Morrison v. Ashley et al.; Commonwealth Insurance Company et al., Third Parties [Indexed as: Morrison v. Ashley]

108 O.R. (3d) 663
2012 ONSC 745

Ontario Superior Court of Justice

Gray J.
February 1, 2012

Insurance -- Automobile insurance -- Priorities -- Section 277(1.1) of Insurance Act not applying to claims under uninsured and unidentified motorist provisions -- Priorities regarding those claims governed by s. 277(1) -- Insurance Act, R.S.O. 1990, c. I.8, s. 277(1) , (1.1).

The plaintiff was involved in a motor vehicle accident while driving a vehicle he had rented on behalf of his employer. He alleged that the accident was caused or contributed to by an unidentified driver. Consequently, he named American, the insurer of the rented vehicle, as a defendant. American named as third parties the plaintiff's employer's insurer and the insurer of the plaintiff's own personal vehicle. Those insurers brought motions to dismiss the third party claims.

Held, the motions should be granted.

Section 277(1) of the Insurance Act deals with the priority of coverage where multiple policies are available. Unless specified elsewhere in the Act, insurance under a valid owner's policy is first loss insurance, and insurance under any other valid motor vehicle liability policy is excess insurance only. Section 277(1.1) of the Act provides that the first policy to respond in respect of liability arising out of the ownership, use or operation of a leased or rented vehicle is the policy under which the lessee of the automobile is entitled to indemnity as a named insured. Section 277(1.1) carved out a narrow exception to the scheme of priorities described in s. 277(1). Section 277(1.1) only governs the order in which the third party liability provisions of available motor vehicle policies shall respond. Claims under the uninsured and unidentified motorist provisions are not governed by the third party liability provisions of the policy. Priorities regarding those claims remain governed by s. 277(1) of the Act. American, as the insurer of the owner of the rented vehicle, had to respond first to the claim.

MOTIONS to dismiss the third party claims.

Cases referred to Avis Rent a Car System Inc. v. Certas Direct Insurance Co. (2005), 2005 16075 (ON CA) , 75 O.R. (3d) 421, [2005] O.J. No. 1951, 197 O.A.C. 214, 22 C.C.L.I. (4th) 159, [2005] I.L.R. I-4413, 18 M.V.R. (5th) 61, 139 A.C.W.S. (3d) 359 (C.A.); [page664] Enterprise Rent-A-Car Canada Ltd. v. Meloche Monnex Financial Services Inc. (2010), 102 O.R. (3d) 87, [2010] O.J. No. 1498, 2010 ONCA 277 , 93 M.V.R. (5th) 15, 261 O.A.C. 7, [2010] I.L.R. I-4971, 319 D.L.R. (4th) 176; Foster v. Young, [2002] O.J. No. 3774 (C.A.) ; Harrison v. Dumphries Mutual Insurance Co. (1996), 1996 8023 (ON SC) , 29 O.R. (3d) 724, [1996] O.J. No. 1994, 4 O.T.C. 289, 38 C.C.L.I. (2d) 102, [1997] I.L.R. 1-3397, 63 A.C.W.S. (3d) 937 (Gen. Div.); Keelty v. Bernique (2002), 2002 22040 (ON CA) , 57 O.R. (3d) 803, [2002] O.J. No. 83, 209 D.L.R. (4th) 648, 155 O.A.C. 20, 35 C.C.L.I. (3d) 256, [2002] I.L.R. I-4074, 23 M.V.R. (4th) 1, 111 A.C.W.S. (3d) 333 (C.A.); Maddalena v. Crouse (1996), 1996 12060 (ON CA) , 30 O.R. (3d) 578, [1996] O.J. No. 4296, 39 C.C.L.I. (2d) 167, 67 A.C.W.S. (3d) 562 (C.A.), affg (1996), 1996 7982 (ON SC) , 28 O.R. (3d) 474, [1996] O.J. No. 1195, [1996] I.L.R. I-3368, 62 A.C.W.S. (3d) 363 (Gen. Div.); Marcoccia v. Ford Credit Canada Ltd., [2009] O.J. No. 1548, 2009 ONCA 317 , 77 M.V.R. (5th) 1, 248 O.A.C. 131, 177 A.C.W.S. (3d) 555; McCardle v. Bugler (2007), 87 O.R. (3d) 433, [2007] O.J. No. 3614, 2007 ONCA 659 , 229 O.A.C. 26, [2007] I.L.R. I-4643, 160 A.C.W.S. (3d) 711, 55 M.V.R. (5th) 28; Morrison v. Greig, [2007] O.J. No. 225, 46 C.C.L.T. (3d) 212, 154 A.C.W.S. (3d) 865 (S.C.J.) ; Nguyet v. King, [2010] O.J. No. 4418, 2010 ONSC 5506 , [2011] I.L.R. I-5066, vard [2011] O.J. No. 1699, 2011 ONCA 297 , [2011] I.L.R. I-5136; Oliveira v. Mullings (2009), 2009 3983 (ON SC) , 94 O.R. (3d) 751, [2009] O.J. No. 470, 72 C.C.L.I. (4th) 137 (S.C.J.); Seetal v. Quiroz (2009), 2009 92114 (ON SC) , 97 O.R. (3d) 780, [2009] O.J. No. 2394, 75 C.C.L.I. (4th) 113, [2009] I.L.R. I-4858, 86 M.V.R. (5th) 94, 178 A.C.W.S. (3d) 224 (S.C.J.); Taggart (Litigation Guardian of) v. Simmons (2001), 2001 24003 (ON CA) , 52 O.R. (3d) 704, [2001] O.J. No. 642, 197 D.L.R. (4th) 522, 141 O.A.C. 315, 26 C.C.L.I. (3d) 218, [2001] I.L.R. I-3962, 11 M.V.R. (4th) 25, 103 A.C.W.S. (3d) 828 (C.A.) Statutes referred to Insurance Act, R.S.O. 1990, c. I.8 [as am.], ss. 224(1) [as am.], 239(1), 265 [as. am.], (1), (2) [as am.], 268(2) [as am.], 277(1), (1.1) Rules and regulations referred to Statutory Accident Benefits Schedule -- Accidents on or after November 1, 1996, O. Reg. 403/96 [as am.], s. 2(1) [as am.] R.R.O. 1990, Reg. 676 (Insurance Act), ss. 2, 9 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01 , (1) , (a)

Ruth A. Henneberry, for defendant/responding party American Home Assurance Company.
Vincent G. Burns, for third party/moving party Commonwealth Insurance Company.
Sandi J. Smith, for third party/moving party Insurance Corporation of British Columbia.

Reasons for Decision

[1] GRAY J.: -- The plaintiff, Peter Morrison, was involved in a motor vehicle accident on Highway 401 near Milton on April 8, 2008. At the time, he was driving a vehicle that he had rented, on behalf of his employer, from Hertz Canada Limited.

[2] Mr. Morrison has sued a number of parties. Among other things, he alleges that the accident was caused or contributed to by an unidentified driver. As a consequence, he has named, as a [page665] defendant, American Home Assurance Company, the insurer of the vehicle he rented from Hertz.

[3] American Home Assurance has named, as third parties, Commonwealth Insurance Company and Insurance Corporation of British Columbia ("ICBC"). Commonwealth Insurance provided insurance to Mr. Morrison's employer, and ICBC was the insurer of Mr. Morrison's own personal vehicle in British Columbia.

[4] Commonwealth Insurance and ICBC now bring motions to dismiss the third party claims.

[5] For the reasons that follow, the motions are granted and the third party claims are dismissed. Background

[6] In his Statement of Claim, Mr. Morrison alleges that on April 8, 2008, at approximately 6:10 a.m., he was driving westbound on Highway 401 near Milton. He alleges that without warning, an unidentified driver made a lane change directly into the path of Mr. Morrison's vehicle. As a result, Mr. Morrison was involved in an accident with a tractor-trailer.

[7] At the time, Mr. Morrison had rented, on behalf of his employer, the vehicle he was driving from Hertz Canada Limited.

[8] At the time of the accident, the Hertz vehicle was insured under a policy of motor vehicle liability insurance issued by American Home Assurance. Commonwealth Insurance had issued a comprehensive general liability policy to Mr. Morrison's employer, which contained an endorsement providing coverage for liability imposed for damages arising from the use or operation of an automobile not owned by or licensed to the insured. ICBC provided automobile insurance to Mr. Morrison for his own personal vehicle in the Province of British Columbia. That vehicle was not involved in the accident.

[9] The issue on this motion is whether the insurer of the vehicle operated by Mr. Morrison, American Home Assurance, is required to respond first to the claim made as a result of the alleged negligence of the unidentified driver, or whether the responsibility is that of ICBC, the insurer of Mr. Morrison's personal vehicle, or Commonwealth Insurance, the insurer of Mr. Morrison's employer. Submissions

[10] Both moving parties submit that the third party claims should be dismissed.

[11] The moving parties submit that these motions are properly brought under rule 21.01(1) (a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 . Under that provision, the court [page666] may determine a question of law where, as here, the determination of the question may dispose of all or part of the third party claims. In this case, a determination of which policy must respond first to Mr. Morrison's claim is a pure question of law and, if resolved in favour of the third parties, would dispose of the claims against them entirely.

[12] Counsel for the third parties submit that motor vehicle liability insurance in Ontario is fully regulated by statute. Under the Insurance Act, R.S.O. 1990, c. I.8 (the "Act"), every policy of motor vehicle insurance must contain specific types of coverage.

[13] Counsel submit that s. 239(1) of the Insurance Act requires that every policy contain third party liability coverage. That coverage applies where the insured person is sued for damages arising out of the negligent use or operation of the insured vehicle.

[14] Counsel point out that, quite separately, s. 265(1) of the Insurance Act requires that every policy of motor vehicle liability insurance contain uninsured and unidentified motorist coverage. This enables an insured person injured by an uninsured or unidentified motorist to recover damages from his or her own insurance company. Pursuant to s. 265(2) of the Act, an insured person includes any person while an occupant of the insured vehicle.

[15] Counsel point out that, pursuant to ss. 2 and 9 of R.R.O. 1990, Reg. 676 , the maximum amount payable for an indentified motorist claim is $200,000, and if a person is entitled to receive benefits under more than one policy, the total amount recoverable cannot exceed $200,000.

[16] Counsel submit that the issue of priority of insurance coverage where there are multiple policies is addressed in s. 277(1) of the Act . Under that subsection, insurance under a valid owner's policy is considered first loss insurance, and insurance attaching under any other motor vehicle policy is excess insurance only.

[17] Counsel submit that the scheme of priority under s. 277(1) of the Act was thought to impose hardship on renters or lessors of motor vehicles and, accordingly, in 2006, s. 277(1.1) of the Act was added. Under that new subsection, the legislature prescribed rules to determine the order in which motor vehicle liability policies would respond in respect of liability arising out of the ownership or use or operation of a leased or rented vehicle. Under that provision, the first policy to respond is a liability policy under which the lessee of the vehicle is entitled to indemnity as an insured. Second, insurance under a contract of insurance under which the driver of the vehicle is entitled to indemnity is excess to [page667] the first insurance. Third, insurance under a contract under which the owner of the vehicle is entitled to indemnity as an insured is excess to the first and second insurance policies.

[18] Counsel submit that s. 277(1.1) of the Act applies only to third party liability insurance, and not to claims made under an owner's policy for uninsured or unidentified driver claims.

[19] The third parties submit that their interpretation of the Act is reinforced when one examines the standard Ontario Automobile Policy ("OAP 1"). The OAP 1 is a standard policy, in a form that is approved by the superintendent of financial services.

[20] Counsel for the third parties submit that s. 3 of OAP 1, entitled "Liability Coverage", governs insurance for claims made by third parties. Section 3.3.5 incorporates the priority required by s. 277(1.1) of the Act into that part of the OAP 1 that provides insurance coverage for third party claims. Section 5 of the OAP 1, entitled "Uninsured Automobile Coverage", governs claims arising out of alleged negligence of drivers of uninsured or unidentified vehicles. That section does not contain anything equivalent to s. 3.3.5.

[21] Counsel also submit that the purpose of s. 277(1.1) of the Act is reinforced when one examines the history of the amendment, which was enacted in 2005, effective March 1, 2006.

[22] As noted earlier, under s. 277(1) of the Act , the insurance policy covering the owner of the vehicle is considered first loss insurance, and a policy issued to the driver of the vehicle is excess to the owner's coverage. Under this scheme, leasing and rental companies, and their insurers, were exposed to very large claims arising from accidents involving their vehicles. This was particularly problematical because rental companies, such as Hertz, would invariably have policies with very large limits, which meant that the insurers were usually required to satisfy all claims without any recourse to a driver's policy.

[23] The purpose of s. 277(1.1) was to reduce the financial exposure of leasing and rental companies and their insurers from claims made by third parties when their vehicles were involved in accidents. Under the new provision, insurance provided to leasing and rental companies for third party claims would now be the last to respond, rather than providing first loss insurance as had been the case under s. 277(1). There is nothing in s. 277(1.1) to suggest that it applies to anything other than third party claims. Specifically, there is nothing to suggest that it applies to claims involving uninsured or unidentified drivers.

[24] Since s. 277(1.1) does not apply to claims involving uninsured or unidentified drivers, the priority of insurance coverage [page668] for those claims remains governed by s. 277(1). Thus, the insurance provided to the owner of the vehicle is first loss insurance. That means, in this case, that American Home Assurance, the insurer of Hertz, must respond first.

[25] The third parties rely on Avis Rent a Car System Inc. v. Certas Direct Insurance Co. (2005), 2005 16075 (ON CA) , 75 O.R. (3d) 421, [2005] O.J. No. 1951 (C.A.); Nguyet v. King, [2010] O.J. No. 4418, 2010 ONSC 5506 , vard [2011] O.J. No. 1699, 2011 ONCA 297 ; Morrison v. Greig, [2007] O.J. No. 225, 46 C.C.L.T. (3d) 212 (S.C.J.) ; Marcoccia v. Ford Credit Canada Ltd., 2009 ONCA 317 () , [2009] O.J. No. 1548, 248 O.A.C. 131 (C.A.); Enterprise Rent-A-Car Canada Ltd. v. Meloche Monnex Financial Services Inc. (2010), 2010 ONCA 277 () , 102 O.R. (3d) 87, [2010] O.J. No. 1498 (C.A.); Harrison v. Dumphries Mutual Insurance Co. (1996), 1996 8023 (ON SC) , 29 O.R. (3d) 724, [1996] O.J. No. 1994 (Gen. Div.); Maddalena v. Crouse (1996), 1996 7982 (ON SC) , 28 O.R. (3d) 474, [1996] O.J. No. 1195 (Gen. Div.), affd (1996), 1996 12060 (ON CA) , 30 O.R. (3d) 578, [1996] O.J. No. 4296 (C.A.); Oliveira v. Mullings (2009), 2009 3983 (ON SC) , 94 O.R. (3d) 751, [2009] O.J. No. 470 (S.C.J.); and Keelty v. Bernique (2002), 2002 22040 (ON CA) , 57 O.R. (3d) 803, [2002] O.J. No. 83 (C.A.).

[26] American Home Assurance submits that the motions should be dismissed.

[27] American Home Assurance submits that it is not appropriate to deal with this matter under rule 21.01. It is submitted that the court should not, at an early stage of the proceedings, dispose of matters of law that are not fully settled in the jurisprudence.

[28] On the substantive issue raised in these motions, American Home Assurance submits that s. 277(1.1) of the Insurance Act changes the priority for payment of uninsured and unidentified motorist claims, as well as for third party liability claims. Under the clear words of s. 277(1.1), any insurance available to a lessee is first loss, any insurance available to a driver is second loss, and finally, any insurance available to an owner of a leased or rented vehicle is excess to the other insurance. In this case, that means that the first insurance is the policy available to the renter, Mr. Morrison's employer; the second insurance is the policy available to the driver, Mr. Morrison; and then, finally, the third insurance is the policy available to the owner, Hertz Canada Limited.

[29] Counsel for American Home Assurance submits that s. 265 of the Act provides uninsured and unidentified motorist coverage for those who are "insured" as that term is defined in s. 224(1) of the Act and who are "insured persons" as defined in Statutory Accidents Benefits Schedule -- Accidents on or after November 1, 1996, O. Reg. 403/96, s. 2(1) . Counsel submits that an [page669] insured person must claim uninsured and unidentified motorist coverage from the same insurer from whom they would claim statutory accident benefits. In this case, this means that Mr. Morrison would first be required to claim the statutory accident benefits from ICBC or Commonwealth Insurance, who would stand in priority to American Home Assurance. As a result, his claim for uninsured and unidentified motorist recovery must be made first against ICBC and/or Commonwealth Insurance.

[30] Counsel for American Home Assurance relies on Taggart (Litigation Guardian of) v. Simmons (2001), 2001 24003 (ON CA) , 52 O.R. (3d) 704, [2001] O.J. No. 642 (C.A.); Foster v. Young, [2002] O.J. No. 3774 (C.A.) ; McCardle v. Bugler (2007), 2007 ONCA 659 () , 87 O.R. (3d) 433, [2007] O.J. No. 3614 (C.A.); and Seetal v. Quiroz (2009), 2009 92114 (ON SC) , 97 O.R. (3d) 780, [2009] O.J. No. 2394 (S.C.J.). Analysis

[31] I have included, as Appendix 'A' to these reasons, the relevant excerpts from the Insurance Act .

[32] I do not accept the submission of American Home Assurance that it is not appropriate to deal with the matter under rule 21.01(1) (a). The issue raised in these motions is a pure question of law that does not depend, for its resolution, on disputed facts. Resolution of the issue may, and in the result will, dispose of the third party claims altogether.

[33] In my view, this matter is not complicated, and can be determined simply on the basis of the wording of the Act .

[34] Automobile insurance in Ontario is highly regulated, and is governed almost entirely by legislation.

[35] The Standard Ontario Automobile Policy ("OAP 1") is in a form approved by the superintendent of financial services. It draws a clear distinction between third party liability coverage and uninsured and unidentified motorist coverage. Third party liability coverage requires the insurer to indemnify the insured from claims made by third parties arising out of the use and operation of the vehicle. Uninsured and unidentified motorist coverage requires the insurer to pay claims made by an occupant of the vehicle arising out of alleged negligence of an uninsured or unidentified motorist. Section 265 of the Act deals specifically with uninsured and unidentified motorist coverage.

[36] Section 277(1) of the Act deals with the priority of coverage where multiple policies are available. Unless specified elsewhere in the Act, insurance under a valid owner's policy is first loss insurance, and insurance under any other valid motor vehicle liability policy is excess insurance only. [page670]

[37] Section 277(1.1) of the Act was enacted in 2005, effective March 1, 2006. By its plain terms, it applies only to priorities applicable to the third party liability provisions of available motor vehicle policies. The third party liability provisions of a motor vehicle policy are those contained in s. 3 of the OAP 1. They do not include coverage under the uninsured and unidentified motorist provisions. Those are contained within s. 5 of the OAP 1.

[38] In cases where more than one policy may be available to satisfy claims under the uninsured and unidentified motorist provisions, the governing legislative provision remains s. 277(1) of the Act . The question of which policy is required to respond first to such a claim was specifically dealt with by Cavarzan J. in Harrison, supra. He held that the matter of priorities is governed by what is now s. 277(1) of the Act, and thus the insurer under the owner's policy must respond first. The reasoning of Cavarzan J. still applies, and is unaffected by the enactment of s. 277(1.1) .

[39] In my view, s. 277(1.1) carved out a narrow exception to the scheme of priorities described in s. 277(1) . Section 277(1.1) applies only to leased and rented vehicles, and only governs the order in which the third party liability provisions of available motor vehicle policies shall respond. Claims under the uninsured and unidentified motorist provisions are not governed by the third party liability provisions of the policy. Priorities regarding those claims remain governed by s. 277(1) of the Act .

[40] I do not accept the argument of counsel for American Home Assurance based on the scheme for payment of statutory accident benefits. As I understand the argument, a person entitled to statutory accident benefits is also entitled to coverage for uninsured and unidentified motorist claims. Since s. 268(2) of the Act sets out a scheme of priorities for the payment of statutory accident benefits, the same scheme must apply to the payment of uninsured and unidentified motorist claims. I disagree. I do not accept that the legislature intended to prescribe such a roundabout way of defining priorities for the payment of uninsured and unidentified motorist claims, when a scheme of priorities is already set out in s. 277(1). As articulated earlier, it is s. 277(1) that governs.

[41] For these reasons, American Home Assurance, as the insurer of Hertz, the owner of the vehicle in which the occupant, Mr. Morrison, is advancing a claim relating to an unidentified motorist, must respond first to the claim. [page671] Disposition

[42] For all of the foregoing reasons, the motions of the third parties are granted and the third party claims are dismissed.

[43] If the parties are unable to agree on the issue of costs, counsel may file written submissions.

Motions granted. APPENDIX 'A' Excerpts from the Insurance Act

224(1) In this Part, . . . . .

"insured" means a person insured by a contract whether named or not and includes every person who is entitled to statutory accident benefits under the contract whether or not described therein as an insured person;

"occupant", in respect of an automobile, means, (a) the driver, (b) a passenger, whether being carried in or on the automobile, (c) a person getting into or on or getting out of or off the automobile; . . . . .

239(1) Subject to section 240, every contract evidenced by an owner's policy insures the person named therein, and every other person who with the named person's consent drives, or is an occupant of, an automobile owned by the insured named in the contract and within the description or definition thereof in the contract, against liability imposed by law upon the insured named in the contract or that other person for loss or damage, (a) arising from the ownership or directly or indirectly from the use or operation of any such automobile; and (b) resulting from bodily injury to or the death of any person and damage to property. . . . . .

265(1) Every contract evidenced by a motor vehicle liability policy shall provide for payment of all sums that, (a) a person insured under the contract is legally entitled to recover from the owner or driver of an uninsured automobile or unidentified automobile as damages for bodily injuries resulting from an accident involving an automobile; (b) any person is legally entitled to recover from the owner or driver of an uninsured automobile or unidentified automobile as damages for bodily injury to or the death of a person insured under the contract resulting from an accident involving an automobile; and [page672] (c) a person insured under the contract is legally entitled to recover from the identified owner or driver of an uninsured automobile as damages for accidental damage to the insured automobile or its contents, or to both the insured automobile and its contents, resulting from an accident involving an automobile,

subject to the terms, conditions, provisions, exclusions and limits as are prescribed by the regulations. . . . . .

277(1) Subject to section 255, insurance under a contract evidenced by a valid owner's policy of the kind mentioned in the definition of "owner's policy" in section 1 is, in respect of liability arising from or occurring in connection with the ownership, or directly or indirectly with the use or operation of an automobile owned by the insured named in the contract and within the description or definition thereof in the policy, a first loss insurance, and insurance attaching under any other valid motor vehicle liability policy is excess insurance only.

(1.1) Despite subsection (1), if an automobile is leased, the following rules apply to determine the order in which the third party liability provisions of any available motor vehicle liability policies shall respond in respect of liability arising from or occurring in connection with the ownership or, directly or indirectly, with the use or operation of the automobile on or after the day this subsection comes into force: 1. Firstly, insurance available under a contract evidenced by a motor vehicle liability policy under which the lessee of the automobile is entitled to indemnity as an insured named in the contract. 2. Secondly, insurance available under a contract evidenced by a motor vehicle liability policy under which the driver of the automobile is entitled to indemnity, either as an insured named in the contract, as the spouse of an insured named in the contract who resides with that insured or as a driver named in the contract, is excess to the insurance referred to in paragraph 1. 3. Thirdly, insurance available under a contract evidenced by a motor vehicle liability policy under which the owner of the automobile is entitled to indemnity as an insured named in the contract is excess to the insurance referred to in paragraphs 1 and 2.