Ontario Superior Court of Justice, Divisional Court

Court File No. 395/99

Date: 2000-12-15

Then, Lang and Cumming JJ.

Counsel:

David A. Zuber, for appellant, Economical Mutual Insurance Group.

Elliot S. Birnboim, for respondent, Rafik Assaad.

By the Court:—

The Appeal

[1] The defendant, The Economical Mutual Insurance Group (the "insurer"), appeals a judgment in favour of the plaintiff respondent, Rafik Assaad. The plaintiff cross-appeals the quantum of damages awarded.

Background

[2] The plaintiff purchased a vehicle in August, 1996 from Mr. Abdul Malik for $16,200 cash plus the forgiveness of a $10,000 loan owed by Mr. Malik. Mr. Malik presented a registration certificate from the Ministry of Transportation for Ontario in Mr. Assaad's name.

[3] The plaintiff then took out an automobile policy with the insurer. The policy included an "O.P.C.F. 43" endorsement which provides for replacement of the vehicle with a new vehicle of the same make and model should the subject vehicle be lost or damaged.

[4] The plaintiff's vehicle was stolen October 29, 1996. It was then determined by the police that in fact the vehicle was a stolen vehicle at the time of the purchase by Mr. Assaad. Mr. Malik apparently had falsified documents given to the Ministry of Transportation to obtain registration in Mr. Assaad's name. These documents purported that the seller/owner of the vehicle was "Bloor Street Auto Sales Ltd.". The vehicle was registered in that company's name the same day it was transferred into Mr. Assaad's name.

[5] The plaintiff admits to having no dealings with Bloor Street Auto Sales Ltd. That company never owned the vehicle. Mr. Assaad did not receive title to the vehicle as there was no transfer of ownership by the true owner, whoever that might be. Hence, it is common ground that Mr. Assaad never had any legal interest or title in respect of the insured vehicle. He merely had possession.

[6] There were two issues at trial: first, did the plaintiff have an insurable interest in the vehicle, and second, if so, what was his loss?

[7] The trial judge found an insurable interest and awarded damages based upon the cash amount paid for the vehicle plus an allowance for a rental vehicle together with interest, for a total of $17,000. [1999 36852 (ON SC), 12 C.C.L.I. (3d) 1.]

The first issue: Is there an insurable interest?

[8] Macaura v. Northern Assurance Co., [1925] A.C. 619 (H.L.), sets forth the historical position of the law that a person must have a "legally enforceable right" to have an insurable interest. See for example Chadwick v. Gibraltar General Insurance Co. (1981), 34 O.R. (2d) 488 (Co. Ct.); Thompson v. Madill (1985), 13 C.C.L.I. 242 (B.C.S.C.).

[9] However, this standard has been relaxed in more recent cases. In Constitution Insurance Co. of Canada v. Kosmopoulos (1987), 34 D.L.R. (4th) 208, the Supreme Court of Canada found that the sole shareholder of a corporation had an insurable interest in the corporate assets which had been destroyed by fire. It was not necessary that the insured have a legally enforceable interest. The Court considered the various public policy considerations underlying the insurable interest requirement for an enforceable insurance contract. Wilson J., at p. 216, stated that"... a moral certainty of profit or loss was a sufficient interest". This is referred to as the "factual expectancy test".

[10] Brown & Menezes, Insurance Law in Canada (Toronto: Carswell, 1999) at § 4.2 (a) describes this test as asking whether the insured would ". . . benefit from the continued existence of [the] subject matter or be prejudiced by its loss or destruction." See Cie d'assurance Guardian du Canada v. Robinson (1992), 6 C.C.L.I. (2d) 190 (Que. C.A.). MacGillivray on Insurance Law, 9th ed. (London: Sweet and Maxwell, 1997) at pp. 47-48, states that an "[i]nsurable interest in property isn't confined to absolute legal ownership".

[11] Thus, an innocent purchaser of a stolen vehicle has an insurable interest in a vehicle by virtue of a right to possession unless and until the rightful owner comes forward. Cie d'assurance Guardian du Canada v. Robinson, supra, at pp. 195-196. See also Couch on Insurance 3rd ed. (West, 1997), § 42:57; E.R. Hardy Ivamy, General Principles of Insurance Law, 6th ed. (London: Butterworths, 1993) at pp. 21-22.

[12] After reviewing the authorities, the trial judge concluded that while Mr. Assaad did not have legal title to the vehicle, he "did have dominion and control over the vehicle ... and did have the expectation of a benefit in purchasing insurance". He suffered prejudice through the theft. Thus, Mr. Assaad was found to have an insurable interest in the vehicle. We agree with that finding.

[13] Modern American authorities are generally of the view that an innocent purchaser of a vehicle has a possessory interest in the vehicle which constitutes an insurable interest even though it later is determined the vehicle was stolen. See for example Sauer v. Vigilant Ins. Co., 423 N.Y.S.2d 138 (N.Y. Cty. 1979); Granite State Ins. Co. v. Lowe, 362 So.2d 240 (Ala. Civ. App. 1978) at 241; Castle Cars v. United States Fire Ins. Co., 273 S.E.2d 793 (Va. 1981) at 796. Treit v. Oregon Automobile Insurance Co., 499 P.2d 335 (Or. 1972); and Nelson v. New Hampshire Fire Insurance Co., 263 F.2d 586 (9th Cir. 1959) at 588-89. See generally Couch on Insurance 3rd ed., supra, at § 42:57; Reznick v. Home Ins. Co., 360 N.E.2d 461 (Ill. App. 1977) at 464; Butler v. Farmers Ins. Co. of Arizona, 616 P.2d 46 (Ariz. 1980); and Simon v. Travelers Ins. Companies, 378 N.Y.S.2d 870 (N.Y. Cty. 1975).

[14] We turn now to the case at hand.

Was the insured an innocent purchaser of the vehicle?

[15] The trial judge found that the vehicle in question "was a stolen vehicle and the serial number on it a false one". The trial judge found that "Mr. Assaad not only did not know, but did not care about the origin of the vehicle . . ." and that "[o]ne must view with suspicion . . . [his] evidence . . ." The trial judge found that Mr. Assaad did not conduct any search at the Ministry of Transportation. Nor did he obtain a used vehicle information package or otherwise make inquiry with respect to the vehicle. Mr. Assaad paid cash as requested by Mr. Malik. Mr. Assaad had been told by Mr. Malik that he was about to leave the country. Mr. Assaad did receive a certificate of registration for the vehicle.

[16] Considering the entirety of the evidence, the learned trial judge did not find that the plaintiff "willfully participated in a knowingly fraudulent transaction". The trial judge also rejected the allegation that there was any breach by the insured of s. 233 of the Insurance Act, R.S.O. 1990, c. I.8.

[17] However, the trial judge also made the finding that the plaintiff "must have at least suspected if not been blind to the background of the vehicle that he purchased and the identity of the vendor".

[18] We might have reached a different conclusion at trial as to whether Mr. Assaad was an innocent purchaser of the vehicle. However, we are of the view that the trial judge's carefully determined findings of fact after a thorough review of the evidence, based upon express findings of credibility, should not be disturbed. We are not persuaded that his conclusions on the evidence or his application of the law were clearly wrong.

[19] Accordingly, as found by the trial judge in respect of the first issue, Mr. Assaad had an insurable interest in the vehicle, as he was an innocent purchaser thereof.

The second issue: What damages are payable under the policy in respect of the plaintiff's loss?

We are unable to agree with respect to the quantification of damages. On this issue, Then J. and Lang J. find as follows:

[20] Insurance principles require indemnification of the insured for his loss. The insurer argues that the plaintiff lost a stolen car. It says that the fair market value of a stolen car in which the vendor has no title (as opposed to insurable interest) is nominal at best.

[21] But in our view, the plaintiff had a possessory interest and, on the evidence before the trial judge, would have continued to have possession of the car absent a claim by the true owner. The car was stolen. The vehicle identification number was wrong. The car has not been found. It is impossible to identify the true owner. No true owner has come forward or is likely to do so in the future. The plaintiff established that he would likely have continued in possession of the car but for its further theft.

[22] On the issue of damages, the trial judge said [at p. 8]:

[23] While it may [be] argued that the value to Mr. Assaad of the vehicle stolen from him was nil because it was subject to being recovered on behalf of the rightful owner at any point and time, nevertheless, I am satisfied that the vehicle did have some value to him. It might well have turned out that he could have kept the vehicle for a number of years without there being any claim on behalf of a rightful owner and therefore he would have enjoyed the benefit from it.

[24] I have therefore concluded that the damages to be assessed to Mr. Assaad for the loss of the vehicle are somewhat at large. I have rejected the claim for replacement cost and the cost of financing and as well I have rejected the suggestion that the value of the loss is nil. Mr. Assaad paid $16,000.00 in cash and forgave a debt for $10,000 that was otherwise unrecoverable.

[25] I conclude in the circumstances that it is reasonable that Mr. Assaad recover the $17,000.00 being the amount he paid plus allowance for a rental vehicle together with interest thereon from the date of his loss being as a reasonable measure of his damages as may be assessed at this time.

[26] We would differ from the trial judge only on his conclusion that damages should be assessed "at large". We are of the view that the correct principle, in the absence of a finding of wrongdoing on the plaintiff's part, is to provide him with the indemnification for which he bargained with his insurer and for which he paid the full insurance premium. The plaintiff is entitled to indemnification for loss of a vehicle for which the trial judge found he paid $26,200 two months earlier and which he replaced after the car theft with a similar vehicle at a cost of $35,000. The evidence of the car's fair market value was its $26,200 value at the time of purchase. The plaintiff had the use of the car for two months. Reasonable damages based on fair market value are $25,000. No evidence of a different value was put forward by the insurer at trial.

[27] In passing, we also note that while the insurer did not wish to pay any monies out on this policy, it made no suggestion that it should return any premium to the plaintiff.

[28] We would not interfere with the trial judge's finding that the plaintiff is entitled to coverage for car rental expenses, but would vary that amount to $900, being the limit on coverage provided by the policy.

[29] We would not disagree with the trial judge's finding disentitling the plaintiff to the replacement cost for the vehicle as would have otherwise been provided by the O.P.C.F. 43 endorsement. On the face of that endorsement, replacement coverage is not available where the plaintiff was not the first owner of a new vehicle.

On the second issue Cumming J. finds as follows:

[30] The plaintiff takes the position that given an insurable interest the plaintiff "is entitled to damages in the amount permitted by his policy". This is claimed to be the replacement value of $36,975.95. This is based upon the assertion made in his factum that Mr. Assaad "... had a full interest in the vehicle for its complete value".

[31] The plaintiff submits that he should receive the cost for a new, replacement vehicle because of the O.P.C.F. 43 endorsement. However, it is an express condition in the endorsement that an insured be the original purchaser and that the vehicle is new at the time of delivery. Mr. Assaad, on his own evidence, does not meet this condition.

[32] Alternatively, the plaintiff seeks $26,200.00, consisting of the $16,200.00 paid plus the $10,000.00 for the forgiven loan.

[33] A contract of property insurance is a contract to indemnify the insured for his/her loss of property. An insured cannot profit from his loss. To allow this would create a moral hazard in the placing of insurance. Public policy seeks to prevent any temptation to destroy insured property. The insurer is only required by contract to indemnify the insured to the extent of his loss. Therefore, the question is — what was the plaintiff's loss?

[34] The plaintiff had the possession of the vehicle until it was stolen. But he has no right to the vehicle as against the rightful owner. If the vehicle is located, and the rightful owner identified in the ensuing investigation, the plaintiff would not have any continuing right of possession. The rightful owner has the entirety of the bundle of rights in the property inherent to title.

[35] In my view, the measure of Mr. Assaad's damages cannot be calculated by reference only to what he paid to Mr. Malik to purchase the car. Mr. Assaad did not receive his expectation interest (title to the vehicle) under the contract of purchase. His loss in this regard arises from his contract with Mr. Malik. Mr. Assaad took the risk of not receiving good title, and losing the value of the car, when he bargained with Mr. Malik. The insurer was not contracting to provide title insurance.

[36] In my view, the proper measure of Mr. Assaad's loss is the value of his possessory interest in respect of the vehicle at the time of the loss. See Treit v. Oregon Automobile Insurance Co., 499 P.2d 335 (Or. 1972) at 337. The determination of damages for this loss is not an easy matter.

[37] No one has ever come forward as the rightful owner of the subject vehicle. No one has ever challenged the right of Mr. Assaad to the possession of the vehicle. The identity of the true owner was unknown at the time the vehicle was stolen from Mr. Assaad and remains unknown. The evidence suggests that it is extremely unlikely the true owner of the vehicle would be identified even if the vehicle were to be found. American courts award an insured in like situations to the one at hand the loss of the advantage of the use of the car taking into account the amount paid for the vehicle. Reznick v. Home Ins. Co., 360 N.E.2d 461 (Ill. App. 1977) at 463.

[38] The trial judge awarded damages in the amount of $16,200.00 for the loss of the vehicle. This was the amount paid in cash by Mr. Assaad for the vehicle. The trial judge implied that the forgiven loan of $10,000.00 had no real value as it was not "otherwise recoverable". The record establishes that $16,200.00 was less than that which the rightful owner would receive for a sale of the vehicle in the marketplace. Given the evidence that it is very unlikely there ever would have been any challenge to the possession of the vehicle by Mr. Assaad if it had not been stolen from him, I find this amount to be a reasonable quantification of the loss of Mr. Assaad's possessory interest.

[39] Mr. Assaad paid a premium to the insurer to obtain the insurance to protect his insurable interest. An innocent insured and the insurer strike their bargain through the insurance contract on the mutual mistake that title to the vehicle rests with the insured. The amount of the premium is based upon the insurer taking the risk that if the vehicle is stolen the insured will receive the actual cash value for the vehicle. Therefore, to deny the insured any recovery because it is learned after the insured event occurs that the insured did not have good title would constitute a windfall to the insurer.

[40] To provide the insured with a remedy does not give rise to a concern for moral hazard in the placing of insurance. People cannot insure for more than the value of their properties because to do so gives rise to perverse incentives. But in situations like the one at hand it is an innocent purchaser who honestly believes s/he has good title. Once the fact of innocence is determined, the concern for moral hazard recedes. An insured can never receive under the policy more than the actual cash value of the vehicle. The purchaser is out of pocket the purchase price. It cannot be said that the insured profits from the insurance policy. S/he is simply indemnified for the loss of the possessory interest. The reasonable expectations of both insurer and insured through the insurance contract are met. (However, it is recognized that in the very unlikely event the stolen vehicle is ever found the insurer's right of subrogation will have no value.)

[41] For the reasons given, I would dismiss both the defendant's appeal and the plaintiff's cross-appeal.

Result

[42] In the result, the appeal is dismissed except as to the quantum of damages, which are assessed instead at $25,900.

[43] Appeal dismissed; cross-appeal allowed.