State Farm Mutual Automobile Insurance Company v. Mawere [Indexed as: State Farm Mutual Automobile Insurance Co. v. Mawere]

110 O.R. (3d) 693

2012 ONSC 3299

Ontario Superior Court of Justice,

McLean J.

June 5, 2012

Insurance -- Automobile insurance -- Action by insurer -- Insurer making payment to third party who suffered physical injuries in collision with insured -- Third party not having sued or obtained judgment against insured -- No express non- waiver or reimbursement agreement existing between insurer and insured concerning amounts paid to third party -- Insurer not obtaining assignment of cause of action as part of settlement with third party -- Insurer not having status to bring action against insured for recovery of amounts paid to third party based on insured's alleged breach of terms and conditions of insurance policy. [page694]

The defendant's motorcycle was involved in a collision with S's motorcycle. The plaintiff, the defendant's insurer under a policy of motor vehicle insurance, made a payment to the defendant for damage to his motorcycle and also made a payment to S for bodily injuries he sustained in the collision. The plaintiff subsequently brought an action to recover both payments from the defendant on the basis that he had breached the terms and conditions of the insurance policy. S had not obtained a judgment against the defendant, and in fact had never commenced an action against him. The defendant brought a motion to strike the statement of claim as it related to the claim for the return of the money paid to S.

Held, the motion should be granted.

In order for an insurer to bring a successful action based upon a breach of the insurance contract by the insured, one or more of the following preconditions has to be in place: (1) there was a judgment against the insured, (2) there was an express non-waiver or reimbursement agreement between the insured and the insurer concerning the amounts paid to a third party in respect of a claim against the insured or (3) an assignment of the cause of action was obtained by the insurer as part of its settlement with the third party. None of those preconditions was in place when the settlement was made in this case. The plaintiff had no status to bring the action to recover the money paid to S, and any claim in the pleadings would not be successful.

MOTION to strike part of a statement of claim.

Cases referred to Lockhard v. Quiroz (2006), 2006 CanLII 38850 (ON CA), 83 O.R. (3d) 797, [2006] O.J. No. 4613, 218 O.A.C. 33, 43 C.C.L.I. (4th) 186, 153 A.C.W.S. (3d) 967 (C.A.); Lockhard v. Quiroz (2008), 2008 CanLII 35921 (ON SC), 92 O.R. (3d) 232, [2008] O.J. No. 2831, 168 A.C.W.S. (3d) 765 (S.C.J.); Merchants Casualty Insurance Co. v. The Waterloo Trust & Savings Co., 1936 CanLII 70 (ON SC), [1936] O.R. 67, [1936] O.J. No. 179, [1936] 1 D.L.R. 361, [1936] O.W.N. 34, 3 I.L.R. 97 (H.C.J.), consd Other cases referred to Hunt v. Carey Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, J.E. 90-1436, 49 B.C.L.R. (2d) 273, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105; Prete v. Ontario (Attorney General) (1993), 1993 CanLII 3386 (ON CA), 16 O.R. (3d) 161, [1993] O.J. No. 2794, 110 D.L.R. (4th) 94, 68 O.A.C. 1, 86 C.C.C. (3d) 442, 18 C.C.L.T. (2d) 54, 18 C.R.R. (2d) 291, 45 A.C.W.S. (3d) 235, 22 W.C.B. (2d) 157 (C.A.) Statutes referred to Insurance Act, R.S.O. 1990, c. I.8 [as am.], ss. 254, 258 [as am.], (1), (4), (13) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 21, 21.01, 21.01(1)(b), 21.01(3)(b)

Kirryn Hashmi, for plaintiff. Allison Klymyshyn and Sean Van Helden, for defendant.

[1] MCLEAN J.: -- The motion was heard on the 19th day April 2012.

[2] Sometimes when a statute has come through numerous iterations, the simplest issues can take on complexity. This is a motion made under Rule 21 [of the Rules of Civil Procedure, [page695] R.R.O. 1990, Reg. 194] by the defendant to strike out certain parts of the pleadings of the plaintiff. The allegation is that the plaintiff lacks status and that its pleading has no reasonable chance of success. The Facts

[3] The facts are, for the purposes of the motion, really without controversy. The defendant, Darren Mawere, and Nikolas Stassinos were involved in a motor vehicle accident on April 28, 2009. In this accident, their respective motorcycles collided. After the accident, Mr. Mawere made a claim for property damage to his motorcycle under his policy of motor vehicle insurance issued by State Farm Mutual Automobile Insurance Company ("State Farm"). State Farm made a payment to Mr. Mawere under the policy and retained his motorcycle as salvage. State Farm also made a payment to Mr. Stassinos for bodily injuries he allegedly sustained as a result of this collision. It is State Farm's position that this payment was made pursuant to the absolute liability provisions of the Insurance Act, R.S.O. 1990, c. I.8 ("Insurance Act"). State Farm states that the payment to Mr. Stassinos was made under the policy of insurance, issued by State Farm to Mr. Mawere.

[4] State Farm now brings this action to seek recovery from Mr. Mawere for the money paid to him for property damage to his motorcycle and also for the payment that was made to Mr. Stassinos for bodily injury. The basis of this claim is that State Farm alleges that Mr. Mawere breached the terms and conditions of the insurance policy and that the breach gives State Farm standing to bring this action. In this action, State Farm seeks to recover a total of $125,000 from Mr. Mawere. Indeed, State Farm seeks $5,119.03 for property damages paid to Mr. Mawere and $105,300 for the bodily injury damages paid to Mr. Stassinos. State Farm did not obtain an assignment of Mr. Stassinos' cause of action against Mr. Mawere. Mr. Stassinos has not obtained a judgment against Mr. Mawere with respect to the liability. Indeed, no action was ever commenced against Mr. Mawere by Mr. Stassinos. There was also no non-waiver notice given to Mr. Mawere, nor was an agreement made with Mr. Mawere as to this payment. Issues

[5] The issues joined by the parties are as follows: (1) Does the absolute liability provision of s. 258(4) of the Insurance Act prohibit the within action against Mr. Mawere [page696] in respect of damages relating to payments made by State Farm to Mr. Stassinos? (2) In the alternative, should the claim for recovery of damages relating to payments made to Mr. Stassinos be dismissed because the plaintiff is without legal capacity to commence this action? (3) If that be the case, i.e., either (1) or (2) above, should State Farm's claim for damages relating to payments made to Mr. Stassinos be struck from the Statement of Claim on the ground that it discloses no reasonable cause of action? (4) If the claim for recovery for payment made to Mr. Stassinos for bodily injury is dismissed, should the remaining claim for $5,119.03 for property damage be transferred to the Small Claims Court? Analysis

[6] Rule 21.01(1)(b) of the Rules of Civil Procedure provides as follows:

21.01(1) A party may move before a judge, (a) for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs; or (b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence[.]

[7] Rule 21.01 provides also that a defendant may move before a judge to have an action stayed or dismissed on the following ground:

Capacity

(3)(b) the plaintiff is without legal capacity to commence or continue the action or the defendant does not have the legal capacity to be sued[.]

[8] It is trite law to suggest that the power to strike out a Statement of Claim as disclosing no reasonable cause of action is a summary power that should be only exercised in plain and obvious cases. That is to say that, assuming the facts as stated in the Statement of Claim are proved, it is plain and obvious that the plaintiff's Statement of Claim discloses no cause of action. See Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93. Indeed, on a motion under Rule 21, the facts alleged in the Statement of Claim must be taken as true for the purpose of determining whether the action discloses a [page697] reasonable cause. The court should not look beyond the pleadings to determine if the action has any chance of success. See Prete v. Ontario (Attorney General) (1993), 1993 CanLII 3386 (ON CA), 16 O.R. (3d) 161, [1993] O.J. No. 2794 (C.A.). Obviously, under that rule, part of the claim may be struck, the whole of the claim or leave to amend may be granted. It is State Farm's position that the payment to Mr. Stassinos was made under the absolute liability proviso of the Insurance Act. This is found in s. 258 of the Act and s. 3.3 of the Ontario Automobile Policy (OAP 1) (Toronto: Financial Services Commission of Ontario). Section 258 of the Insurance Act states:

258(1) Any person who has a claim against an insured for which indemnity is provided by a contract evidenced by a motor vehicle liability policy, even if such person is not a party to the contract, may, upon recovering a judgment therefor in any province or territory of Canada against the insured, have the insurance money payable under the contract applied in or towards satisfaction of the person's judgment and of any other judgments or claims against the insured covered by the contract and may, on the person's own behalf and on behalf of all persons having such judgments or claims, maintain an action against the insurer to have the insurance money so applied. @7 . . . . .

Insurer absolutely liable

(4) The right of a person who is entitled under subsection (1) to have insurance money applied upon the person's judgment or claim is not prejudiced by, (a) an assignment, waiver, surrender, cancellation or discharge of the contract, or of any interest therein or of the proceeds thereof, made by the insured after the happening of the event giving rise to a claim under the contract; (b) any act or default of the insured before or after that event in contravention of this Part or of the terms of the contract; or (c) any contravention of the Criminal Code (Canada) or a statute of any province or territory of Canada or of any state or the District of Columbia of the United States of America by the owner or driver of the automobile,

and nothing mentioned in clause (a), (b) or (c) is available to the insurer as a defence in an action brought under subsection (1). @7 . . . . .

Insured's liability to reimburse insurer

(13) The insured shall reimburse the insurer upon demand in the amount that the insurer has paid by reason of this section and that it would not otherwise be liable to pay. (Emphasis added) [page698]

[9] It is State Farm's position that the essential basis of the claim is that, notwithstanding these provisions, the claim is brought simply on the basis that Mr. Mawere breached the contract of insurance. For the purposes of analysis, this breach must be taken as proved as in State Farm's pleadings. However, from a careful reading of s. 258(1), it would seem that a judgment against the insured must be obtained prior to the insurer having any right of reimbursement from the insurer under the Insurance Act. This view would appear to be accepted in Lockhard v. Quiroz (2006), 2006 CanLII 81801 (ON CA), 83 O.R. (3d) 797, [2006] O.J. No. 4613 (C.A.), at paras. 6-7. It seems that under s. 258(1) a payment of insurance money must be made upon recovery of a judgment. It seems in addition that s. 258(1) refers to the payments of a judgment being recovered against the insured.

[10] It is argued by the applicant/defendant, that this precondition has not been satisfied. It, further, is argued by the applicant/defendant that any reference to a claim and judgments are clearly shown to be part of the statutory scheme found in s. 258. This is likewise taken up and approved by the case of Lockhard v. Quiroz, supra. It would seem that when s. 258(1) is read as a whole, it recognizes that a judgment must be obtained against the insurers and that merely a claim being outstanding is not sufficient to trigger the reimbursement of proceeds under s. 258(13). This was further addressed in the Ontario Court of Appeal in Lockhard v. Quiroz, where it is stated, at paras. 4-6:

The motion judge held that the insurer had an absolute liability to settle the plaintiff's claims pursuant to s. 258(4) of the Act. He also concluded that the insurer was entitled under s. 258(13) to be reimbursed by the appellant driver for the settlement amount, costs and interest. In so holding, the motion judge stated:

I reject Mr. Quiroz's argument that s. 258(1) refers to a requirement that CAA obtain a judgment in order to have the right to [recoup] monies paid to the plaintiff Lockhard. The section refers to a person having a claim, as does s. 258(4) [emphasis in original].

With respect, we disagree. . . .

The plain language of s. 258(1) provides for the application of insurance money in or towards satisfaction of a judgment recovered against the insured, in this case, the appellant. Absent an agreement between the insurer and the insured to the contrary as, for example, concerning the application of insurance proceeds (see Co-operative Fire & Casualty Co. v. Ritchie, 1983 CanLII 155 (SCC), [1983] 2 S.C.R. 36), the recovery of such a judgment is a prerequisite to any entitlement under s. 258(1) to access available insurance monies.

[11] The facts in Lockhard v. Quiroz in some ways are similar to the instant case. In Lockhard v. Quiroz, the action arose from a motor vehicle accident in which Lockhard was the named [page699] insured under a policy of automobile insurance. Her vehicle was driven with her consent by Quiroz, the defendant. The insurer alleged a breach of contract and added itself as a statutory third party to the action. The plaintiff and the statutory third party settled between themselves. The defendant did not join in the settlement nor consent to it. No assignment of the action was obtained by the third party insurer. The third party insurer amended its pleadings to assert in a cross-claim that it was entitled to be indemnified by the defendant for any liability to the plaintiff by reason of his breach of the policy terms. The third party insurer moved for and obtained summary judgment against the defendant. The Court of Appeal, in its decision referred to above, disagreed with the motion judge and held that s. 258(1) required that a judgment pursuant to which payment was made must exist before the defendant could be required to reimburse the insurer for settlement funds to be paid out. After the Court of Appeal set aside the summary judgment, the third party took steps to continue its cross-claim against the defendant. It brought a motion seeking to further amend the cross-claim pleading to say that the defendant was a party to the insurance contract as an unnamed insured and that he had breached the policy and the Insurance Act by driving when he was not authorized to do so. Therefore, he must pay the insurer damages equal to the settlement moneys paid to it by the plaintiff. In the decision with regard to the third party motion, Lockhard v. Quiroz (2008), 2008 CanLII 35921 (ON SC), 92 O.R. (3d) 232, [2008] O.J. No. 2831 (S.C.J.), Mackinnon J. found, at para. 29, that:

For these reasons, I find that the proposed amendments to the cross-claim do not disclose a valid cause of action, nor can the cross-claim, as pleaded, succeed. The defendant's motion is allowed and the third party's motion is dismissed.

[12] It is the respondent plaintiff's argument that it acquires status to bring this action for breach under OAP 1, particularly part 3 of OAP 1, which states as follows:

3.1 Introduction

This Section of your policy provides coverage for amounts that the law holds you or other insured persons responsible for bodily injuries or losses others suffer in an automobile incident. @7 . . . . .

3.3 What We Cover

You or other insured persons may be legally responsible for the bodily injury to, or death of others, or for damage to the property of others as a result of owning, leasing or operating the automobile or renting or leasing another [page700] automobile. In these cases, we will make any payment on your or other insured persons' behalf that the law requires, up to the limits of the policy. @7 . . . . .

3.3.1 If Someone Sues You

By accepting this policy you and other insured persons irrevocably appoint us to act on your or their behalf in any lawsuit against you or them in Canada, the United States of America or any other jurisdiction designated in the Statutory Accident Benefits Schedule arising out of the ownership, use or operation of the automobile. @7 . . . . .

We reserve the right to investigate, negotiate and settle any claim out of court if we choose. @7 . . . . .

3.4 Your and other Insured Persons' Responsibilities @7 . . . . .

We may, on occasion, be required by law to make payments, even though we are not otherwise liable for them under this policy. If so, you or other insured persons will have to reimburse us upon demand for those payments.

[13] It is clear from s. 3.4 of OAP 1 that some payment required by law is necessary before an action under the contract may be maintained by the insurer for breach of contract. On these facts, Mr. Stassinos never brought an action against Mr. Mawere. It is argued by the respondent plaintiff in this particular case that this provision has really no application since in the Lockhard v. Quiroz context there was no privity of contract as there is in the instant case. The court, however, notes the comments of the Court of Appeal in Lockhard v. Quiroz, supra, at para. 7:

No judgment was obtained against the appellant insured. The insurer argues that the authority provided to an insurer under O.A.P. No. 1, the standard motor vehicle policy then in use in Ontario, to settle a case without an insured's consent, is tantamount to a contractual agreement by the insured to reimburse the insurer for any settlement monies paid. We reject this contention. Section 3.3.1 of O.A.P. No. 1 authorizes an insurer to settle directly a plaintiff's claims against an insured with or without an insured's consent. What it does not do is permit an insurer to thereby bind the insured to a judgment against the insured at the instance of the insurer itself for the amount of the settlement paid. [Emphasis in original]

[14] Of course, the defendant seeks to distinguish these particular comments by the fact that there is clear privity of contract between the parties before this court. The Court of Appeal also noted the presence of s. 254 in the Insurance Act, which countenances the making of contracts between an insurer and [page701] an insured as to its contribution to claims that are paid out. It was the Court of Appeal's view that this section contemplates an express non-waiver or reimbursement agreement between an insurer and its insured concerning amounts paid by the insurer to a third party in respect to a claim or judgment against the insured. Indeed, here there was no such agreement entered into. The Court of Appeal found that the terms of OAP 1 do not constitute such an agreement concerning settlement moneys paid by an insurer in relation to personal injuries claimed against an insured. In the Lockhard v. Quiroz motion decision, Mackinnon J. held that the language of s. 3.4 of OAP 1 reflects the language of s. 258(13) and s. 258(4) of the Insurance Act and then found it that these sections would not be available to the insurer in that case. She found that an insurer was not required by law to settle with the plaintiff. In this case, however, it remains the respondent plaintiff's position that nothing affects the contractual rights between the parties upon breach; however, when we consider these cases it is clear that there are certain statutory restrictions on the pure right of contractors in an insurance situation. The court finds helpful the old decision of Merchants Casualty Insurance Co. v. The Waterloo Trust & Savings Co., 1936 CanLII 70 (ON SC), [1936] O.R. 67, [1936] O.J. No. 179 (H.C.J.), a decision of Makins J., which reads as follows, at pp. 69-70 O.R.:

It seems that the insurer made a good settlement of an action which would, without doubt, have succeeded against its insured. But is that sufficient to entitle it to succeed in this action for recovery back from the insured's estate of the amount so paid? It must be noted that the insured was not a party to the settlement, and no consent or waiver was obtained from him.

The precise point therefore for decision here would seem to be whether the insurer could, over its insured's head, settle the injured party's claim before judgment in her action and then recover what it paid from its insured. I can find no case to help me. I am of opinion upon reading all of the Act relating to the matter, that it was the intention of the Legislature, and that the wording of the Statute means, that the liability of the insured must be first ascertained by a judgment before the insurer could pay it and recover from the insured.

Subsection 6 of sec. 183h, I think, must be applied only in the circumstances contemplated by the Statute, i.e., the insurer must have paid the claimant an amount which it would not otherwise be liable to pay and which the insurer has paid "by reason of the provisions of this section".

The only amount which the insurer is liable to pay by reason of the provisions of sec. 183h is the amount of the claimant's judgment, and this claim must be enforced against the insurer in a class action. I am of opinion therefore that the amount referred to in subsec. 6 does not include a sum voluntarily paid by the insurer to the claimant. [page702]

[15] It seems in this court's view that that is most nearly on point with the instant fact situation. The respondent plaintiff argues that the decision is not applicable because of the changes in the Insurance Act in that payments in s. 3.4 of OAP 1 means that it is now "required by law to make such payments", while in the Act that Makins J. was considering they were by reason of the "provision of this section or by statute". It would seem, when we consider the comments made by Mackinnon J., that this argument on its face is without much merit in the sense that the payments contemplated are indeed payments made by operation required by law. This argument is without merit also when we consider the close reading of the Insurance Act since the authority for making such payments is occasioned by the statute itself and the statutory requirements thereunder. When we consider the matter as a whole, it does not seem that this statutory amendment ousts the traditional requirements before bringing an action. Here, it would seem, when we consider the Act and these particular decisions rendered, for an insurer to bring an action that would be successful based upon breach of a contract of insurance, one or more of the following requirements would have to be in place: (1) there was a judgment against an insured; (2) there was an express non-waiver or reimbursement agreement between an insured and its insurer concerning the amounts paid by the insureds to a third party in respect to a claim against the insured; or, lastly perhaps, (3) an assignment of the cause of action had been obtained by the insurer as part of its settlement with the third party.

[16] The court notes that none of these particular preconditions were in place when the settlement was made. It is the court's view that because of this the plaintiff has no status to bring the action, and hence any such claim in the pleadings would not be successful. This is plain and obvious from the facts brought before the court. For these reasons, the claim will be struck out as per the notice of motion, paras. 1(a)(i), (ii), (iii) and (iv).

[17] With regard to the remainder of the motion, that is, the funds paid to the defendant for the damages to his motorcycle, clearly that matter must be allowed to proceed. However, with regard to the request that it be transferred to the Small Claims Court, in this court's view that is not an appropriate order to [page703] make unless there is a request from the plaintiff to do so. Therefore, that simply will be left to proceed to trial. Costs

[18] With regard to costs in this matter, the parties may address the court within 30 days in writing as to the costs consequences.

Motion granted.