Merino v. ING Insurance Company of Canada, 2017 ONSC 6281

CITATION: Merino v. ING Insurance Company of Canada, 2017 ONSC 6281

COURT FILE NO.: CV-12-17744

DATE: 20171020

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Karla Garay Merino, Margarita Merino, Adis Perez Charles and Lou Ann Garay

Plaintiffs

– and –

ING Insurance Company of Canada, also known as, or formerly, ING Halifax Insurance Company

Defendant

COUNSEL:

Myron W. Shulgan, Q.C., for the Plaintiffs

Douglas A. Wallace, for the Defendant

HEARD: February 13, 2017

REASONS ON MOTIONs for summary judgment

Verbeem J.:

Nature of the Proceeding

[1] The plaintiffs and the defendant bring competing motions for summary judgment in this action, which is brought pursuant to s. 258(1) of the Insurance Act, R.S.O. 1990, c. I.8 (the Act).

[2] Section 258(1) of the Act creates a statutory right of action that permits certain innocent third parties who sustain injury and/or losses caused by the negligent use of an automobile, to recover directly from the at fault party’s insurer. Pursuant to that section, a person who has a claim against an insured for which indemnity is provided by a contract of automobile insurance (evidenced by a motor vehicle liability policy) and who has recovered judgment against the insured is entitled to have the insurance money payable under the contract applied towards satisfaction of the judgment.

[3] In this case, the plaintiffs are judgment creditors pursuant to the judgment of the Honourable Mr. Justice Scott Campbell, dated July 28, 2011, in an action numbered 04-CV-3381CM commenced at the City of Windsor styled as Merino v. Klue, 2011 ONSC 3984[unreported] (the tort/ uninsured action), in which they were awarded the sum of $2 million inclusive of interest and net of collateral benefits, together with costs against individuals named Tim Klue (Klue) and Sonia Abou-Khalil (Abou-Khalil), for damages arising out of a motor vehicle accident in the City of Windsor on September 12, 2002. The accident was caused by Klue’s negligent operation of a 1994 Jeep that he jointly owned with the defendant Abou-Khalil. As a result of his negligence, Klue struck and catastrophically injured a pedestrian, namely the plaintiff, Karla Merino.

[4] The trial of the tort-uninsured action proceeded on the basis that the vehicle Klue was operating at the time of the accident was an “uninsured automobile” and the trial judge characterized it as such. In that action, the plaintiffs also recovered judgment in the amount of $23,575.77, including pre-judgment interest and excluding costs, against Allianz Insurance Company of Canada, pursuant to uninsured automobile coverage it provided to the plaintiffs.

[5] The trial judgment was appealed to the Court of Appeal on an issue concerning the deductibility of certain collateral benefits, in the context of the plaintiffs’ dispute with Allianz. The Court of Appeal’s determination of the issue, reported as Merino v. Klue, 2013 ONCA 114, 114 O.R. (3d) 673, did not reduce or otherwise vary the plaintiffs’ judgment against Klue and Abou-Khalil. In its reasons, the Court of Appeal also characterized the vehicle operated by Klue as an “uninsured automobile”.

[6] The plaintiffs’ judgment against Klue and Abou-Khalil remains unsatisfied. Despite recovering on their “uninsured” claim, in the context of this action the plaintiffs assert that at the time of the accident, the Jeep operated by Klue was insured by the defendant, ING Insurance Company of Canada formerly known as ING Halifax Insurance Company (ING), pursuant to a contract of automobile insurance. They assert that on May 29, 2002, ING issued an instrument as a motor vehicle liability policy, in favour of Klue and Abou-Khalil as named insureds. They say that the accident occurred during the coverage period prescribed by the contract. As a result and for reasons which are set out later below, the plaintiffs submit that they are now entitled to bring an action against ING pursuant to s. 258 of the Insurance Act to have the insurance money payable under the ING contract applied towards satisfaction of their judgment against Klue and Abou-Khalil.

[7] For its part, ING concedes that on May 29, 2002, in response to an application for automobile insurance made by Klue and Abou-Khalil, a broker provided them with a 30-day binder evidencing a contract of automobile insurance with ING, in relation to the Jeep and naming them both as insureds. ING asserts that as a result of material misrepresentations and non-disclosure made in the application for insurance, which it discovered shortly after the binder issued, it validly rescinded the contract over two months prior to the accident.

[8] As a result, ING posits that the contract of insurance between it and Klue and Abou-Khalil did not exist at the time of the accident, and the plaintiffs do not have a valid claim against it pursuant to s. 258(1) of the Act.

Nature of the Motions

[9] The parties agree that the issues in this proceeding are amenable to a summary disposition and that the result will primarily be driven by the determination of questions of law.

[10] The plaintiffs seek summary judgment granting a declaration that:

[They] are entitled to have the insurance money available under an insurance contract evidenced by a motor vehicle liability policy issued by the defendant with Tim Klue and Sonia Abou-Khalil as Named Insureds, applied in satisfaction of a judgment rendered by this court on July 28, 2011, whereby the Insureds were adjudged to owe the plaintiffs the sum of $2 million for damages and interest, net of all collateral benefits, as a result of a motor vehicle accident which occurred on September 12, 2002, involving the insured motor vehicle co-owned by Timothy J. Klue, also known as J. Timothy Klue, and Asmahane Abou-Khalil, also known as Sonia Abou-Khalil, and described in the said policy of automobile insurance as co-Insureds and co-owners of a 1994 Jeep Grand Cherokee and bearing policy number 7-51228599 issued for a twelve (12) month term effective as of May 29, 2002 to May 29, 2003.

[11] The plaintiffs also seek a monetary judgment against the defendant in accordance with the full third party liability limits specified in the ING contract ($1 million) plus costs to be applied towards satisfaction of their judgment against Klue and Abou-Khalil in the tort/uninsured action.

[12] The defendant seeks an order for summary judgment dismissing the action on the basis that ING did not insure the Jeep Grand Cherokee on the accident date. Alternatively, the defendant posits that that the action should be dismissed because by reducing its action against Allianz to judgment on the basis that the Jeep was uninsured, the plaintiffs waived or otherwise elected not to pursue a claim on the basis that the vehicle was, in fact, insured.

Contextual Background

(i) The Accident

[13] On September 12, 2002, Karla Merino, a university student in Windsor, Ontario, was catastrophically injured when she was struck by a 1994 Jeep Cherokee vehicle operated by Timothy Klue, as she walked across a marked crosswalk.

[14] Klue and his spouse, Abou-Khalil jointly owned the Jeep at the time of the accident. On May 29, 2002, Abou-Khalil as the sole registered owner of the Jeep, transferred the registered ownership of that vehicle to herself and Klue.

(ii) Klue and Abou-Khalil Apply for Insurance

[15] It is undisputed that on May 29, 2002, Klue executed and submitted an application for a contract of automobile insurance to ING through its broker Gulliver Insurance Brokers Limited (Gulliver), in which both Klue and Abou-Khalil are specified as listed applicants and as listed drivers of the Jeep. The application prescribed a one year coverage term commencing May 29, 2002, and the corresponding premium was calculated on the basis of a one year term.

[16] The application, which was not signed by Abou-Khalil but was completed in her presence, solicited information about the applicants’ “Previous Accidents and Insurance Claims” (in the last six years) and “History of Convictions” for motor vehicle related offences (in the last three years). In each instance, the written response on the application was “none”. The application also contained the question “Has any driver’s licence, vehicle permit, et cetera issued to a person in the household or business been suspended or cancelled in the last six years?” and a written response “no” was recorded.

[17] At the time the application was made, Klue provided a representative of Gulliver with a blank cheque in order to institute automatic withdrawals of the monthly premiums associated with the contract. During the course of submissions, the parties agreed that for the purpose of these motions, neither Klue nor Abou-Khalil paid any amount on account of a premium at the time the application was made and ING never collected any amount as a premium at any time, with respect to the subject contract of insurance.

(iii) The Binder of Coverage

[18] In response to the application, Gulliver provided Klue and Abou-Khalil, who were both named as “insureds”, with a 30 day binder described, on its face, as a “motor vehicle liability insurance card” stated to be effective from May 29, 2002 to June 29, 2002 and “subject to the terms and conditions of the Insurers standard automobile policy”. In its pre-printed form, the binder states:

This certifies that the party named herein is insured against the liability for bodily injury and property damage by reason of the operation of the motor vehicle described herein, in the amount not less than the statutory minimum requirements in any area of Canada.

(iv) ING’s Underwriting Investigation

[19] ING received the application from Gulliver on May 31, 2002. Through its underwriting department, it investigated the veracity of the information contained therein and determined that Abou-Khalil: had been involved in an at fault motor vehicle accident on September 28, 2001; had been convicted of speeding on March 6, 2000 and October 2001 and careless driving on November 19, 2001; had had her driver’s licence suspended for non-payment of fines and that the suspension was in effect at the time the application was made; and was previously a party to a contract of automobile insurance that was cancelled for non-payment of premiums. None of that information was disclosed in the application.

[20] After considering the additional undisclosed information concerning Abou-Khalil’s driving and insurance history, ING determined that the risk that Klue and Abou-Khalil sought to insure fell outside its underwriting guidelines for “new business”, which at the time, provided in part:

Risks We Do Not Write-New Business.

We will not write risks where any of the following conditions exist:

13. If the applicant knowingly misrepresents or fails to disclose information that is required in the application for automobile insurance (OAF 1) when applying for a new policy or when requesting a change to the existing policy.

14. One or more at fault accidents in the preceding six years and two or more minor convictions in the preceding three years.

15. Or more at fault accidents in the preceding six years, plus one or more minor convictions in the preceding three years and one or more cancellation for non-payment in the preceding three years.

[21] Since the proposed risk fell outside ING’s underwriting guidelines for new business, it elected to rescind the contract of insurance.

[22] The unchallenged and uncontradicted evidence on the motions indicates that ING’s underwriting guidelines setting out, among other things, its grounds for declining to issue a new contract of automobile insurance had received regulatory approval by the Superintendent of Financial Services for the Province of Ontario (the Superintendent) before the application was made.

[23] In an affidavit sworn February 10, 2017, and filed on consent at the return of the motions, Nancy Brown, a personal lines underwriting manager employed with Intact Insurance, formerly ING Insurance Company of Canada deposes that:

Property and casualty insurers licenced to sell insurance in Ontario, including ING, are required by section 238 of the Insurance Act to file their underwriting rules with the Superintendent of Insurance for approval and then act in accordance with those rules when they decline to issue, terminate or refuse to renew a contact, or refuse to provide or continue a coverage or endorsement. Separate grounds are not filed each time an insurer declines to issue, terminates or refuses to renew a contract, or refuses to provide or continue a coverage or endorsement.

[24] Ms. Brown also deposes to her own knowledge, which is based on advice, that:

[ING] treated automobile policy 7-51228599 [insuring Klue and Abou-Khalil with respect to the 1994 Jeep] as void on the grounds that the applicant knowingly misrepresented or failed to disclose information that was required to be disclosed in the Application for Insurance. Specifically, the applicant’s driving record fell within a risk that ING did not write in accordance with the ING Personal Auto Underwriting Rules as previously filed with and approved by the Superintendent of Insurance. A copy of the relevant portion of those rules entitled “Risks We Do Not Insure – New Business” is attached hereto and marked as Exhibit “A”.

Ms. Brown appends to her affidavit a copy of the ING personal auto underwriting rules, as filed with and approved by the Superintendent, which includes the underwriting guidelines for “new business” that are reproduced above.

(v) ING’s Notice of Rescission to Klue and Abou-Khalil

[25] On July 2, 2002 (after the expiry of the 30 day binder), ING sent a registered letter addressed to both Klue and Abou-Khalil at their mutual residential address giving notice that as a result of the material non-disclosure related to Abou-Khalil’s prior convictions, policy cancellation, licence suspension and at fault motor vehicle accident, ING elected to treat the policy as void from its inception date. Specifically the correspondence states:

July 2, 2002

TIM KLUE AND SONIA ABOU-KHALIL,

1095 HARRISON AVE.

WINDSOR, ON

N9C 3J2

REGISTERED MAIL

RE: APPLICATION FOR AUTOMOBILE INSURANCE

Effective Date: May 29, 2001 [sic]

Broker: GULLIVER INSURANCE BROKERS (67529)

With reference to your application for automobile insurance dated MAY 29, 2001 [sic], we have carried out our underwriting investigation. Contrary to what was stated on the application, we have noted the following discrepancies with that information:

PREVIOUS ACCIDENTS AND INSURANCE CLAIMS: NONE DISCLOSED ON APPLICATION, SONIA HAD AN AT FAULT LOSS ON 28/9/01.

SONIA’S LICENCE IS ALSO SUSPENDED FOR AN UNPAID FINE.

DURING THE LAST THREE YRS HAS ANY AUTOMOBILE POLICY ISSUED TO THE APPLICANT OR ANY LOSTED [sic] DRIVER BEEN CANCELLED: NO ON APPLICATION, A PREVIOUS POLICY WAS CANCELLED FOR NON PAYMENT 13/12/2001.

In view of the non-disclosure, your insurance coverage is void from the inception date shown on the application date. Consequently, any claim made by you is invalid and your right to recover indemnity under this policy is forfeited.

We suggest you contact your broker to obtain insurance immediately in compliance with the Insurance Act.

Yours truly,

VICI GRENTS

Personal Lines Underwriter

c.c.: Gulliver INS-67529

[26] Abou-Khalil signed for receipt of the registered letter on July 4, 2002, and both she and Klue read its content contemporaneous to that date.

[27] ING did not return a premium to Klue and/or Abou-Khalil at the time it provided notice of its election to treat the contract as void ab initio, because ING did not receive any premiums from Klue or Abou-Khalil at any time.

[28] Klue and Abou-Khalil did not dispute ING’s decision to void the contract ab initio.

[29] In the context of the tort/uninsured action, Klue gave sworn evidence at an examination for discovery, a transcript of which has been filed on these motions. The parties agree that that evidence is properly before this court on these motions. There, Klue deposed that after receipt and review of ING’s July 2, 2002 correspondence, he regarded the Jeep vehicle as uninsured up to and including the date of the accident involving Miss Merino. He explains that because of their financial circumstances, he and Abou-Khalil did not attempt to insure the vehicle with another insurer after they received ING’s correspondence. Instead, they regarded the vehicle as uninsured and simply left it parked in their driveway, with neither operating it until September 12, 2002. On that date, Klue lost his job and after consuming some alcohol, he used the Jeep, despite his belief that it was uninsured. The accident occurred a short time later. Neither Klue nor Abou-Khalil provided ING with contemporaneous notice of the accident.

(vi) The Plaintiffs Provide Notice to ING

[30] After the accident, the plaintiffs eventually retained counsel. A lawsuit was contemplated and notice was provided. Specifically, through correspondence dated March 19, 2003 addressed to Abou-Khalil and copied to ING, plaintiffs’ counsel provided notice of Miss Merino’s injuries occasioned as a result of Klue’s alleged negligent operation of the Jeep and asserted, in essence, that as a co-owner of the vehicle, Abou-Khalil was vicariously liable for his negligence and the resulting damages. The correspondence states:

Dear Ms. Abou-Khalil:

Re: Our Client Karla Merino

Date of Loss: September 12, 2002

Re: 1994 Jeep Plate No. AJTK003

We are the solicitors for Karla Merino who was struck and seriously injured by a 1994 Jeep bearing Ontario plate no. AJTK003.

Our investigation confirms that you were the owner and/or joint owner of this vehicle with your spouse, J-Timothy Klue and pursuant to the Highway Traffic Act (Ont.) you are liable as owner for the negligent operation of your vehicle and all damages, interests and costs occasioned thereby.

Further, we have learned that a binder of insurance had been issued by ING Insurance Company Policy No. 751228599 to either/or you and J-Timothy Klue that was or may be in full force and effect on the date of this loss and you should immediately arrange to give notice to that insurer of this claim.

Please govern yourself accordingly.

Yours very truly,

Donald W. Leschied

[31] In response, Jean R. Dutot, a field adjuster employed by ING, forwarded correspondence to plaintiffs’ counsel dated March 25, 2003 stating:

Dear Mr. Leschied

We are in receipt of your letter dated March 19, 2003. Kindly be advised that neither Mr. J-Timothy Klue nor Ms. Asmahane Abou-Khalil have an automotive policy with ING Insurance Company of Canada.

I have enclosed a copy of the Registered Letter that was forwarded to Mr. Klue and Ms. Abou-Khalil. A carbon copy was also forwarded to the broker, Gulliver Insurance Broker. I have spoken to Mr. Mike Brown [sic]; the broker at Gulliver’s who advises that they did not place Mr. Klue or Ms. Abou-Khalil with another insurer.

Contact the writer if you have any questions or concerns regarding this matter.

[32] There is no evidence of further communications between plaintiffs’ counsel and ING at that time.

(vii) The Uninsured Automobile Coverage Available to Miss Merino

[33] When the accident occurred, Miss Merino was principally dependent on her mother, the co-plaintiff Margarito Merino, a resident of the Province of Quebec. Margarita Merino was a named insured pursuant to a standard policy of Quebec automobile insurance issued by Allianz Insurance Company of Canada, which provided coverage for certain accident benefits. Further, since the accident occurred in Ontario, the Allianz’s policy, by operation of s. 226 of the Act, was deemed to provide third party liability coverage (up to minimum limits), accident benefits coverage, and uninsured automobile coverage described as “Limited Accident Insurance”. Owing to her dependency status, Karla Merino was entitled to claim against Allianz pursuant to the provisions of the uninsured automobile coverage it provided, subject to its terms and conditions. Ultimately, she did so.

(viii) The Tort/Uninsured Action

[34] By statement of claim issued August 19, 2004, Karla Merino, her mother Margarita Merino and her sisters Adis Perez Charles and Lou Ann Garay commenced the tort/uninsured action against Timothy J. Klue, Asmahane Abou-Khalil and Allianz Insurance Company of Canada seeking damages for injuries and impairments occasioned to Karla Merino and the related losses that they all sustained, as a result of the motor vehicle accident on September 12, 2002 together with applicable costs and interest. The plaintiffs other than Karla Merino claimed damages pursuant to the Family Law Act, R.S.O. 1990, c. F.3, as amended. All plaintiffs claimed additional relief in the form of a declaration that Allianz Insurance Company of Canada insured the plaintiffs for Uninsured Motorist Coverage to the extent that its co-defendants are uninsured (emphasis added).

[35] The action against Klue and Abou-Khalil was framed in tort. The accident was alleged to have been caused by Klue’s negligence in the operation of the Jeep, for which the co-defendant Abou-Khalil was also liable in law, as a co-owner of the vehicle. The statement of claim asserted that Miss Merino suffered a spinal cord injury to C7 resulting in tetraplagia, a fractured pelvis, a left ankle sprain and a closed head injury, requiring and continuing to require hospital confinement, extensive rehabilitation services, extensive attendant care and surgery.

[36] Miss Merino claimed damages for non-pecuniary loss, past and future loss of income and loss of competitive advantage, and lifetime attendant care, medical rehabilitation and case management services, among others. The Family Law Act claimants claimed for “loss of care, guidance and companionship”, as well as pecuniary expenses related to the extensive care they provided (and provide) to Miss Merino, together with out-of-pocket expenses they reasonably incurred while visiting her.

[37] As against Allianz, the plaintiffs alleged at paragraph 6:

The defendant, Allianz Insurance Company of Canada, is a licenced insurer incorporated pursuant to the laws of the Dominion of Canada and licensed pursuant to the laws of the Province of Quebec and Province of Ontario and having as its head office at the City of Toronto and Province of Ontario and at all relevant times issued a policy of automobile insurance to the plaintiff Margarita Merino bearing policy number GB 40532992 that was in full force and effect on the date of the casualty referred to herein and which policy provided Uninsured Motorist Coverage with respect to said casualty and for the benefit of the injured plaintiff, Karla Garay Merino. [Emphasis added.]

[38] In support of their claims, the plaintiffs plead reliance “upon the provisions of the Insurance Act, R.S.O. 1990 c. I.8, as amended including but not limited to sections 226.1, 224 and 265”, the latter of which provides for uninsured automobile coverage.

[39] ING did not add itself as a statutory third party to the tort/uninsured action pursuant to s. 258(14) of the Act. It asserts that it could not have done so because its contract with Klue and Abou-Khalil was rescinded prior to the subject accident.

(ix) Evidence from Klue and Abou-Khalil in the Context of the Tort/Uninsured Action

[40] Both Klue and Abou-Khalil were examined for discovery in the context of the tort/uninsured action. As indicated above, a complete transcript of Klue’s examination for discovery evidence in that action has been filed, without objection, as evidence on the summary judgment motions that are before the court.

[41] In addition, ING has placed portions of Abou-Khalil’s evidence at her examination for discovery in the tort/uninsured action before the court by appending excerpts of the transcript of her evidence as exhibits to an affidavit sworn by John MacLean, a senior claims examiner with Intact Insurance (formerly ING) as “information” that informs his belief with respect to certain asserted facts. During submissions, both counsel confirmed that such evidence was properly before the court and no objection with respect to its admissibility was taken. I will specifically refer to Klue and Abou-Khalil’s discovery evidence later in these reasons.

[42] In his affidavit evidence, Mr. MacLean also references and relies on an undated and unsigned typed statement said to have been given by Klue at an unspecified time, in which Klue allegedly “admitted he knew the vehicle he was driving was uninsured”. A copy of Klue’s purported statement is appended to Mr. MacLean’s affidavit.

[43] In all of the circumstances I am unable to place any weight on the content of this “statement” or Mr. MacLean’s beliefs to the extent they arise exclusively from this document. It is not signed by Mr. Klue. It is not dated. There is no evidence with respect to the circumstances of the making of the statement including the manner in which the information asserted to have been provided by Mr. Klue was extracted from him (such as the specific questions, if any, posed to him). There is no evidence that Mr. Klue was given an opportunity to review the content of the typed statement or that he assented to the truth of its content.

[44] Similarly, both Mr. MacLean and Mr. Leschied, who apart from acting as plaintiffs’ counsel is also the affiant of the primary sworn evidence anchoring the plaintiffs’ motion for summary judgment, reference an unsworn and undated statement of Abou-Khalil said to have been taken by or on behalf of ING at some point after the accident. I am also unable to place any weight on the content of this statement for the same reasons I am unable to place any weight on Klue’s unsworn and undated statement, as set out above, which apply equally in the context of Abou-Khalil’s purported statement.

(x) ING Does Not Participate in Tort/Uninsured Action

[45] According to Mr. Leschied’s evidence, Klue and Abou-Khalil did not defend the tort/uninsured action. Eventually, notice of the action was provided to the Superintendent of Insurance and pursuant to the provisions of the Motor Vehicle Accident Claims Act, R.S.O. 1990, c. M.41, counsel was appointed to defend them. Klue and Abou-Khalil did not commence proceedings, third party or otherwise, seeking a declaration that ING was obliged to defend and indemnify them in relation to the subject matter of the tort/uninsured action and ING did not participate in that action, in any capacity.

(xi) The Plaintiffs Obtain ING’s Complete Underwriting File Before Reducing Their Uninsured Claim to Judgment

[46] While the tort/uninsured action was outstanding, plaintiffs’ counsel received ING’s complete underwriting file in the context of an accident benefits dispute. In 2005, an arbitration was commenced involving multiple insurers and the Motor Vehicle Accident Claims Fund to determine which, if any, insurer or the Fund should respond to Miss Merino’s claim for accident benefits arising out of the September 12, 2002 accident. Eventually, Allianz, as the only insurer to receive a formal application for accident benefits from or on behalf of Miss Merino, agreed to pay accident benefits as the first loss insurer, in accordance with the accident benefits priority provisions of the Act.

[47] In the context of the accident benefits dispute, plaintiffs’ counsel (Mr. Leschied) received a copy of ING Halifax’s underwriting file with respect to the contract of automobile insurance applied for by Klue and Abou-Khalil. By correspondence dated September 1, 2005 Mr. Wallace (counsel for the defendant in this proceeding) delivered “a copy of ING Halifax’s underwriting file” to Mr. Leschied, which included the following records:

a) A copy of an Application for Automobile Insurance (Owner’s Form) OAF 1 signed by Tim Klue on May 29, 2002;

b) A void cheque numbered 268 from Tim Klue “re: policy number 751228599” copied over an “Easypay Authorization Form” signed by Tim Klue [automatic withdrawal authorization];

c) A plate owner and permit re: 1994 Jeep owned by Abou-Khalil, Asmahane as of May 29, 2002 and a related transfer signed by Tim Klue;

d) Registration of change of ownership with the Ministry of Transportation to Asmahane Abou-Khalil and J. Timothy Klue signed on May 29, 2002;

e) Ministry of Transportation Used Vehicle Information Package Exemption, dated May 29, 2002 as signed Klue, J-Timothy and Abou-Khalil, Asmahane with respect to the 1994 Jeep

f) Spouse/Same Sex Partner Declaration – Ministry of Transportation Plate Transfer May 29, 2002 signed Tim Klue and Asmahane Abou-Khalil;

g) A copy of the Binder issued by ING through the broker Gulliver Insurance Brokers Ltd. to Tim Klue and Sonia Abou-Khalil;

h) A document summarizing the results of ING’s driver’s licence searches for Klue and Abou-Khalil;

i) A copy of ING’s Underwriting Guidelines entitled “Risks We Do not Write – New Business”;

j) A copy of ING’s internal worksheet related to its rescission of the contract, which includes the following information:

“Lapsing/Cancelling/Voiding a Risk”

Policy # 7-51228599

Name: T. Klue and Sonia Abou-Khalil

Details of Risk: Auto – 1994 – Jeep – Class 01 Elite - $1,000,000 Liability, Property Damage, Uninsured Motorist, Direct Comp. Accident Benefits, 500 Coll, 300 Comp, 20 + 27

WHY: Insureds did not disclose Sonia at fault loss of 20/9/01, Sonia convictions of 6/3/00 – SPD, 4/10/01 – SPD, 19/11/01 Careless driving – Sonia Lic suspended + Canc. for N/P 13/12/01

REASON FOR DECLINING: Rule 10 – Applicant knowingly misrepresents or fails to disclose information that is required in the application for Auto Insurance when applying for a new policy

TEST OF MATERIALITY:

A) HAD THE ACTUAL STATE OF AFFAIRS BEEN DISCLOSED IN THE APPLICATION, WHAT ADDITIONAL INFORMATION WOULD HAVE BEEN SOUGHT TO ASSESS THE RISK? COULD THIS ADDITIONAL INFORMATION QUALIFY THIS RISK TO MEET THE U/W ELIGIBILITY CRITERIA?

YES OR NO No

B) IS THIS A CLASS OF RISK WHICH WE DO NOT WRITE?

YES OR NO Yes

C) WOULD ANY OTHER DEPT. IN THE COMPANY HAVE WRITTEN THIS RISK?

YES OR NO No

Underwriting Action: Void R

Date: June 27, 2002 Underwriter V. Grents

U/W Manager or V.P.

Void as above – Misrep

Tracy L. Weir: “Void as above - misrep”

June 27, 2002

k) Copy of ING’s correspondence dated July 2, 2002 addressed to Tim Klue and Sonia Abou-Khalil, at their mutual residence;

l) Copy of Canada Post “items delivered July 4, 2002” evidencing that Abou-Khalil acknowledged receipt of the July 2, 2002 correspondence on July 4, 2002.

[48] In his correspondence dated September 1, 2005, Mr. Wallace also provided Mr. Leschied with what is identified as a statement taken from Abou-Khalil, undated on its face and a copy of “e-mail correspondence” from Gulliver’s legal counsel to an ING adjuster dated October 20, 2003 stating that no deposit or funds were provided to the broker by Abou-Khalil and Klue when the application was made. Finally, Mr. Wallace confirmed ING’s position that the contract between it and Klue and Abou-Khalil was rescinded prior to the September 12, 2002 accident, stating:

You will see from the above material that ING Halifax voided the policy ab initio based upon misrepresentations on the application.

(xii) The Plaintiffs Obtain Judgment in the Tort/Uninsured Action

[49] The tort/uninsured action came before Campbell J. for trial on June 21, 2011. The trial proceeded on the basis that Miss Merino was entitled to payment pursuant to the uninsured coverage provided by Allianz, which necessarily required that there was no third party liability coverage available to Klue and Abou-Khalil. At that time, the only disputed issue was whether Allianz, was entitled to deduct the sum of $181,107, which was paid to the plaintiff, Karla Merino, as a form of “non-pecuniary damage indemnity” by the Société de L’Assurance Automobile du Quebec (“SAAQ”) from the $200,000 maximum amount that the plaintiff was entitled to receive as damages pursuant to the uninsured automobile coverage provided by Allianz. In reasons dated July 28, 2011, Campbell J. answered the question in the affirmative. His decision was subsequently affirmed by the Ontario Court of Appeal.

[50] At paras. 1 through 3 of his reasons for judgment, Campbell J. sets out the contextual background of the action before him as follows:

The plaintiff in this matter, Karla Garay Merino (“Karla”), was a student at the University of Windsor on September 12, 2002. On that day at approximately 11:58 a.m. she was struck by a motor vehicle as she crossed Askin Blvd. at its intersection with Fanchette St. in the City of Windsor. As a result of the collision, Karla suffered catastrophic spinal cord injuries.

This action was commenced by the plaintiffs August 19, 2004. Margarita Merino is the plaintiff’s mother and Adis Perez Charles and Lou Ann Garay are the plaintiff’s sisters. The motor vehicle was operated by the defendant Timothy J. Klue (“Klue”) and was owned by him and the defendant Asmahane Abou-Khalil also known as Asmahane Aboukhalil (“Abou-Khalil”). There is no issue that the defendants Klue and Abou-Khalil are liable in law for the damages sustained by the plaintiffs.

The defendant Allianz Insurance Company of Canada (“Allianz”) is an insurance corporation licensed pursuant to the laws of the Dominion of Canada. It is also licensed pursuant to the laws of the Province of Ontario and the Province of Québec. … On September 12, 2002 the defendant Allianz insured the automobile owned by the plaintiff Margarita Merino (“Margarita”). That policy of insurance included uninsured motorist coverage. It is undisputed that the plaintiff Karla is entitled to the benefit of that policy. [Emphasis added.]

[51] The evidence before Campbell J. consisted of a request to admit made by the plaintiffs and Allianz’ response thereto, together with the transcripts of the examinations for discovery of Klue and Abou-Khalil. In its response to the plaintiffs’ request to admit, Allianz admitted that: Miss Merino’s injuries were caused solely by Klue’s negligent operation of a motor vehicle; Klue and his spouse, Abou-Khalil, were the co-owners of the vehicle he operated; Karla Merino suffered catastrophic injuries as a result of the accident; Karla was principally dependent upon Margarita within the meaning of the uninsured provisions of the Insurance Act; and the plaintiffs’ total damages inclusive of interest and net of any deductible collateral benefits were $2 million.

[52] With respect to Klue and Abou-Khalil, Campbell J. states, at para. 7:

It should be noted that while the defendants Klue and Abou-Khalil did not file a request to admit, they acknowledged liability through counsel. Mr. Walter K. Donaldson appeared as counsel for Klue and Abou-Khalil. He advised the court, in the course of his brief submissions, that his clients acknowledged liability for the plaintiff Karla’s injuries.

[53] It is unclear whether the plaintiffs’ request to admit was served on Abou-Khalil and Klue, and if so, whether they responded or were otherwise deemed to admit the truth of the asserted facts. It is also unclear whether Klue and Abou-Khalil, through counsel, expressly admitted that damages against them were appropriately assessed at $2 million net of all collateral benefits, although it appears so because in the absence of direct evidence on the issue of damages, Campbell J. concludes at paras. 33 and 34:

In the result there will be judgment to the plaintiff Karla Garay Merino against the defendant Timothy J. Klue and Asmahane Abou-Khalil in the amount of $2,000,000.00.

The plaintiff shall have judgment against Allianz Insurance Company of Canada in the amount of $18,893.00 plus interest and costs.

(xiii) Misdescription With Respect to Underinsurance Recovery

[54] Curiously, the terms of the formal issued and entered judgment in the tort/uninsured action are not entirely consistent with the trial judge’s reasons or the relief claimed in the action. Specifically:

a) At para. 33 of this reasons for judgment, Campbell J. awards damages in the amount of $2 million payable by Klue and Abou-Khalil in favour of the plaintiff, Karla Merino [singular]. However, para. 1 of the formal judgment indicates that the plaintiffs [plural] shall recover judgment as against the defendants, Klue and Abou-Khalil, in the total amount of $2,000,000.00, inclusive of pre-judgment interest; and

b) Although the plaintiffs clearly claimed to be entitled to compensation pursuant to the uninsured automobile coverage available to Karla Merino through Margarita Merino’s policy of insurance (together with the sections and related regulations of the Insurance Act prescribing uninsured automobile coverage), para. 2 of the judgment declares that the quantum of the non-pecuniary benefits paid to or on behalf of Karla Merino by SAAQ were “deductible pursuant to s. 2(1) of Ontario Regulation 676, R.R.O. 1990 [as it then existed] from the policy limits of the underinsurance policy with Allianz and Margarita Merino and her dependant daughter and co-plaintiff Merino; namely $200,000”. [Emphasis added.]

[55] The characterization of the plaintiffs’ claim against Allianz as an underinsurance claim as distinct from an uninsured claim was repeated at para. 6 of the affidavit sworn by Mr. Leschied on May 17, 2016, and filed in support of the plaintiffs’ motion for summary judgment (and in response to the defendant’s summary judgment motion), where he states:

Further Allianz Insurance, the Quebec auto insurer of Merino’s mother, Margarita Merino, became potentially liable to pay underinsurance coverage pursuant to the combination of sections 45(1) and 224(i) of the Insurance Act (Ontario) and the underinsurance or Family Protection Endorsement Provisions deemed to be included in the Allianz policy applied to this accident. [Emphasis added.]

[56] Mr. Leschied states at para. 7 of his affidavit that “judgment was granted…against the underinsurer, Allianz, for a net award of $18,893 after deducting collateral benefits paid in Quebec of $181,107 from the policy limit of the Allianz policy, or $200,000, plus costs”. [Emphasis added.]

[57] It remains unclear why the judgment and subsequent evidence about the nature of the tort/uninsured action referenced underinsurance. However, it is abundantly clear that “underinsurance coverage” was never an issue in the tort/uninsured action. The judgment awarded in favour of the plaintiffs against Allianz was founded in uninsured automobile coverage, not an underinsurance endorsement. The statement of claim in the tort/uninsured action asserts a cause of action against Allianz pursuant to uninsured automobile coverage (to the extent Klue and Abou-Khalil were uninsured), and the plaintiffs plead reliance on the legislation and related regulations applicable to uninsured automobile coverage.

[58] Further, in order to determine the claim against Allianz at trial, the trial judge first recognized that the Allianz policy included uninsured automobile coverage and he observed that it was undisputed that Miss Merino was entitled to the benefit of that policy. Neither the statement of claim nor the trial judge’s reasons disclose a claim by the plaintiffs pursuant to underinsurance coverage or coverage pursuant to a Family Protection endorsement.

[59] Finally, in its endorsement dated February 11, 2013, the Court of Appeal reiterated that the plaintiffs’ claims against Allianz were made pursuant to uninsured automobile coverage. At paras. 2-3, the court states that at the time of the accident, Karla Merino:

[W]as a pedestrian struck by an uninsured automobile. Because she was a permanent resident of Quebec, she had available to her certain benefits under the SAAQ as well as the uninsured limits of her mother’s policy of insurance. She was paid a total of $343,911.84 under the SAAQ and of that amount $181,107 was on account of non-pecuniary damage indemnity.

The appellants say that this amount should not be deducted from her entitlement to the $200,000 uninsured motorist limit and in this regard relies principally on subsection (7) of section 267.8 of the Insurance Act[.] [Emphasis added.]

[60] The Court of Appeal’s endorsement does not refer to the plaintiffs’ entitlement to “underinsurance” or “family protection” coverage, under the Allianz policy.

[61] From ING’s perspective, the distinction that lies in whether the judgment against Allianz was founded in uninsured or underinsured coverage is of critical import to its “waiver” and “election” defences, in the context of this action.

[62] At the hearing of these motions, plaintiffs’ counsel initially submitted that the plaintiffs recovered judgment against Allianz in its capacity as an underinsurer and not pursuant to uninsured coverage. After inquiry by the court and upon further reflection, plaintiffs’ counsel (Mr. Shulgan) conceded that the amount that Campbell J. determined that Allianz was obligated to pay the plaintiff(s) was pursuant to uninsured automobile coverage not underinsurance coverage. Mr. Shulgan fairly conceded that he did not know how the phrase “underinsurance” came to be inserted into the formal judgment that was issued and entered.

(xiv) The Plaintiffs’ Action against ING Pursuant to [s. 258](https://www.canlii.org/en/on/laws/stat/rso-1990-c-i8/latest/rso-1990-c-i8.html) of the [Act](https://www.canlii.org/en/on/laws/stat/rso-1990-c-i8/latest/rso-1990-c-i8.html)

[63] On April 16, 2012, and while their appeal in the tort/uninsured action was pending, the plaintiffs commenced this action against ING seeking the declaratory and monetary relief set out above. In its statement of defence delivered May 22, 2012, ING disputes the plaintiffs’ entitlement to the relief requested on the basis that the contract evidenced by the policy of motor vehicle liability insurance that it issued was void ab initio no later than July 4, 2002 [the date Abou-Khalil received ING’s July 2, 2002 correspondence], over two months prior to the accident involving Miss Merino. From its perspective, at law, the policy never existed, Klue and Abou-Khalil were never insureds under the policy and they never enjoyed a right of indemnity from ING for third party liability or at all. Alternatively, ING states the plaintiffs waived or elected not to pursue a claim premised on the assertion the Jeep was insured at the time of the accident.

Position of the Parties

(i) ING’s Position

[64] ING does not dispute that: Klue and Abou-Khalil submitted an application for a contract of automobile insurance to it, through Gulliver, on May 29, 2002; in response, they were provided with a 30 day binder of coverage; or that the binder was an instrument issued as a motor vehicle liability policy with respect to a 1994 Jeep Grand Cherokee, which they co-owned. ING agrees that the application for insurance provided for a one-year coverage period commencing May 29, 2002, and that it specified third party liability limits of $1 million.

[65] ING does not dispute that the contract of automobile insurance ostensibly made between Klue and Abou-Khalil as “insureds” and ING as “insurer” remained in place after the stated expiry date of the 30 day binder. ING concedes that s. 236 of the Insurance Act obligates an insurer to provide at least 30 days notice of its intention not to renew a contract made pursuant to Part VI of the Act (the part of the Act applicable to automobile insurance) and that s. 236 of the Act applies equally to temporary binders: see Farmers Mutual Insurance Company v. McAlister (2003), 2003 36989 (ON SC), 65 O.R. (3d) 307 (Sup. Ct.). ING concedes that it did not provide Klue and Abou-Khalil with notice of its intention not to renew the contract prior to the expiry of the binder and since the term of the contract of insurance was described as one year in the application (which was attached to the policy and formed part of the contract), the contract remained in place after the 30 day binder term expired.

[66] However, ING submits that after it received the application, its underwriting investigation revealed several misrepresentations and non-disclosures associated with its content. ING posits that had the applicants disclosed the true state of affairs with respect to Abou-Khalil’s driving offence history, motor vehicle accident history, prior insurance cancellation and licence suspension, it would have declined to issue the contract in accordance with its underwriting guidelines applicable to “new business”, as approved by the Superintendent. The misrepresentations were, therefore, “material”.

[67] ING submits that as a matter of law, upon its discovery of a material misrepresentation or non-disclosure made in an application for insurance, an insurer may elect to do one of three things:

1. It may rescind the contract (i.e. treat the policy as void ab initio) and refund all paid premiums to the purported insured. If it invokes this course of action, it must declare its election to the insured;

2. It may retain the premium and treat the contract as valid and subsisting; or

3. It may treat the policy as valid but cancel it unilaterally in accordance with the statutory conditions applicable to the termination of a contract of automobile insurance made pursuant to the Act.

[68] In this case, ING says that it elected to rescind the contract. It declared its election to Klue and Abou-Khalil in its correspondence dated July 2, 2002, which it sent by registered mail to their common residential address. Through that correspondence, Klue and Abou-Khalil were advised of the reasons for ING’s election to “void the policy from its inception”. No premiums were returned because no premiums were paid.

[69] ING maintains that its election to rescind the contract was effective for the following reasons. One of the applicants (Abou-Khalil) signed for receipt of the letter and both applicants reviewed it contemporaneous to its receipt. After reviewing ING’s correspondence, the applicants understood that the Jeep vehicle which they had sought to insure through ING was, in fact, uninsured. Neither Klue nor Abou-Khalil disputed ING’s election to rescind the contract and neither looked to ING for a defence or indemnity even when the tort/uninsured action was commenced against them in 2004 or later, when judgment for $2 million was entered against them.

[70] ING stresses the significance of its valid rescission of the contract of insurance before the event giving rise to the plaintiffs’ claims against Abou-Khalil and Klue. This is not a situation where there was a voidable contract at the time of the accident, which ING then sought to void ab initio after the event giving rise to the plaintiffs’ claims against Klue and Abou-Khalil. Instead, the contract was rescinded two months before the accident occurred. As a result, ING submits that its position is not founded in an attempt to deny that the instrument that it issued as a motor vehicle liability policy was such a policy. Instead, as a matter of fact and law and regardless of its original anticipated duration, the instrument that ING issued as a motor vehicle liability policy was not in effect at the time of the loss and Klue and Abou-Khalil were not insured, ostensibly or otherwise, by ING at that time.

[71] As a result of the foregoing, ING submits that the plaintiffs cannot maintain an action against it pursuant to s. 258(1) of the Act because they are not “persons who had a claim against an insured for which indemnity was provided by a contract evidenced by a motor vehicle liability policy”. Klue and Abou-Khalil were not entitled to indemnity for the plaintiffs’ claims against them pursuant to the ING contract because there was no contract at the time of the accident. In the absence of a contract providing for indemnity at the time their claims against Klue and Abou-Khalil arose, the plaintiffs are not entitled to recovery pursuant to the “absolute liability provisions” set out in s. 258 of the Insurance Act.

[72] The defendant submits that the facts in this instance are distinguishable from virtually all of the reported cases that consider the effect of material misrepresentations made in an application for insurance and the operation of ss. 258(1), (4) and (5) of the Act (the latter two subsections operate to restrict the defences an insurer may set up to a claim pursuant to s. 258(1)).

[73] All of the decided cases address situations where the insurer discovers a material misrepresentation in the application for insurance only after the event giving rise to a third party’s claim against the insured. In such circumstances, the courts have consistently held, in accordance with s. 258(5) of the Act, that the insurer is not entitled to defend a s. 258(1) action (up to minimum limits) on the basis that the contract is void ab initio because of the material misrepresentation. To find otherwise would effectively allow the insurer to assert that an instrument it issued as a motor vehicle policy was not such a policy, which is a defence expressly prohibited by s. 258(5). ING does not quarrel with the result of those decisions, but distinguishes them on the basis that the material misrepresentation and resulting rescission of the contract of insurance, in this instance, occurred before the plaintiffs had a claim against Klue and Abou-Khalil.

[74] Apart from submitting that the plaintiffs are not entitled to recover against it pursuant to s. 258(1) of the Act, ING submits that the plaintiffs’ s. 258(1) action is “an abuse of process” because the plaintiffs previously commenced an action and ultimately recovered a judgment pursuant to the uninsured automobile coverage provisions of the Allianz policy, on the basis that neither Klue nor Abou-Khalil were insured pursuant to a contract of automobile insurance providing third party liability coverage at the time of the accident. ING submits their deliberate recovery in that regard is mutually exclusive with their position in this action, that the ING contract remained in full force and effect, up to its $1 million third party liability limits, at the time of the accident.

[75] In support of its position, ING observes that:

1. Section 265(1)(a) of the Act prescribes that “every contract evidenced by a motor vehicle liability policy shall provide for payments of all sums that a person “insured under the contract” is entitled to recover from the owner or driver of an uninsured automobile…as damages for bodily injury resulting from an accident involving an automobile”, subject to the terms, conditions, provisions, exclusions and limits prescribed by the regulations association with that form of coverage;

2. In accordance with s. 265(2) of the Act, an “uninsured automobile” means an automobile with respect to which neither the owner or driver thereof has applicable and collectible bodily injury liability and property damage liability insurance for its ownership, use or operation; and

3. The limits on an insurer’s obligation to make payment to its own insured pursuant to uninsured motorist coverage are prescribed by regulation, specifically “Uninsured Automobile Coverage”, R.R.O. 1990, Reg. 676. Section 2(1)(c) of Reg. 676 provides that an insurer is not liable to make any payment to its own insured pursuant to uninsured automobile coverage where the person insured under the contract is entitled to recover money under the third party liability section of a motor vehicle liability policy.

[76] ING submits that the Jeep that Klue operated at the time of the accident cannot simultaneously be “uninsured” for the purpose of the plaintiffs’ prior action and “insured” for the purpose of this s. 258(1) action. Similarly, the plaintiffs cannot simultaneously be entitled to recover against Allianz on the basis that they are “not entitled to recover under the third party liability section of a motor vehicle liability policy” (as they asserted in the uninsured action) and entitled to recover under the third party liability portion of a motor vehicle liability policy that insured Klue and Abou-Khalil at the time of the accident (as they assert in this action).

[77] In short, the plaintiffs’ recovery under the uninsured automobile provisions of the Allianz policy is fundamentally inconsistent with the plaintiffs’ position that Klue and/or Abou-Khalil were insured under a contract evidenced by a motor vehicle liability policy which provided third party liability coverage at the time of the September 12, 2002 accident. Had Klue and Abou-Khalil been so insured, the plaintiffs would have been precluded from recovering any payment from Allianz pursuant to uninsured automobile coverage.

[78] Finally, ING’s counsel submits that all of the information upon which the plaintiffs rely, in the context of this proceeding, to support their position that the contract of automobile insurance between ING and Klue and Abou-Khalil was valid and in effect on September 12, 2002, was known to them before they reduced the uninsured action to judgment against Allianz.

[79] Plaintiffs’ counsel received a copy of ING’s complete underwriting file in September of 2005 (almost six years before the uninsured action was reduced to judgment). He also examined Abou-Khalil and Klue for discovery in the context of the tort/uninsured action in 2006, during which, at the very least, Klue was questioned about the circumstances surrounding the application they made to ING and ING’s purported rescission of the contract. ING submits that by proceeding with the uninsured action to judgment, after receiving its underwriting file and evidence from Klue on those points, the plaintiffs either waived their ability to pursue a claim for third party liability indemnity from ING and/or they elected, in law, to accept that Klue and Abou-Khalil were “uninsured” within the meaning of s. 265 of the Act. ING submits they cannot resile from that election at this point and, as a result, the action against it constitutes an abuse of process.

[80] For the reasons stated above, ING states that this action should be dismissed.

The Plaintiffs’ Position

[81] The plaintiffs have advanced a host of reasons founded in various sections of the Act and its related regulations, together with other legislation and the common law to support their primary position that the contract of automobile insurance between ING and Klue and Abou-Khalil was valid and in effect at the time of the September 12, 2002 accident and, as a result, judgment should issue against ING, in the full amount of the third party liability coverage available under the contract, namely $1 million.

[82] The specific components of their position has been varyingly expressed through a number of filing in the context of these motions, including: their original factum; a supplemental factum and chronology of events; a written outline of the plaintiffs’ intended submissions (filed in advance of the hearing of the motions); and correspondence to the court explaining the nature of the written outline (which was also filed prior to the hearing of the motions).

[83] Through his “written outline”, Mr. Shulgan sought to limit the number of issues advanced by the plaintiffs to those expressed therein, as distinct from the nine issues raised in the plaintiffs’ original factum, which were subsequently expanded through their supplemental factum. In his written outline, plaintiffs’ counsel framed the primary issue before the court as follows:

The issue for this Court’s determination is whether a certificate of insurance evidencing a contract of automobile insurance remained in force, on September 12, 2002, to expose ING Insurance Company of Canada (“ING”) to third party liability notwithstanding the fact that the insured, Tim Klue (“Klue”), lost his right to look to ING for indemnity under the insurance contract because of false statements he made on his application for insurance.

[84] In correspondence that followed his “written outline”, Mr. Shulgan clarified:

The Motion material and the factum setting out the plaintiffs’ position was prepared by Don Leschied. In it Mr. Leschied raised a number of issues. However, many of those issues are not really relevant to the ultimate issue: Whether a policy of insurance existed on the date of the accident in which the plaintiff suffered injuries that contained indemnity provisions for the plaintiffs’ loss. [Emphasis added.]

The defendant’s position is that the policy was cancelled, by notice to the insured, 15 days after July 2, 2002, the date of the registered letter providing cancellation notice. But the cases on which the defendant relies are cases in which there was no “coverage” for the loss for which indemnity was claimed.

Our intended argument is that the policy was not “cancelled” (by termination or refusal to renew) in a manner that complied with the provisions of Statutory Condition 11 and s. 238 and 236 of the Act. Even if it was, by s. 258, the insurer continues to be obligated to indemnify a third party who suffers a loss.

The outline I provided is focussed on the issue noted above. I do not intend to argue many of the issues raised by Mr. Leschied in his material. I intend to focus on the issues raised in the outline I provided to you earlier this week.

I hope this adequately responds to your concern.

[85] Consistent with his correspondence, Mr. Shulgan made a number of submissions in support of the plaintiffs’ position that the ING contract remained in effect at the time of the accident, as follows:

1. An insurer cannot rescind a contract of automobile insurance on the basis of material misrepresentations. The provisions of the Insurance Act and the Compulsory Automobile Insurance Act, R.S.O. 1990, c. C.25, as amended (CAIA) represent a complete code prescribing the circumstances in which a contract of automobile insurance can be terminated and the manner in which it must be terminated. As a result, legislation has displaced the common law pursuant to which an insurer could rescind a contract of automobile insurance on the basis of material misrepresentation. Since ING purported to elect a remedy on July 2, 2002, that was not available to it (rescission), the contract remained in effect at the time of the accident.

2. Alternatively, in the event that an insurer can rescind a contract of automobile insurance at common law, it may only do so where it was induced to enter the contract on the basis of a negligent or fraudulent misrepresentation made by the applicant. The plaintiffs submit that there is no evidence of either inducement or negligence or fraud with respect to the misrepresentations that ING alleges were made by Klue and/or Abou-Khalil. Therefore, there was no basis for rescission and the policy remained in effect at the time of the accident.

3. The insurer failed to secure the approval of the Superintendent for the specific ground it relied on to rescind the contract with Klue and Abou-Khalil, as it was required to do by s. 238 of the Act. In that regard, the plaintiffs submit that an insurer is required to secure the Superintendent’s approval of its specific asserted grounds to decline to issue, to decline to renew or to terminate a contract of automobile insurance in each individual instance that it elects to do so. Without evidence of the Superintendent’s approval of its grounds to decline to issue a contract specifically to Klue and Abou-Khalil, the plaintiffs’ posit that the alleged act of rescission was invalid and the contract remained in effect, at the time of the accident.

4. The manner in which ING provided notice of rescission to Klue and Abou-Khalil was defective because it was not in accordance with statutory condition 11 of the Ontario standard automobile policy (OAP 1), which applies to the termination of a contract and because ING did not provide separate notice of rescission to each of the several co-insureds, Klue and Abou-Khalil, as it was required to do. Finally, the July 2, 2002 correspondence to Abou-Khalil and Klue was sent on the letterhead of an entity described as “ING Halifax”, but their contract was with an insurer described as “ING”. As a result of defective notice, the contract was not validly rescinded and it remained in effect at the time of the accident.

5. An insurer cannot rely on any material misrepresentation by its insureds in the defence of a statutory action brought against it pursuant to s. 258(1) of the Act.

6. The insurer cannot rely on the combined effect of s. 258(11) of the Act (which allows an insurer to set up any defence to a s. 258(1) claim that it could set up against its own insured, for any portion of the claim that exceeds the statutory minimum limits of third party liability coverage mandated in Ontario, namely $200,000) because ING failed to specifically plead its reliance on s. 258(11) in its statement of defence. Therefore, judgment should be granted for $1 million, in any event of the insureds’ alleged material misrepresentations.

7. The plaintiffs never waived or elected not to pursue their rights against ING. They were required to reduce their claim to judgment against Klue and Abou-Khalil before they could commence an action pursuant to s. 258(1) of the Act against ING. They pursued an uninsured claim because ING erroneously advised plaintiffs’ counsel, in 2003 and 2005, that the contract it had with Klue and Abou-Khalil was validly terminated before the loss. There is no risk of double recovery in the event that the plaintiffs recover judgment in the full amount of the ING third party liability limit ($1 million) because the judgment against Klue and Abou-Khalil is in the amount of $2 million, net of collateral benefits, and the plaintiffs only recovered slightly less than $19,000 from the uninsured insurer.

8. Public policy supports the plaintiffs’ recovery against ING.

[86] In support of the foregoing, the plaintiffs state that an insured’s loss of a right of indemnity as a result of a misrepresentation or otherwise, does not automatically terminate a contract of automobile insurance. A contract of insurance can only be terminated by the insurer in strict compliance with the provisions of statutory condition 11 of the OAP 1 and any purported termination is subject to the provisions of ss. 237 and 238 of the Act. They say that an insurers’ common law right to elect to rescind a contract as a result of an insured’s material misrepresentation or non-disclosure in an application for automobile insurance has been replaced by the statutory scheme set out in Part VI of the Act (Automobile Insurance). Section 233 of the Act provides that if such a misrepresentation is knowingly made and contained in the application for insurance, the insured forfeits his or her right to indemnity under the policy. That, however, does not terminate the policy. To terminate the policy, the insurer must still comply with statutory condition 11.

[87] There is no provision in the Act which vests an insurer with the right to unilaterally declare a policy or contract void from its inception. ING did not terminate the contract for automobile insurance in strict compliance with the applicable statutory condition. As a result, the contract remained in effect at the time of the accident and the plaintiffs are entitled to have the insurance money payable under the contract applied in satisfaction of their judgment in the tort/uninsured action.

Disposition

Principles Applicable to Summary Judgment

[88] All of the parties assert that it is appropriate to determine this action on the basis of summary judgment pursuant to r. 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, as amended.

[89] The following principles are applicable to the motions for summary judgment before me.

[90] Rule 20.01(1) of the Rules provides that:

A plaintiff may, after the defendant has delivered a statement of defence or served a notice of motion, move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim.

[91] Rule 20.01(3) of the Rules provides that:

A defendant may, after delivering a statement of defence, move with supporting affidavit material or other evidence for summary judgment dismissing all or part of the claim in the statement of claim.

[92] Rules 20.04(2) – (2.1), in part, provide:

(2) The court shall grant summary judgment if,

a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or

(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at trial:

1. Weighing the evidence.

2. Evaluating the credibility of a deponent.

3. Drawing any reasonable inference from the evidence.

[Emphasis added.]

[93] Rule 20.04(4) provides:

Where the court is satisfied that the only genuine issue is a question of law, the court may determine the question and grant judgment accordingly, but where the motion is made to a master, it shall be adjourned to be heard by a judge.

[94] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, Karakatsanis J. observes that the judicial determination of civil disputes must embrace processes other than a traditional trial where such processes may result in more accessible, proportional, timely and affordable modes of adjudication that yield fair and just resolutions of such disputes. Several principles emerge from Hryniak, including the following:

a) The procedure used to adjudicate a civil dispute must fit the nature of the claim. If the process is disproportionate to the nature of the dispute and the interest involved then it will not achieve a fair and just result (para. 29);

b) A genuine issue requiring a trial will not exist when the judge is able to reach a fair and just determination of an action on the merits, on a motion for summary judgment. This will occur when the process: (1) allows the judge to make the necessary findings of fact; (2) allows the judge to apply the law to the facts; and (3) is a proportionate, more expeditious and less expensive means to achieve a just result than a trial (para. 49);

c) When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or cost-effective. However, a process that does not provide a judge with confidence in their conclusions can never be a proportionate method for resolving a dispute (para. 50);

d) On a summary judgment motion, the evidence need not be equivalent to that at trial, but it must be such that the judge is confident that they can fairly resolve the dispute. A documentary record, particularly when supplemented by the new fact-finding tools, including ordering oral testimony [pursuant to r. 20.04(2.2) in Ontario] is often sufficient to resolve material issues fairly and justly (para. 57);

e) The standard of fairness is, therefore, not whether the procedure utilized to resolve the parties’ dispute is as exhaustive as a trial, but whether it gives the judge confidence that they can find the necessary facts and apply the relevant legal principles so as to resolve the dispute (para. 50);

f) The fact-finding powers under r. 20.04(2.1) are discretionary and are presumptively available to the motion judge. They may be exercised unless it is in the interest of justice for those powers to be exercised only at trial (para. 45);

g) In determining whether “it is in the interest of justice” that the r. 20.04(2.1) fact-finding powers only be exercised at trial, the motion judge may be required to assess the relative efficiencies of proceeding by way of summary judgment, as opposed to trial (including the cost and speed of both procedures). The determination may also involve a comparison of the evidence that will be available at trial and the evidence available on the motion, as well as the opportunity to fairly evaluate that evidence. However, even when the evidence available on the motion is limited, there may be no reason to think better evidence will be available at trial (para. 58);

h) When a judge is able to fairly and justly adjudicate a claim through the use of the new fact-finding powers it will generally not be against the interest of justice to do so. What is “fair and just” turns on the nature of the issues, the nature and strength of the evidence and the correspondingly proportional procedure, in all the circumstances (para. 59);

i) In considering whether the use of the fact-finding powers accords with the “interest of justice” a judge must consider the consequences of the motion and the context of the litigation as a whole. For instance, if some of the claims against some of the parties will proceed to trial in any event, it may not be in the interest of justice to use the new fact-finding powers to grant summary judgment against a single defendant. Such partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact. Conversely, the resolution of an important claim against a key party could significantly advance access to justice, and be the most proportionate, timely and cost efficient approach (para. 60);

j) On a motion for summary judgment the judge should first determine if there is “a genuine issue requiring trial” based only on the evidence before them, without using the new fact-finding powers. If there appears to be a genuine issue requiring a trial, the judge should then determine if the need for a trial can be avoided by using the fact-finding powers under rr. 20.04(2.1) and (2.2). The judge may, at their discretion use those powers provided that such use is not against the interest of justice (para. 66); and

k) While summary judgment must be granted if there is no genuine issue requiring a trial, the decision to use either the expanded fact-finding powers or to call oral evidence is discretionary, thereby giving the judge some flexibility in deciding the appropriate course of action in the context of a particular motion (para. 68).

[95] Notwithstanding the “culture shift” away from the primacy of trial and towards a proportional adjudicative process that yields a fair and just result, there will still be cases that must go to trial. Evidence by affidavit, prepared by the parties’ legal counsel can obscure the affiants’ authentic voice, making the judge’s task of assessing credibility and reliability difficult. Accordingly, the motion judge must take care to ensure that decontextualized affidavit and transcript evidence does not become the means by which substantial unfairness enters the procedure in a way that would not likely occur in a full trial, when the judge sees and hears it all: see Yusuf (Litigation guardian of) v. Cooley, 2014 ONSC 6501, 123 O.R. (3d) 474, at paras. 8 and 21, and Baywood Homes Partnership v. Haditaghi, 2014 ONCA 450, 120 O.R. (3d) 438, at para. 44.

[96] The principles applicable to motions for summary judgment that were developed prior to the enactment of the current provisions of r. 20.04 continue to apply. The motion judge must still take a “hard look” at the evidence to determine whether the moving party has met its onus to demonstrate that there is no genuine issue requiring a trial. Each party must still put its best evidentiary foot forward and submit cogent and compelling evidence to support or oppose the relief sought. The motion judge is entitled to assume the record contains all the evidence the parties will adduce at trial. The moving party is obliged to present a record that can enable the court to avail itself of the enhanced powers under r. 20.04(2.1), if the record warrants the exercise of such discretion. The responding party cannot reasonably rely on the position that a genuine issue requiring a trial exists because additional supportive evidence may emerge at trial: see Kolosov v. Lowe’s Companies Inc., 2016 ONSC 1661, at para. 33, aff’d in 2016 ONCA 973.

[97] After considering the foregoing principles, I am satisfied that in the context of the motions before the court, I can find, with confidence, the necessary facts required to dispose of the action on its merits and that I can fairly apply the law to the facts as found. Consistent with the parties’ submissions, I accept that the majority of the issues between them do not involve contentious issues of fact and, instead, involve determinations of questions of law and questions of mixed fact and law.

[98] The direct evidence on the primary contested factual issue, specifically whether Abou-Khalil and Klue knowingly misrepresented or failed to disclose material information during their application for insurance, is limited. However, given that the events relevant to that issue occurred 15 years ago, I am not persuaded that better evidence on the issue would be available if the action proceeded to trial. Klue’s sworn evidence in the tort/uninsured action, given in 2006, solidifies my view in that regard. At that time, he indicated that he had difficulty remembering the specifics of what transpired during the process of applying for insurance in 2002. However, he was able to provide unequivocal evidence with respect to his conduct and Abou-Khalil’s conduct as it related to the Jeep, after they received ING’s notice of rescission and up to and including the date of the accident, which is consistent with his evidence that he believed that the Jeep was uninsured during that time. With resort to the fact finding powers provided for in r. 20.04(2.1), including drawing reasonable inferences from the evidence, I am confident that I can determine the primary factual issue in dispute on the evidence available on these motions. I am also of the view that it is in the interests of justice to do so.

[99] There is no reason to believe better evidence on the issue of whether Klue and Abou-Khalil knowingly misrepresented or failed to disclose material information during their application for insurance will be available at trial and all parties submit the issues on this motion can and should be resolved in the context of the record before the court.

[100] During the course of submissions, I asked counsel whether a complete copy of Abou-Khalil’s examination for discovery evidence given in the tort/uninsured action should be filed in order to put the filed excerpts from the transcript of that evidence into greater context. The parties submitted that was unnecessary.

[101] In all of the circumstances, I find that determining the issues in this action with resort to the 20.04(2.1) fact finding powers, where necessary, remains the most expeditious and cost effective procedure to fairly decide the issues in this action and that it remains in the interests of justice to do so. I shall do so below.

The Issues

[102] The parties’ disputed issues can be addressed through six broadly stated questions as follows:

1. Do the provisions of Part VI of the Insurance Act foreclose the right of an insurer to rescind a contract of automobile insurance upon discovery of a material misrepresentation in the associated application?

2. Was ING entitled to rescind its contract of automobile insurance with Klue and Abou-Khalil?

3. Did ING validly rescind its contract of insurance with Klue and Abou-Khalil?

4. Are the plaintiffs entitled to recover any amount from ING pursuant to s. 258(1) of the Act?

5. Is it necessary to address ING’s position with respect to waiver and election?

6. What amount are the plaintiffs entitled to receive in the event that they are entitled to have insurance money payable under a contract of automobile insurance between ING and Klue and Abou-Khalil applied towards satisfaction of their judgment in the tort/uninsured action?

[103] I will address each of those questions below. In doing so, I remain mindful of the following public policy purposes that are applicable to contracts of automobile insurance and upon which the plaintiffs heavily rely:

1. One of the main objectives of insurance law is consumer protection, particularly in the field of automobile and home insurance: see Smith v. Co-Operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129, at para. 11.

2. Automobile insurance policies are more than mere commercial contracts. The regulatory structure of automobile insurance has become part of the social contract and forms “part of the integral social safety net that attempts to balance economic feasibility with sound risk management principles not just for drivers and partner insurers, but anyone injured by an automobile accident”: see Abarca v. Vargas, 2015 ONCA 4, at para. 37, 123 O.R. (3d) 561.

Statutory Definitions

[104] The following statutory definitions are relevant to positions advanced by the parties. Section 1 of the Act, as effective from January 1, 2001 to December 15, 2004 provides, in part:

In this Act, except where inconsistent with the definition sections of any Part,

“automobile insurance” means insurance,

(a) against liability arising out of,

(i) bodily injury to or the death of a person, or

(ii) loss of or damage to property,

caused by an automobile or the use or operation thereof, or

(b) against loss of or damage to an automobile and the loss of use thereof,

and includes insurance otherwise coming within the class of accident insurance where the accident is caused by an automobile or the use or operation thereof, whether liability exists or not, if the contract also includes insurance described in clause (a); ("assurance-automobile")

“insurance” means the undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed, or to pay a sum of money or other thing of value upon the happening of a certain event, and includes life insurance; ("assurance")

“insurance money” means the amount payable by an insurer under a contract, and includes all benefits, surplus, profits, dividends, bonuses, and annuities payable under the contract; ("sommes assurées")

“insurer” means the person who undertakes or agrees or offers to undertake a contract; ("assureur")

“motor vehicle liability policy” means a policy or part of a policy evidencing a contract 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 the death of a person or loss or damage to property caused by an automobile or the use or operation thereof; ("police de responsabilité automobile")

“policy” means the instrument evidencing a contract; ("police")

“premium” means the single or periodical payment under a contract for insurance, and includes dues, assessments, administration fees paid for the administration or servicing of such contract, and other considerations; ("prime")

“Superintendent” means the Superintendent of Financial Services appointed under the Financial Services Commission of Ontario Act, 1997; ("surintendant").

[105] Section 224 of the Act defines certain terms for the purposes of Part VI of the Act, which is specifically applicable to “automobile insurance” and provides, in part:

(1) In this Part,

“contract” means a contract of automobile insurance that,

(a) is undertaken by an insurer that is licensed to undertake automobile insurance in Ontario, or

(b) is evidenced by a policy issued in another province or territory of Canada, the United States of America or a jurisdiction designated in the Statutory Accident Benefits Schedule by an insurer that has filed an undertaking under section 226.1; (“contrat”)

“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; (“assuré”).

1. Do the provisions of Part VI of the [Insurance Act](https://www.canlii.org/en/on/laws/stat/rso-1990-c-i8/latest/rso-1990-c-i8.html) foreclose the right of an insurer to rescind a contract of automobile insurance upon discovery of a material misrepresentation in the associated application?

[106] The plaintiffs submit that the provisions of Part VI of the Act and related statutory conditions, together with the provisions of the CAIA represent a complete code prescribing the circumstances in which a contract of automobile insurance can be terminated and the manner in which that may be done, including the method and timing of the notice that must be given to the insured in that regard.

[107] The plaintiffs’ position in that regard, is primarily founded in ss. 233, 237 and 238 of the Act, together with statutory conditions 11 and 12 of the OAP 1 and s. 12 of the CAIA. The provisions of s. 233 of the Act are reproduced further below. The provisions of ss. 237 and 238 of the Act as they existed in 2002 are reproduced in Appendix “A” to these reasons, together with the complete provisions of 236 and 258 of the Act.

[108] Statutory conditions 11 and 12, as effective from 1993 to June 1, 2005 (pursuant to O. Reg. 777/93) provide:

Termination

11. (1) Subject to section 12 of the Compulsory Automobile Insurance Act and sections 237 and 238 of the Insurance Act, this contract may be terminated by the insurer giving to the insured fifteen days notice of termination by registered mail or five days written notice of termination personally delivered.

(2) This contract may be terminated by the insured at any time on request.

(3) Where this contract is terminated by the insurer,

(a) the insurer shall refund the excess of premium actually paid by the insured over the proportionate premium for the expired time, but in no event shall the proportionate premium for the expired time be deemed to be less than any minimum retained premium specified; and

(b) the refund shall accompany the notice unless the premium is subject to adjustment or determination as to the amount, in which case, the refund shall be made as soon as practicable.

(4) Where this contract is terminated by the insured, the insurer shall refund as soon as practicable the excess of premium actually paid by the insured over the short rate premium for the expired time, but in no event shall the short rate premium for the expired time be deemed to be less than any minimum retained premium specified.

(5) The fifteen days mentioned in subcondition (1) of this condition begin to run on the day following the receipt of the registered letter at the post office to which it is addressed.

Notice

12. Any written notice to the insurer may be delivered at, or sent by registered mail to, the chief agency or head office of the insurer in the Province. Written notice may be given to the insured named in this contract by letter personally delivered to the insured or by registered mail addressed to the insured at the insured’s latest post office address as notified to the insurer. In this condition, the expression,

“registered” means registered in or outside Canada.

[109] Section 12 of the CAIA, as effective in 2002, provides:

Termination of contracts of insurance

12. (1) Where a contract of automobile insurance has been in effect for more than sixty days, the insurer may only terminate the contract for one or more of the following reasons:

13. Non-payment of, or any part of, the premium due under the contract or of any charge under any agreement ancillary to the contract.

14. The insured has given false particulars of the described automobile to the prejudice of the insurer.

15. The insured has knowingly misrepresented or failed to disclose in an application for insurance any fact required to be stated therein.

16. For a material change of risk within the meaning of the statutory conditions referred to in section 234 of the Insurance Act.

Exception

(2) Subsection (1) does not apply to,

(a) an insurer running off its business, where the insurer has specific approval of the Superintendent to cancel a contract; or

(b) a contract in respect of a motor vehicle used in the course of carrying on a business, trade or profession.

[110] The plaintiffs contend that the provisions of the Act foreclose an insurer’s right to elect to rescind a contract of insurance (or as is often expressed “to treat the policy as void ab initio”) upon discovery of a material misrepresentation or non-disclosure in the associated application for insurance. As a result, the plaintiffs posit that ING’s July 2, 2002 correspondence to Klue and Abou-Khalil, purporting to declare the policy void ab initio had no legal effect on the existence and validity of the contract of automobile insurance that was made between ING and Klue and Abou-Khalil. Further, ING’s July 2, 2002 correspondence and the manner in which it was delivered did not strictly comply with the provisions of the Act and the statutory conditions related to termination and, as a result, the ING policy remained in effect at the time of the accident on September 12, 2002, and the full limits of its third party liability coverage are available to be applied to the plaintiffs’ judgment against Klue and Abou-Khalil.

[111] I do not give effect to the plaintiffs’ position in that regard. Mr. Shulgan candidly acknowledges that he is not aware of any authority to support the proposition that an insurer’s common law right to rescind a contract of automobile insurance made as the result of a material misrepresentation has been extinguished by the provisions of the Act. To the contrary, the decided authorities that are binding on this court have consistently expressed and implicitly recognized that an insurer, upon discovering a material misrepresentation or material non-disclosure in the associated application for insurance (including in the context of automobile insurance) is entitled to elect to treat the resulting contract as void ab initio on notice to the insured and refund of the entire premium paid to date.

[112] For example, in Burns v. Hedge, 2001 4718, 146 O.A.C. 333, at para. 16, the court found that the insured’s deliberate non-disclosure of a material fact in an application for automobile insurance entitled the insurer to void the policy and return the premium. Similarly, in Ashton v. Tu (1998), 40 O.R. (3d) 690, at p. 699, 1998 1766, Osborne J.A. writing for the majority states, “At common law a misrepresentation or non-disclosure material to the risk renders the contract of insurance void.”

[113] Both of those cases were decided in circumstances of material misrepresentation and/or non-disclosure in an application for a contract of automobile insurance made in the context of the current provisions of Part VI of the Act and statutory conditions related to the termination of such contracts. Nonetheless, in both instances, the court recognized the continuing remedial availability of rescission to an insurer upon its discovery of a material misrepresentation in the application for insurance.

[114] Additionally, the trial level authorities decided in Ontario consistently and persuasively recognize that an insurer, upon discovery of a material misrepresentation in an application for insurance may elect to rescind the resulting contract.

[115] For example, in Hansra v. York Fire & Casualty Insurance Co., 38 O.R. (2d) 281, 1982 2005 (Co. Ct.) Weiler J. identifies three courses of action that are available to an insurer upon discovery of a material misrepresentation in an application for insurance as follows: 1) it may treat the policy as void ab initio by declaring its position to the applicant and refunding the premium collected; 2) it may treat the policy as valid but cancel it, unilaterally, in strict compliance with the statutory conditions for unilateral termination; and 3) it may retain the premium and treat the contract as valid and subsisting.

[116] Hansra recognizes a distinction between an insurer’s termination of a contract of insurance in accordance with the provisions of the Act and an insurer’s rescission of a contract of insurance. In my view, that distinction may be drawn as follows. Where a contract of insurance is made as a result of a material misrepresentation, it is “voidable” and remains valid until it is declared to be voided (rescinded) at which point it is deemed to have been voided at its inception and all premiums must be returned to the applicant. Where a contract is cancelled, in strict compliance with the provisions of the Act and statutory conditions, the existence and validity of the contract, up to the date of effective cancellation, is acknowledged and the insurer is entitled to retain the premium paid for the period prior to the date of effective cancellation (the “earned” premium).

[117] In Tullock v. People Plus Insurance Co. et al., [2001] I.L.R. I-3949, [2001] O.J. No. 752 (Sup. Ct.), at para. 58, the court recognized that the three options identified in Hansra (including rescission) remain available to an insurer upon discovery of a material misrepresentation or material non-disclosure made by an applicant for a contract of automobile insurance. Similarly, in Winch v. Kedgh, 78 O.R. (3d) 468, 2005 40561 (Sup. Ct.), aff’d in 82 O.R. (3d) 472, 2006 26576 (C.A.), the court states, “[a] material misrepresentation is grounds to treat an insurance contract as void ab initio.”

[118] The cases cited above were decided in the context of contracts of automobile insurance governed by Part VI of the Act. It remains that all of the relevant decided authorities endorse that an insurer may elect to rescind a contract of automobile insurance upon discovery of a material misrepresentation or non-disclosure by the applicant at the time of application.

[119] The plaintiffs assert that s. 12 of the CAIA in combination with statutory condition 11 of the OAP 1 operate to preclude an insurer from electing rescission upon discovery of a material misrepresentation in the application. Statutory condition 11 of the Ontario standard automobile policy (OAP 1), which attaches to every contract of automobile insurance in Ontario, prescribes the manner in which insurers must terminate a contract of automobile insurance.

[120] The provisions of statutory condition 11 are expressly subject to s. 12 of the CAIA, which prescribes that where a contract of automobile insurance has been in effect for more than 60 days, the insurer may only terminate the contract for the enumerated reasons set out in that section, which include where “the insured has knowingly misrepresented or failed to disclose in an application for insurance any fact required to be stated therein”. The plaintiffs submit that the legislative purpose of s. 12 of the CAIA is to limit an insurer’s remedy, upon its discovery of a material misrepresentation in the application, to termination of the contract in accordance with statutory condition 11 in the OAP 1. I disagree.

[121] As set out above, there is a fundamental distinction between “rescission of a contract of insurance” and “termination” of such a contract. Section 12 of the CAIA provides the legislative basis for an insurer to terminate a contract of automobile insurance upon discovery of a material misrepresentation or non-disclosure in the application pursuant to which the contract was made. The provisions of the CAIA do not prescribe that a ground to terminate a contract of automobile insurance cannot also be a ground to rescind the contract. Indeed, the cases decided after s. 12(1) of the CAIA was enacted in its present form in 1993, have consistently recognized an insurer’s ability to elect to rescind a contract of automobile insurance where it results from a material misrepresentation in the associated application. As a result, I am not persuaded that s. 12 of the CAIA operates in concert with statutory condition 11 to preclude an insurer from electing to rescind a contract upon its discovery of a material misrepresentation or non-disclosure in the associated application.

[122] Similarly, my finding that the provisions of the Insurance Act do not displace an insurer’s right at common law to rescind a contract of automobile insurance upon discovery of a material misrepresentation made during the associated application is not altered by the provisions of s. 233 of the Act, which provide:

233. (1) Where,

(a) an applicant for a contract,

(i) gives false particulars of the described automobile to be insured to the prejudice of the insurer, or

(ii) knowingly misrepresents or fails to disclose in the application any fact required to be stated therein;

(b) the insured contravenes a term of the contract or commits a fraud; or

(c) the insured wilfully makes a false statement in respect of a claim under the contract,

a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited.

(2) Subsection (1) does not invalidate such statutory accident benefits as are set out in the Statutory Accident Benefits Schedule.

(3) No statement of the applicant shall be used in defence of a claim under the contract unless it is contained in the signed written application therefor or, where no signed written application is made, in the purported application, or part thereof, that is embodied in, endorsed upon or attached to the policy.

(4) No statement contained in a purported copy of the application, or part thereof, other than a statement describing the risk and the extent of the insurance, shall be used in defence of a claim under the contract unless the insurer proves that the applicant made the statement attributed to the applicant in the purported application, or part thereof.

[123] The plaintiffs’ have not provided any authority to support their position that apart from terminating a contract in accordance with the statutory conditions, s. 233 of the Act provides for the only recourse available to an insurer where an applicant for a contract of automobile insurance materially misrepresents or fails to disclose, in an application, any fact required to be stated therein, and, for the reasons stated below, I do not accept it.

[124] Rescission and the consequences of s. 233 of the Act, stand as two distinct remedial options available to an insurer who discovers an applicant’s “knowingly made” material misrepresentation or non-disclosure of a fact required to be stated in the application, which differ significantly in their effect.

[125] If the insurer elects to invoke s. 233 of the Act, it does so while still recognizing the validity of the contract of insurance, notwithstanding the misrepresentation. As a result, it is entitled to treat any claim made by the insured under the contract as invalid while still retaining the benefit of the premium paid to date. When the insurer elects to rescind the contract, it does not recognize the validity of the contract at any point in time and as a consequence, the contract meets its end (from its inception) and the full premium paid must be returned to the applicant. In that circumstance, the insurer does not treat a claim purportedly made by the insured pursuant to the contract as “invalid” (as it would if it invoked s. 233 of the Act), because there is no contract pursuant to which the insured can advance a claim, at first instance.

[126] In addition, support for the plaintiffs’ position with respect to the effect of s. 233 of the Act on an insurer’s right of rescission cannot be inferred from the relevant jurisprudence.

[127] Section 233 of the Act or its equivalent, consistently formed part of the Act, when all of the cases recognizing an insurer’s right of rescission that are cited above were decided. Those authorities establish that the common law (with respect to rescission) and the provisions of the Act (which include termination pursuant to statutory conditions 11 and 12 and the remedial effect of s. 233 of the Act) operate in combination to prescribe the remedial options available to an insurer upon its discovery of a material misrepresentation in the application for a contract of insurance. In my view, there is no basis to conclude otherwise.

[128] For the reasons stated above, I conclude that the provisions of Part VI of the Insurance Act and the provisions of the CAIA do not foreclose the right of an insurer to rescind a contract of automobile insurance upon discovery of a material misrepresentation in the associated application.

2) Was ING entitled to rescind its contract of automobile insurance with Klue and Abou-Khalil?

[129] An insurer’s ability to rescind a contract based on a misrepresentation or non-disclosure at the time of application is not boundless. Among other things, for rescission to be available, the misrepresentation or non-disclosure must have been material to the formation of the contract. In Guarantee Co. of North America v. Gordon Capital Corp., 1999 664 (SCC), [1999] 3 S.C.R. 423, the Court characterized the nature of rescission at para. 39 as follows:

Rescission is a remedy available to the representee, inter alia, when the other party has made a false or misleading representation. A useful definition of rescission comes from Lord Atkinson in Abram Steamship Co. v. Westville Shipping Co., [1923] A.C. 773 (H.L.), at p. 781:

Where one party to a contract expresses by word or act in an unequivocal manner that by reason of fraud or essential error of a material kind inducing him to enter into the contract he has resolved to rescind it, and refuses to be bound by it, the expression of his election, if justified by the facts, terminates the contract, puts the parties in status quo ante and restores things, as between them, to the position in which they stood before the contract was entered into.

[130] The Court describes the requisite nature of a misrepresentation that is sufficient to give rise to a claim for rescission, and its effect, at para. 47:

In summary, a misrepresentation, even one that was incorporated into the contract, gives the innocent party the option of rescinding the contract, i.e. to have it declared void ab initio. The misrepresentation must be “material”, “substantial” or “g[o] to the root of” the contract. … In this case, because both parties agreed to the word “rescission”, and Guarantee acted in accordance with that intention, the consequence of a valid rescission based on Gordon’s misrepresentation is the avoidance of the contract, and Guarantee’s release from any liability thereunder.

[131] Accordingly, a party to a contract who makes a false or misleading material misrepresentation in its formation does so at peril of the contract’s eventual rescission at the behest of the other party. In the context of a contract for insurance, the duty of an applicant to make full disclosure of all material facts is particularly pronounced because such contracts are rooted in mutual good faith. As Rady J. states in Mailloux v. Mindorff, 2016 ONSC 6003, at para. 50:

It is axiomatic that a contract of insurance is uberrima fides. An insured is obliged to disclose all material facts so that the insurer can assess whether it is the risk it is prepared to undertake and at what cost. It has been said that “[t]his fundamental principle of insurance law has been applied by the courts for over 200 years” with reference to the classic Ivamy text, General Principles of Insurance Law (4^thed.) in the decision Ford v. Dominion of Canada General Insurance Co., [1989] M.J. No. 674 (C.A.).

[132] The legal principles generally applicable to the scope of an insured’s duty to disclose information during the application for insurance and to the determination of the materiality of the information disclosed (or potentially not disclosed) during that process, were considered in Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, 249 O.A.C. 234. Although that case involved a contract of fire insurance, it specifies principles that are generally applicable to other types of insurance, particularly at paras. 51-52:

The starting point in the analysis of this ground of appeal attracts no debate. The relationship between an insurer and an insured is contractual in nature. But contracts of insurance are no ordinary contracts; special rules apply. Chief among these is the doctrine of uberrima fides that holds the parties to a standard of utmost good faith in their dealings with each other. It places a heavy burden on applicants for insurance coverage to provide full disclosure to the insurance company of all information relevant to the nature and extent of the risk that the insurer is being asked to assume: Coronation Insurance Co. v. Taku Air Transport Ltd., 1991 16 (SCC), [1991] 3 S.C.R. 622, at p. 636. A fact is relevant or material if it would influence a prudent insurer in deciding whether to issue the policy or in determining the amount of the premium: Mutual Life Insurance Co. v. Ontario Metal Products Co. Ltd., 1924 336 (UK JCPC), [1925] 1 D.L.R. 583 (P.C.), at p. 588; Gauvremont v. Prudential Insurance Co. of America, 1940 65 (SCC), [1941] S.C.R. 139, at p. 160; Fidelity & Casualty Co. of New York v. General Structures Inc., 1976 213 (SCC), [1977] 2 S.C.R. 1098, at p. 1110. Whether a misrepresentation or non-disclosure is material is a matter of fact to be determined by the trier of fact: see s. 124(6) of the Insurance Act, and Mutual Life at p. 588. However, there is a subjective element to the test as well. The non-disclosure or misrepresentation must have induced the insurer to enter into the contract: see s. 124(4) of the Insurance Act; see also Taylor v. London Assurance Corp., 1935 2 (SCC), [1935] S.C.R. 422, at p. 429.

The duty to disclose all material facts applies even in the absence of questions from the insurer, although the absence of questions may be evidence that the insurer does not consider a fact to be material: Gregory v. Jolley (2001), 2001 4324 (ON CA), 54 O.R. (3d) 481 (C.A.), at paras. 31-32 and 37, and W.H. Stuart Mutuals Ltd. v. London Guarantee Insurance Co. (2004), 2004 48650 (ON CA), 16 C.C.L.I. (4th) 192 (Ont. C.A.), at para. 11, leave to appeal refused, [2005] 1 S.C.R. xvii. The consequence of non-disclosure or misrepresentation of a material fact by the insured is that the insurer is entitled to void the insurance contract ab initio: see Lloyd’s London, Non-Marine Underwriters v. National Armoured Ltd., (1996) 1996 8104 (ON SC), 142 D.L.R. (4th) 506 (Ont. Gen. Div.), affirmed by [2000] I.L.R. I-3751 (Ont. C.A.).

[133] Although there is a heavy onus on applicants for insurance coverage to provide full disclosure to the insurer of all information relevant to the nature and extent of the risk that it is being asked to assume, the onus remains on the insurer to prove that the insured engaged in a material misrepresentation: see Hansra, at p. 283.

[134] Generally, where a person signs an application for automobile insurance which contains statements that are not, in fact, true, he “knowingly” makes a misrepresentation. The general rule applies where the applicant possesses information that the statements are untrue even though the applicant did not complete the application himself and signed it without reading it. When an agent fills in an answer for the insured on an insurance application he does so, not as the agent of the insurer, but as the amanuensis of the insured: see Sleigh v. Stevenson, [1943] 4 D.L.R. 433, 1943 341 (ON CA). The applicant, by signing the application, adopts the answers therein and makes them his own: see Hansra, at p. 283

[135] Applicants for insurance are obliged to read the answers which the agent has filled in before signing the application: see Bonneville v. Progressive Insurance Company of Canada, [1955] O.R. 103, 1955 142 (C.A.).

[136] With the foregoing principles in mind, I turn to consider the parties’ dispute about whether ING was in a position to validly rescind its contract of insurance with Klue and Abou-Khalil, as it purported to do through its July 2, 2002 correspondence.

[137] The plaintiffs submit that on the totality of the evidence available on these motions, the insurer is unable to establish, on a balance of probabilities, that both Klue and Abou-Khalil engaged in material misrepresentations or non-disclosure in their application for insurance. For the reasons that follow, I do not agree.

[138] The application as signed by Klue contains material misrepresentation and material non-disclosure of information that was relevant to ING’s determination of whether it would accept, as new business, the risk of insuring Klue and Abou-Khalil in relation to the Jeep, pursuant to a contract of automobile insurance. The uncontradicted and unchallenged affidavit evidence of Nancy Brown establishes that the application failed to disclose information that was required to be disclosed therein, by its terms, and that Abou-Khalil’s “driving offence, accident and insurance cancellation history” collectively fell within a risk that ING would not write as new business in accordance with its “grounds for declining to issue a contract”, as approved by the Superintendent and set out in its underwriting rules.

[139] The evidence unequivocally establishes that after the application was submitted to ING, through its own investigation it determined that: Abou-Khalil had been involved in an at-fault accident; she had two convictions for speeding and a conviction for careless driving; her licence was suspended; and a previous contract of automobile insurance under which she was the named insured was cancelled for non-payment. None of this information was disclosed in the application for insurance as submitted by Klue and Abou-Khalil.

[140] On the available evidence, I find on a balance of probabilities, that the applicants’ failure to disclose the foregoing information in the application resulted in inaccurate and misleading representations being recorded therein that were, in fact, material to the insurer’s determination of whether to accept the risk and issue the contract that Klue and Abou-Khalil applied for. The evidence clearly establishes and I find that had the applicants disclosed the information with respect to Abou-Khalil’s history, as set out above, (as they were required to do) ING would not have issued a contract of automobile insurance evidenced by policy no. 7-51228599, in favour of Klue and Abou-Khalil, on May 29, 2002, or at all.

[141] The insurer’s position (and the evidence in support of it) with respect to the materiality of the information that was misrepresented and/or not disclosed in the application is not arbitrary. ING’s grounds for declining to issue a contract, as set out in its underwriting guidelines and upon which ING relied in rescinding the contract, were approved by the Superintendent in accordance with s. 238 of the Act before the application was made. In my view, that approval conclusively evidences that ING’s grounds were both “objective” and “material” in nature. I will explain.

[142] Pursuant to s. 238(4) of the Act, the Superintendent must notify an insurer that files, for approval, the grounds it proposes to rely on to, among other things, decline to issue contracts of insurance, that it is prohibited from using one or more of those grounds as a basis for refusing to insure a risk if the Superintendent is of the opinion that the impugned ground is, among other things, “subjective and/or arbitrary”. There is no evidence that ING was notified that any of the grounds set out in its underwriting guidelines, as submitted for approval, were determined to be subjective or arbitrary by the Superintendent. To the contrary, the evidence establishes that the grounds that ING filed were approved. In my view, the Superintendent’s approval of ING’s grounds to decline to issue a contract (which it ultimately relied on to rescind the subject contract in this instance) evidences the objective nature and the materiality of the type of the information that was not accurately disclosed in Klue and Abou-Khalil’s application.

[143] Consistent with the Superintendent’s approval, I find that accurate information with respect to Abou-Khalil’s driving history, licence suspension, prior accident and prior policy cancellation would have influenced the judgment of a reasonable insurer in determining whether it would accept the risk sought to be insured by Klue and Abou-Khalil by ING as “new business”. The misrepresentations and non-disclosure of that information in the application were material.

[144] I remain mindful that apart from the issue of materiality, the plaintiffs also contend that the insurer has failed to establish that both Klue and Abou-Khalil engaged in material misrepresentations and non-disclosure during their application for insurance. They observe that only Klue signed the application and the only non-disclosure and/or misrepresentation of information that ING asserts was “material” related to Abou-Khalil. Further, at his examination for discovery in the tort/uninsured action, Klue gave evidence that he did not perceive that he was signing the application on behalf of Abou-Khalil and he did not view it as his responsibility to do so. In his evidence, Klue also confirms that both he and Abou-Khalil were present with the broker, at the time the application was made and signed. Klue does not know why Abou-Khalil did not sign it.

[145] At the time of his examination for discovery in 2006, Klue did not have a specific recall of what happened during the course of the meeting in which the application was made. He could not recall what specific questions were asked by the broker and he could not say what transpired “word for word” during the course of the application process. He concedes that he most likely read the application before he signed it. He knew that both he and Abou-Khalil were applicants for the contract of insurance.

[146] Evidence derived from representatives of the broker, Gulliver, in the form of a letter from the brokerage’s solicitor to ING and appended as an exhibit to Mr. MacLean’s affidavit confirms that the broker directly questioned the applicants in order to secure the information that is contained in the application. In his evidence, Klue confirms that the application was completed and he signed it in Abou-Khalil’s presence. In my view he, therefore, had means available to him to ensure that all information with respect to her offence, licence suspension, insurance cancellation and motor vehicle accident history set out in the application was accurate before he signed it.

[147] Abou-Khalil’s sworn evidence as reflected in the portions of the transcript from her examination for discovery in the tort/uninsured action that were filed in the context of these motions, confirms that she was present when the application for insurance was made. In her evidence, she also confirms that the information in the application relating to her prior accident, driving offence and insurance cancellation was not accurate.

[148] I am mindful that apart from the excerpts from her examination for discovery evidence, an unsigned and undated statement purportedly taken from Abou-Khalil is appended to Mr. MacLean’s affidavit, which sets out further information about the application process. Apart from that document being unsworn, undated and unsigned by Abou-Khalil (or anyone), there is no evidence of the circumstances of its making or the identity of the person who allegedly took the statement. There is no direct evidence that Abou-Khalil actually made the statements attributed to her in the document and no evidence at all that she acknowledges that the statement is, in fact, true. The evidence on the point distills to Mr. MacLean identifying an unsigned, unsworn document that he says someone else created which purports to set out information that was, at some point, said (by a person not directly identified in his evidence) to have been taken from Abou-Khalil. In all of the circumstances, I do not find the content of the document to be reliable and I place no weight on the information set out therein.

[149] However, the remainder of the available evidence establishes that, in all of the circumstances, after Klue and Abou-Khalil’s receipt of ING’s July 2, 2002 correspondence, both they and ING consistently conducted themselves in accordance with the contract’s rescission as a result of material misrepresentations and non-disclosures in the application and that Klue and Abou-Khalil, without objection, accepted the result of ING’s election to rescind the contract. I will explain.

[150] Klue’s sworn evidence establishes that after he and Abou-Khalil reviewed the insurer’s correspondence dated July 2, 2002, they both regarded the vehicle as uninsured and acted accordingly. According to Klue, until the date of the accident involving Miss Merino, the vehicle continuously remained in their driveway, unused, owing to its uninsured status. Klue and Abou-Khalil did not pay any premiums associated with the contract at any time, including after they received ING’s July 2, 2002 correspondence. Klue states that he and Abou-Khalil did not take steps to insure the vehicle with an alternative insurer after ING rescinded the contract because of their financial circumstances.

[151] Neither Klue nor Abou-Khalil took any steps to dispute or challenge the insurer’s act of rescission: upon receipt of ING’s correspondence dated July 2, 2002; at or immediately after the time of the accident on September 12, 2002; when Abou-Khalil received a notice letter from Miss Merino’s solicitor in March 2003 advising her of a potential claim against her arising from the accident; at the time they were served with the statement of claim in the tort/uninsured action; and throughout the conduct of that action up to and including judgment (despite being represented by counsel at trial). Generally, their conduct is consistent with the insurer having validly rescinded the contract on the basis of material misrepresentation through its correspondence dated July 2, 2002.

[152] I am mindful that the evidence with respect to the details of Klue and Abou-Khalil’s interaction with the broker’s representative during the application’s completion is not robust. Klue’s sworn evidence in that regard is equivocal. He simply does not recall what transpired. Abou-Khalil’s sworn evidence about the application process, if it was given in the context of her examination for discovery in the tort/uninsured action was not filed by the parties on these motions. The plaintiffs are obviously not in a position to offer first-hand evidence on the circumstances surrounding the application. The evidence of ING’s representatives, Ms. Brown and Mr. MacLean, is consistent with material misrepresentations and material non-disclosure of information being made during the course of the application for insurance. However, their evidence in that regard is based on hearsay.

[153] Owing to the passage of time, I accept that the evidence at trial concerning the details of the meeting in which the application for insurance was made will likely be no better than the evidence available on this motion. The event occurred over 15 years ago. When Klue gave evidence at his examination for discovery in 2006, four years after the event, he was unable to recall its details. The court is entitled to consider that the evidentiary record before it on a motion for summary judgment is what will be available at trial: see Mailloux, at para. 40.

[154] Ultimately, on the available evidence, I find that the application was completed in the presence of both Klue and Abou-Khalil on behalf of Klue and Abou-Khalil, as they were both applicants and eventually named insureds. Certain information recorded in their application constituted misrepresentations and non-disclosure of information that was material to the insurer’s decision of whether to accept the risk they proposed to insure. The application was reviewed by Klue before he signed it while he was in the presence of Abou-Khalil. He had the means available to him to confirm the accuracy of all of the information set out in the application through inquiries of Abou-Khalil. Since she was present when the application was completed, Abou-Khalil also had the opportunity to provide accurate and complete information with respect to those issues that were material to the insurer, as disclosed by the questions posed on the application. Nonetheless, the application submitted to the insurer on her behalf contained inaccurate information of a material nature.

[155] Abou-Khalil did not sign the application. Section 233(3) of the Act prohibits an insurer from setting up a defence to a claim under the contract unless it is contained in a signed written application therefore. However, ING does not rely on the material misrepresentations in the application in support of a defence to “a claim under the contract” by one of the insureds. Instead, it rescinded the contract based on the material misrepresentations and non-disclosures that are, in fact, contained in the application.

[156] In all of the circumstances set out in the available evidence, I find that ING was entitled to elect to rescind the contract of automobile insurance that it made with Abou-Khalil and Klue after it discovered their material misrepresentations in the related application.

[157] Before addressing the issue of whether ING actually validly rescinded the contract, I will address the plaintiffs’ position that ING could not rescind its contract with Klue and Abou-Khalil because it did not secure the Superintendent’s approval to specifically decline the risk that Klue and Abou-Khalil sought to insure, as new business.

[158] Section 238 of the Act requires a property and casualty insurer licenced to sell insurance in Ontario to file the grounds it intends to rely upon to decline to issue, terminate or refuse to provide or continue a coverage or endorsement, with the Superintendent for approval.

[159] Contrary to the plaintiffs’ position and for the following reasons, I accept Ms. Brown’s evidence that the discharge of that legislative mandate does not compel an insurer to file, with the Superintendent, separate grounds for approval on a “case-by-case basis” on each occasion that the insurer declines to issue, terminate or refuses to renew a contract or refuses to continue a coverage or endorsement.

[160] Ms. Brown’s affidavit is the only evidence with respect to the manner in which the filing and approval requirements specified by s. 238 of the Act are actually implemented, in practice. She was not cross-examined and her evidence was not otherwise challenged. Ms. Brown’s evidence is consistent with the provisions of s. 238 of the Act, which do not expressly oblige an insurer to file its specified grounds for declining to issue a contract of automobile insurance on an individual case-by-case basis. There is no evidentiary or pragmatic basis for concluding that such a system is operable in the province of Ontario.

[161] Ms. Brown’s evidence establishes the grounds to “decline to issue the contract” applied for by Klue and Abou-Khalil were approved by the Superintendent in accordance with s. 238 of the Act, before they were invoked by ING as the basis for its rescission of the contract.

[162] As a result of the foregoing, I am satisfied that ING was entitled to rescind its contract of automobile insurance with Klue and Abou-Khalil upon its discovery of the material misrepresentations and non-disclosure in the associated application that was submitted to it.

3) Did ING validly rescind its contract of insurance with Klue and Abou-Khalil?

[163] The plaintiffs submit that if the insurer was entitled to rescind the policy on the basis of the material misrepresentations and non-disclosure in the application, it nonetheless failed to provide lawful notice of rescission to each of Abou-Khalil and Klue. Therefore, the contract was not validly rescinded and it remained operable at the time of the accident.

[164] In support of their position, the plaintiffs challenge the method, timing and form of notice that ING provided to Klue and Abou-Khalil, for the following reasons:

1. Abou-Khalil and Klue were severally insured under the policy and each was entitled to individual notice of termination of the contract;

2. The insurer was obligated to act in accordance with statutory condition 11 (1) of the OAP 1, which required it to provide the insureds with 15 days notice of termination by registered mail. Here, the insurer purported to terminate the contract effective the date of its notice letter;

3. The actual insurer, “ING” never provided notice of termination/rescission to the insureds. Instead, its “notice” dated July 2, 2002, was provided under the letterhead of an entity described as “ING Halifax”. In the absence of evidence establishing the relationship between the “ING Insurance Company of Canada”, and “ING Halifax”, there is no evidence that the actual insurer provided notice of rescission to Abou-Khalil and Klue.

[165] For the following reasons, I do not give effect to the plaintiffs’ challenges to the notice of rescission provided to Klue and Abou-Khalil. I find that ING’s notice of rescission was effective and provided actual notice to each of them.

[166] Unquestionably, when an insurer terminates a contract of automobile insurance, it must do so in strict compliance with the provisions of the Act and the statutory conditions that form part of every contract of automobile insurance made in Ontario. I accept the plaintiffs’ submission that where the rights of co-insureds under a contract of automobile insurance are several, each of the co-insureds is entitled to receive notice of termination in accordance with the form and timing required by Statutory Condition 11(1).

[167] Statutory Conditions 11 and 12 of the standard Ontario automobile insurance policy specify that an insurer’s notice of termination of a contract must be made in writing and delivered to the insured personally or by registered mail to the insured’s last post office address.

[168] Where the insurer gives notice of termination for a reason other than non-payment of premium, the contract cannot terminate any earlier than the 15th day after the notice, where it is given by registered mail and the 5th day after notice, where it is given personally: see Statutory Condition 11(1). Where a notice is given by registered mail, it is deemed to be given the day after the day of mailing: see Statutory Condition 11(5). If the insurer terminates the contract for reasons other than non-payment of premium, it is obliged to return the unearned portion of the premium collected, to the insured together with its notice of termination: see Statutory Condition 11(3).

[169] The plaintiffs submit that Klue and Abou-Khalil were “several insureds” and, as a result, the insurer was obligated to provide separate and distinct notice of termination to each of them, delivered personally or by registered mail. As a result, they say that ING failed to provide adequate notice because it delivered one registered letter addressed to both Klue and Abou-Khalil. Since Abou-Khalil signed for the registered mail, Klue did not receive effective notice of termination despite residing at the same address as Abou-Khalil and notwithstanding his evidence that he read and understood ING’s July 2, 2002 correspondence contemporaneous with Abou-Khalil’s receipt of same.

[170] In support of their position that the insurer was obligated to provide separate notices of termination to Klue and Abou-Khalil, the plaintiffs rely heavily on the Ontario Court of Appeal’s decision in Transportaction Lease Systems Inc. v. Guarantee Company of North America, 2005 43896, 77 O.R. (3d) 767 (C.A.). There, a vehicle’s lessee was required by the terms of the lease to insure the vehicle pursuant to a contract of automobile insurance that included collision coverage. The lessee obtained the requisite insurance from the defendant insurer, with the plaintiff lessor and the lessee both named as insureds.

[171] Subsequently, the lessee directed the insurer to delete all coverage from the vehicle except fire and theft, without the consent of, or notice to, the lessor. On February 11, 2002, the insurer notified the lessor about the coverage deletion initiated by the lessee, which was said to be effective January 8, 2002. The lessor immediately forwarded correspondence to the lessee demanding that he surrender the vehicle’s licence plates and that he execute a letter stating the vehicle was to be put away for seasonal storage.

[172] Ten days after the lessor received the insurer’s coverage deletion notice, the lessee was involved in an accident while operating the insured vehicle and without reinstating the deleted coverage. The insured vehicle was damaged. The lessor claimed indemnity from the insurer on the basis that at the time of the accident, collision coverage in its favour had not been effectively deleted. It reasoned that the insurer was obligated to provide it with 15 days notice of the lessee’s termination of portions of the vehicle’s coverage. At trial, the lessor was not met with success.

[173] On appeal, the court concluded that where the rights of co-insureds are several (as they were in the case before it) the provisions of statutory condition 11(2), which provides that a “contract may be terminated by the insured at any time, on request”, is ambiguous. By analogy, the court observed that statutory condition 11(1) prescribed that an insurer may terminate the contract of insurance by giving the insured 15 days notice of termination, by registered letter. In allowing the appeal, the majority held that where co-insureds are severally insured, the contract and statutory condition 11(2) require 15 days prior written notice to a co-insured, in order for the cancellation or deletion of coverage by another co-insured to become effective. Since the insurer had not provided the lessor with 15 days notice, coverage in its favour was still effective on the date of the loss.

[174] In this case, Klue and Abou-Khalil were, ostensibly, jointly and severally insured under their contract with ING. They were both named insureds. They held a joint insurable interest in the vehicle that was ostensibly insured under the contract and, accordingly, they were jointly insured against physical damage to the vehicle pursuant to the direct compensation provisions of section 6 of the OAP1 and any third party liability arising out of their joint ownership of the vehicle pursuant to the provisions of section 3 of the OAP1. They were also severally insured: against third party liability arising from their respective use and operation of the Jeep (and certain other types of automobiles) pursuant to section 3 of the OAP1; for the purpose of accident benefits coverage pursuant to section 4 of the OAP1; and for the purpose of uninsured automobile coverage pursuant to section 5 of the OAP1.

[175] Despite the joint and several nature of Klue and Abou-Khalil’s rights and obligations under the contract of insurance, I do not find that the result in Transportaction Lease Systems Inc. supports the plaintiffs’ position that ING was obligated to provide each of them with separate and distinct notices of rescission. Transportaction Lease Systems Inc. dealt with termination of certain coverages under a contract of automobile insurance. Similarly, although more broadly, statutory condition 11 applies to the termination of a contract of automobile insurance. Here, ING did not purport to terminate the contract of insurance in accordance with the provisions of the Act and statutory conditions. Instead, it elected to invoke its common law right to rescind the contract. I have already determined that it was lawfully entitled to do so. Upon its election, the contract was as a matter of law, void from its inception, and accordingly, there was no contract “to terminate” in accordance with statutory condition 11.

[176] Of course, an insurer purporting to rescind a contract of insurance must declare its election to do so, on notice to the insured. ING did so, by directing registered mail to Abou-Khalil and Klue addressed to their common residence, as disclosed on the application. Although the registered mail was “signed for” and received by Abou-Khalil, at first instance, the sworn evidence of Abou-Khalil and Klue indicates that each of them reviewed the content of the insurer’s letter declaring the contract void ab initio, contemporaneous with Abou-Khalil’s physical receipt of same on July 4, 2002. They each understood the content of the correspondence. According to Klue’s sworn evidence, they each conducted themselves in accordance with their understanding of the content of the insurer’s correspondence, specifically that the ING policy was not in effect and the subject vehicle was uninsured.

[177] As a result of the foregoing, I find that ING’s July 2, 2002 correspondence declaring the contract of automobile void ab initio, which was received and reviewed by each of Klue and Abou-Khalil on or about July 4, 2002, provided actual notice of the contract’s rescission to each of them. After reviewing the correspondence each of Abou-Khalil and Klue understood that the vehicle was uninsured. In any event of their status as “co-insureds”, Abou-Khalil and Klue both received contemporaneous actual notice of the contract’s rescission on or about July 4, 2002.

[178] For the purpose of disposing of the parties’ motions, it is unnecessary to determine whether the notice period applicable to the termination of a contract pursuant to statutory condition 11 of the OAP1 should apply, by analogy, to an insurer’s declaration of its election to rescind a contract of insurance. If a 15 day “notice period” was applicable to an insurer’s notice of rescission, it would effectively render the contract “voidable” for a further 15 days before it became void ab initio. In this instance, an additional 15 day notice period would not impact the result, in any event, because the subject accident occurred over two months after ING provided actual notice of the contract’s rescission to Klue and Abou-Khalil.

[179] Finally, I am not persuaded that ING’s rescission of the contract was frustrated because it provided notice of same under “ING Halifax” letterhead. The application made by Klue and Abou-Khalil and the resulting binder, clearly identify the insurer as ING. The letterhead on the July 2, 2002 correspondence is styled as “ING”, separated from the word “Halifax” by a graphic design resembling a lion. However, notwithstanding the style of its letterhead, the July 2, 2002 correspondence sent by ING to Klue and Abou-Khalil communicated ING’s election to rescind the contract, in a manner that they clearly understood. The “Re” line of the correspondence refers to an application for automobile insurance through Gulliver Insurance Brokers made on May 29, 2001. The subject application was actually made on May 29, 2002. Plaintiffs’ counsel confirms, in submissions, that no significance attaches to the patent error in the date, as set out. The evidence establishes that the correspondence provided actual notice to both Klue and Abou-Khalil that the policy of insurance they applied for on May 29, 2002 with “ING” was not in effect as a result of non-disclosure of material information in the application, the details of which were provided in the correspondence. Klue and Abou-Khalil understood that the vehicle was uninsured, and as a result, excepting Klue’s operation on September 12, 2002, they did not use the vehicle and they did not pay any amounts to ING as premiums after they received and reviewed the July 2, 2002 correspondence.

[180] For the reasons stated above, I find that ING possessed adequate grounds to rescind its contract of automobile insurance with Klue and Abou-Khalil upon its discovery of the material misrepresentation and non-disclosures in the related application and that through its correspondence dated July 2, 2002, it effectively provided actual notice of its election to rescind the contract on that basis to both Klue and Abou-Khalil in a manner that they both understood.

[181] As a result, I find that the contract of insurance between ING and Klue and Abou-Khalil was rescinded on July 4, 2002, when Abou-Khalil accepted ING’s registered letter. Therefore, the contract was rescinded over two months before the accident involving Klue and Miss Merino. With those findings, I will turn to consider the insurer’s position that the plaintiffs are unable to maintain an action against it pursuant to the provisions of s. 258 of the Act.

4. Are the plaintiffs entitled to recover any amount from ING pursuant to s. 258 (1) of the Act?

[182] Section 258(1) of the Act, which was enacted in its original form in 1931, creates a statutory right of action that is designed to enable “innocent” third parties, who sustain damages as a result of bodily injuries caused by the negligent use of an automobile to recover directly from the “at fault driver’s” insurer. Specifically, it provides:

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 persons judgment and of any judgments or claims against the insured covered by the contract and may, on the person’s own behalf and on behalf of all other persons having such judgments or claims, maintain an action against the insurer to have the insurance money so applied.

[183] There are several statutory pre-requisites to a person’s entitlement to recovery pursuant to s. 258(1) of the Act:

1. The person must have a “claim” against an “insured”;

2. The “claim” must be one for which indemnity is provided by a contract evidenced by a motor vehicle policy; and

3. The person must have obtained final judgment against the “insured”.

Provided those criteria are met, the person may maintain a statutory cause of action against the insurer to have “the insurance money payable under the contract” applied in or towards satisfaction of the judgment. However, it remains that a claim pursuant to s. 258(1) of the Act is founded in a statutory cause of action and not a cause of action on the underlying contract of insurance: see Campanaro v. Kim, 41 O.R. (3d) 545, at p. 562, 1998 5925 (ON CA).

[184] Section 258(1) of the Act requires that the person’s claim against the insured to be one “for which indemnity is provided by a contract of insurance” (evidenced by a motor vehicle liability policy) but it does not require that the insured be entitled to indemnity under the contract as a pre-condition to entitlement. The word “indemnity” as it is used in s. 258(1) of the Act forms part of the description of the type of claim a person must have against “an insured” in order to be entitled to the remedial benefit of that section.

[185] Therefore, even when the insured for some reason has forfeited his right to indemnity, a third party (“person”) who otherwise establishes the statutory pre-requisites to a successful s. 258(1) action, may have “the insurance money payable under the contract” applied in satisfaction of his or her judgment against the insured. In that regard, in Joachin v. Abel, 2003 17294, 64 O.R. (3d) 475 (C.A.), Gillese J.A. states at para. 12:

The provisions of s. 258(1) do not extend to provide for persons with claims against all insureds. Rather, it provides for persons with claims against a subgroup of the class of insureds, namely, those insureds “for which indemnity is provided by a contract evidenced by a motor vehicle liability policy”. The fact that Abel may not enforce a claim for indemnity because of his actions does not make Abel an insured person without a contract providing for indemnity. Abel remains a person with a contract that provides for indemnity despite the fact that the right to indemnity is unenforceable as a result of his actions.

[186] In Joachin, the insured under the contract of insurance used his vehicle as a weapon to strike and injure the plaintiffs. Owing to his criminal conduct and pursuant to s. 118 of the Act (which among other things renders an insured’s claim for indemnity unenforceable where the claim results from the insured’s contravention of a criminal or other law in force in Ontario coupled with the insured’s intent to bring about loss or damage), the insured himself could not claim indemnity under the contract. Despite the insured forfeiting his own right of indemnity, the plaintiffs’ third party liability claims against him remained claims “for which indemnity was provided by contract evidenced by a motor vehicle liability policy”. As a result, the plaintiffs were entitled to claim directly against Abel’s insurer pursuant to s. 258(1) of the Act.

[187] As will be set out more fully below, the defences available to an insurer in response to an action brought against it pursuant to s. 258(1) of the Act are narrower than the defences that it may advance in response to a claim brought against it by its own insured, at least up to the prescribed minimum limits of third party liability coverage in the Province of Ontario: see ss. 258(4), (5) and (11) of the Act.

[188] In this case, there is no dispute that the judgment that plaintiffs recovered against Klue and Abou-Khalil results from Klue’s negligent use of the Jeep vehicle, which was the subject of the binder of insurance provided to Klue and Abou-Khalil on behalf of ING. The judgment against Abou-Khalil is founded in her vicarious liability for the negligent use of the vehicle by Klue, in her capacity as a joint owner of that vehicle.

[189] There is no dispute that through the binder and its subsequent renewal as a policy after 30 days, ING, an insurer, issued an instrument as a motor vehicle liability policy in favour of Klue and Abou-Khalil. There is no dispute that the motor vehicle liability policy issued by ING provided third party liability coverage with limits of $1 million and if that coverage was in effect at the time of the accident on September 12, 2002, Miss Merino’s bodily injury claim and the other plaintiffs’ related Family Law Act claims against Klue and Abou-Khalil would be of a kind for which indemnity was provided pursuant to the contract of automobile insurance provided by ING.

[190] The parties’ contest lies in whether the plaintiffs had “claims” against “an insured for which indemnity is provided by a contract evidenced by a motor vehicle liability policy” for the purpose of s. 258(1) of the Act. As a result of the accident, the plaintiffs’ claims against Klue and Abou-Khalil arose on September 12, 2002, over two months after the purported contract between ING and Abou-Khalil and Klue was rescinded in early July, 2002.

[191] ING essentially posits that from the point of rescission, the contract ceased to exist from its inception, and no iteration of the contract, voidable or otherwise or a valid instrument evidencing a contract existed or was operable at the time the plaintiffs’ claims against Klue and Abou-Khalil arose. Therefore, the plaintiffs’ claims were not against “an insured” and they were not of a kind “for which indemnity was provided by a contract evidenced by a motor vehicle liability policy” because there was no contract of automobile insurance between ING and the persons against whom the plaintiffs had a claim, at the time the plaintiffs’ claim against them arose. In that context, the plaintiffs cannot establish the necessary pre-requisites to a viable claim against ING, as mandated by s. 258(1) of the Act.

[192] The plaintiffs submit that ss. 258(4) and (5) operate to extinguish the insurer’s ability to set up the misrepresentations alleged to have been made by Klue and Abou-Khalil in the application, as a defence to their claims pursuant to s. 258(1) of the Act. Those subsections provide:

(4) The right of a person who is entitled under subsection (1) to have insurance money applied upon the person’s judgment or claim is not prejudiced by,

(a) an assignment, waiver, surrender, cancellation or discharge of the contract, or of any interest therein or of the proceeds thereof, made by the insured after the happening of the event giving rise to a claim under the contract;

(b) any act or default of the insured before or after that event in contravention of this Part or of the terms of the contract; or

(c) any contravention of the Criminal Code (Canada) or a statute of any province or territory of Canada or of any state or the District of Columbia of the United States of America by the owner or driver of the automobile,

and nothing mentioned in clause (a), (b) or (c) is available to the insurer as a defence in an action brought under subsection (1).

(5) It is not a defence to an action under this section that an instrument issued as a motor vehicle liability policy by a person engaged in the business of an insurer and alleged by a party to the action to be such a policy is not a motor vehicle liability policy, and this section applies with necessary modifications to the instrument.

[193] The parties have referred to a number of judicial authorities dealing with the application of ss. 258(1), (4) and (5) of the Act in the context of an insurer’s reliance on an insured’s misrepresentation at the time of application and its effect on a third party’s claim pursuant to s. 258(1) of the Act. However, as ING correctly observes, in each of the decided cases to which the parties refer, the material misrepresentation asserted to have been made at the time of application was not discovered or relied upon by the insurer until some time after the happening of the event giving rise to the plaintiff’s claim against the purported insured. None of the authorities relied upon by the parties were decided in the context of a contract for insurance that was validly rescinded on the basis of material misrepresentation several months prior to the event giving rise to the plaintiff’s claim against the purported insured. In ING’s submission, that distinction is critical to the disposition of the plaintiffs’ action.

[194] Nonetheless, it remains that the case law has consistently and strongly endorsed that an insurer is precluded from relying on a material misrepresentation made by the insured at the time of the application in its defence to a direct action brought against it pursuant to s. 258(1) of the Act.

[195] For example, in Lewis v. The Northern Assurance Company of London, England, 1956 143, at p. 10 [cited to PDF.], [1956] O.R. 404 (S.C.), Spence J. reviewed the provisions of what was then s. 214 of the Act [now s. 258 of the Act] and in particular, s. 214(3) [now s. 258(4)] and held that it “provides what, until 1947, was regarded as a complete bar to any defence by the insurance company based on misrepresentation in making the application, or violation of the conditions of a policy”.

[196] It appears that the general understanding in that regard, was displaced by the judgment of the New Brunswick Supreme Court, Appeal Division, in Bourgeois v. Prudential Assurance Company Limited, 1945 334, [1946] 1 D.L.R. 139.

[197] In Bourgeois, the plaintiff was injured in a collision with a vehicle ostensibly insured by Prudential. Subsequent to the loss, the insurer determined that the named insured had misrepresented his ownership of the vehicle in the application for insurance. While he was the registered owner of the vehicle, he was not, in fact, its actual owner. The injured party obtained judgment against the registered owner and then brought an action against Prudential pursuant to then s. 214(1) of the Act, to have the insurance money payable under the contract applied towards satisfaction of the judgment. The trial judge concluded that the registered owner was a “sham owner” and dismissed the plaintiff’s action, as a result of the named insured’s ownership misrepresentation.

[198] On appeal, the court accepted the trial judge’s finding with respect to ownership and determined that the Prudential policy was “void” as a result of the misrepresentation and there was no contract. The court concluded that the plaintiff’s statutory action, which was founded in a legislative counterpart to what is currently s. 258 of the Act in Ontario, gave the third party claimant “a right under a contract of insurance” and the policy was merely evidence of the contract. The court reasoned that a contract, which was a necessary element of the plaintiff’s direct claim against Prudential, had never been created, in law, owing to the effect of the applicant’s misrepresentation, and therefore, there was nothing upon which the provisions of the statute could operate. Specifically, there was no “insurance money payable under the policy” because as a result of the misrepresentation, there was no policy.

[199] In recounting the legislative history of what is now s. 258 of the Act, both Spence J. in Lewis and Osborne J.A. in Campanaro, cite as a matter of significance the editorial note accompanying the report of the Bourgeois decision in the Dominion Law Reports, which states:

This is a decision of great importance. It has been fairly generally assumed that where an insurer issues a motor vehicle liability policy no misrepresentation in respect to its issue would affect an injured third party’s rights under s. 183 of the Insurance Act (N.B.) which is the same as s. 205 Insurance Act, R.S.O. 1937, c. 256, and sections in all other provincial Insurance Acts except the Province of Quebec. [Section 205 of R.S.O. 1937, c. 256 is now s. 258.]

[200] In order to address the result in Bourgeois, in 1947 the Ontario Legislative (and several other provinces) amended the Insurance Act (or its equivalent) by adding a subsection consistent with the language of what is now s. 258(5), which is reproduced above.

[201] That subsection found provisional application in Lewis where the applicant insured, an individual named Lauzon, was alleged by the insurer to have engaged in a material misrepresentation in the application because he failed to disclose that he had an artificial leg. The plaintiff, Lewis, was struck while a pedestrian by an automobile that was owned and driven by Lauzon. Lewis asserted that Lauzon was insured for third party liability at the time of the accident pursuant to a contract of automobile insurance with the defendant, Northern Assurance. Lewis obtained judgment against Lauzon and then brought an action pursuant to then s. 214(1) of the Act [now s. 258(1)] against Northern Assurance. Northern Assurance defended the direct action on the basis that the policy was void ab initio because of a fraudulent misrepresentation made by Lauzon in the application for insurance.

[202] On the evidence before him, Spence J. concluded that Lauzon had not engaged in a material misrepresentation. Further, the court concluded that had a material misrepresentation been found, s. 214(4) [now s. 258(5) of the Act] prohibited Northern Assurance from relying on it as a defence to the plaintiff’s statutory action. The evidence established that Northern Assurance carried on business as an insurer, and:

[T]hat the document, i.e., the policy in question no. m. 948-940, was intended to be a motor vehicle liability policy. It is alleged by one party, i.e., the plaintiff, to be such a policy, and the defendant in alleging that the policy is void ab initio is simply using other words to deny that the policy is a motor vehicle liability policy. In my view, the section applies exactly to the present situation, and even had I come to other conclusions as to the facts and as to the effect of the insertion of the word “No” by Miss Simpson in the answer to q. 3 (D) on ex. 2, I would have concluded that the defendant’s defence was barred by s. 214(4) of The Insurance Act: see Lewis, at p. 12 [cited to PDF.]

[203] Similarly, in Weavers Estate v. Biseau, 1992 7435, 8 O.R. (3d) 781 (S.C.), aff’d in 1997 14540, 32 O.R. (3d) 480 (C.A.), the court concluded that in its defence of a claim asserted against it pursuant to s. 226 of the Act [now s. 258], an insurer (State Farm Mutual Automobile Insurance Company) was prohibited from relying on the material misrepresentations concerning the ownership of the subject vehicle that were made by the named insured, when applying for a contract of automobile insurance.

[204] The direct statutory claim was asserted on behalf of the estate of an individual who was killed in a motor vehicle accident caused by the negligent operation of the vehicle that State Farm insured. The evidence established that at the time of application, the applicant (and eventually the named insured) intentionally and materially misrepresented the ownership of the vehicle and the particulars of a lease with respect to the vehicle, in an effort to secure insurance on behalf of the vehicle’s true owner, who was otherwise uninsurable.

[205] The insurer only discovered the material misrepresentations after the fatal motor vehicle accident. In the context of the claim asserted against it pursuant to then s. 226 of the Act [now s. 258], State Farm argued that the motor vehicle liability policy it issued did not attach because it was void ab initio as a result of fraudulent and/or material misrepresentations made by the named insured at the time of application. Therefore, it argued that there was “no insurance policy” and “no insurance money” available within the meaning of s. 226(1).

[206] The court framed the issue as whether s. 226(5) [now 258(5)] of the Insurance Act, R.S.O. 1980, c. 218 [now R.S.O. 1990, c. I.8] preserves the innocent plaintiff’s right to recover on the State Farm policy notwithstanding the fact that it has been obtained by false representations. In determining that the named insured’s fraudulent misrepresentation did not prejudice the innocent plaintiff’s claim pursuant to s. 226(1) of the Act, the court found at p. 787:

The legislative intent of s. 226(5) is to preserve a claim under s. 226(1) of the Insurance Act of an innocent victim by taking away from the insurer a defence to that claim that the policy was void ab initio. The right of action of an innocent victim is preserved as it is independent of an insured's right to indemnity from his/her insurer. The insurer can assert the defence of “void ab initio” on the grounds of fraud or misrepresentation against a claim by an insured or any party who was privy to the fraud or misrepresentation. [Emphasis in original.]

[207] In Ashton the court considered whether an insurer, State Farm Mutual Automobile Insurance Company (“State Farm”), was obligated to pay a third party who was injured in an accident caused by the driver of the “insured” automobile in circumstances where State Farm’s agent backdated an application for automobile insurance and provided the applicant with a corresponding backdated binder and liability certificate at the insured/applicant’s request. The accident occurred after the effective date of the policy (as backdated), but before the date on which the application for insurance was actually made.

[208] In dismissing an appeal from a decision allowing the action against the insurer, Osborne J.A. first observed that the combined effect of s. 226(1) and (5) [now ss. 258(1) and (5)] gave the plaintiff, Ashton, a right to claim against the tortfeasor’s State Farm policy if his claim was one “for which indemnity is provided by a contract evidenced by a motor vehicle liability policy” and s. 226(5) prevented State Farm from defending Ashton’s claim on the basis that any instrument that it issued as a motor vehicle liability policy was not such a policy. The court then determined that s. 226(5) prevented an insurer from defending a claim, such as the one made by Ashton, on the basis that its insured made fraudulent misrepresentations or non-disclosure, in the application for insurance.

[209] The court accepted that the applicant had materially misrepresented his pre-application accident history by failing to disclose the accident that had occurred after the proposed date to which the policy was to be backdated. The court held at p. 699, “At common law a misrepresentation or non-disclosure material to the risk renders the contract of insurance void. The absolute liability provisions of the Insurance Act [then s. 226] prevent the insurer from defending a claim by an injured third party on that basis”. Later in his reasons, Osborne J.A. states at p. 703:

The absolute liability provisions set out in s. 226(4) and (5) are complementary to the statutory provisions that permit a claimant injured in a motor vehicle accident, who is not a party to the insurance contract, to sue the tortfeasor's automobile insurer once the injured claimant has recovered a judgment. This statutory action is established in s. 226(1), R.S.O. 1980 (now s. 258(1)). The effect of the absolute liability provisions in s. 226(5) is to prevent the insurer from defending a claimant's statutory s. 226(1) action on the basis that the instrument issued as a motor vehicle liability policy is not a motor vehicle liability policy. The absolute liability provisions of the Act make the liability insurer the first payer, if the insurer issued an instrument as a motor vehicle liability policy. The absolute liability provisions have remained intact notwithstanding the introduction of standard uninsured motorist coverage.

[210] Later, Osborne J.A. states that while the absolute liability provisions of the Act are typically invoked in cases of misrepresentation or non-disclosure by the insured/applicant, s. 226(5) [now s. 258(5)] of the Act prohibits an insurer from contending for any reason that the instrument it issued as a motor vehicle liability policy is void, that is, that it is not a motor vehicle policy. If the insured engaged in a material misrepresentation or non-disclosure, the policy is void as between the insurer and its insured and the insured forfeits its right to recover under the policy. However, an injured third party is in a different position because s. 226(5) limits the insurer’s policy based defences in an action commenced by a third party who has a claim against an insured “for which indemnity is provided by a contract evidenced by a motor vehicle liability policy”. The court held that the issue of “whether there is a contract evidenced by a motor vehicle liability policy” will depend on the evidence in each case.

[211] In the result, the court concluded that through its agent’s conduct, State Farm insured the tortfeasor under a contract evidenced by a motor vehicle liability policy, which provided the insured with indemnity against claims occurring within the coverage period. Ashton’s claim arose in the coverage period (by virtue of the backdating) and it fell within the policy’s insuring agreement. As a result, the plaintiffs could maintain an action against the insurer pursuant to s. 226(1) [now s. 258(1)]. Further, since State Farm issued “an instrument” (a liability slip and binder) as a “motor vehicle policy”, it was subject to the defence limiting provisions on then s. 226(5) [now s. 258(5)], which prohibited it from advancing a position, in defence of the claim, that the policy was void because the accident occurred before the application for insurance was made. The court concluded that the result “was State Farm’s problem”. Section 226(5) [now s. 258(5)] owed its existence to cases where, for some reason, the policy in question was void.

[212] Finally, the court concluded that the protection afforded by the terms of s. 226(5) [now s. 258(5)] to an innocent party, such as Ashton, would be dramatically undercut if State Farm was permitted to defend the action on the basis that the innocent plaintiffs were prevented from recovering under s. 226(1) [now s. 258(1)] of the Act because “there was no contract in the first place”. In so finding, the court held that the “claims costs” to which insurers are exposed in responding to claims where the insured has engaged in a fraudulent misrepresentation are taken into account, in any event, in assessing general premium levels. As a result, State Farm’s appeal was dismissed.

[213] In Campanaro, the Court of Appeal dealt with the applicability of s. 258(5) of the Act in a fictitious ownership scenario, where the actual owner of the vehicle was materially misrepresented at the time of the application. Osborne J.A., writing for a unanimous five member panel, concluded that an insurer issuing an instrument that purports to be a motor vehicle liability policy cannot validly defend a “s. 258(1) action” on the basis of any misrepresentation by the named insured, including a misrepresentation about the ownership of the insured vehicle. The combined effect of s. 258(1) and 258(5) prevents the insurer from relying upon material misrepresentations by, or on behalf of the named insured if the insurer issued an instrument as a motor vehicle liability policy. The court further determined that since s. 258(5) precludes the insurer from contending that the instrument it issued as a motor vehicle liability policy is not a motor vehicle policy, “[it] must follow that the insurer cannot rely on any misrepresentation which, if given effect to, would result in the instrument issued by the insurer as a motor vehicle policy being taken not to be a motor vehicle liability policy” (at p. 563) (emphasis added). The action against an insurer that issues an instrument as a motor vehicle liability policy is a statutory action and not an action on the policy. Section 258(5) precludes the insurer from defending the statutory action contemplated by s. 258(1) on the basis that the insurer, because of misrepresentations rendering the policy void, did not issue a motor vehicle liability policy.

[214] Osborne J.A. concluded that for purpose of the analysis required by s. 258 of the Act, the threshold question is whether “the insurer issued an instrument as a motor vehicle liability policy” (at p. 562). How the instrument is labelled is a matter of no import, so long as the instrument issued by the insurer purports to be a motor vehicle liability policy.

[215] Notably, Osborne J.A. also rejected the submission that the introduction of uninsured motorist coverage ought to impact the interpretation and application of s. 258 of the Act. He held that “there is no doubt that the availability of statutorily required uninsured motorist coverage makes the absolute liability provisions of the Insurance Act less necessary to protect the innocent victims of negligent driving.” However, he concluded that the availability of such coverage was not a sufficient basis to carve out a “fictitious ownership exception” to the application of the absolute liability provisions of s. 258 of the Act, which remained unchanged since the introduction of uninsured motorist coverage.

[216] Finally, in Burns, the relevant contract of automobile insurance was determined to have resulted from a fraudulent and material misrepresentation at the time of application. The misrepresentation was discovered by the insurer after the event giving rise to the innocent plaintiff’s claim. The court concluded that the misrepresentation rendered the policy “voidable” and the insurer was entitled to void it as against the insured. Nonetheless, the innocent injured plaintiff was entitled to maintain a direct action against the insurer pursuant to s. 258(1) up to the minimum statutory limits of $200,000, by operation of s. 258(11) (which allows an insurer to defend an action brought pursuant to s. 258(1) with resort to any defence it is entitled to set up against the insured, for any amount claimed in excess of the statutory minimum limit of third party liability coverage in the amount of $200,000, as prescribed by s. 251 of the Act).

[217] The plaintiffs contend that in accordance with the principles expressed in the foregoing authorities, ING is prohibited from defending their “s. 258(1) action” on the basis that the contract of insurance was void ab initio as a result of material misrepresentations and non-disclosure in the associated application by Klue and Abou-Khalil.

[218] In my view, however, where the insurer discovers a material misrepresentation in the application and validly rescinds the contract of automobile insurance prior to the event said to give rise to a third party’s claim against “the insured”, the analysis is more nuanced.

[219] In this instance, ING issued an instrument (the binder) as a motor vehicle liability policy which despite the one month period set out on its face, evidenced a contract of automobile insurance with a 12-month coverage period, ostensibly including the date of the accident involving Miss Merino. Had ING discovered the material misrepresentations and non-disclosures in the application after that accident and elected to void the contract “ab initio” as a result, it would have been prohibited from invoking its “after the event” rescission of the contract as a defence to the plaintiffs’ s. 258(1) action (up to the minimum limits of $200,000) because that position would amount to a denial that the instrument that it issued as a motor vehicle liability policy was such a policy.

[220] However, ING discovered the misrepresentation and validly rescinded the contract of insurance before the event giving rise to the plaintiffs’ claims against Klue and Abou-Khalil. In my view, that factual sequence of events determinatively distinguishes the present circumstances from those in the authorities I have referred to above.

[221] While the word “indemnity” in s. 258(1) of the Act is used as part of the description of the class of persons who have a valid claim pursuant to that section, it remains that in order to enjoy a statutory right of recovery pursuant to s. 258(1), a person must have a claim against an insured for which indemnity is provided by a contract evidenced by a motor vehicle liability policy.

[222] On September 12, 2002, the date of the accident, Klue and Abou-Khalil were not actually or ostensibly insured by a contract evidenced by a motor vehicle liability policy. The policy was validly rescinded in July 2002, without dispute from Klue and Abou-Khalil, and months before the event that gave rise to the plaintiffs’ claims against them.

[223] Unlike the present circumstances, in all of the cases set out above, the motor vehicle liability policies issued by the respective insurers were ostensibly “in effect” at the time of the events giving rise to the claims against the purported insureds. Therefore, at the time of the events giving rise to the respective plaintiffs’ claims against the purported insureds, “contracts for indemnity” while “voidable” existed in fact and the alleged tortfeasors were in fact “insureds” pursuant to those contracts when the claims against them arose. In those circumstances, s. 258(5) of the Act prevented the respective insurers from denying that the instruments that they issued, which were otherwise ostensibly valid and subsisting at the time of the events giving rise to the respective plaintiffs’ “claims” against the insureds, were not motor vehicle liability policies by subsequently electing to void the contract ab initio, after the events giving rise to the plaintiffs’ claims arose.

[224] Here, as a result of ING’s valid rescission before the event giving rise to the plaintiffs’ claims against Klue and Abou-Khalil, the contract of automobile insurance between ING and Klue and Abou-Khalil, which was previously evidenced by an instrument issued as a motor vehicle liability policy (the binder) did not exist, in fact or in law, at the time of the accident on September 12, 2002. As a result of ING’s actions that were taken before the accident occurred, there was no contract between it and Abou-Khalil and Klue that provided indemnity for the plaintiffs’ claims against them, at the time those claims arose. There was, in fact, no contract at all. The contract had met its legal and factual “end” in July 2002, when it was validly rescinded on notice to and without dispute by Klue and Abou-Khalil. Consequently, the tortfeasors, Klue and Abou-Khalil, were not actually or ostensibly insureds, in fact, pursuant to a contract of automobile insurance (voidable or otherwise) with ING at the time of the accident. Accordingly, they were not insureds for which indemnity for the plaintiffs’ claims against them was provided by a contract at the time of the accident. Therefore, the requisite statutory pre-conditions for the plaintiffs to claim against ING pursuant to s. 258(1) of the Act are not met in this case.

[225] Unlike the circumstances in the cases cited above, with the exception of Ashton v. Tu, a voidable contract did not exist at the time of the events giving rise to the plaintiffs’ claim against Klue and Abou-Khalil because ING elected to (and did) sever its contractual relationship with them through rescission, prior to that event. In Ashton, the contract