A. INTRODUCTION

[1] The Plaintiff Fazl Hafeez sued the Defendant Radomir Sunaric to enforce an agreement to pay damages following a car accident involving Mr. Hafeez’s BMW and Mr. Sunaric’s Mercedes. On an assessment of damages hearing, Judge Godfrey of the Small Claims Court dismissed the action on the grounds that: (1) the agreement was unenforceable for want of consideration; and (2) the agreement was barred by s. 263 of the Insurance Act, R.S.O. 1990, c. 1.8.

[2] This is an appeal from Judge Godfrey’s decision. For the reasons that follow, I grant the appeal.

B. FACTUAL AND PROCEDURAL BACKGROUND

[3] Mr. Hafeez owns an insured BMW and Mr. Sunaric owns an insured Mercedes. On November 22, 2009, there was a collision between the vehicles in a parking lot. The collision was Mr. Sunaric’s fault, and after the accident, he and Mr. Hafeez signed the following handwritten agreement:

I, Radomi Sunaric R/O [address] [driver’s licence] had parked my car Mercedes … at the parking lot of No Frills at Bloor St. W. between Keele St. and Runnymede. As I wanted to go out of the parking lot at about 6:10 p.m. on 22/11/2009 I was reversing my car and struck a BMW … which was duly parked in the central lane of the parking lot. My car badly hit the BMW damaging front and front left corner. It was absolutely my fault. There was no one in the BMW. I accept all my fault and all the consequences I am responsible for. I will pay him $15,000 minus insurance payment.

[4] The critical term of the agreement is the sentence: “I will pay him $15,000 minus insurance payment.”

[5] On April 16, 2010, Mr. Hafeez obtained an appraisal of his vehicle. The appraisal indicated that the BMW had a value of $13,500.00 as at the time of the accident.

[6] In July or August of 2011, after having involved the Ombudsman of his insurer, Mr. Hafeez was paid $6,500.00 by his insurer for the damages to his BMW.

[7] Mr. Hafeez stated that he did not appeal his insurer’s assessment because he had missed the one-year limitation period for doing so.

[8] On November 18, 2011, Mr. Hafeez issued a Statement of Claim against Mr. Sunaric claiming the difference between the $6,500.00 and $15,000.00, which he claimed was the value of his BMW. In his Statement of Claim, Mr. Hafeez pleads that Mr. Sunaric signed an agreement at the scene of the accident and agreed to pay $15,000.00 or the difference between what Mr. Hafeez was able to recover from his own insurance company and $15,000.00.

[9] On March 1, 2012, Mr. Hafeez served the Statement of Claim on Mr. Sunaric by registered mail. The confirmation from Canada Post shows that this mail was accepted by a Tony Vieira. Mr. Hafeez swore an Affidavit of Service dated March 30, 2012, stating that he served Mr. Sunaric. On March 30, 2012, Mr. Hafeez made a Request to Clerk to note Mr. Sunaric in default.

[10] About a year passed, and on March 16, 2013, there was a default judgment assessment hearing before Judge Godfrey. Mr. Sunaric was not in attendance. Mr. Sunaric has never brought a motion to set aside the default but appeared to respond to the appeal.

[11] Although it is not clear whether Mr. Hafeez produce the signed agreement at the default damages assessment hearing, it was included in his exhibit book for the appeal. At the damages assessment, it seems that Mr. Hafeez relied on the allegations in the Statement of Claim being deemed to be true and on a document that set out the terms of agreement.

[12] Judge Godfrey concluded that the agreement was not enforceable because it did not provide for any consideration, as might be the case if Mr. Hafeez had agreed not to submit a claim to his insurer. In that situation, the consideration would be Mr. Hafeez forgoing his insurance coverage, and Mr. Sunaric would receive the benefit of not having an accident reported to his insurer, and consequently not having his own insurance premiums raised.

[13] Alternatively, Judge Godfrey held that the agreement was unenforceable because of s. 263 of the Insurance Act, which states:

Direct Compensation — Property Damage

Accidents involving two or more insured automobiles

(1) This section applies if,

(a) an automobile or its contents, or both, suffers damage arising directly or indirectly from the use or operation in Ontario of one or more other automobiles;

(b) the automobile that suffers the damage or in respect of which the contents suffer damage is insured under a contract evidenced by a motor vehicle liability policy issued by an insurer that is licensed to undertake automobile insurance in Ontario or that has filed with the Superintendent, in the form provided by the Superintendent, an undertaking to be bound by this section; and

(c) at least one other automobile involved in the accident is insured under a contract evidenced by a motor vehicle liability policy issued by an insurer that is licensed to undertake automobile insurance in Ontario or that has filed with the Superintendent, in the form provided by the Superintendent, an undertaking to be bound by this section.

Damage recovery from insured’s insurer

(2) If this section applies, an insured is entitled to recover for the damages to the insured’s automobile and its contents and for loss of use from the insured’s insurer under the coverage described in subsection 239 (1) as though the insured were a third party.

Fault-based recovery

(3) Recovery under subsection (2) shall be based on the degree of fault of the insurer’s insured as determined under the fault determination rules.

Dispute resolution

(4) An insured may bring an action against the insurer if the insured is not satisfied that the degree of fault established under the fault determination rules accurately reflects the actual degree of fault or the insured is not satisfied with a proposed settlement and the matters in issue shall be determined in accordance with the ordinary rules of law. R.S.O. 1990, c. I.8, s. 263 (2-4).

Restrictions on other recovery

(5) If this section applies,

(a) an insured has no right of action against any person involved in the incident other than the insured’s insurer for damages to the insured’s automobile or its contents or for loss of use;

(a.1) an insured has no right of action against a person under an agreement, other than a contract of automobile insurance, in respect of damages to the insured’s automobile or its contents or loss of use, except to the extent that the person is at fault or negligent in respect of those damages or that loss;

(b) an insurer, except as permitted by the regulations, has no right of indemnification from or subrogation against any person for payments made to its insured under this section.

C. DISCUSSION AND ANALYSIS

[14] In S.M. Waddams, The Law of Contracts (5^th ed.) (Toronto: Canada Law Book, 2005) at pp. 82-83, Professor Waddams discusses the fundamental idea that an enforceable contract involves an exchange of values; i.e. it involves bargaining and an exchange of promises, a quid quo pro. Professor Waddams states:

If agreement is the first aspect of a bargain, the second is the notion of exchange. …. A bargain is not formed by mutual assent. There must some exchange of values. Something must be given or promised in exchange for the promise sought to be enforced.

[15] In my opinion, Judge Godfrey was wrong in concluding that there was no consideration for the agreement between Mr. Hafeez and Mr. Sunaric, who made a promise to pay for the damage he caused up to a maximum of $15,000. Mr. Hafeez provided consideration flowing from him by forgoing his right to claim more than $15,000. In effect, the parties entered into a settlement agreement of Mr. Hafeez’s property damage claim against Mr. Sunaric.

[16] I also conclude that Judge Godfrey erred in concluding that Mr. Hafeez’s claim was barred by s. 263(5) of the Insurance Act.

[17] The Legislature enacted s. 263 to replaced the tort system and subrogation for property damage claims and brought in a direct compensation regime for property damage claims where an insured makes property loss claims against its own insurer: Siena-Foods Ltd. v. Old Republic Insurance Co. of Canada, 2012 ONCA 583 at para. 18.

[18] In Clarendon National Insurance v. Candow, 2007 ONCA 680 at paras. 7-11, Justice Juriansz explained the direct compensation scheme:

Section 263 of the Insurance Act replaced the tort system that resolved automobile damage claims prior to its enactment. In the new statutory scheme, insureds can no longer sue the tortfeasor driver whose negligence has caused damage to their cars. Rather, their own liability insurer pays for the damage, to the extent that they were not at fault, under the third party liability section of their motor vehicle liability policies. Insureds can recover the at-fault portion of their damage by purchasing collision coverage. Insurers have no right of subrogation for payments to their own insureds, but, on the other hand, do not have to pay the subrogated claims previously brought by other insurers in the tort system. The result is that the statutory regime eliminates the transactions costs that were inherent in the tort system.
Section 263 is the heart of the regime. The section applies when three criteria are met: ….
When the section applies, s. 263(2) provides that the insured is entitled to recover property damage from his or her own insurer:

(2) If this section applies, an insured is entitled to recover for the damages to the insured's automobile and its contents and for loss of use from the insured's insurer under the coverage described in subsection 239(1) as though the insured were a third party.

Key to the regime is the insured's inability to recover property damage from anyone other than his or her own insurer, except in the very limited circumstances described in s. 263(5)(a.1):

If this section applies,

(a) an insured has no right of action against any person involved in the incident other than the insured's insurer for damages to the insured's automobile or its contents or for loss of use;

(a.1) an insured has no right of action against a person under an agreement, other than a contract of automobile insurance, in respect of damages to the insured's automobile or its contents or loss of use, except to the extent that the person is at fault or negligent in respect of those damages or that loss.

In addition, s. 263(5)(b) prevents insurers from advancing subrogated claims for payments they have made to their insureds:

an insurer, except as permitted by the regulations, has no right of indemnification from or subrogation against any person for payments made to its insured under this section.

[19] In McCourt Cartage Ltd. (c.o.b Laser Transport) v. Fleming Estate (Litigation Administrator of) (1997), 35 O.R. (3d) 795 (Gen. Div.) at para. 3, Justice Sharpe explained the effect of s. 263 as follows:

Before the enactment of s. 263, the common law tort regime applied to property damage claims. The result was that where an insured had purchased collision damage cover, and where the accident was caused at least in part by the fault of another driver, two insurers became involved. The insured would claim against his own insurer under the collision coverage, and that insurer would assert a subrogated claim against the insurer of the other driver to the extent of the other driver's fault. The intended effect of s. 263 was to remove the insured's right to sue for property damage and to confer the right to claim such losses not caused by the fault of the insured against one's own insurer. In the words of Somers J. in 583809 Ontario Ltd. v. Kay, [1995] O.J. No. 1626, the section was intended

"to bring to an end claims which were really made by one insurance company against another in the names of their respective insureds strictly for the property damage that had occurred in an accident."

[20] Thus, the property loss compensation scheme introduced by s. 263 precludes tort claims. However, claims in contract are not precluded. There is an exception to s. 263(5) for claims in contract.

[21] This exception for contracts is found in s. 263(5)(a.1), and it was noted and explained by Justice Juriansz in Clarendon National Insurance v. Candow, supra at paras. 19-22 as follows:

In this case, Mr. Bounthai's liability insurer, American Home, was statutorily required to provide coverage for his property damage because it had filed an undertaking under s. 226.1. Because the undertaking was filed, all three criteria of s. 263(1) are met: Mr. Bounthai's vehicle suffered damage from an accident in Ontario, his vehicle was insured by an insurer that had filed an undertaking with the Superintendent, and another vehicle involved in the accident (i.e. the appellants') was insured by a domestic insurer licensed to undertake automobile insurance in Ontario. Consequently, Mr. Bounthai is entitled to recover for the physical damage to his tractor from his liability insurer, American Home.
As the statutory regime applies, Mr. Bounthai's ability to sue in tort is restricted by the provisions of s. 263. Mr. Bounthai cannot maintain a tort action in negligence against the Candows. Section 263(5)(a) prevents him from suing anyone other than his own insurer for damages to his car. Sections 263(5)(a)'s general rule is subject to the exception set out in s. 263(5)(a.1). This exception permits a right of action where an action is brought "under an agreement, other than a contract of automobile insurance". It permits an action in contract and does not permit an action in tort.
The exception would apply, for example, where a provision of a lease agreement requires that the lessee return the vehicle to the lessor in an undamaged state. Where the lessee fails to do so, the lessor can bring an action against the lessee in contract: 583809 Ontario Ltd. v. Kay (1995), 24 O.R. (3d) 445 (Gen. Div.); A Plus Car & Truck Rental v. Pun, [1999] O.J. No. 1291 (Div. Ct.). The exception in s. 263(5)(a.1) has been applied also to situations where the defendant has agreed to pay for the damage to the plaintiff's vehicle without the parties resorting to their insurance - in effect a claim on an oral contract. In Harpeet v. Markham (Town of), [2006] O.J. No. 2439 (S.C.J.), P. Gollom Deputy J. observed at para. 17 that the exception in 263(5)(a.1) "expands causes of action against a person involved in the incident provided the person has entered into a contract, and the person is at fault or negligent." McClinton v. Estien, [2003] O.J. No. 5680 (S.C.J.), is another such case.
In this case, however, Mr. Bounthai's action is not brought "under an agreement". Mr. Bounthai's claim is a tort claim that falls within the general rule of s. 263(5) so it is statutorily barred.

[22] As noted by Justice Juriansz, the exception found in s. 263(5)(a.1) has been applied to situations where the defendant agrees by an oral contract to pay for the damage to the plaintiff's vehicle without the parties resorting to their insurance. The case at bar raises the question of whether s. 263(5)(a.1) applies where that defendant agrees by a written contract to pay for the damages to the plaintiff’s vehicle without the parties agreeing to waive their rights to resort to the insurance coverage they paid for.

[23] In the case at bar, Judge Godfrey, in effect, concluded that the exception for contracts found in s. 263(5)(a.1) applied only if the parties agreed not to resort to any insurance coverage.

[24] I, however, see no reason to interpret the exception for contracts in this restricted way. The idea behind s. 263(5)(a.1) is that where there is insurance coverage under s. 263(1) for the damages to the plaintiff’s vehicle and the plaintiff takes advantage of that insurance coverage, then the insured (and his or her insurer by subrogation) cannot sue in tort, but the insured is not precluded from suing for contract claims.

[25] In the case at bar, the handwritten agreement was a contract to pay for the damages to Mr. Hafeez’s vehicle, and, in my opinion, the Insurance Act does not preclude and indeed allows Mr. Hafeez to sue on the contract.

[26] In Brouwer v. Frankel, [2004] O.J. No. 5965 (Sm. Cl. Ct.), the defendant Allen Frankel was driving his family’s car when he was involved in an accident with the plaintiff Tara Brouwer’s vehicle. Mr. Frankel’s mother came to the scene of the accident and agreed to pay the cost of repair to the Brouwer vehicle if two estimates were obtained. After Ms. Brouwer had her vehicle repaired, the Frankels refused to pay, and they argued that Ms. Brouwer’s claim was barred by s. 263(5)(a.1) of the Insurance Act. In that case, Judge Godfrey disagreed with the Frankels’ argument, and held that the contract claim against them was available. He stated at paras. 3-6:

The defendant relies on section 263(5)(a.1) of the Insurance Act as barring an action against the defendant. The defendant's agent alleged that this clause is applicable because the prerequisites in section 263(1) have been met. The defendant's agent is correct that clauses (a), (b) and (c) of section 263(1) are applicable to the accident in question.
Does section 263(5)(a.1), however, bar the plaintiff's action? Section 263(5)(a.1) was added to the Act by Bill 59 in 1996. Prior to its introduction, section 263(5)(a) would have been the only apparent possible restriction in the plaintiff's recovery against the defendant. This clause prevents an insured from maintaining a cause of action against "any person involved in the incident other than the insured's insurer for damages to the insured's automobile".
The defendant was not involved in the incident. The defendant merely arrived after the fact, and made a contract with the plaintiff in order to avoid reporting the accident to the owner's insurance company. Accordingly, without the existence of section 263(5)(a.1), the plaintiff could clearly sue the defendant in contract.
Was the purpose of section 263(5)(a.1) to prevent the insured from suing persons not involved in the incident? From my reading of section 263(5)(a.1) the purpose of that section was to create an additional cause of action for the insured against those involved in the incident provided the person at fault for the accident agreed to pay for the damage. The 1996 amendment appears to have been created to expand an insured's right to bring an action, and not for the purpose of narrowing a previously existing right. Although the right of the plaintiff to a cause of action in these circumstances is not abundantly clear from the legislation, I find that the plaintiff's right to sue the defendant exists upon considering section 265 in its entire context. In other words, the amendment is not intended to exclude collateral contracts with third parties not involved in the incident. The amendment expands causes of action against a person involved in the incident provided the person has entered into a contract, and the person is at fault or negligent.

[27] I agree with Judge Godfrey that s. 265(5) does not bar claims in contract against third parties not involved in the accident who agree to pay for the property damages. I also agree that s. 265(5) does not bar a contract claim against a person involved in the accident provided the person has entered into a contract, and the person is at fault or negligent.

[28] Thus, in the case at bar, Mr. Sunaric was involved in the accident and he entered into a contract in which he admitted that he was at fault. The consideration for that contract, was Mr. Hafeez’s agreement to settle his damages claim at $15,000 less what his insurer agreed to pay. This was a foolish contract for Mr. Sunaric to enter into, because it exposed him to increased insurance premiums and he, of course, would not have had to pay anything at all if he had simply relied on his liability insurance coverage. But foolish or not, there is nothing in s. 263 that precludes Mr. Hafeez from suing the negligent Mr. Sunaric in contract for the damages he agreed to pay for when he signed the handwritten agreement.

[29] In McClinton v. Estien, [2003] O.J. No. 5680 (Sm. Cl. Ct.), Mr. Estien’s insured vehicle side-swiped Ms. McClinton’s insured vehicle. Mr. Estien apologized for the damage he had caused, and he agreed to pay for the damages to Ms. McClinton’s car based on estimates. Mr. Estien did not want his insurance premiums to go up if the accident was reported. Ms. McClinton agreed with this proposal and obtained three estimates, but Mr. Estien reneged on the agreement and since it was too late to make an insurance claim, Ms. McClinton sued him in Small Claims Court. He defended by relying on s. 265(5) of the Insurance Act. Deputy Judge Kilian held that the provision was of no assistance to Mr. Estien and granted judgment. Deputy Judge Kilian stated at paras. 15-18 of his decision:

But does s. 263(5)(a.1) merely qualify and quantify s. 263(5) as stated by the Honourable Justice Kozak and if so, in what way? If it only quantifies and qualifies the claim an insured can make against his insurer by limiting the amount based on the apportionment of negligence of the two parties, the section is redundant since s. 263(2), (3) & (4) completely deal with the quantum recoverable. It must therefore have another purpose. It is a limited exception to s. 263(5)'s prohibition of a right of action between two insured. In order to fit under the exception, two conditions must be met:
there must be an agreement for the damage, content and loss of use; and
the agreement must be between the plaintiff and the person at fault or negligent.
This case fits squarely within this exception. I find that, at the Defendant's request, the parties entered into an agreement that in consideration of the Plaintiff not reporting the accident to her insurance the Defendant would pay for the loss the Plaintiff had suffered. The Defendant would receive the not inconsiderable benefit of not having his insurance rates raised for a period of several years. This is both an "agreement" with the "person at fault or negligent" - the driver - pursuant to s. 263(5)(a.1), as well as a legally enforceable contract.
Nor does this interpretation conflict with the objects or intentions of the Act since neither insurer incurs any expense; nor is the defendant denied his "protected defendant" status since he voluntarily waived this protection when he made the agreement.
As a result, I find that the Plaintiff's case falls within s. 263(5)(a.1) and she has a right of action against the insured Defendant. I further find that the Plaintiff kept her part of the agreement but the Defendant breached the agreement when he failed to pay the damages.

[30] I agree with Deputy Judge Kilian’s analysis. I note that he identifies only two conditions for the exception for contractual arrangements provided by s. 263(5)(a.1) to be available; i.e., (1) (1) there must be an agreement for the damage, content and loss of use; and (2) the agreement must be between the plaintiff and the person at fault or negligent. Those two conditions are satisfied in the case at bar.

[31] In Lange v. 882819 Ontario Ltd. (c.o.b. Morrice Trans. Ltd.) (2006), 85 O.R. (3d) 5468 (S.C.J.), Mr. Lange was driving a truck insured by a motor vehicle policy and towing a camper trailer insured under a trailer insurance policy, which was not a motor vehicle insurance policy. Mr. Lange’s truck and trailer were struck and damaged by a vehicle owned by Morrice Transportation Limited. By right of subrogation, the insurer of the trailer sued for the damages to the camper trailer. Justice Granger concluded that the subrogated claim was not barred by s. 263(5). He stated that the Insurance Act eliminates the right of subrogation in s. 263(5)(b) for payments made to a party insured under the Direct Compensation section, but the Act does not eliminate the right of subrogation for payments made to an insured under any other section or pursuant to a policy of insurance other than a motor vehicle liability policy. For the case at bar, I would add that s. 263(5)(b) does not eliminate the right to sue in contract under any agreement that is not a motor vehicle liability policy.

[32] As adopted by Justice Juriansz at para. 21 of Clarendon National Insurance v. Candow, supra, in Harpeet v. Markham, [2006] O.J. No. 2439 (Sm. Cl. Ct.), Deputy Judge P. Gollom observed that the exception in s. 263(5)(a.1) expands causes of action against a person involved in the accident provided the person has entered into a contract, and the person is at fault or negligent. I agree with that analysis but, strictly speaking, Deputy Judge Gollom’s observation was obiter dicta. In Harpeet v. Markham, Ms. Harpeet’s vehicle was struck by a garbage truck, owned and operated by Miller Paving, which she believed was an employee of the Town of Markham but which, in fact, was an independent contractor. Given the age of her vehicle Ms. Harpeet had not insured it against collision damage, and she did not make a claim against her insurer, and instead she sued the Town of Markham on the theory that its employee Miller Paving had orally agreed to pay for the damages. Deputy Judge Gollom’s comments about s. 263(5)(a.1) were obiter because he held that since Miller Paving was not an employee and Ms. Harpeet did not claim against it, there was no need to consider the alleged contract between her and Miller Paving and the effect, if any, of s. 263(5)(a.1), which, in any event, had no application to the Town of Markham, which was not involved in the accident. The obiter does support the proposition that generally speaking separate contract claims are not barred by the Insurance Act.

[33] In Tuttle v. Travelers Indemnity Co. (2005), 75 O.R. (3d) 184 (C.A.), Mr. Tuttle’s vehicle was insured by two policies; i.e. one issued by Travelers Indemnity Company, a motor vehicle liability policy, and a collision insurance policy issued by The Associates Insurance Company, which paid him for the damage to the vehicle. Associates Insurance then brought a subrogated claim against Travelers, which relying on s. 263(5) of the Insurance Act, Travelers resisted. Reversing the motions judge, the Court of Appeal held that s. 263(5) of the Insurance Act did not apply to bar Associates Insurance’s contract claim. Justice Laskin for the Court held that s. 263(5) only applies if the insurer paid for the damage to its insured's automobile under a motor vehicle liability policy and because the Associates Insurance policy was not a motor vehicle liability policy, s. 263 did not apply to it to bar its claim against Travelers.

[34] For present purposes, the only relevance of Tuttle v. Travelers Indemnity Co. is that it demonstrates that the existence of a motor vehicle insurance policy does not necessarily negate subrogated claims made by insurers providing a different type of insurance. Under s. 263(5), an automobile owner's own motor vehicle liability insurer must pay for the damage to the extent that its insured was not at fault for the accident and the motor vehicle liability insurer is barred from any subrogated claims. In Tuttle v. Travelers Indemnity Co. only Travelers was caught by s. 263(5). Contract claims were not barred.

D. CONCLUSION

[35] For the above reasons the appeal is allowed, and I award Mr. Hafeez judgment for $8,500.

[36] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Mr. Hafeez’s submissions within 20 days of the release of these Reasons for Decision followed by Mr. Sunaric’s submissions within a further 20 days.

Perell, J.

Released: June 23, 2015

CITATION: Hafeez v. Sunaric, 2015 ONSC 4065

DIVISIONAL COURT FILE NO.: 13/184

SMALL CLAIMS COURT FILE NO.: SC-11-126663

DATE: 20150623

ONTARIO

SUPERIOR COURT OF JUSTICE

(DIVISIONAL COURT)

IN THE MATTER OF FAZL HAFEEZ and RADOMIR SUNARIC

BETWEEN:

FAZL HAFEEZ

Plaintiff/Appellant

– and –

RADOMIR SUNARIC

Defendant/Respondent

REASONS FOR DECISION

PERELL J.

Released: June 23, 2015

Fazl Hafeez v. Radomir Sunaric, 2015 ONSC 4065

Case Summary

A. INTRODUCTION

B. FACTUAL AND PROCEDURAL BACKGROUND

C. DISCUSSION AND ANALYSIS

D. CONCLUSION

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Statutory Provisions 2

Legislation 1