Her Majesty the Queen in Right of Ontario, as Represented by the Minister of Finance v. AXA Insurance (Canada) et al.

[Indexed as: Ontario (Minister of Finance) v. AXA Insurance (Canada)]

Ontario Reports

Ontario Superior Court of Justice,

Cavanagh J.

June 1, 2017

138 O.R. (3d) 655 | 2017 ONSC 3414

Case Summary

Insurance — Automobile insurance — Renewal — Arbitrator finding that notice of non-renewal of automobile insurance policy was invalid as it was served prematurely but that automatic renewal by virtue of [page656] s. 236(5) of Insurance Act was valid only for further six-month term as parties mutually intended not to maintain contractual relationship — Arbitrator's decision not reasonable — Section 236(5) of Act clearly displacing common law principles applicable to renewals of lapsed contracts — Policy continuing in force until proper notice was given — Insurance Act, R.S.O. 1990, c. I.8, s. 236(5).

Elite issued an "Autograph" motor vehicle insurance policy to V for a six-month term which was renewed for a second six-month term ending September 20, 2010. In August 2010, Elite notified V in writing that it did not intend to renew the policy for a third term based on declination rule 56. On September 23, 2010, V obtained a regular insurance policy from AXA. V was injured in a motor vehicle accident in December 2011. He had cancelled the AXA policy before the accident. The Motor Vehicle Accident Claims Fund paid statutory accident benefits to V while disputing priority with AXA and Elite. The parties agreed to first arbitrate whether Elite was the priority insurer. The arbitrator found that the notice of non-renewal sent by Elite in August 2010 did not satisfy the requirements of the Insurance Act and declination rule 56 because it was served prematurely and that it was therefore invalid. However, he found that the automatic renewal of the policy under s. 236(5) of the Act was valid only for a further six-month term, at best, because the parties had mutually intended not to maintain the contractual relationship. He concluded that the Elite policy was not in effect at the time of the accident. The minister appealed.

Held, the appeal should be allowed.

The arbitrator's decision was not reasonable. Section 236(5) of the Act clearly displaces the common law principles applicable to renewals of lapsed contracts. The policy continued in force until Elite discharged its statutory notice obligations. It was in force at the time of the accident.

Echelon General Insurance Co. v. Ontario (Minister of Finance) (2016), 133 O.R. (3d) 233, [2016] O.J. No. 4264, 2016 ONSC 5019, [2016] I.L.R. I-5905, 60 C.C.L.I. (5th) 331, 270 A.C.W.S. (3d) 617 (S.C.J.), apld

Chenier v. Stephens, [2001] O.J. No. 674, [2002] I.L.R. I-4065, 107 A.C.W.S. (3d) 480 (C.A.), affg, [2000] O.J. No. 2721, 20 C.C.L.I. (3d) 309, [2000] I.L.R. I-3862, 98 A.C.W.S. (3d) 448 (S.C.J.); Economical Mutual Insurance Co. v. Pafco Insurance Co., [2001] O.J. No. 3419, [2001] O.T.C. 635, 32 C.C.L.I. (3d) 96, 107 A.C.W.S. (3d) 868 (S.C.J.); Patterson v. Gallant, [1994] 3 S.C.R. 1080, [1994] S.C.J. No. 111, 120 D.L.R. (4th) 1, 174 N.R. 380, J.E. 95-46, 125 Nfld. & P.E.I.R. 1, 26 C.C.L.I. (2D) 165, [1995] I.L.R. 1-3133, 7 M.V.R. (3d) 157, 52 A.C.W.S. (3d) 184, consd

Other cases referred to

Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, 2002 SCC 42, 212 D.L.R. (4th) 1, 287 N.R. 248, [2002] 5 W.W.R. 1, J.E. 2002-775, 166 B.C.A.C. 1, 100 B.C.L.R. (3d) 1, 18 C.P.R. (4th) 289, 93 C.R.R. (2d) 189, REJB 2002-30904, 113 A.C.W.S. (3d) 52; Canada (Canadian Human Rights Commission) v. Canada (Attorney General), [2011] 3 S.C.R. 471, [2011] S.C.J. No. 53, 2011 SCC 53, 2011EXP-3257, 2011EXPT-1939, J.E. 2011-1815, D.T.E. 2011T-708, EYB 2011-197380, 93 C.C.E.L. (3d) 1, 337 D.L.R. (4th) 385, 26 Admin. L.R. (5th) 1, 93 C.C.E.L. (3d) 1, 422 N.R. 248, [2011] CLLC Â230-043, 73 C.H.R.R. D/30; Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, 2008 SCC 9, 329 N.B.R. (2d) 1, 64 C.C.E.L. (3d) 1, EYB 2008-130674, J.E. 2008-547, [2008] CLLC Â220-020, 170 L.A.C. (4th) 1, 372 N.R. 1, 69 Imm. L.R. (3d) 1, [page657] 291 D.L.R. (4th) 577, 69 Admin. L.R. (4th) 1, 95 L.C.R. 65, D.T.E. 2008T-223, 164 A.C.W.S. (3d) 727; Intact Insurance Co. v. Allstate Insurance Co. of Canada (2016), 131 O.R. (3d) 625, [2016] O.J. No. 4113, 2016 ONCA 609, 60 C.C.L.I. (5th) 1, 351 O.A.C. 1, 403 D.L.R. (4th) 438, 268 A.C.W.S. (3d) 425; Parry Sound (District) Social Services Administration Board v. Ontario Public Service Employees Union, Local 324 (O.P.S.E.U.) (2003), 67 O.R. (3d) 256, [2003] 2 S.C.R. 157, [2003] S.C.J. No. 42, 2003 SCC 42, 230 D.L.R. (4th) 257, 308 N.R. 271, 177 O.A.C. 235, J.E. 2003-1790, 7 Admin. L.R. (4th) 177, 31 C.C.E.L. (3d) 1, [2003] CLLC Â220-062, 47 C.H.R.R. D/182, REJB 2003-47356, 125 A.C.W.S. (3d) 85

Statutes referred to

Arbitration Act, 1991, S.O. 1991, c. 17 Insurance Act, R.S.O. 1990, c. I.8, ss. 236 [as am.], (1), (2), (3), (5), 238 [as am.], (1) [as am.] Motor Vehicle Accident Claims Act, R.S.O. 1990, c. M.41

Authorities referred to

Driedger, Elmer, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983)

APPEAL from a decision of an arbitrator.

Marie Sydney, for appellant/respondent by cross-appeal. Charlia von Buchwald and Andrew P. Smith, for respondent/appellant by cross-appeal.

CAVANAGH J. : —

Introduction

[1] The appellant Her Majesty the Queen in Right of Ontario as represented by the Minister of Finance administers the Motor Vehicle Accident Claims Fund (the "fund") pursuant to the Motor Vehicle Accident Claims Act, R.S.O. 1990, c. M.41 ("MVAC Act"). The fund is the payer of last resort under the MVAC Act and there can be no payment out of the fund if the claim is payable under a policy of insurance.

[2] The fund paid statutory accident benefits to the claimant, Arpad Vadasz (the "claimant"), as a result of a motor vehicle accident. The fund disputed priority to pay statutory accident benefits to the claimant with AXA Insurance (Canada) ("AXA") and Elite Insurance Company ("Elite"). Pursuant to the Arbitration Act, 1991, S.O. 1991, c. 17 and the arbitration agreement between the parties, the parties agreed to first determine whether Elite was the priority insurer.

[3] Arbitrator Densem (the "arbitrator") decided that the notice of non-renewal served by Elite did not satisfy the requirements of the Insurance Act, R.S.O. 1990, c. I.8 and declination rule 56 because it was served prematurely. Declination rule 56 was at the time a valid rule filed with the Financial Services [page658] Commission of Ontario ("FSCO") for an insurer to decline to renew a contract of insurance. The arbitrator also decided that, notwithstanding the invalidity of Elite's notice of non-renewal, the automobile insurance policy issued by Elite was not in force at the time of the accident and, therefore, Elite was not the priority insurer.

[4] The appellant appeals the decision of the arbitrator that the automobile insurance policy issued by Elite was not in force at the time of the accident. Elite cross-appeals the decision of the arbitrator that the notice of non-renewal served by Elite did not satisfy the requirements of the Insurance Act and declination rule 56.

[5] For the following reasons, I allow the appeal and I dismiss the cross-appeal from the arbitrator's decision.

Background Facts

[6] On December 29, 2011, the claimant was involved in a motor vehicle accident. He claimed and received accident benefits from the fund. The fund disputed its priority to pay benefits on the basis that the claimant was covered by an Elite policy at the date of the accident. Elite denied that this policy was still in force at the date of the accident.

[7] Prior to the date of the accident, Elite had issued an "Autograph" motor vehicle insurance policy to the claimant for a six-month term which was renewed for a second six-month term ending September 20, 2010. The policy required the installation and use of a device on the claimant's vehicle that would record driving information. The use of the device and the information recorded would lead to a discount on policy premiums. The claimant did not register to receive the autograph device in the first policy period. Elite renewed the claimant's policy on February 10, 2010 for the period of March 20, 2010 to September 20, 2010.

[8] On August 12, 2010, Elite notified the claimant in writing that it did not intend to renew his Autograph policy for a third term based on declination rule 56. This rule permitted an insurer to refuse to renew a policy when the insured has not registered to receive the Autograph data-transmitting device "within 2 previous terms (12 months)". The claimant did not register or receive the device at any time before or after receiving the letter dated August 12, 2010.

[9] On September 23, 2010, the claimant obtained a regular insurance policy from AXA on the same motor vehicle as the one previously insured by Elite under the Autograph policy. The claimant cancelled the AXA policy before the accident.

[10] The Autograph program was discontinued in 2011. [page659]

[11] The arbitrator concluded that

(a) Elite's non-renewal notice in the form of its August 12, 2010 registered letter did not satisfy the requirements of s. 236 of the Insurance Act because it was given prematurely.

(b) Notwithstanding the invalidity of Elite's non-renewal notice, Elite's policy was not in force at the time of the December 29, 2011 accident.

(c) By operation of s. 236(5) of the Insurance Act, the invalidity of Elite's non-renewal notice caused the policy to automatically renew effective September 20, 2010, but this automatic renewal extended the policy at most for only a further six-month term ending March 20, 2011.

(d) The Elite policy did not renew beyond March 20, 2011 because Elite and the claimant mutually indicated their intention to end their contractual relationship shortly after the automatic renewal effective September 20, 2010.

(e) Elite is not the priority insurer responsible for payment of the claimant's statutory accident benefits claim.

Analysis

[12] The issues on the appeal and cross-appeal involve the interpretation and application of s. 236 of the Insurance Act and declination rule 56 (filed with FSCO pursuant to s. 238(1) of the Insurance Act).

Standard of review

[13] In Intact Insurance Co. v. Allstate Insurance Co. of Canada (2016), 2016 ONCA 609, 131 O.R. (3d) 625, [2016] O.J. No. 4113 (C.A.), the Court of Appeal addressed the standard of review on an appeal in an insurance arbitration. The Court of Appeal concluded that an appeal to the Superior Court from an insurance arbitration will, in general, engage questions of mixed fact and law that must be reviewed for reasonableness and, even if the review involves an extricable question of law, a reasonableness standard of review will still generally apply. The Court of Appeal concluded [at para. 53] that "[i]n the unlikely scenario that the issue before the insurance arbitrator is an aeexceptional' question (one of jurisdiction, a constitutional question, or a general question of law that is both of central importance to the legal system as a whole and outside the adjudicator's specialized area or expertise), a correctness standard of review may be applicable". [page660]

[14] Both the appellant and the respondent accept that the standard of review on this appeal is reasonableness. I agree. In my view, the standard of review for the appeal and the cross-appeal is reasonableness.

[15] When reviewing a decision for reasonableness, a court must consider the reasons proffered and the substantive outcome in light of the legal and factual context in which the decision was rendered. A decision may be unreasonable where a decision maker fails to carry out the proper analysis or where the decision is inconsistent with the evidence. A decision may also be unreasonable where the outcome ignores or cannot be supported by the evidence: Intact v. Allstate, at paras. 63-65. A decision may also be unreasonable where it involves a question of statutory interpretation and is derived from a desired beneficial policy outcome rather than through engagement in an interpretative process taking account of the text, context and purpose of the provisions in issue: Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2011 SCC 53, [2011] 3 S.C.R. 471, [2011] S.C.J. No. 53, at para. 64.

[16] A court conducting a review for reasonableness must inquire into the qualities that make a decision reasonable, referring both to the process of articulating the reasons and to outcomes. A decision may be unreasonable when it falls outside of a range of possible, acceptable outcomes which are defensible in respect of the facts and law: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, at para. 47.

Statutory framework

[17] Termination of automobile insurance contracts, including non-renewal of insurance contracts, is governed by a number of provisions in various parts of the statutory scheme.

[18] Automobile insurance contracts cannot be terminated or not renewed by an insurer except for specified reasons or grounds. The relevant part of s. 238 of the Insurance Act reads:

238(1) Grounds to terminate -- An insurer shall not decline to issue, terminate or refuse to renew a contract or refuse to provide or continue a coverage or endorsement, except on a ground filed with the Superintendent under this section.

[19] Where there is a proper ground for an insurer to refuse to renew a contract, the Insurance Act provides for notice to be given to the insured. The relevant parts of s. 236 with respect to such notice read:

236(1) Notice of expiry or variation -- If an insurer does not intend to renew a contract or if an insurer proposes to renew a contract on varied terms, the insurer shall, [page661]

(a) give the named insured not less than thirty days notice in writing of the insurer's intention or proposal[.]

(3) Reasons -- Notices given under subsections (1) and (2) shall set out the reasons for the insurer's intention or proposal.

(5) Effect of failure to comply -- A contract of insurance is in force until there is compliance with subsections (1), (2) and (3).

[20] Elite's parent company, Aviva Insurance Company of Canada, filed declination rules with the superintendent. The relevant portion of these declination rules reads:

REASONS FOR DECLINATION

The insurer will decline to issue, terminate or refuse to renew a contract where . . .

56. The named insured/applicant has not registered, via the Internet, to receive the Autograph data-transmitting device, within 2 previous terms (12 months).

[21] According to statutory conditions deemed to be part of each contract of automobile insurance, a contract of automobile insurance may be unilaterally terminated by an insured at any time on request.

Arbitrator's decision with respect to subsection 236(5)

[22] The arbitrator first concluded that Elite's non-renewal notice was not valid at the time it was given to the claimant. This decision is the subject of the cross-appeal. The arbitrator then addressed the consequences of this invalid notice in respect of whether Elite's policy was still in effect on the date of the accident. The arbitrator concluded that it was not, based upon the following reasoning:

(a) A contract of automobile insurance in Ontario is governed by special, statutory rules and regulations but, nevertheless, it is still a contract to which common law principles of contract law apply unless specifically excluded by legislation.

(b) Upon renewal of a contract of insurance, the parties must come to an agreement on the terms for what in effect is a new contract. Neither party is bound to maintain the status quo regarding the terms of the contract. If there is no agreement then the contract will not be renewed and neither side is bound to continue the relationship. In other words, upon renewal, an automobile insurance contract is [page662] like any other contract in that each renewal represents a new contract and requires its own offer and acceptance. In this regard, the arbitrator relied on the decision of the Supreme Court of Canada in Patterson v. Gallant, [1994] 3 S.C.R. 1080, [1994] S.C.J. No. 111.

(c) Elite's August 12, 2010 letter to the claimant was evidence that Elite did not intend to insure the claimant beyond September 20, 2010. The action taken by the claimant within a few days of September 20, 2010 to replace his automobile insurance coverage with another policy demonstrates that both Elite and the claimant intended to end their contractual relationship and that this intention was mutual within a few days after September 20, 2010.

(d) Subsection 236(5) does not override the principle of contract law which requires that both parties intend to enter into a contract, or to maintain contractual relations. Subsection 236(5) does not have the effect of making the automobile insurance contract continue indefinitely where the parties are not ad idem, or where they have mutually indicated an intention to end any contractual relationship which existed.

(e) If an insurer fails to give proper non-renewal notice pursuant to s. 236, its policy will automatically renew. The effect of the invalid notice sent by Elite is that its policy automatically renewed.

(f) The automatic renewal by operation of s. 236(5) was valid at most for only a further six months, until March 20, 2011. At that point, based on the law, the contract would only have renewed again if the parties had mutually intended to maintain the contractual relationship. The evidence indicates that this would not have been the case.

(g) The arbitrator wrote that if he is found to be incorrect in this conclusion, there is another reason why the Elite policy ended long before the date of the accident. The Autograph policy ceased to exist by July 2011 with the approval of the superintendent of insurance and Elite made provision in a declination rule for it to refuse to renew a contract where the insurer suspends the Autograph program following such approval. Elite and the claimant would have had to agree upon a replacement automobile insurance product long before the accident. The arbitrator concluded that it would stretch the application of s. 236(5) beyond the breaking point to accede to the argument that the claimant's policy is [page663] in effect indefinitely, until Elite properly terminates it, or delivers a valid notice of non-renewal.

Was the arbitrator's conclusion that the Elite policy was not in effect when the accident occurred reasonable?

[23] The appellant submits that

(a) the common law principle that parties to a contract must mutually intend to create contractual relations has been displaced by detailed legislative and regulatory provisions;

(b) the application of this principle of common law would have the effect of contravening the legislative scheme and rendering statutory provisions meaningless;

(c) the arbitrator's decision is not reasonable because it follows from an interpretation of s. 236(5) that results in an outcome that conflicts with the plain and ordinary meaning of the language of s. 236(5) and is outside the range of acceptable interpretations.

[24] Elite submits that

(a) the arbitrator's conclusion that the Elite policy was not in effect at the date of the accident was consistent with the principles of statutory interpretation, the purpose of the Insurance Act, the entire context that the provision was located within, the interests of fairness and public policy, and the approach used overwhelmingly in the jurisprudence;

(b) the arbitrator's conclusion was in the range of acceptable and rational solutions to the coverage issue and, therefore, it was not unreasonable.

[25] The parties agree that there is only one principle or approach to statutory interpretation, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament: Elmer Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983); Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, [2002] S.C.J. No. 43, at para. 26.

[26] The appellant relies upon Echelon General Insurance Co. v. Ontario (Minister of Finance) (2016), 2016 ONSC 5019, 133 O.R. (3d) 233, [2016] O.J. No. 4264 (S.C.J.). That case involved an appeal from the preliminary award of an arbitrator. The appeal judge agreed that the appeal was properly characterized as an appeal on [page664] a question of law and concluded that the standard of review is correctness. This decision was released only a few days after the decision of the Court of Appeal in Intact v. Allstate and the appeal judge did not address the Court of Appeal's analysis of the applicable standard of review.

[27] In Echelon, the insurer sent an invalid notice of cancellation of the policy due to nonpayment of a premium about ten days after the policy commenced. The policy was for a six-month term. An accident took place about one year after the end of the six-month policy term. The arbitrator agreed that the legislative intent behind s. 236 was for insurers to bear the risk of an improperly cancelled contract. However, she found that the intention was not to extend coverage into perpetuity, with no offer and acceptance or premiums being paid. The arbitrator found that very clear language would be required to do so, but did not explain why s. 236 was not clear in her view.

[28] The appeal judge in Echelon allowed the appeal. She wrote [at paras. 24, 26 and 27]:

The consequence of a failure to give notice is expressly prescribed by the legislation in s. 236(5). The contract is in force until notice is given. Section 236(5) ousts the common law of contract under which an insurance policy may otherwise expire on its own terms.

The additional notice obligations introduced as part of the 1990 reforms are consistent with the objectives of a compulsory insurance regime. The s. 236 notice provisions facilitate continuity of insurance by requiring that insurance companies take additional steps to draw to a policyholder's attention that their policy is about to lapse, and by providing that the insurance remain in force until the notice obligation has been fulfilled.

The Arbitrator indicated that, under the Minister's interpretation, the policy would continue in perpetuity. On the contrary, under s. 236 the policy continues only until the insurance company discharges that statutory notice obligations. The obligation on insurance companies to give notice is not onerous, and the risk of non-compliance with the notice obligation falls expressly on the insurance company. The insurance company bears the risk if it makes a mistake in the notice process, as may have occurred here given the invalid notice of cancellation. Insurance companies are in the position to decide what processes they will put in place to minimize mistakes and thus mitigate their risk.

[29] Elite submits that the decision in Echelon should not be followed for several reasons:

(a) The appeal judge proceeded on the wrong standard of review using the correctness standard instead of reasonableness.

(b) The analysis by the appeal judge failed to take into account the principles of statutory interpretation regarding [page665] displacement of the common law by legislation when she concluded that s. 236(5) ousted every vestige of the common law of contract.

(c) The appeal judge failed to address that s. 236(5) referred to "a contract" and could reasonably be viewed as permitting an automatic renewal for the following term only, which would provide consumer protection to the insured as envisioned by the legislature.

(d) The appeal judge did not acknowledge that the exposure of the insured to liability for payment of premiums constituted a risk to the insured, despite potential liability for indefinite, or possibly multiple, premiums on a possibly non-existent vehicle.

[30] Elite submits that there is no wording in s. 236 which specifically extinguishes the common law rights of the insured or deals with the situation where the parties are not ad idem. Elite submits, citing the Supreme Court of Canada decision in Parry Sound (District) Social Services Administration Board v. Ontario Public Service Employees Union, Local 324 (O.P.S.E.U.) (2003), 2003 SCC 42, 67 O.R. (3d) 256, [2003] 2 S.C.R. 157, [2003] S.C.J. No. 42, at para. 39, that the section lacks the "irresistible clearness" mandated by the Supreme Court of Canada for a legislature to express its intentions to depart from established principles of law.

[31] I agree with Elite that the decision of the Supreme Court of Canada in Patterson articulates a principle of insurance law that a "renewal" of an insurance policy involves the situation that a separate and distinct contract comes into existence at each renewal, and each renewal represents a new contract with its own offer and acceptance: Patterson, at para. 10. I also agree that the simple failure of Elite to give a valid notice of non-renewal of its policy would, under common law principles, result in renewal of the policy for a further term and require offer and acceptance and a mutual intention by Elite and the policyholder for a renewal of the contract for an additional term. I disagree, however, that s. 236(5) does not show a clear intention by the legislature to displace the common law principles that would otherwise apply.

[32] In my view, the words of s. 236(5) of the Insurance Act, when read in the context of provisions addressing termination or non-renewal of contracts of insurance, and when given their grammatical and ordinary sense harmoniously with the scheme of the Insurance Act, mean what they say: that a contract of insurance is in force until there is compliance with [page666] s. 236(1), (2) and (3). Subsection 236(5), in my view, clearly displaces the common law principles applicable to renewals of lapsed contracts. I agree with the statements made by the appeal judge in Echelon that this interpretation is consistent with the scheme and purpose of the Insurance Act and related legislation, and is also consistent with the objectives of a compulsory insurance regime: Echelon, at paras. 17-27.

[33] Elite submits that the effect of giving the words of s. 236(5) a "literal interpretation" would be to alter the common law with respect to insurance policies by turning insurance contracts into continuous contracts, an outcome that, Elite submits, the legislature did not clearly intend. In support of this submission, Elite cites other statutory provisions by which an insurance contract can be terminated by the insurer (in accordance with statutory procedures and on prescribed grounds) or by the insured at any time for no reason at all. I disagree with this submission. Subsection 236(5) addresses the consequence of an insurer failing to comply with the statutory requirement to give a valid notice of non-renewal under s. 236(1), (2) and (3). This provision does not operate to preclude an insurer or an insured from taking permissible steps to terminate an insurance contract in accordance with other statutory provisions. There is no conflict between s. 236(5) and the provisions, including the statutory conditions applicable to automobile insurance, cited by Elite.

[34] I agree with the statements of the appeal judge in Echelon that giving the words used in s. 236(5) their grammatical and ordinary meaning would not necessarily cause a contract of insurance to continue in perpetuity because the policy continues only until the insurance company discharges the statutory notice obligations. The risk of non-compliance with the notice obligation falls expressly on the insurance company, which bears the risk if it makes a mistake in the notice process: Echelon, at para. 27.

[35] Elite submits that the decision of the appeal judge in Echelon conflicts with prior arbitration decisions and case law under which insurance contracts have not been found to be in effect for more than one term after the automatic renewal date.

[36] In support of this submission, Elite relies upon the decision of the Supreme Court of Canada in Patterson v. Gallant, supra. In Patterson, the Supreme Court of Canada held that renewal of automobile insurance represents a new contract with its own offer and acceptance and that a separate and distinct contract comes into existence at each renewal. In that case, there was no equivalent to s. 236 in the applicable insurance legislation. In Patterson, the Supreme Court of Canada wrote that [page667] "[i]t is not disputed that the provisions of the Insurance Act can override the common law of contract" and "[i]n the absence of legislation to the contrary, which does not exist in this case, a lapsed policy does not need to be formally terminated": Patterson, at paras. 28 and 35. The question of statutory interpretation that arises on this appeal was not addressed in Patterson.

[37] Elite also cites Chenier v. Stephens, [2000] O.J. No. 2721, 20 C.C.L.I. (3d) 309 (S.C.J.), affd [2001] O.J. No. 674, [2002] I.L.R. I-4065 (C.A.), where the motion judge wrote that, as a result of non-compliance with s. 236, the defendant's insurer and its broker had failed to satisfy him that the policy [at para. 13] "was not automatically renewed". In that case, the accident occurred three days after the date that the policy would have expired, so nothing turned on whether the failure to comply with s. 236 resulted in an automatic renewal or the continuation of the policy in force until there is such compliance. The motion judge was not called upon to decide this question, and his statement that the policy [at para. 14] "was in fact automatically renewed" is, in my view, confined to the facts that were before him on that motion and is not a statement that was intended to resolve the issue of statutory interpretation that arises on this appeal. The Court of Appeal in Chenier simply held that it was not proven that the notice in accordance with s. 236 had been given, and it dismissed the appeal.

[38] Another case cited by Elite is Economical Mutual Insurance Co. v. Pafco Insurance Co., [2001] O.J. No. 3419, [2001] O.T.C. 635 (S.C.J.). This case involved an appeal from an arbitrator's decision and the appeal judge dismissed the appeal, holding that the arbitrator was correct in interpreting s. 236 of the Insurance Act to apply to a 30-day contract of insurance, [at para. 21] "creating a situation of an automatic renewal on, at least, the date of the accident". In Pafco, nothing turned on whether the effect of failure to comply with s. 236 was an automatic renewal of the policy or the continuation of the policy in force until there is such compliance. The appeal judge in Pafco did not address the question of statutory interpretation that arises on this appeal and I do not regard the words that he used in his reasons as a decision on this question.

[39] None of the other cases cited by Elite is a decision on the question of statutory interpretation that arises on this appeal. In my view, the decision of the appeal judge in Echelon, with which I agree, does not conflict with a decision of another court on the question of statutory interpretation that arises on this appeal. The fact that the appeal judge in Echelon used the standard of review of correctness, rather than reasonableness, does not [page668] affect the reasoning that she followed to reach her conclusion on the proper interpretation of s. 236(5).

[40] The arbitrator concluded, at p. 36 of his award, that the consequence of Elite's invalid non-renewal notice is that the claimant's policy automatically renewed at the end of the initial term because at that point only Elite had expressed the intention to end the contractual relationship and that it was not until a few days later that there was a mutual intention to end the contractual relationship. The arbitrator then held that s. 236(5) does not "override the principle of contract law which, to have a valid contract, requires that both parties intend to enter into, or to maintain contractual relations". The arbitrator concluded that "the automatic renewal by operation of section 236(5) was valid at most for only a further six months, until March 20, 2011".

[41] I conclude that the arbitrator failed to properly engage in an interpretative process in respect of s. 236(5) of the Insurance Act by taking into account the text, context and purpose of this provision. The arbitrator's conclusion that there was an automatic renewal of the contract of insurance under s. 236(5) that was valid at most for only a further six months was, in my view, not only in error, but outside of a range of possible, acceptable, outcomes which are defensible in respect of the facts and law, because this conclusion fails to give effect to the clear words of s. 236(5) when read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Insurance Act and its objects.

The Cross-Appeal: Was the Arbitrator's Decision that Elite's Non-Renewal Notice Did Not Satisfy the Requirements of Section 236 of the Insurance Act Because it was Given Prematurely Unreasonable?

[42] Elite appeals by way of cross-appeal from the arbitrator's decision that Elite's non-renewal notice did not satisfy the requirements of s. 236 of the Insurance Act.

[43] In his award, the arbitrator wrote that the "subtle question" on whether Elite's notice was valid is whether the facts supporting declination rule 56 need to be in existence at the time the non-renewal notice is delivered to validate the ground or the reason for non-renewal of the claimant's policy. To answer this question, the arbitrator interpreted the wording of declination rule 56 and considered the relevant jurisprudence with respect to the interpretation of insurance policies. The arbitrator decided that the facts supporting the declination rule needed to be in existence when the non-renewal notice was given and, therefore, the notice was invalid. [page669]

[44] Section 238 of the Insurance Act provides that an insurer shall not refuse to renew a contract except on a ground filed with the superintendent under this section. Declination rule 56 that was filed by Elite's parent company with the superintendent reads:

We will decline to issue, terminate or refused to renew for the following reasons:

56. The named insured/applicant has not registered, via the Internet, to receive the Autograph data-transmitting device, within 2 previous terms (12 months).

Section 236 of the Insurance Act provides that if an insurer does not intend to renew a contract, the insurer shall give the named insured not less than 30 days' notice in writing of the insurer's intention.

[45] The arbitrator wrote, at pp. 16 and 21 of his award:

Reading the operative words in Declination Rule 56 in their grammatical and ordinary sense leads me to agree with HMQ's interpretation of when the Rule can validly apply. The relevant wording states, ". . . The . . . insured has not registered . . . within 2 previous terms (12 months)." At the time Elite sent its August 12, 2010 non-renewal notice letter, 2 terms, or 12 months of the claimant's policy had not been completed. The second term, or 12 months of the policy were not complete until September 20, 2010. Therefore, on a plain reading of Declination Rule 56, the notice was premature. The facts validating the reason or ground for non-renewal did not exist at the time the notice was sent.

With respect to interpreting Declination Rule 56 in accordance with the principles of interpretation applicable to insurance contracts, in my opinion, Justice Laskin's analysis applies exactly to the interpretation of Declination Rule 56. This rule is part of the automobile insurance system in Ontario, as governed by section 238 of the Insurance Act. It is a rule drafted by an insurer, and approved by the Superintendent of Insurance, detailing a reason why the insurer will not issue, will not renew, or will cancel insurance coverage in a policy issue to its insured. Any ambiguity in the wording must be interpreted against the insurer and in favour of the insured -- or in favour of expanding coverage versus restricting coverage.

If the wording of Declination Rule 56 in respect of when non-renewal notice can be given is open to competing interpretations, then the law regarding the interpretation of coverage clauses in insurance policies holds than any such ambiguity must be resolved in favour of expanding coverage, as opposed to restricting coverage. In the circumstances, this means the nonrenewal notice cannot be validly given until at least two, six month policy terms (12 months) have been completed.

[46] Elite submits that

(a) the reference in declination rule 56 to two terms is a reference to the date of renewal, and not the date that the notice [page670] is to be given under s. 236 of the Insurance Act. Therefore, it is only necessary that 12 months have elapsed at the date of renewal of the contract of insurance, not as of the date of the giving of the notice under s. 236;

(b) the arbitrator failed to take into account the purpose of the declination rule and its context;

(c) a defining feature of the Autograph policy was the registration of the device, and it provided a unique form of insurance. Without the device, the unique features of the Autograph program would not apply and, therefore, the period of time that insurance is in place without the device is very important;

(d) the effect of the arbitrator's decision is to lead to an additional six-month term of the contract of insurance because if the notice under s. 236 cannot be given until 12 months have been completed, this would result in 18 months of insurance rather than 12 months;

(e) the arbitrator applied the contra proferentem doctrine which only applies if the contractual language is ambiguous and, here, it is not.

[47] The appellant, respondent on the cross-appeal, submits in response that

(a) the factual basis for the non-renewal was not in existence on August 12, 2010 when Elite's notice of non-renewal was given and, therefore, there was no valid reason on which Elite could have given the non-renewal notice;

(b) the arbitrator's finding that Elite's notice does not comply with s. 238 and did not constitute valid notice for the purpose of s. 236 is reasonable and consistent with the plain reading of declination rule 56, the statutory provisions and the legislative intent.

[48] The arbitrator considered the wording of declination rule 56 in accordance with the principles of interpretation applicable to insurance contracts and concluded that the wording requires specific timing of a notice of non-renewal, which cannot be validly given before the expiry of two six-month terms of the contract of insurance. The arbitrator's decision is one that, in my view, was reasonably open to him. I am unable to conclude that the arbitrator's decision was unreasonable. Indeed, in my view, the arbitrator's decision in this respect was correct. [page671]

Disposition

[49] The appeal is allowed and the arbitrator's decision that (i) Elite's policy was not in force at the time of the December 29, 2011 accident and (ii) Elite is not the priority insurer responsible for payment of the claimant's statutory accident benefits claim is set aside. In its place, I declare and order that Elite's policy was in force at the time of the December 29, 2011 accident and that Elite is the priority insurer responsible for payment of the claimant's statutory accident benefits claim.

[50] The cross-appeal is dismissed.

[51] If the parties are unable to resolve the question of costs, the appellant may provide written submissions within 20 days (limited to five pages, excluding costs outline) and Elite may provide written responding submissions within 20 days thereafter (also limited to five pages). The appellant may make brief reply submissions, if so advised, within five days thereafter (limited to two pages).

Appeal allowed.

End of Document