Oshawa On. COURT FILE NO.: 79548/12 DATE: 20170612

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN :

Bethany Benson and Robert Stenner Plaintiffs

— and —

Paul Robert Walt, Mary La Chapelle-Stenner, Azhar Warraich, Ideal Logistics Group and /or Ideal Logistics Inc. o/a Ideal Logistics group and/or 2107622 Ontario Inc. o/a Ideal Logistics Group Fleet 002 and 6305393 Ontario Inc. and/or 6305393 Canada Inc. o/a Ideal Logistics Group Fleet 002 Defendants

COUNSEL:

Ms. M. Lampropoulos for Paul Robert Walt, on policy of Insurance issued by State Farm, Applicant Mr. D. Fiorita for Robert Paul Walt on policy of insurance issued by Economical Insurance, Respondent/Applicant

HEARD: May 23, 2017

SHAUGHNESSY J.

REASONS FOR DECISION ON MOTION

[1] A motion has been brought under Rule 21 of the Rules of Civil Procedure for a declaration on a question of law before trial on the priority of responding insurance policies.

[2] On August 2, 2010, the plaintiff, Bethany Benson was a passenger in a motor vehicle operated by the defendant Paul Robert Walt (“Walt”) and owned by the defendant Mary La Chapelle-Stenner.

[3] The La Chapelle-Stenner vehicle was insured under State Farm Automobile Insurance policy number 60-G6-2423-8 (“State Farm Auto Policy”) with personal liability limits of $ 300,000. The defendant Walt is insured under the State Farm Auto Policy. There is no dispute that the State Farm Auto Policy is an “owner’s policy” and “first loss” insurance in responding to the plaintiffs’ claims until the liability limits of $300,000 are exhausted.

[4] State Farm also issued a Personal Liability Umbrella Policy (“State Farm PLUP”) which also bears the policy number 60-G6-2423-8 and provides personal liability limits of $ 1,000,000. The defendant Walt is an unnamed insured under the State Farm PLUP.

[5] Economical Insurance insured Walt under policy number 6608148 (“Economical Auto Policy”) which provides personal liability limits of $ 1,000,000.

Issues and Positions

[6] The core issue to be decided is when the State Farm PLUP responds to the loss.

[7] State Farm seeks a declaration that the State Farm PLUP limits are not called upon to respond until the State Farm Auto Policy limits and the Economical Insurance Policy limits are exhausted.

[8] Economical Insurance seeks a declaration that the State Farm Auto Policy and the State Farm PLUP are both “owner’s policies” as defined in Section 1 of the Insurance Act, R.S.O. 1990, c. I.8 and therefore pursuant to s. 277(1) of the Insurance Act, are both “first loss” insurance.

[9] Further, it is the position advanced by Economical Insurance that its’ policy pursuant to section 277 (1) of the Insurance Act is excess insurance only, and is not called upon to respond until all first loss insurance is exhausted.

[10] Alternatively, Economical Insurance’s position is, if the State Farm PLUP is not an “owner policy” then Economical seeks a declaration that the State Farm PLUP and Economical Auto Policy are both excess insurance policies, and respond equally upon exhaustion of the State Farm Auto Policy.

ISSUE # 1: Is the State Farm PLUP policy a primary owner’s policy or an excess policy of insurance?

[11] Counsel for State Farm Auto Policy and State Farm PLUP submits that the answer to the issue is found in the decision of McKenzie v. Dominion of Canada General Insurance (2007), 2007 ONCA 480, 86 O.R. 3d, 419.

[12] The Court of Appeal in McKenzie was dealing with the distinction between an automobile policy and a PLUP and in what sequence they should respond to a claim. The Court of Appeal held that the issue is decided based on the distinction that can be drawn between primary insurance and excess (or umbrella) policies of insurance. The Court stated that to decide the issue of the order that insurance policies apply requires a consideration of the “particular language” of the policies.

[13] It is noted that the McKenzie case involved a boating accident resulting in both the owner and driver being sued. There were three policies of insurance which provided coverage:

(1) A State Farm owner’s liability policy; (2) A State Farm PLUP issued to the owner of the boat; (3) A Dominion of Canada home owner’s policy issued to the father of the driver of the boat.

[14] There was no dispute in McKenzie that the boat owner’s liability policy was the primary first loss insurance and would pay until its limits were exhausted. The issue was which of the two policies --- The Dominion of Canada home owner’s policy or the State Farm PLUP---paid next or whether those two policies contribute equally to the losses that exceed the liability limits of the boat owner’s policy. The Court of Appeal after considering the “particular language of these two policies” held that the State Farm PLUP was “ a true excess or umbrella policy and its limits are not called upon to respond to the loss until the limits of the Dominion home owner’s policy are spent.”

The State Farm PLUP Policy

[15] In the present case, following the approach adopted in McKenzie, I have reviewed the relevant provisions of the State Farm PLUP which provides as follows:

Coverage L---Personal liability : If you are legally obligated to pay damages for a loss, we will pay your net loss minus the retained limit. Our payment will not exceed the amount shown on the Declarations Page as Policy Limits—Coverage L –Personal Liability.

[16] The definitions of “net loss” and “retained limit” as provided for in the State Farm PLUP state:

Net Loss : (a) the amount you are legally obligated to pay as damages for personal injury or property damage.

Retained Limit : Either a. the total limits of liability of any underlying insurance you may collect. The limits listed in the Declarations are the minimum you must maintain; or b. the amount shown on the Declarations as the “Self –Insured Retention.” This amount applies only if this policy applies, but your required underlying insurance does not provide coverage for the loss.

[17] Further, the State Farm PLUP also provides:

Other Insurance . This policy is excess over any other valid and collectable insurance except; a. Insurance written specifically as excess coverage over the retained limit for Coverage L; or b. Insurance written specifically as excess coverage over the limits of this policy.

[18] It is significant that Justice MacFarland (para 21 of McKenzie) held that such a provision can only reasonably refer to other primary insurance.

“Were it otherwise the ‘other insurance’ clauses in primary policies would make them excess or umbrella policies, which is clearly not the intent of a primary policy.”

Statutory References

[19] The first position advanced by Economical Insurance is that the State Farm Auto Policy and the State Farm PLUP are both “owner’s policies” as defined in Section 1 of the Insurance Act, R.S.O. 1990, c. I.8 and therefore pursuant to s. 277(1) of the Insurance Act, are both “first loss” insurance. Economical Insurance, in advancing this position, is referencing only the provision of the Insurance Act and ignoring the “particular language of the policies.”

[20] Section 277(1) of the Insurance Act provides:

Subject to section 255, the 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.

[21] An “owner’s policy” is defined in section 1 of the Insurance Act as “a motor vehicle liability policy insuring a person in respect of the ownership, use or operation of an automobile owned by that person and within the description or definition thereof in the policy and, if the contract so provides, in respect of the use or operation of any other automobile.”

[22] Section 1 of the Insurance Act defines a “motor vehicle liability policy” as a

“policy or part of a policy evidencing a contact insuring (a) the owner or driver of an automobile, or (b) a person who is not the owner or driver thereof where the automobile is being used or operated by that person’s employee or agent or any other person on that person’s behalf, against liability arising out of bodily injury to or death of a person or loss or damage to property caused by an automobile or the use or operation thereof.”

Applicable Law

[23] In McKenzie v Dominion of Canada General Insurance (para.30) reference is made to the authors of Couch on Insurance, 3rd ed. loose-leaf (Deerfield, Il.; Clark Boardman Callaghan, 1995) wherein they describe the clear differences between primary policies and umbrella or excess policies at 220:32:

220:32 Nature of Excess and Umbrella Policies

The question of allocating a loss among insurers often involves excess and umbrella insurers as well as various primary insurers. It is first of all important to understand the differences among these various types of policies. Both true excess and umbrella policies require the existence of a primary policy as a condition of coverage. [Page 427]

The purpose of both excess and umbrella coverage is to protect the insured in the event of a catastrophic loss in which liability exceeds the available primary coverage. Accordingly, it is only after the underlying primary policy has been exhausted does the excess or umbrella coverage kick in. Unlike excess policies, however, umbrella policies often provide primary coverage for risks that the underlying policy does not cover. Excess “other insurance” clauses, on the other hand, are devices whereby a primary insurer attempts to limit or eliminate its liability where another primary policy covers the risk. The intent of excess and umbrella policies to serve a different function from primary insurance policies with “other insurance” clauses can be discerned from the fact that different rate structures apply to excess and umbrella policies on the one hand, and primary policies with other insurance clauses on the other.

And at section 220:41

As a general rule, where two policies have competing excess “other insurance” clauses, the clauses cancel each other out and the policies pro rate. Likewise, two true excess policies at the same level of insurance pro rate the loss. As a rule, however, excess and umbrella policies are regarded as excess over and above any type of primary coverage, excess provisions arising in regular policies in any manner, or any escape clauses. Such is the case because umbrella policies are not an attempt by a primary insurer to limit a portion of its risk by labelling it “excess” nor a device to escape responsibility.

[24] Also referenced in the McKenzie case is the decision of Justice Charron in Trenton Cold Storage Ltd. v St. Paul Fire and Marine Insurance Co. [2001] O.J. No. 183 (para. 9) which outlines the type of analysis that must be undertaken in examining the relevant policies in the present case:

The issues between the parties turn on the wording of their respective policies. In order to determine the nature and extent of the coverage, it is necessary to look at the obligation to pay under each policy and to consider any other applicable provisions in the context of each insurance agreement as a whole. (Emphasis added.)

[25] In Trenton Cold Storage the Court held:

An umbrella policy generally provides two types of coverage: standard form excess coverage and broader coverage from that provided by the underlying insurance including a duty to defend lawsuits not covered by the underlying coverage. An umbrella policy is in effect a hybrid policy that combines aspects of both a primary policy and an excess policy (para. 26).

[26] Justice Charron in Trenton Cold Storage explains:

The distinction between primary and excess insurance is succinctly set out in St. Paul Mercury Insurance Company v Lexington Insurance Company, 78 F. 3d 202 (5th Cir. 1996), at footnote 23, quoting from Emscor Mfg. Inc. v Alliance Ins. Group, 879 S.W. 2d (Tex. App. 1994), writ denied):

Primary insurance coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to the liability. An excess policy is one that provides that the insurer is liable for the excess above and beyond that which may be collected on primary insurance. In a situation where there are primary and excess insurance coverages, the limits of primary insurance must be exhausted before the primary carrier has a right to require the excess carrier to contribute to a settlement. In such a situation, the various insurance companies are not covering the same risk; rather, they are covering separate and clearly defined layers of risk. The remote position of an excess carrier greatly reduces its chance of exposure to a loss. This reduced risk is generally reflected in the cost of the excess policy.

The “other insurance” clauses in the policy do not change the characterization. The only effect of the “other insurance clauses” would be to require a second primary insurance carrier to share IARW’s [a primary insurance] liability. The key to the obligation to share is that the other carrier would have to provide coverage at the [page 430] same level, in this case primary coverage, and not excess coverage that insures a “separate and clearly defined layer of risk”. A primary insurer cannot use an “other insurance clause” to require an umbrella carrier to share in its liability.

Analysis

[27] Economical submits that the State Farm PLUP is a valid owner’s policy of the kind mentioned in the definition of “owner’s policy” in Section 1 of the Insurance Act and therefore is also a first loss insurance and responds ahead of the Economical Auto Policy. Further, Economical submits that the Economical Auto Policy is not an “owner’s policy” and applying section 277 (1) the Economical Auto Policy is “excess insurance only.”

Economical relies on two decisions in support of its position:

(1) Avis Rent A Car Inc. v. Certas Direct Insurance Co., [2005] O.J. No. 1951 (2) ING Insurance Co., v. Lombard General Insurance Co., [2009] O.J. No. 256; appeal dismissed 2009 ONCA 570, [2009] O.J. No 3021.

[28] The Avis case is distinguishable from the present case. In Avis the subject Illinois policy was a valid owner’s policy and as such was first loss insurance. The Illinois policy provided insurance in respect of liability arising from the operation of an automobile owned by a named insured and within the definition of automobile in the policy. Further, the vehicle involved was rented in Detroit and the accident occurred in Ontario. Illinois had filed an undertaking pursuant to s. 226.1 of the Insurance Act which made the Illinois policy part of the regulated insurance scheme of Ontario. The Illinois policy was deemed to comply with the requirements of a motor vehicle liability policy set out in Part VI of the Insurance Act. Therefore, Avis v Certas is not on its facts helpful on the issue of whether a personal liability umbrella policy provides “motor vehicle liability insurance” and meets the requirements of Part VI of the Insurance Act.

[29] In ING Insurance Co. v. Lombard General Insurance Co, the Court of Appeal held that the principles in Avis Rent a Car System v. Certas applied. The ING Insurance case provides little assistance in determining the present case. The judge of first instance was satisfied that the Lombard policy was a “motor vehicle liability policy” as defined by s.1 of the Insurance Act and he found that s. 277(1) accordingly applied.

[30] In summary, both the Avis and ING cases involve what the Court found were motor vehicle liability policies of insurance (or deemed to be a motor vehicle liability policy by reason of legislation.)

Standard Ontario Automobile Policy

[31] In determining the issue of whether the State Farm PLUP is a primary, “first loss” insurance policy it is necessary to examine the language and in particular the “Liability Coverage” under the standard Ontario Automobile Policy (owner’s Policy) in Section 3.3:

You or other insured persons may be legally responsible for the bodily injury to, or the 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 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.

[32] The applicant and respondent agree that The La Chapelle-Stenner vehicle was insured under State Farm Automobile Insurance policy number 60-G6-2423-8 (“State Farm Auto Policy”) with personal liability limits of $ 300,000. The defendant driver, Walt is insured under this State Farm Auto Policy and there is no dispute that this policy is the first to respond until the liability limits of $ 300,000 are exhausted.

[33] The analysis then leads to the language of the State Farm PLUP. This policy has a significant change in wording as it pertains to liability coverage.

[34] The Declaration Page of the State Farm PLUP specifically references a “ Required Underlying Insurance Policies” including an “Automobile Liability” policy with “Minimum Underlying Limits” of $ 300,000. The State Farm Auto Policy and the State Farm PLUP bear the same policy number. The premium owed under the State Farm PLUP is $ 189 annually. No information has been provided as to the amount of the State Farm Automobile Policy. However, by referencing the Economical Insurance automobile insurance policy it is inferred that the State Farm Auto policy has a significantly higher premium. The State Farm PLUP does not provide S.A.B.S coverage. By its definition of coverage it clearly requires an underlying automobile first loss insurance policy with minimal limits of $ 300,000.

[35] The significant point is that the State Farm Auto policy and the State Farm PLUP have very different coverage provisions. The State Farm PLUP requires the existence of an underlying primary policy (namely the State Farm Auto policy) with minimum limits as a condition of coverage. The coverages of the policies when compared are quite different. This is because of the clause in the PLUP which provides that the “net loss minus the retained limit” is what will be paid. Again referencing the above it is noted that the definition of “retained limit” references the “total limits of any underlying insurance you may collect.” In other words the PLUP only pays the excess after the total limits of any underlying insurance are exhausted. In contrast the State Farm Auto Policy is intended to provide primary insurance coverage. In short, the State Farm Auto Policy and the State Farm PLUP provide different layers of coverage.

[36] The decision of the Ontario Court of Appeal in Keelty v Bernique, [2002] O.J. No. 83 is instructive in examining the wording and intent of a PLUP policy of insurance.

[37] In Keelty v Bernique a motor vehicle accident occurred in August 1992 leading to the death of one person and serious injury to his passenger. The driver of the other vehicle, whose negligence caused the accident, was uninsured. There had been a settlement of the actions brought by the driver’s family and by the passenger and his family. There remained a dispute as to the order in which two insurance policies must respond to pay out the settlement to the passenger and his family. The appellant and the respondent in the appeal were two insurance companies, State Farm Fire’s and Casualty Company and Royal Insurance Company of Canada respectively. The judge of the first instance held that State Farm Fire’s Personal Liability Umbrella Policy issued to the driver and his wife must respond in priority to the passenger’s own automobile policy issued by Royal Insurance. The Court of Appeal reversed this decision and allowed the appeal.

[38] Justice Rosenberg in Keelty (para 27) held that the umbrella policy was a purchased personal liability umbrella policy. “It did not attach to any named automobile. By contrast the Keelty insurance policy to which the O.E.F. 44 endorsement was attached described the insured automobile as a “1988 Ford Escort LX 2 door.” Further, in Keelty the Court held (para 25) that the umbrella policy was not part of the automobile insurance scheme and does not comply with the requirements of a motor vehicle liability policy of insurance which is highly regulated under Part VI of the Insurance Act, R.S.O. 1990 c. 1.8. “For example, it does not provide liability coverage to the limits required by s. 251 or coverage with respect to the benefits set out in the No Fault Benefits Schedule.”

[39] Similarly, the State Farm PLUP in the present case is a purchased personal liability insurance and it does not attach to any named automobile or provide accident benefits. Accordingly, the State Farm PLUP does not comply with the requirements of a motor vehicle liability policy.

Conclusion on Issue #1

[40] I find on a review of the specific language of the relevant policies that the State Farm PLUP is not a motor vehicle insurance liability policy under section 1 of the Insurance Act. I find, based on the particular language, that the State Farm PLUP is a true umbrella policy. The State Farm PLUP requires the existence of an underlying primary policy with minimum liability limits of $ 300,000 as a condition of coverage. In the present case the State Farm Automobile Policy is an owner’s policy and there is no dispute that it is a “first loss” coverage as acknowledged by the parties providing the underlying minimum liability limits coverage.

[41] It follows that based on my finding that the State Farm PLUP is not a motor vehicle policy as defined in the Insurance Act, that Section 277(1) has no application to the State Farm PLUP. I find that the PLUP is an excess policy of insurance.

Alternative Argument advanced by Economical Insurance

[42] The respondent, on behalf of Economical Insurance, states that if this court finds that the State Farm PLUP is not an owner’s policy, then it is their position that both the State Farm PLUP and the Economical Insurance Auto Policy are excess insurance and are both required to equally share the exposure beyond the State Farm Auto Policy limits. Under this argument, the proposition is advanced that if Economical Insurance and State Farm PLUP are both deemed to be “excess insurance”, then Section 277(2) of the Insurance Act applies and the result is that Economical and State Farm are each liable for their rateable proportion of any liability, expense, loss or damage.

[43] The position of Economical Insurance is that pursuant to Section 277(1) or 277.(2) of the Insurance Act, as a result of the existence of the State Farm Auto Policy, the Economical Auto Policy is excess insurance only. The argument advanced is that the Economical Auto Policy would also fall under the exemption for the State Farm PLUP for other excess insurance and accordingly the State Farm PLUP would not be considered excess to the Economical Auto Policy.

[44] It is submitted that Section 277.(2) of the Insurance Act applies equally to both the Economical Auto Policy and the State Farm PLUP based on the highlighted portions as follows:

277.(2). Subject to sections 255 and 268 and to subsection (1) of this section, if the insured named in a contract has or places any other valid insurance, whether against liability for the ownership, use or operation of or against loss of or damage to an automobile or otherwise, of the insured’s interest in the subject-matter of the contract or any part thereof, the insurer is liable only for its rateable proportion of any liability, expense, loss or damage.

[45] Therefore, it is submitted that if the Economical Auto Policy and the State Farm PLUP are both determined to be excess insurance, and since both carry personal liability limits of $ 1 million, the rateable portions are equal, resulting in a 50/50 split of the liability over and above the State Farm Auto Policy limits of $ 300,000.

Analysis of the Alternative Argument advanced By Economical Insurance.

[46] The analysis of the alternate argument advanced by Economical Insurance namely, that the State Farm PLUP and the Economical Insurance automobile policy are both excess insurance coverage requires first a determination of what each policy is according to the language of each policy. As previously stated, I find that the State Farm PLUP is an excess policy. The coverage in a PLUP is different than that in an automobile policy.

[47] An automobile policy is intended to provide primary insurance coverage (i.e. the State Farm Auto policy). Therefore the auto policy and the PLUP provide different layers of coverage. The State Farm PLUP’s other insurance clause provides that the PLUP is “excess over any other valid and collectible insurance.”

Issue # 2: Is the Economical Insurance Automobile Policy an excess or a First loss Policy?

[48] Once again the particular language of the Economical Insurance Automobile policy is relevant. This policy states that it is policy number 6608148 placed through an affiliate Perth Insurance. The policy type is “Personal auto”. It insures inter alia Paul Robert Walt on a vehicle which was not involved in the subject motor vehicle accident (a 2007 Dodge Truck RAM 1500). The third party liability coverage is for $ 1 million and it includes accident benefit coverage as well as #44R Family protection; underinsured automobile, collision and comprehensive coverage. The premium on this policy is $3,788 annually. The liability coverage under this policy is as provided in the standard (owner’s policy) Ontario Automobile Policy section 3.3 reproduced above. Accordingly the Economical Automobile Policy is a policy available to the operator of the motor vehicle in the subject accident, Paul Robert Walt.

[49] The Economical Insurance Automobile policy is an owner’s policy. In the circumstances of this case it insures Paul Robert Walt as the operator of his own car or any other automobile he is operating with the owner’s consent.

[50] Neither Section 277 (1) or Section 277. (2) of the Insurance Act have any application to the State Farm PLUP for the reasons provided above.

[51] The Economical Insurance Automobile policy provides the same coverage provisions as the State Farm Auto policy. It is a primary or “first loss” policy. Therefore, I reject the argument that the Economical insurance and State Farm PLUP are both excess policies. The Economical Insurance policy of automobile insurance coverage must respond with the State Farm Auto Policy and provide first loss coverage.

[52] The result is that the State Farm PLUP will provide coverage after the primary coverage of the State Farm Auto Policy and the Economical Insurance Automobile policies are exhausted.

[53] In the event that the parties cannot agree on costs they may contact the trial coordinator at Oshawa to arrange a date to make oral submissions in court.

The Honourable Mr. Justice J. Bryan Shaughnessy

DATE RELEASED : June 12, 2017