Court File and Parties

CITATION: Coast Capital Equipment Finance Ltd. v. Old Republic Insurance Company of Canada, 2017 ONSC 6694

COURT FILE NO.: CV-14-516581

DATE: 20171107

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Coast Capital Equipment Finance Ltd.

AND:

Old Republic Insurance Company of Canada

BEFORE: Justice P.J. Monahan

COUNSEL: Caroline Gronke, for the Applicant

Patrick J. Monaghan, for the Respondent

HEARD: October 2, 2017

Reasons for Judgment

[1] This litigation arises out of a motor vehicle accident that occurred on November 12, 2012 in Brampton, Ontario involving a 2009 Peterbilt Truck (the “2009 Peterbilt”) and a 2006 Range Rover vehicle (the “Range Rover”). The 2009 Peterbilt was owned by Coast Capital Equipment Finance Ltd. (“Coast Capital”) and leased to 6225641 Canada Inc. (“622 Canada”) and Manjeet S. Sanghera (collectively, the “Lessees”). It had been insured under an insurance policy (the “Policy”) issued by Old Republic Insurance Company of Canada (“Old Republic”) to 622 Canada effective June 20, 2012.

[2] The driver and occupants of the Range Rover have brought actions against, inter alia, Coast Capital for injuries sustained as a result of the motor vehicle accident. Coast Capital has brought this application seeking a declaration that the Policy remained in force with respect to Coast Capital on the date of the accident and that it is entitled to be defended and indemnified by Old Republic in respect of any liability arising out of the accident. In particular, Coast Capital argues that the cancellation of the Policy by an agent of 622 Canada on November 8, 2012 was not binding on Coast Capital and therefore did not cancel or remove Coast Capital’s coverage under the Policy.

[3] Two issues arise on this application: (i) did the Policy provide for third party liability coverage in favour of Coast Capital?; and (ii) what was the legal effect of the November 8, 2012 cancellation of the Policy by 622 Canada’s agent in relation to Coast Capital?

Background Facts

[4] On June 15, 2012, the Lessees entered into a lease agreement with Coast Capital (the “Lease Agreement”) in respect of two vehicles, including the 2009 Peterbilt. The Lease Agreement provided that the Lessees would insure the vehicles against all risks of physical loss or damage and maintain public liability and property damage insurance with respect to the use and operation of the vehicles. The Lease Agreement further provided that the insurance on the vehicles would name Coast Capital as an “insured” and as an “additional insured and loss payee” and, further, that the insurer would provide Coast Capital with 30 days’ prior written notice of any alteration or cancellation of the insurance. The Lessees were required to provide to Coast Capital, upon request, certificates of insurance evidencing insurance in accordance with the Lease Agreement, although Coast Capital was not required to request or examine such insurance policy, nor to advise the Lessees in the event that the insurance obtained by the Lessees failed to comply with the requirements of the Lease Agreement.

[5] One June 21, 2012, 622 Canada obtained the Policy from Old Republic, effective June 20, 2012. At the time of issuance, the only vehicle insured under the Policy was a 2008 Peterbilt tractor, which was leased by 622 Canada from a third party. The Policy identified 622 Canada as the named insured and included coverage in the amount of $2,000,000 for third party liability. It also included an OPCF 23A – Lienholder Protection,[^1] an endorsement which insures any lienholder in respect of property damage to the vehicle or its contents. The OPCF 23A provides that if coverage for property damage is cancelled, the insurer must notify the lienholder in writing at least 15 days prior to cancellation. However an OPCF 23A does not extend coverage to the lienholder for third party liability.

[6] At the time of issuance the Policy made no reference to Coast Capital, since Coast Capital had no connection to the-then insured vehicle, the 2008 Peterbilt tractor. Nor did it include in the policy endorsements an OPCF 5, “Permission to Rent or Lease Automobiles and Extending Coverage to the Specified Lessees”. In contrast to an OPCF 23A, an OPCF 5 endorsement provides that both the lessor and lessee of an insured vehicle are “named insureds” under the policy, and specifies that liability coverage extends to both lessor and lessee of the vehicle.

[7] On July 5, 2012, Old Republic received a request from an insurance broker, Edgehill Insurance Brokers Ltd (“Edgehill”) to add two vehicles to the Policy, including the 2009 Peterbilt. The email request from Edgehill indicated that “this client [622 Canada] has purchased three trucks and the finance company need[s] to obtain confirmation of insurance prior to releasing the trucks to the insured…” Old Republic is requested to “add these trucks with full coverage, effective today’s date, as Coast Capital Equipment Finance Ltd and Mercado Capital Corporation would not release trucks without confirmation of coverage…”

[8] I note that what is being requested by Edgehill is simply that Old Republic add additional vehicles to the existing Policy. There is no request to amend or extend any other provisions of the Policy, including the identification of the named insured, or to add an OPCF 5 endorsement to the Policy coverages.

[9] Further to this request, Old Republic issued an OPCF 25 Alteration effective July 5, 2012 (the “July 2012 Change Form”), adding the 2009 Peterbilt truck to the Policy. The July 2012 Change Form identified 622 Canada as the “Insured” and Coast Capital as “Lienholder/Lessor” of the vehicle. However the section of the July 2012 Change Form listing the applicable endorsements does not include an OPCF 5. Moreover the July 2012 Change Form provides that “all other terms and conditions of your policy remain the same.”

[10] On July 6, 2012, Edgehill issued a “certificate of insurance” to Coast Capital (the “Edgehill Certificate”). The Edgehill Certificate expressly states that it was being issued “as a matter of information only and confers no rights upon the certificate holder.” It was further indicated that the Edgehill Certificate “does not amend, extend or alter the coverage afforded by the policies below” and that “the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such policies.”

[11] The Edgehill Certificate indicates that the Policy includes Coast Capital as an “additional insured and loss payee”, and that an OPCF 5 has been issued under the Policy. It further states that should any of the policies be cancelled, the issuing company will endeavor to provide 30 days written notice to Coast Capital, although “failure to mail such notice shall impose no obligation or liability of any kind upon the company…”

[12] It is common ground between the parties to this application that the broker Edgehill was not Old Republic’s agent and had no authority to bind Old Republic. Further, there is nothing in the record indicating that Old Republic authorized the issuance of the Edgehill Certificate, or was even aware of its existence. The Edgehill Certificate was not in the Old Republic underwriting file and there is no indication that it was ever received by Old Republic. Thus the Edgehill Certificate was not itself evidence of insurance. In order to ascertain the nature and extent of the insurance available under the Policy, one would need to examine the terms of the Policy itself, rather than the Edgehill Certificate.

[13] On October 2, 2012, Coast Capital obtained contingent lessor liability insurance from Aviva Insurance Company of Canada (the “Aviva Policy”), with a policy limit of $5,000,000. The Aviva Policy applied to vehicles leased by Coast Capital (other than in the province of Quebec) and was excess to any underlying insurance. The term of the Aviva Policy was June 1, 2012 until June 1, 2013.

Cancellation of the Policy

[14] In order to finance the premium due under the Policy, on June 26, 2012 622 Canada entered into a commercial premium finance agreement (the “Finance Agreement”) with First Insurance Funding of Canada (“First”). The Finance Agreement provided that First would pay the total annual premium due under the Policy to Old Republic, with 622 Canada repaying the amount advanced by First, plus interest, over the term of the Policy. However, if 622 Canada failed to meet its repayment obligations, First could cancel the Policy and receive a refund of any unearned premium directly from Old Republic.

[15] To give legal effect to these terms, the Finance Agreement appointed First as 622 Canada’s “attorney in fact with full authority to cancel all policies financed by First”, and granted First the right to collect from the insurer all unearned premiums. Further, First provided a notice of assignment and acceptance to Old Republic on July 12, 2012, indicating that 622 Canada had appointed First as its agent with the right to cancel the Policy in the event of default in payment by 622 Canada to First Insurance. In such event, First would be entitled to the refund of any unearned premium from Old Republic.

[16] 622 Canada failed to make the payment to First scheduled for October 20, 2012. Accordingly, on October 25, 2012, First issued to 622 Canada a “Notice of intent to cancel” the Policy unless the required payment was received with 10 days of the notice. When no payment was received, on November 8, 2012, First issued to 622 Canada and to Old Republic an “Insured’s notice of cancellation of insurance policies.” The November 8, 2012 notice indicated that 622 Canada had defaulted under the provisions of the Finance Agreement and that First was exercising its rights under the Finance Agreement to cancel the Policy and request a refund of the unearned premium. The notice requested cancellation of the Policy effective November 8, 2012.

[17] On November 12, 2012, Old Republic issued to 622 Canada an OPCF 25 Alteration indicating that the Policy was cancelled effective November 8, 2012. It also prepared correspondence dated November 13, 2012 to Coast Capital advising of the cancellation of the Policy. However the letter of cancellation was not received by Coast Capital until November 22, 2012.

[18] Despite the cancellation of the Policy, 622 Canada continued to use and operate the 2009 Peterbilt. As noted above, the vehicle was involved in the motor vehicle accident with the Range Rover on November 12, 2012. When Coast Capital sought coverage under the Policy in respect of the accident, Old Republic advised that there was no coverage available as the Policy had been cancelled on behalf of 622 Canada prior to the loss.

[19] No issue has been raised before me with respect to the effectiveness of the November 8, 2012 cancellation as against 622 Canada. However, Coast Capital argues that any such cancellation was not effective with respect of its entitlement to third party liability coverage under the Policy, and seeks a declaration to this effect.

Analysis: Coast Capital’s Entitlement to Liability Insurance

[20] The first issue that arises is the extent of Coast Capital’s insurance coverage under the Policy. In particular, was Coast Capital insured against liability to third parties or merely in respect of property damage to the insured vehicles and their contents?[^2]

(a) Principles Applicable to the Interpretation of Insurance Contracts

[21] The courts have recognized that insurance contracts are subject to particular rules of interpretation. In Brissette Estate v. Westbury Life Insurance Co.,[^3] Sopinka J. identified the following rules of construction in relation to insurance contracts:

(1) The court must search for an interpretation from the whole of contract which promotes the true intent of the parties at the time of entry into the contract.

(2) Where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention of the parties will be selected.

(3) Ambiguities will be construed against the insurer.

(4) An interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided.

[22] In Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada,[^4] the Supreme Court noted that courts should be sensitive to unequal bargaining power at work in the negotiation of an insurance contract and interpret it accordingly. This is done primarily through the contra proferentem rule and through the broad interpretation of insurance coverage provisions and the narrow interpretation of exclusions. However the Court also noted that these principles of interpretation only apply in instances where there is ambiguity in the terms of the policy. Where the contract is unambiguous, reading the contract as a whole, a court should give effect to the clear language used.

[23] These principles were recently refined and clarified in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.[^5] Wagner J. for the majority of the Supreme Court noted that the primary interpretive principle governing the interpretation of insurance policies is that where the language of the insurance policy is unambiguous, reading the contract as a whole, effect should be given to that clear language. Where, however, the policy’s language is ambiguous, general rules of contract construction must be employed to resolve that ambiguity. These rules include that the interpretation should be consistent with the reasonable expectations of the parties and should not give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the policy was contracted. Only if ambiguity still remains after the above principles are applied should the contra proferentum rule be employed to construe the policy against the insurer.

[24] Wagner J. further clarified the generally advisable order in which to interpret insurance policies.[^6] An insured first has the onus of establishing that the damage or loss claimed falls within the initial grant of coverage. The onus then shifts to the insurer to establish that one of the exclusions to coverage applies. If the insurer is successful at this stage, the onus then shifts back to the insured to prove that there is an exception to the exclusion and coverage is therefore available.

[25] Finally, Wagner J. pointed to the importance of consistent interpretation of standard form contracts where such contracts are widely used in an entire industry.[^7] The use of standard form contracts in an industry can provide important benefits, including predictability and the reduction of transaction costs, but these benefits can only be realized if such contracts receive a consistent judicial interpretation. This is particularly relevant to the interpretation of automobile insurance contracts in Ontario, the standard form of which is approved by a provincial regulator and prescribed under the Insurance Act[^8] with precisely these goals in mind.

(b) Application of Principles

[26] In this case, the Policy issued on June 21, 2012 included coverage for third party liability in respect of 622 Canada as the named insured. It also included an OPCF 23A endorsement, which protected a lienholder for property damage to an insured vehicle or its contents. However the Policy did not include an OPCF 5 endorsement, which would have treated both lessor and lessee of an insured vehicle as named insureds, entitled to coverage for liability to third parties.

[27] The July 2012 Change Form issued by Old Republic, effective July 5, 2012, added two vehicles to the Policy and identified Coast Capital as “Lienholder/Lessor” of the vehicles. One might have thought that the reference to Coast Capital as a “Lienholder/Lessor” gives rise to some ambiguity in relation to Coast Capital’s status and entitlement to coverage. But the July 2012 Change Form also makes plain that it is merely adding two vehicles to the Policy (including the 2009 Peterbilt) and that the Policy terms are otherwise unaffected. This is clear from the fact that under the heading “Policy Changes”, there is an checkmark in the box referencing “Automobile added to policy”, while the box referencing “Change in Coverage or limits” is left blank. The Change Form further states that “all other terms and conditions of your policy remain the same.” Finally, the Change Form sets out the OPCF declarations included in the Policy, and there is no reference to an OPCF 5 endorsement.

[28] In short, there is nothing in the July 2012 Change Form that alters the scope of insurance coverage provided under the Policy. In order to determine the extent of the coverage, one must have regard to the Policy terms as issued on June 21, 2012. As described above, there is no reference in the June 21, 2012 Policy terms to third party liability coverage being extended to a lessor of insured vehicles.

[29] Coast Capital makes a number of arguments in support of its position that it was entitled to third party liability coverage under the Policy, notwithstanding the fact that the wording of the Policy appears inconsistent with any such conclusion. I will consider these in turn.

[30] First, Coast Capital says that the Edgehill Certificate states that third party liability coverage has in fact been provided. But even assuming this to be the case, Edgehill had no authority to bind Old Republic and the Edgehill Certificate expressly states that it is being provided for informational purposes only. Nor did Old Republic authorize the Edgehill Certificate or indicate that Coast Capital was entitled to rely upon it. Thus the Edgehill Certificate cannot create an entitlement to liability insurance if such did not exist under the Policy itself.

[31] Second, Coast Capital argues that when it was added as a lienholder/lessor under the Policy through the July 2012 Change Form, it became an “insured” under the insurance contract. It relies on cases such as Jackson v. Dennis,[^9] and Transportaction Lease Systems Inc. v. Guarantee Co. of North America,[^10] which have held that an “insured” under a contract of automobile insurance cannot unilaterally cancel the coverage of a co-insured under the policy. On this reasoning, 622 Canada cannot cancel Coast Capital’s coverage under the contract and, therefore, the November 8, 2012 cancellation of the contract had no effect as against Coast Capital.

[32] Consistent with the cases relied upon by Coast Capital, I accept that one co-insured cannot unilaterally cancel the coverage of another. But this principle can assist Coast Capital only if, in fact, it was entitled to third party liability coverage under the Policy. In the absence of such coverage, the effect of the cancellation is irrelevant, since there is no need to cancel coverage that never came into effect.

[33] In both Jackson and Transportaction an OPCF 5 had been issued by the insurance company and, thus, both lessor and lessee were named insureds under the contract and were both entitled to third party liability insurance.[^11] But for the reasons described above, no such endorsement was issued by Old Republic in this case and Coast Capital’s coverage was limited to property damage. Thus the cases relied upon by Coast Capital are clearly distinguishable from the facts of the present case, and are of no assistance to Coast Capital.

[34] Third, Coast Capital argues that the surrounding circumstances support a finding that the intent of the parties was that Coast Capital be provided with third party liability coverage. It points to terms in the Lease Agreement which clearly state that such insurance was to be obtained by 622 Canada. It further relies on emails, such as the July 5, 2012 email from Edgehill to Old Republic requesting “full coverage” for the 2009 Peterbuilt.

[35] It is evident that the insurance coverage obtained by 622 Canada did not meet the requirements set out in the Lease Agreement. In particular, the Policy did not name Coast Capital as an insured or an additional insured and loss payee, nor did it provide for 30 days written notice to Coast Capital of any alteration or cancellation of the Policy. However, the Lease Agreement is a contract between Coast Capital and the Lessees. It cannot bind Old Republic, who is not party to the agreement. Nor can any agreement between Coast Capital and 622 Canada, or 622 Canada’s breach of that agreement, create an entitlement to insurance coverage for either of them.

[36] As for the emails referencing “full coverage” for the 2009 Peterbuilt, the coverage in respect of the 2009 Peterbilt was identical to that provided in respect of the 2008 Peterbilt, the original vehicle insured under the Policy. In this sense, there was “full coverage” for the 2009 Peterbilt. But in neither case was Old Republic undertaking to provide third party liability insurance for a lessor of the vehicle. Moreover, this interpretation of the request for “full coverage” is supported by an August 28, 2012 email from Edgeghill to Old Republic, which states that the coverage for the 2009 Peterbilt should have “all the same coverages as the other tractor [the 2008 Peterbilt] on the policy.” As noted, third party liability insurance for the 2008 Peterbilt was extended to the named insured only, with lienholders being insured for property damage. While Coast Capital may have assumed that its request for “full coverage” for the 2009 Peterbilt was intended to include coverage for third liability coverage for Coast Capital as lessor, there is nothing in the record indicating or disclosing such an intention. Most significantly, Old Republic never agreed to provide such third party liability coverage to Coast Capital under the Policy.

[37] Finally, Coast Capital argues that Old Republic was required to comply with s. 239(1) of the Insurance Act,[^12] and insure Coast Capital, as owner, against liability imposed by law arising out of the ownership, use or operation of the vehicle. However s. 239(1) merely requires an insurer to provide liability insurance to “the insured named in the contract”. As described above, the insured named in the contract was 622 Canada, not Coast Capital.

[38] Having regard to the framework and principles set out in Ledcor, I find, first, that there is no ambiguity in the wording of the Policy with respect to the entitlement to third party liability insurance. The Policy as issued on June 21, 2012 provided third party liability insurance to 622 Canada only as named insured. An OPCF 23A declaration was included, extending coverage to lienholders for property damage. But because no OPCF 5 was included, there was no entitlement to liability insurance beyond that provided to 622 Canada.

[39] The July 2012 Change Form merely added two vehicles to the Policy, including the 2009 Peterbilt. It did not alter the coverage provided under the Policy as originally issued on June 21, 2012. Although Coast Capital was added as “Lienholder/Lessor” of the 2009 Peterbilt, this did not include an entitlement to liability insurance.

[40] Moreover, had Coast Capital obtained a copy of the Policy itself, as it was entitled to under the Lease Agreement, it would have been quite apparent that this was so. Coast Capital chose, instead, to rely on representations in the non-binding Edgehill Certificate, despite the fact that the Edgehill Certificate expressly stated that it was being provided for informational purposes only and did not alter the coverage provided under the Policy itself. As a sophisticated commercial party, Coast Capital cannot be seen to complain that the Policy turned out to be inconsistent with its assumptions or expectations, when it failed to verify the terms of the Policy itself. In contrast, in Jackson and Transportaction, the cases relied upon by Coast Capital, the lessors had verified the scope of the insurance coverage by obtaining copies of the relevant policies.

[41] I am mindful of the importance of consistency in the interpretation of standard form contracts that are widely used in an industry, as underlined by Wagner J. in Ledcor. The standard form automobile insurance contracts widely used in Ontario, including the OPCF endorsements, are approved by the provincial regulator under the Insurance Act. The purpose and effect of these endorsements is generally settled and understood within the industry. In my view, to hold that Coast Capital is entitled to benefit from third party liability insurance in circumstances where no OPCF 5 had been issued would introduce a significant element of uncertainty into the accepted understanding of the significance of these endorsements.

[42] It should also be noted that Old Republic was required to refund the unearned premium for the period commencing with the cancellation of the Policy on November 8, 2012. As such, it did not obtain a windfall from the cancellation of the contract, a factor which courts have regarded as significant in other instances.[^13] Indeed, to interpret the Policy in the manner urged by Coast Capital would expose the insurer to substantial liability in respect of a period for which it received no insurance premium.

Conclusion

[43] The wording of the Policy is unambiguous and Coast Capital’s entitlement under the Policy is limited to coverage for property damage. In the alternative, even if the Policy is thought to be ambiguous in this regard, the principles of contract construction identified in Ledcor, particularly the reasonable commercial expectations of the parties, would support this interpretation of the Policy. The distinction between an OPCF 23A and an OPCF 5 is well understood within the insurance industry in Ontario. The parties involved in the transaction were sophisticated commercial entities who can be expected to be aware of these expectations and understandings. The difficulty in the present case arose from the fact that Coast Capital neglected to obtain a copy of the Policy itself in order to verify its insurance coverage, choosing, instead, to rely on a non-binding informational statement provided by an insurance broker.

[44] Since I have concluded that Coast Capital was not entitled to third party liability under the contract, it is unnecessary for me to consider whether the cancellation of the Policy by First on behalf of 622 Canada was legally effective to extinguish any entitlement Coast Capital may have had to liability insurance.

[45] Accordingly, I dismiss Coast Capital’s application, with costs to Old Republic. I leave it to the parties to settle the quantum of costs. If they are unable to so agree, they may make costs submissions to the Court, in writing, of no more than three pages (exclusive of any bill of costs or offers to settle). Old Republic’s costs submissions should be filed within three weeks of today’s date, with Coast Capital’s cost submissions due three weeks following the date for receipt of Old Republic’s submissions.

Justice P.J. Monahan

Date: November 7, 2017

[^1]: OPCF refers to “Ontario Policy Change Form”.

[^2]: As the Policy included an OPCF 23A Lienholder endorsement, and Coast Capital was identified by Old Republic effective July 5, 2012 as “Lienholder/Lessor”, no issue arises with respect to Coast Capital’s coverage for property damage.

[^3]: 1992 32 (SCC), [1992] 3 S.C.R. 87 (“Brissette Estate”) at p. 92.

[^4]: 2006 SCC 21, [2006] 1 S.C.R. 744 at paras. 27-30.

[^5]: 2016 SCC 37, [2016] 2 S.C.R. 23 (“Ledcor”) at paras. 48-52.

[^6]: Ledcor at para. 52.

[^7]: Ledcor at paras. 38-40.

[^8]: R.S.O. 1990, c. I-8 (the “Insurance Act”).

[^9]: 1998 31604 (ON CJ), [1998] O.J. No. 288 (General Division) (“Jackson”).

[^10]: 2005 43896 (ON CA), [2005] O.J. 5036 (Ont. C.A.) (“Transportaction”).

[^11]: See Jackson at para 14; Transportaction at para. 20.

[^12]: R.S.O. 1990, c. I-8.

[^13]: See, for example, the fourth rule of construction identified by Sopinka J. in Brissette Estate.