Court File and Parties

COURT OF APPEAL FOR ONTARIO

DATE: 20240327 DOCKET: COA-23-CV-0002

Gillese, Trotter and Coroza JJ.A.

BETWEEN

Kerry Smith Plaintiff (Appellant)

and

Robert Taylor and Aviva Canada Inc. Defendants (Respondents)

Counsel: Nick de Koning, for the appellant Steven Stieber, for the respondent

Heard: September 22, 2023

On appeal from the order of Justice Michael J. Valente of the Superior Court of Justice, dated December 8, 2022.

Gillese J.A.:

[1] This appeal turns on the correct interpretation of a comprehensive homeowners insurance policy that includes a “Personal Excess Liability Policy” endorsement. In interpreting the excess endorsement, this court must: (1) consider the interplay between it and the insured’s automobile insurance policy, which includes the standard optional family protection coverage; and (2) determine whether the insured is required to exhaust the optional family protection coverage in her automobile policy before she can have recourse to the excess endorsement coverage.

I. Overview

[2] On August 18, 2017, Ken Schlimme suffered fatal injuries when the motorcycle he was driving was struck by a vehicle, driven by Robert Taylor, that failed to stop at a stop sign.

[3] At the time of the accident, Mr. Schlimme and Kerry Smith (“Ms. Smith” or the “appellant”) were common law spouses. Ms. Smith had an automobile insurance policy with Aviva Canada Inc. (“Aviva”) (the “Primary Auto Policy”). Mr. Schlimme had a comprehensive homeowners insurance policy with Aviva (the “Primary Homeowners Policy”). Each spouse was covered under the other’s policy.

[4] Ms. Smith started an action against Mr. Taylor and Aviva in which she claims damages of $3,500,000, including for substantial financial dependency losses.

[5] At the time of the accident, Mr. Taylor was insured under an automobile insurance policy issued by Wawanesa Mutual Insurance Company (“Wawanesa”). The Wawanesa policy provides Mr. Taylor with $1 million of liability coverage for claims of bodily injury made against him. Wawanesa is defending Mr. Taylor in the action.

[6] The Primary Auto Policy is the standard Ontario Automobile Policy (OAP1) Owner’s Policy. It includes the optional family protection coverage added by the standard Ontario Policy Change Form 44R (the “OPCF 44R”). The OPCF 44R is attached to this judgment as Appendix A. The OPCF 44R indemnifies Ms. Smith for up to $1 million if an insured under the Primary Auto Policy is injured or killed by an “inadequately insured motorist.” An “inadequately insured motorist” is defined in the OPCF 44R to mean a third-party motorist with “total motor vehicle liability insurance” less than the “limit of family protection coverage” provided by the policyholder’s OPCF 44R. Ms. Smith has $1 million of family protection coverage under the OPCF 44R.

[7] The Primary Homeowners Policy includes a “Personal Excess Liability Policy” endorsement (the “Excess Endorsement”). The Excess Endorsement provides $1 million of excess “Family Protection Coverage”. The Excess Endorsement is attached to this judgment as Appendix B. [1]

[8] Aviva agreed that Ms. Smith was covered by the two policies. However, it took the position that Ms. Smith was not entitled to recover under either the OPCF 44R or the Excess Endorsement.

[9] Ms. Smith acknowledged that she is not entitled to payment from Aviva under the OPCF 44R. Because the $1 million indemnity under the OPCF 44R is equal to the $1 million indemnity under Mr. Taylor’s Wawanesa policy, Mr. Taylor is not an “inadequately insured motorist” under the OPCF 44R and, therefore, Aviva need make no payment to her under it. However, Ms. Smith did not accept Aviva’s denial of coverage under the Excess Endorsement.

[10] As a result, Aviva moved under r. 21.01(1)(a), or alternatively r. 20, of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to have the action dismissed as against it (the “Motion”).

[11] The motion judge interpreted the Excess Endorsement as not providing Ms. Smith with coverage for damages arising from the accident. He interpreted the Excess Endorsement as requiring Mr. Taylor to be an inadequately insured motorist, as that term is defined in the OPCF 44R, for Ms. Smith to claim under the Excess Endorsement. He reasoned that since Mr. Taylor was not an “inadequately insured motorist” under the OPCF 44R, he could not be an inadequately insured motorist under the Excess Endorsement.

[12] The motion judge also interpreted the Excess Endorsement as requiring Ms. Smith to have exhausted the OPCF 44R limits before she could recover under the Excess Endorsement. Because Ms. Smith could recover nothing under the OPCF 44R, its limits were not exhausted and, for this reason too, he found that Ms. Smith could not have recourse to the Excess Endorsement.

[13] Accordingly, by order dated December 8, 2022 (the “Order”), the motion judge dismissed the action as against Aviva.

[14] Ms. Smith appeals. She submits the motion judge incorrectly interpreted the Excess Endorsement to deny her coverage under it.

[15] I accept Ms. Smith’s submission. Accordingly, I would allow the appeal.

II. The Relevant Provisions in the Policies

A. The OPCF 44R

[16] The Primary Auto Policy is the standard Ontario Automobile Policy (OAP 1) Owner’s Policy. It includes the optional family protection coverage added by the OPCF 44R. The relevant provisions in the OPCF 44R are set out below.

OPCF 44R

FAMILY PROTECTION COVERAGE

DEFINITIONS

1.4 “family protection coverage” means the insurance provided by this change form and any similar indemnity provided under any other contract of insurance.

1.5 “inadequately insured motorist” means

(a) the identified owner or identified driver of an automobile for which the total motor vehicle liability insurance … is less than the limit of family protection coverage; …

PROVIDED THAT

(A) where an eligible claimant is entitled to recover damages from an inadequately insured motorist and the owner or operator of any other automobile, for the purpose of

(i) (a) above, and

(ii) determining the insurer’s limit of liability under section 4 of this change form,

the limit of motor vehicle liability insurance shall be deemed to be the aggregate of all limits of motor vehicle liability insurance …, for all of the automobiles;

1.7 “limit of family protection coverage” means the amount set out in the Certificate of Automobile Insurance with respect to this change form, but if no amount is set out in the Certificate, the limit for liability coverage set out in the Certificate with respect to the automobile to which this change form applies is the limit of family protection coverage.

MULTIPLE COVERAGES

18. The following rules apply where an eligible claimant is entitled to payment under family protection coverage under more than one policy:

(a) (i) if he or she is an occupant of an automobile, such insurance on the automobile in which the eligible claimant is an occupant is first loss insurance and any other such insurance is excess;

(ii) if he or she is not an occupant of an automobile, such insurance in any policy in the name of the eligible claimant is first loss insurance and any other such insurance is excess.

(c) the applicable first loss insurance shall be exhausted before recourse is made to excess insurances,

B. The Excess Endorsement

[17] The Primary Homeowners Policy includes the Excess Endorsement. The relevant provisions of the Excess Endorsement are set out below.

PERSONAL EXCESS LIABILITY POLICY

IMPORTANT

The insurance provided by this policy only applies to personal property, personal automobile and personal watercraft policies issued to the “Named Insured” and “Spouse” of the “Named Insured” through Aviva Insurance Company (Canada) or any affiliated member of the Aviva group of companies (Canada).

DEFINITIONS

“Family Protection Coverage” means the standard O.P.C.F 44R/S.E.F. 44 – Family Protection Coverage and any similar indemnity provided under any other contract of insurance.

“Underlying Insurance” means the insurance provided by personal property, personal automobile and personal watercraft policies issued to the “Named Insured” and “Spouse” of the “Named Insured” through Aviva Insurance Company (Canada) or any affiliated member of the Aviva group of companies (Canada).

ADDITIONAL COVERAGE FEATURE

“Family Protection Coverage”

Subject to the terms and conditions of this policy coverage provided by this policy is extended to pay amounts which “You” are legally entitled to recover as “Compensatory Damages” for “Bodily Injury” or for damage to property from an inadequately insured motorist.

Subject to the terms and conditions of this policy, this additional coverage feature will only pay in excess of and subject to all the same terms and conditions as the “Family Protection Coverage” on the primary underlying motor vehicle liability policy under which “Your” Automobile(s) is insured.

This coverage only applies when “Family Protection Coverage” forms part of the motor vehicle liability policies under the “Underlying Insurance.”

III. The Decision Below

[18] The term “inadequately insured motorist” appears in the “Family Protection Coverage” provision of the Excess Endorsement but is not a defined term in the Excess Endorsement. However, the term “inadequately insured motorist” is defined in the OPCF 44R.

[19] On the Motion, the parties disputed whether the definition of “inadequately insured motorist” in the OPCF 44R applied to that term in the Excess Endorsement. Aviva contended it did, whereas the appellant maintained it did not. The motion judge agreed with Aviva and found that it did apply. He said that because there is no language in the Excess Endorsement showing an intention to modify the meaning of “inadequately insured motorist”, that term has the same meaning as stipulated in the OPCF 44R. He was fortified in his interpretation by the provision in the Excess Endorsement stating the policy “is subject to all the same terms, conditions, limitations and exclusions as the Underlying Policy”. In this case, the Underlying Policy is the Primary Auto Policy, which includes the OPCF 44R.

[20] Having concluded that Mr. Taylor was not an inadequately insured motorist for the purposes of the Excess Endorsement, the motion judge said that Ms. Smith could not recover under it. He acknowledged that this result might cause hardship but said there was no “principled reason” to expand the definition of “inadequately insured motorist” in the Excess Endorsement beyond that in the OPCF 44R.

[21] The motion judge further interpreted the Excess Endorsement as requiring Ms. Smith to exhaust the OPCF 44R limits before she could recover under the Excess Endorsement. He relied primarily on paras. 18(a)(ii) and (c) of the OPCF 44R for this interpretation. He added that requiring the policyholder to first exhaust the OPCF 44R limits accords with the purpose of the Excess Endorsement which does not increase the total OPCF 44R limits but, rather, creates a source of coverage once the policyholder exhausts its limits. As support for this, the motion judge pointed to this wording in the Excess Endorsement, “in no event will this policy provide broader coverage than the Underlying Insurance”.

IV. The Issues on Appeal

[22] Did the motion judge err in interpreting the Excess Endorsement so as to preclude Ms. Smith from having recourse to its $1 million of excess family protection coverage? That is the central question to be decided on this appeal.

[23] To answer this question, the court must determine whether the motion judge erred in (1) his interpretation of the relevant provisions of the Excess Endorsement; and (2) concluding that Ms. Smith had to exhaust the OPCF 44R limits before she could claim under the Excess Endorsement.

[24] The appellant asks this court to also decide (3) whether the Order should be set aside on the basis that it nullifies coverage and/or is commercially unreasonable.

V. The Standard of Review

[25] The parties agree that this court is to apply a correctness standard of review to the motion judge’s interpretation of the Excess Endorsement. I share that view and review the motion judge’s interpretation accordingly.

Issue 1: Correctly interpreting the Excess Endorsement

[26] For the purposes of this appeal, the Family Protection Coverage provision (the “FPC provision”) is the key provision in the Excess Endorsement. It consists of three paragraphs. For ease of reference, the FPC provision is set out again below.

“Family Protection Coverage”

Subject to the terms and conditions of this policy coverage provided by this policy is extended to pay amounts which “You” are legally entitled to recover as “Compensatory Damages” for “Bodily Injury” or for damage to property from an inadequately insured motorist.

Subject to the terms and conditions of this policy, this additional coverage feature will only pay in excess of and subject to all the same terms and conditions as the “Family Protection Coverage” on the primary underlying motor vehicle liability policy under which “Your” Automobile(s) is insured.

This coverage only applies when “Family Protection Coverage” forms part of the motor vehicle liability policies under the “Underlying Insurance”. [Emphasis added.]

A. The motion judge’s error

[27] The motion judge’s primary reason for concluding that Ms. Smith could not claim indemnity under the Excess Endorsement flowed from his interpretation of the words “inadequately insured motorist” in the first paragraph of the FPC provision. His reasoning can be summarized as follows.

1. Mr. Taylor had to be an “inadequately insured motorist” for Ms. Smith to claim indemnity under the Excess Endorsement.
2. The term “inadequately insured motorist” is not defined in the Excess Endorsement.
3. The definition of “inadequately insured motorist” in the OPCF 44R applies to that term in the FPC provision.
4. Because Mr. Taylor was not an inadequately insured motorist as defined in the OPCF 44R, he was not an inadequately insured motorist under the FPC provision. Therefore, Ms. Smith could not claim indemnity under the Excess Endorsement.

[28] In my view, the motion judge erred in the third step, namely, by applying the definition of “inadequately insured motorist” in the OPCF 44R (the “Definition”) to those words in the first paragraph of the FPC provision. For motorists like Ms. Smith who are injured by tortfeasors with coverage that matches their OPCF 44R limit, the motion judge’s interpretation essentially converts the Excess Endorsement into a second OPCF 44R policy, with the result that they cannot recover under the Excess Endorsement. Accordingly, the motion judge’s interpretation cannot be correct because it leads to an outcome that undermines the purpose of the Excess Endorsement which, as I will explain, is to provide Ms. Smith with coverage in excess of that provided by the OPCF 44R.

[29] Furthermore, the motion judge gave three reasons for using the Definition to interpret the words “inadequately insured motorist” in the first paragraph of the FPC provision, all of which are incorrect.

[30] First, the motion judge relied on this court’s decision in Kahlon v. ACE INA Insurance, 2019 ONCA 774, 148 O.R. (3d) 318, to state that “where terms are not defined in the endorsement, they adopt their definitions from the underlying policy”. Second, he found “no language in the Excess Endorsement intending to modify the meaning of ‘inadequately insured motorist’ to anything other than the definition in the OPCF 44R”. Third, he was fortified by a term in the Excess Endorsement that coverage is “subject to all the same terms, conditions, limitations and exclusions” as the Primary Auto Policy.

1. The first reason

[31] The motion judge’s reliance on Kahlon was misplaced. Kahlon stands for the proposition that where an endorsement is tethered to an underlying policy, undefined terms in an endorsement take their meaning from the use of the term in the underlying policy. I take no issue with this general proposition. However, in Kahlon, adopting the underlying definition raised no inconsistency with the endorsement. That is not the situation in the present case where, correctly interpreted, the Excess Endorsement provides for an additional layer of insurance that stacks on top of the OPCF 44R limits.

2. The second reason

[32] That the Excess Endorsement is to stack coverage on that provided by the OPCF 44R is evident from the definition of “Family Protection Coverage” in the Excess Endorsement coupled with the terms of the FPC provision.

[33] Family Protection Coverage is defined in the Excess Endorsement to mean “the standard O.P.C.F. 44R/S.E.F. 44 – Family Protection Coverage and any similar indemnity provided under any other contract of insurance ” (emphasis added).

[34] The Primary Homeowners Policy is a contract of insurance. It includes the Excess Endorsement. The Excess Endorsement includes the FPC provision. Like the OPCF 44R, the FPC provision provides family protection coverage. Therefore, the FPC provision is a “similar indemnity provided under another contract of insurance”. Accordingly, the definition of Family Protection Coverage includes the OPCF 44R limits and the Excess Endorsement limits. Thus, on a plain reading of the definition of Family Protection Coverage in the Excess Endorsement, coverage under it is to stack on top of the OPCF 44R limits.

[35] As I explain below, this interpretation is consistent with the FPC provision, when that provision is correctly interpreted.

[36] On the other hand, the Definition of “inadequately insured motorist” in the OPCF 44R excludes any consideration of additional or excess coverage. That is because the Definition expressly refers to the “limit of family protection coverage” in the OPCF 44R. “Limit of family protection coverage” is defined in the OPCF 44R as “the amount set out in the Certificate of Automobile Insurance.”

[37] The Excess Endorsement exists outside of the automotive insurance regulatory regime. It is not coverage that is, or can be, set out in the Certificate of Automobile Insurance. Thus, the additional coverage provided by the Excess Endorsement cannot fall within the “limit of family protection coverage” in the OPCF 44R.

[38] In summary, as the Definition in the OPCF 44R expressly refers to the “limit of family protection coverage” and the limit of family protection coverage is inconsistent with the additional grant of coverage intended by the Excess Endorsement, one cannot interpret the FPC provision in accordance with the Definition because to do so conflicts with the very purpose of the Excess Endorsement.

3. The third reason

[39] The motion judge’s third reason for using the Definition to interpret “inadequately insured motorist” in the FPC provision is a provision in the Excess Endorsement that states it is “subject to all the same terms, conditions, limitations and exclusions” of the Primary Auto Policy. The motion judge does not identify the provision in the Excess Endorsement to which he is referring. However, as those words appear in para. 2 of the section of the Excess Endorsement entitled “INSURING AGREEMENT” (the “Insuring Agreement provision”), I assume that is the provision to which he is referring.

[40] The Insuring Agreement provision reads as follows:

INSURING AGREEMENT

“We” will pay on behalf of the “Insured(s)” the “Ultimate Net Loss” that is legally liable to be paid as “Compensatory Damages” arising from an “Occurrence” that takes place during the policy period within the “Coverage Territory”.

1. “We” will only pay in excess of the “Underlying Insurance” or in excess of the minimum required underlying limit, whichever is greater. In addition, the insurance provided by this policy shall be liable only after the insurers under each of the “Underlying Insurance” policies have been paid or have been held liable to pay the full amount of the underlying limits of liability.

2. This policy is subject to all the same terms, conditions, limitations and exclusions as the “Underlying Insurance ” and in no event will this policy provide broader coverage than the “Underlying Insurance”. [Emphasis added.]

3. In the event of any conflict between the provisions of the “Underlying Insurance” and this policy, the provisions of this policy will apply.

[41] However, the Insuring Agreement provision relates to liability coverage, not family protection coverage. It addresses the circumstances in which the insurer will pay on behalf of an insured who is found legally liable to pay damages. This is evident from the definition of “Ultimate Net Loss” and the reference to it in the first sentence of the Insuring Agreement provision.

[42] “Ultimate Net Loss” is defined in the Excess Endorsement to mean:

[T]he total sum, after reduction for recoveries or salvages collectible, that the “Insured(s)” becomes legally obligated to pay as “Compensatory Damages” by reason of settlement or judgments or any arbitration or other alternate dispute method entered into with “Our” consent or the underlying insurer’s consent.

[43] Bearing in mind the definition of Ultimate Net Loss, on a plain reading of the Insuring Agreement provision, it governs the insurer’s promise to pay the amount that the insured becomes legally obligated to pay as compensatory damages. It does not address an insured’s right to claim indemnity under family protection coverage.

[44] Accordingly, it was an error for the motion judge to rely on para. 2 of the Insuring Agreement provision to support his conclusion that the term “inadequately insured motorist” in the Excess Endorsement should be given the same meaning as those words are given in the OPCF 44R.

B. The FPC provision correctly interpreted

1. The first paragraph of the FPC provision

[45] The words “inadequately insured motorist” are found only in the first paragraph of the FPC provision. That paragraph states that coverage provided by the Excess Endorsement is “ extended to pay amounts” (emphasis added) the insured is legally entitled to recover as damages for bodily injury “from an inadequately insured motorist”.

[46] The insured is entitled to recover damages for bodily injury from an inadequately insured motorist pursuant to the OPCF 44R, in certain circumstances. Therefore, on a plain reading of the first paragraph of the FPC provision, it extends coverage under the Excess Endorsement to pay amounts Ms. Smith is entitled to recover, as damages for her husband’s death, beyond that which might be recovered under the OPCF 44R.

[47] Because the words “inadequately insured motorist” are not defined in the Excess Endorsement and, for the reasons already given, ought not to be interpreted using the Definition in the OPCF 44R, they should be given their plain meaning. On that basis, Mr. Taylor is an inadequately insured motorist for the purpose of the first paragraph of the FPC provision.

[48] In her statement of claim, Ms. Smith claims damages of $3.5 million. She seeks to recover $1 million in damages pursuant to Mr. Taylor’s Wawanesa policy. If successful, a shortfall of $2.5 million of the claimed damages remains. Mr. Taylor is an inadequately insured motorist because his insurance is not sufficient to pay the damages that Ms. Smith may be entitled to recover from him. In short, Mr. Taylor is an inadequately insured motorist as those words are used in the first paragraph of the FPC provision.

[49] This interpretation of the first paragraph of the FPC provision does not ignore the beginning words of the first paragraph, namely, “Subject to the terms and conditions of this policy”. Aside from para. 2 of the Insuring Agreement provision, which I have explained is not applicable, the court was not pointed to any other terms or conditions in the Excess Endorsement that would affect this interpretation.

2. The second paragraph of the FPC provision

[50] The second paragraph of the FPC provision is to the same effect as the first. It provides that “this additional coverage feature will only pay in excess of ” the “primary underlying motor vehicle liability policy” (emphasis added). The primary underlying motor vehicle liability policy is the Primary Auto Policy, which includes the OPCF 44R. Therefore, according to the second paragraph, the Excess Endorsement provides Ms. Smith with additional coverage to that provided under the OPCF 44R.

[51] The second paragraph is not easily interpreted. It consists of a single, lengthy, convoluted sentence. In that single sentence, it uses both the phrase “subject to the terms and conditions of” and the phrase “subject to all the same terms and conditions as”. The first time the “subject to” phrase is used, it is referring to the terms and conditions of the Excess Endorsement. As I have explained, I see no provision in the Excess Endorsement that conflicts with interpreting it as providing Ms. Smith with $1 million of additional family protection coverage.

[52] The second time the “subject to” phrase is used, it is referring to the terms and conditions of the OPCF 44R. This creates ambiguity: which of the two policies terms and conditions are to prevail – those of the Excess Endorsement or those of the OPCF 44R? In a case of ambiguity, the interpretation most favourable to the insured should be adopted. Moreover, the FPC provision is a provision granting coverage. Thus, it must be construed broadly: Trillium Mutual Insurance Company v. Emond, 2023 ONCA 729, at paras. 39, 41; Sam's Auto Wrecking Co. Ltd. (Wentworth Metal) v. Lombard General Insurance Co. of Canada, 2013 ONCA 186, 114 O.R. (3d) 730, at para. 37; Le Treport Wedding & Convention Centre Ltd. v. Co-operators General Insurance Co., 2020 ONCA 487, 151 O.R. (3d) 663, at para. 19.

[53] Accordingly, the second paragraph of the FPC provision must be read in a way that gives effect to the grant of additional family protection coverage afforded by the Excess Endorsement.

3. The third paragraph of the FPC provision

[54] There is no dispute that the requirements of the third paragraph of the FPC provision are met. The third paragraph says that coverage under the Excess Endorsement only applies when “Family Protection Coverage” forms part of the motor vehicle liability policies under the underlying insurance. The OPCF 44R provides family protection coverage and is included in the Primary Auto Policy, which is the underlying personal automobile insurance policy. Therefore, the Excess Endorsement coverage applies.

[55] In conclusion, subject to the issue of exhaustion which is dealt with in Issue 2, when the FPC provision is correctly interpreted, Ms. Smith can claim coverage under the Excess Endorsement.

Issue 2: The OPCF 44R need not be exhausted before Ms. Smith has recourse to the Excess Endorsement

A. The motion judge’s interpretation

[56] The motion judge gave the following three reasons for interpreting the Excess Endorsement as requiring that Ms. Smith must exhaust the OPCF 44R limits before she can have recourse to family protection coverage under the Excess Endorsement:

1. the wording of paras. 18(a)(ii) and (c) of the OPCF 44R;
2. requiring the policyholder to first exhaust the OPCF 44R limits accords with the purpose of the Excess Endorsement which is not to increase the total OPCF 44R limits but, rather, to create a source of coverage once the policyholder has exhausted its limits; and
3. the wording of para. 2 of the Insuring Agreement provision that “in no event will this policy provide broader coverage than the Underlying Insurance”.

[57] In my view, all three reasons are incorrect. As I explain below, the first and third reasons are not relevant to the issue of exhaustion of family protection coverage under the Excess Endorsement, and the second is not available on the wording of the Excess Endorsement.

1. The first reason

[58] The motion judge’s first reason for finding that Ms. Smith must exhaust the OPCF 44R limits before she can claim under the Excess Endorsement is the wording of paras. 18 (a) (ii) and (c) of the OPCF 44R. It will be recalled that those paragraphs read as follows.

MULTIPLE COVERAGES

18. The following rules apply where an eligible claimant is entitled to payment under family protection coverage under more than one policy:

(a) (i) if he or she is an occupant of an automobile, such insurance on the automobile in which the eligible claimant is an occupant is first loss insurance and any other such insurance is excess;

(ii) if he or she is not an occupant of an automobile, such insurance in any policy in the name of the eligible claimant is first loss insurance and any other such insurance is excess.

(c) the applicable first loss insurance shall be exhausted before recourse is made to excess insurances.

[59] However, correctly interpreted, para. 18 of the OPCF 44R applies to situations in which an insured has coverage under multiple OPCF 44Rs. It does not apply to this situation where Ms. Smith seeks family protection coverage under two different types of policies – the OPCF 44R included in the Primary Auto Policy on the one hand and the Excess Endorsement included in the Primary Homeowners Policy on the other. My interpretation of para. 18 of the OPCF 44R is based on its plain wording and reinforced by this court’s decision in Keelty v. Bernique (2002), 57 O.R. (3d) 803 (C.A.).

[60] Paragraph 18 (a)(ii) follows para. 18(a)(i). Paragraph 18 (a)(i) provides that “ such insurance on the automobile in which the eligible claimant is an occupant is first loss insurance” and “any other such insurance is excess” (emphasis added). The second reference in para. 18(a)(i) to “such insurance” must be a reference to automobile insurance, in light of the preceding emphasized words. Given that the same words – “such insurance” – appear in para. 18(a)(ii), they must be given the same meaning as in para. 18(a)(i). Thus, they are referring to another automobile insurance policy. Consequently, para. 18(a)(ii) cannot be read, as the motion judge did, to include a different type of insurance policy, namely, the Primary Homeowner Policy which includes the Excess Endorsement.

[61] Paragraph 18(c) provides that the “first loss insurance” shall be exhausted before recourse is made to “excess insurances”. When paras. 18(a)(i) and (ii) are correctly interpreted, para. 18 (c) simply requires that where two or more OPCF 44R policies are engaged, the applicable first loss automobile insurance shall be exhausted before recourse can be made to the other OPCF 44R policies.

[62] In sum, para. 18 of the OPCF 44R governs priorities in situations involving more than one OPCF 44R; it is not relevant to a determination of whether Ms. Smith must exhaust the limits of her OPCF 44R policy before she can claim under the Excess Endorsement.

[63] This interpretation of para. 18 finds support in Keelty, a decision of this court. In Keelty, para. 18 was contained in an O.E.F. 44 endorsement, the predecessor to the OPCF 44R. The wording of para. 18 is the same in both the O.E.F. 44 and the OPCF 44R. At para. 28 of Keelty, Rosenberg J.A., speaking on behalf of this court, said “[i]t seems to me that the intent of s. 18 is to govern priorities among O.E.F. 44 endorsements in Ontario policies or similar endorsements in automobile policies from other jurisdictions. Unlike the State Farm Fire umbrella policy, it is part of the automobile liability policy regulatory scheme.”

[64] That same reasoning applies in this case. The intent of para. 18 in the OPCF 44R is to govern priorities among OPCF 44R endorsements or similar automobile policies. Unlike the OPCF 44R, the Primary Homeowners Policy – which includes the Excess Endorsement – is not part of the automobile liability policy regulatory scheme.

[65] Accordingly, the motion judge erred in relying on para. 18 of the OPCF 44R in deciding the issue of exhaustion.

2. The second reason

[66] The motion judge’s second reason for requiring exhaustion was his view that exhaustion accords with the purpose of the Excess Endorsement. According to the motion judge, that purpose is not to increase the total OPCF 44R limits but, rather, to create a source of coverage once the policyholder exhausts its limits.

[67] The motion judge’s view was based, in part, on his interpretation of para. 18 of the OPCF 44R. For the reasons already given, that interpretation is incorrect.

[68] The motion judge also relied on this court’s decision in Trenton Cold Storage Ltd. v. St. Paul Fire and Marine Insurance Co. (2001), 199 D.L.R. (4th) 654 (Ont. C.A.), for his view that the purpose of the Excess Endorsement was to create a source of coverage once the policyholder exhausted the OPCF 44R limits. He referred to para. 24 of Trenton, where this court adopted the distinction between primary and excess insurance developed in American jurisprudence and stated, “the limits of the primary insurance must be exhausted before the primary carrier has a right to require the excess carrier to contribute to a settlement”.

[69] However, that statement from Trenton must be understood in context. In Trenton, there were two different insurers and the issue was the determination of the relative contributions of each to a settlement. Significantly, the terms of the excess policy in Trenton made it clear that it was liable only for the excess of that which might be collected on the primary insurance.

[70] That is not this case. The terms of the Excess Endorsement are fundamentally different from those of the excess policy in Trenton. As I explain in the analysis of Issue 1, correctly interpreted, the Excess Endorsement coverage “stacks” on the OPCF 44R coverage. Had Aviva wished to make recovery under the Excess Endorsement contingent on exhaustion of the OPCF 44R limits, it had to make that clear in the Excess Endorsement. [2] It did not.

3. The third reason

[71] The motion judge also relied on the following words in the second paragraph of the Insuring Agreement provision: “in no event will this policy provide broader coverage than the [OPCF 44R]”. The Insuring Agreement provision is considered above in the analysis of Issue 1. As I demonstrate there, it relates to liability coverage; it does not relate to the insured’s right to claim indemnity under family protection coverage.

[72] Because the Insuring Agreement provision as a whole is not relevant to a claim for indemnity under family protection coverage, nor are the selected words from the second paragraph of that provision. Accordingly, the motion judge erred in relying on them to require that Ms. Smith must exhaust the OPCF 44R limits before she can have recourse to the Excess Endorsement.

B. Correctly deciding the issue of exhaustion

[73] I first address Aviva’s submission that para. 12 of the Excess Endorsement is relevant to the issue of exhaustion. I do not accept this submission. Paragraph 12 of the Excess Endorsement is entitled “Loss Payable”. It is not relevant to the question of exhaustion in the family protection coverage context because it deals with Ultimate Net Loss which, as I have already explained, addresses liability rather than indemnity under family protection coverage.

[74] I now turn to the crux of this matter: does the FPC provision permit recovery under the Excess Endorsement absent exhaustion of the OPCF 44R limits? In my view, it does.

1. The first paragraph

[75] The first paragraph of the FPC provision does not engage the concept of exhaustion. As I explain above on Issue 1, it extends coverage provided by the Excess Endorsement to pay amounts that Ms. Smith is legally entitled to recover as damages for bodily injury from Mr. Taylor, an inadequately insured motorist.

2. The second paragraph

[76] What then of the second paragraph in the FPC provision in the Excess Endorsement? Does it require exhaustion under the OPCF 44R before the insured can claim under the Excess Endorsement? There is no simple answer to this question.

[77] In my analysis of the second paragraph in Issue 1, I identify the ambiguity caused by two “subject to” phrases being used in the same sentence. That ambiguity is magnified in the context of exhaustion. Two interpretations (at least) of the second paragraph are available: (1) subject to the terms and conditions of the Excess Endorsement, its “additional coverage” will “only pay in excess of” that recovered under the OPCF 44R; or (2) the additional coverage under the Excess Endorsement will only pay in excess of and “subject to all the same terms and conditions as” the OPCF 44R.

[78] There are no terms or conditions in the Excess Endorsement requiring exhaustion. Therefore, on the first interpretation, Ms. Smith can claim payment under the additional coverage provided by the Excess Endorsement in excess of that which she recovers under the OPCF 44R, which is $0.

[79] On the second interpretation, because the terms and conditions of the OPCF 44R preclude Ms. Smith from recovery under it, she cannot claim under the Excess Endorsement. Aviva submits this interpretation properly recognizes the difference between requiring exhaustion of the underlying OPCF 44R limits and requiring that the OPCF 44R is “triggered”, in that the insurer must be liable to pay some amount under the OPCF 44R before Ms. Smith can have recourse to the Excess Endorsement. In Aviva’s view, a contractual precondition to its liability under the Excess Endorsement is an obligation for payment (a “trigger”) under the OPCF 44R.

[80] I reject Aviva’s submission for two reasons. First, it relies in part on the language in the Insuring Agreement provision and para. 12 of the Excess Endorsement. As I have already explained, neither is relevant to indemnity for family protection coverage.

[81] More fundamentally, I reject this submission because it demonstrates the ambiguity of the second paragraph of the FPC provision and ambiguity must be resolved in favour of the insured. The first interpretation is the most favourable to the insured and, therefore, must be adopted. Further, and in any event, because the FPC provision is a coverage granting provision, it must be construed broadly and in a way that gives effect to the grant of additional family protection coverage afforded by the Excess Endorsement.

[82] Thus, when the second paragraph is correctly interpreted, Ms. Smith need not exhaust recovery under the OPCF 44R limits before having recourse to the Excess Endorsement.

3. The third paragraph

[83] The third paragraph of the FPC provision does not engage the concept of exhaustion. As explained above, it simply provides that the Excess Endorsement coverage applies when “Family Protection Coverage” forms part of the underlying motor vehicle liability policies. And, the OPCF 44R, which is family protection coverage, does form part of the underlying motor vehicle liability policy (i.e., the Primary Auto Policy).

Issue 3: Should the Order be set aside because it nullifies coverage or is commercially unreasonable?

[84] The appellant asks this court to set aside the Order on the basis that the motion judge’s interpretation nullifies coverage under the Excess Endorsement in most situations, which the appellant submits is a commercially unreasonable result. The appellant’s request is based on its view that this court can take judicial notice that most individuals in Ontario have $1 to $2 million of automobile liability coverage and only a small proportion of the motoring public drives without automobile insurance.

[85] I decline to decide this issue for two reasons. First, in light of my conclusions on Issues 1 and 2 it is unnecessary. Second, the appellant has not demonstrated that the requested judicial notice is available.

[86] Courts may take judicial notice of facts that are: (1) so notorious or generally accepted as not to be the subject of debate among reasonable persons; or (2) capable of immediate and accurate demonstration by resort to readily accessible sources of indisputable accuracy: R. v. Find, 2001 SCC 32, [2001] 1 S.C.R. 863, at para. 48. The appellant’s request meets neither criterion.

[87] In my view, neither the assertion that (i) only a small percentage of the motoring public in Ontario drives without automobile insurance or (ii) “most” individuals in Ontario have $1 to $2 million of liability coverage is “notorious” nor are they facts that are “generally accepted” and not subject to debate by reasonable people. Furthermore, this court was not pointed to a “source of indisputable accuracy” to demonstrate those assertions, much less a readily accessible one. If there is such a source, the appellant should have identified it, both below and before this court.

VI. Disposition

[88] For these reasons, I would allow the appeal, set aside the Order, and dismiss the Motion. I would order costs of the appeal in favour of the appellant fixed at the agreed-on sum of $15,000, all inclusive.

[89] If the parties are unable to agree on the matter of costs of the Motion, I would permit them to file written submissions on the matter, limited to three typewritten pages. I would give the appellant one week, from the date of release of these reasons, to file her submissions, and the respondent two weeks from that same date, in which to file its submissions.

Released: March 27, 2024 “E.E.G.” “E.E. Gillese J.A.” “I agree. Gary Trotter J.A.” “I agree. Coroza J.A.”

[1] The limit of liability under the Excess Endorsement is not set out in the Excess Endorsement itself. The $1 million limit is set out in Mr. Schlimme’s Certificate of Property Insurance, under the heading “Endorsements”.

[2] The wording of the Excess Endorsement can be usefully contrasted with that of the State Farm excess policy considered in Cohn v. Calovic, 2011 ONSC 1398 and Suchan v. Casella (2005), 81 O.R. (3d) 73 (Ont. Sup. Ct.). In those cases, the excess policy did not fully stack because the policy terms specifically required the deduction of both any recovery from the tortfeasor and any recovery under the OPCF 44R from the stated limits of the excess policy.