Haryett, in her capacity as Estate Trustee of the Estate of Heffernan v. Lloyd's Canada

[Indexed as: Heffernan Estate v. Lloyd's Canada]

Ontario Reports

Ontario Superior Court of Justice,

Belobaba J.

February 10, 2015

124 O.R. (3d) 557 | 2015 ONSC 853

Case Summary

Insurance — Exclusion clauses — Policy providing that insurer had no duty to indemnify insured where vessel was operated illegally — Insurer having no duty to indemnify where insured operated vessel with blood/alcohol level of more than three times legal limit.

Insurance — Insurer's duty to defend — No duty to defend existing where duty is not specified in insuring agreement — Provision in policy that insurer "will settle or defend" claim or suit "as we consider appropriate" not amounting to binding contractual obligation to defend every action.

H was killed when he crashed his motor boat into a dock, and his passenger was injured. H's blood/alcohol level at the time was .277. His passenger sued H's estate. The insurer refused to defend or indemnify. The estate brought an application for an order that the insurer was obliged to provide a defence and indemnify the estate against any liability that might be imposed with respect to the boating accident.

Held, the application should be dismissed.

No duty to defend exists unless the duty is specified in the insuring agreement. In this case, the policy provided that "We will settle or defend, as we consider appropriate, any claim or suit asking for . . . damages". That provision did not amount to a binding contractual obligation to defend every action. Furthermore, there was no duty to defend as there was no duty to indemnify. The policy provided "We will not be liable if your vessel . . . is operated illegally . . .". H was clearly operating the motor boat illegally at the time of the accident, as his blood/alcohol level was more than three times the legal limit set out in s. 253(1) (b) of the Criminal Code, R.S.C. 1985, c. C-46.

Kereluik v. Jevco Insurance Co. (2012), 111 O.R. (3d) 395, [2012] O.J. No. 2226, 2012 ONCA 338, 292 O.A.C. 197, 349 D.L.R. (4th) 384, 34 M.V.R. (6th) 63, 215 A.C.W.S. (3d) 201, distd

Other cases referred to

W.-V. (T.) v. W. (K.R.J.) (1996), 1996 CanLII 8005 (ON SC), 29 O.R. (3d) 277, [1996] O.J. No. 2102, 5 O.T.C. 306, 39 C.C.L.I. (2d) 272, [1996] I.L.R. I-3351, 63 A.C.W.S. (3d) 1148 (Gen. Div.)

Statutes referred to

Criminal Code, R.S.C. 1985, c. C-46, s. 253(1)(b)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 57.01(1)

Authorities referred to

Brown, Craig, et al., Insurance Law in Canada, looseleaf (Scarborough, Ont.: Carswell, 2002) [page558]

McCamus, John D., The Law of Contracts (Toronto: Irwin Law, 2005)

APPLICATION for an order that the insurer was obliged to defend the action and indemnify the applicant.

Michael J. Edmonds, for applicant estate.

Steven J. Atkinson, for respondent insurer.

[1] BELOBABA J.: — Just after midnight on July 11, 2010, Paul Heffernan crashed his motor boat into a dock, tragically killing himself and injuring his passenger. The coroner's report indicated a blood/alcohol level of .277, more than three times over the legal limit.[^1] The injured passenger sued the estate. The insurer refused to defend or indemnify. The estate now brings this application for a declaration that the respondent insurer is obliged to provide a legal defence and indemnify the applicant against any liability that may be imposed with respect to the boating accident.

[2] For the reasons set out below, the application is dismissed. I find on the material before me that that respondent insurer has no duty to defend or indemnify.

Analysis

[3] Duty to defend. There is no duty to defend because no such contractual obligation is set out in this particular policy. The insurer's duty to defend is a creation of contract and must be specified in the insuring agreement.[^2] Most liability policies expressly provide for a duty to defend.[^3] In this case, however, the insurer only agreed "to indemnify" the insured for losses arising out of the use or operation of the insured vessel. As this court concluded in W.-V. (T.) v. W. (K.R.J.) [at para. 31]:[^4]

[T]he duty to defend must be specified in the contract of insurance, as it is in most policies. It cannot simply be presumed from the duty to indemnify . . . A policy of insurance is a contract, and the general principles of contract law must apply. . . . Counsel for M submits that the duty to defend is simply presumed from the duty to indemnify. I disagree. There must be, I conclude, a duty to defend set out in the policy of insurance, just as in any other contract. Any ambiguity may well be resolved in favour of the insured, but the duty, right, or obligation to defend must be specified. [page559]

[4] During oral argument (this was not mentioned in his factum), counsel for the applicant pointed to a provision in the insuring agreement in the "Protection and Indemnity" section that refers to a "duty to settle or defend":

Limit of Liability. We will pay up to our limit of liability for any one occurrence. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. Our duty to settle or defend ends when the limit of liability is exhausted.

[5] In my view, this provision does not oblige the insurer to defend every action. The language is clear that the insurer will only defend a claim or suit where in its determination it is "appropriate" to do so. The insurer's exercise of its discretion in this regard must be "reasonable",[^5] but this does not amount to a binding contractual obligation to always defend or fund the defence costs.

[6] I recognize that in the policy provision just quoted, the last sentence mentions a "duty to settle or defend" [emphasis added] and I am prepared to acknowledge that it is at least arguable that this reference to a "duty to defend" injects a measure of ambiguity. Nonetheless, on reading the provision as a whole, I am satisfied that its overall meaning is clear and that the respondent insurer is not contractually obliged to provide a defence. If I am wrong on this point, I would still conclude that there is no duty to defend because on the facts of this case there is no duty to indemnify.

[7] Duty to indemnify. The policy provides that "We will not be liable if your vessel is . . . operated illegally or used for any illicit or prohibited trade or transportation."[^6] Under s. 253(1)(b) of the Criminal Code, R.S.C. 1985, c. C-46, it is a criminal offence to operate a "motor vehicle or vessel" having a blood/alcohol level of more than .08. The respondent insurer is denying coverage because the deceased insured had a blood/ alcohol level of .277 while operating the motor boat and the insured vessel was thus being "operated illegally".

[8] The applicant does not contest the blood/alcohol finding but argues that the words "operated illegally" are imprecise and ambiguous and cover too large a terrain of possible legal infractions, many of which would simply not justify a denial of coverage.

[9] I agree that the "operated illegally" language is broad. One can imagine a boating accident situation where the owner of the vessel is found to be in breach of a boating regulation that is unrelated to the actual operation of the boat. For example, [page560] a breach of a regulation requiring the lettering on the hull to be a specific size or colour. No reasonable insured would think that the boat was being "operated illegally" at the time of the accident just because there was a technical breach of the lettering regulation and no reasonable judge would deny coverage in those circumstances.

[10] But that is not the case here.

[11] Here, the motor boat was actually being operated by a driver whose blood/alcohol level was well over .08. In my view, no insured would reasonably believe that insurance coverage would be available in a case of drunk driving and there is no public policy reason to suggest otherwise. This is not Kereluik v. Jevco,[^7] where the Court of Appeal sensibly concluded that the reach of the phrase "authorized by law" (to drive an automobile) should be limited to the validity of the insured's driver's licence at the time of the accident and not extend to any surrounding infractions that did not otherwise invalidate the driver's licence.

[12] Here, of course, the focus is not on the validity of a driver's licence but on the insured's actual operation of a vessel while having a blood/alcohol level over .08. In my view, there is probably no better example of an illegal operation of a vessel than when the operator has a blood/alcohol level that is in excess of the limit set out in s. 253(1) (b) of the Criminal Code.

[13] In sum, I am not persuaded that that the respondent insurer has any duty to indemnify on the facts herein.

Disposition

[14] The application is dismissed in its entirety.

[15] At the outset of the hearing, I asked each side to provide me with a costs estimate if they were successful on the application. The applicant would have asked for $6,500 on a partial indemnity basis; the respondent would have pressed for $15,000. In my view, given that the outcome of this application was almost self-evident and having regard to the factors set out in rule 57.01(1) [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194], a costs award of $7,500 is fair and reasonable.

[16] Costs are therefore fixed in the amount of $7,500, all-inclusive, payable forthwith by the estate to Lloyd's Canada.

Application dismissed.

Notes

[^1]: The blood/alcohol finding is not contested by the applicant.

[^2]: Brown et al., Insurance Law in Canada, looseleaf (Scarborough, Ont.: Carswell, 2002), at 18-6.

[^3]: Brown, supra.

[^4]: (1996), 1996 CanLII 8005 (ON SC), 29 O.R. (3d) 277, [1996] O.J. No. 2102 (S.C.J.).

[^5]: McCamus, The Law of Contracts (Toronto: Irwin Law, 2005), at 791.

[^6]: Emphasis added.

[^7]: Kereluik v. Jevco Insurance Co. (2012), 111 O.R. (3d) 395, [2012] O.J. No. 2226, 2012 ONCA 338.

End of Document