commission of a criminal offence, "by that fact alone", does not render unenforceable an indemnity claim under the contract, except where the contravention of the law is committed with the intent to bring about loss or damage. There is no suggestion that this exception is engaged on the facts of this case. Further, the Policy contains no specific exclusion clause for losses occasioned by criminal acts.

[19] In my view, s. 118 of the Act signals a clear legislative intent to allow for the possibility of compensation for innocent tort victims beyond the statutory minimum amounts provided for under the Act, notwithstanding that the losses in respect of which compensation is sought may have been occasioned by a tortfeasor's criminal wrongdoing. I agree with AXA's submission that s. 118 is also designed to provide insurance protection for negligent tortfeasors who do not intend to cause harm.

[20] These public policy choices by the legislature stand in stark contrast to former versions of the Ontario standard automobile insurance policy, which expressly prohibited the use of an automobile by an insured while incapable of the proper control of the automobile by reason of the "influence of intoxicating liquor or drugs": see, for example, former Statutory Condition 2(1)(a), Insurance Act, R.S.O. 1970, c. 224, s. 205.

[21] The legislature's policy choices regarding the availability of compensation for tort victims injured in motor vehicle accidents require respect from the courts. By enacting s. 118 of the Act, by repealing former statutory conditions under the Act that expressly precluded the operation or use of an automobile while [page400] under the influence of alcohol (i.e., former Statutory Condition 2(1)(a), above-cited), and by not incorporating a coverage exclusion in the current standard form automobile insurance policy pertaining to drunk drivers, the legislature must be taken as having elected to protect the potential of tort compensation for innocent victims of drinking and driving. I see nothing in Condition Four that suggests that this protection is intended to extend only to the minimum amounts of coverage provided for under the Act.

[22] Jevco relies on several cases, including Gipson v. Pilot Insurance Co. (2005), 2005 1495 (ON SC), 74 O.R. (3d) 133, [2005] O.J. No. 239 (S.C.J.), to argue that the breach of a specific driving- related undertaking, particular to a specific insured and given to a law enforcement official as a condition of release from custody on a driving-related offence, constitutes a condition precedent to the insured's lawful authority to drive.

[23] I disagree. Condition Four is concerned with an insured's legal entitlement to drive or operate a motor vehicle. This entitlement depends on the insured's possession of a valid driver's licence and his or her compliance with the terms of the licence at the time of the incident giving rise to the challenge to the insured's lawful authority to drive or operate the vehicle. Unlike this case, each of the authorities relied on by Jevco, including Gipson, involved the violation of one or more specific conditions attaching to the insured's driver's licence. The conditions imposed therefore constituted conditions precedent to the lawful authority to drive. That is not this case.

[24] I reach a similar conclusion concerning Jevco's contention that there is a parallel between the position of the insured in this case and that of a novice driver under Ontario's graduated automobile licensing scheme. In my view, the suggested parallel does not exist. It is true, as Jevco points out, that novice drivers in Ontario are prohibited from consuming alcohol while driving. This prohibition, however, forms an express part of the licence conditions imposed on novice drivers. Again, that is not this case.

IV. Disposition

[25] For the reasons given, I would dismiss the appeal. I would award costs of the appeal, as agreed by counsel: to the respondent, Paul Kereluik, in the total amount of $12,000; to the Deabreu intervenors in the total amount of $11,000; and to AXA in the total amount of $5,000, each inclusive of disbursements and all applicable taxes.

Appeal dismissed.