Court File and Parties
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: NEDA KADDOURA (Plaintiff)
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STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, AFSHINE JAHANGIRI and OMAR ABOUZEENNI (Defendants)
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ECONOMICAL MUTUAL INSURANCE COMPANY (Third Party)
BEFORE: Justice J. N. Morissette
COUNSEL:
Laura Emmett, for the Defendant, State Farm Mutual Automobile Insurance Company
Hugh Griffith-Jones, for the Third Party, Economical Mutual Insurance Company
HEARD: December 7th, 2012
Endorsement
1The defendant, State Farm Mutual Automobile Insurance Company (State Farm) moves pursuant to Rule 20.01 of Rules of Civil Procedure for summary judgment against the third party Economical Mutual Insurance Company (Economical).
2Economical takes the position that the doctrine of privity precludes State Farm from obtaining the relief it seeks as it was not a party to the insurance contract between the Abouzeennis’ and Economical.
3The defendant motor vehicle, owned by Omar Abouzeenni and driven by Afshine Jahangiri, collided with the plaintiff’s vehicle, injuring the plaintiff. In early October 2009, the plaintiff issued a statement of claim seeking damages for personal injuries from the defendants, Abouzeenni and Jahangiri. The defendants failed to file a statement of defence and plaintiff counsel sought from the defendant insurer Economical a statement of defence.
4Economical responded by informing that the named defendants were not insured by Economical at the time of the accident, because the relevant policy had been cancelled three months prior to the collision. As a result, the claim was amended to include the uninsured/underinsured provisions of her own policy, State Farm.
5State Farm now seeks a declaration that Economical was the valid insurer of the defendant Abouzeenni at the time of the subject motor vehicle accident in 2007, and is required to defend and indemnify the defendants in this case.
6Economical argues that State Farm’s action is premature as it does not accord with the language of s. 258(1) of the Insurance Act, R.S.O. 1990 c. 1.8.
Issues:
7Is State Farm, as a non-party to the insurance contract between Economical and the defendants, precluded from bringing this motion against Economical on the basis of the doctrine of privity of contract?
8Is the action by State Farm premature on the basis that it does not accord with the requirements set out in s. 258(1) of the Insurance Act?
Analysis:
9The doctrine of privity of contract stands for the proposition that a contract cannot, as a general rule, confer rights or impose obligations arising under it on any person except the parties to it.
10In Wen v Unifund Assurance Co1., State Farm provided the uninsured/unidentified motorist coverage for a plaintiff injured in accident involving Wen, a Unifund insured. Unifund denied coverage to Wen and State Farm brought a companion action against Univfund challenging Unifund’s denial of coverage. Despite the fact that State Farm was not a party to the insurance contract between Unifund and its insureds, it was allowed to make this challenge because the Unifund insured’s had assigned their rights to State Farm pursuant to an Assignment of Rights Agreement.
11In the present case, there is no evidence that Jahangiri or Abouzeenni have assigned any rights to State Farm. In fact counsel for State Farm argues that they are unable to locate these individuals and should not as a result be penalized for not having the ability to obtain an assignment of rights.
12Counsel for Economical argues that the legislative framework under section 258 (1) of the Insurance Act has provided a mechanism to deal with the privity issues but in doing so, has established prerequisites which it argues State Farm has not satisfied.
13The court in 1489018 Ontario Ltd. v. Vasile, 2006 CarswellOnt 9052, [2006] O.J. No. 5187 (S.C.) considered an action for repayment brought under the provisions of the Insurance Act. The court noted that, under the Act, there is “only one section which deals with the rights of third parties and insurers”. Section 258(1) is a “complete code”, and sets out the rights of third parties as follows:
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 therefore 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.
14Pursuant to this section, where each of the preconditions is met, at third party plaintiff may recover directly from a defendant’s insurer despite not being privy to the underlying insurance agreement. As noted by Kilian D.J. in Vasile: “[i]f the plaintiff fits within the criteria set out above, it may sue the Insurer” (Vasile at para. 16).
15Under s. 258(1) of the Insurance Act, a third party may recover damages under the contract from the insurer only “upon recovering judgment therefore in any province or territory of Canada against the insured.” Where such a judgment has not been made, the conditions of section 258(1) will not have been satisfied and the proceedings against the defendant’s insurer is premature.
16It should be noted that any question as to the existence of a valid insurance policy at the time of the accident “may be a triable issue”, resolution of which would be necessary to determine the availability of direct recovery under s. 258(1) of the Insurance Act.
Conclusion:
17State Farm not having obtained a judgment nor having an assignment of rights is precluded to challenge the cancellation of the policy and as a result its motion for summary judgment must fail.
Costs:
18Should the parties be unable to agree on the issue of costs, I am prepared to review brief written submissions within 30 days hereof.
Justice J.N. Morissette
Justice J. N. Morissette
Date: ** January , 2013**
Footnotes
- Wen v. Unifund Assurance Co., 2012 ONSC 5274