Court File and Parties
COURT FILE NO.: CV-17-575490 DATE: 2019-01-25 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: ZALIMOON SEETARAM, AVINASH SITARAM and LAKERAM SITARAM, Applicants AND: ALLSTATE INSURANCE COMPANY OF CANADA, Respondent
BEFORE: Justice Glustein
COUNSEL: Laurencia Fasoyiro and Bill Denstedt, for the Applicants Aaron S. Murray and David Edwards, for the Respondent
HEARD: January 16, 2019
REASONS FOR DECISION
Nature of application
[1] The applicants Zalimoon Seetaram (“Zalimoon”), Avinash Sitaram (“Avinash”) and Lakeram Sitaram (“Lakeram”) (collectively, the “Applicants”) bring this application for an order for:
(i) a declaration that the motor vehicle insurance policy number 058 825 251 (the “Policy”) issued to Zalimoon and Lakeram by the respondent Allstate Insurance Company of Canada (“Allstate”) is a valid insurance policy,
(ii) in the alternative, relief from forfeiture from any breach by the Applicants of the Policy,
(iii) reimbursement of legal costs incurred to date in defending an action brought against the Applicants in Court File No. CV-15-525521 (the “MVA Action”), and
(iv) costs of commencing this application.
[2] Zalimoon and Lakeram are the mother and father, respectively, of their son Avinash, who was 17 at the date of the motor vehicle accident described in more detail below. Avinash lived with his parents during the relevant time period.
[3] For the reasons I set out below, I declare that the Policy is void. I rely on s. 233(1)(a)(ii) of the Insurance Act, R.S.O. 1990, C. I.8 (“s. 233(1)(a)(ii)”) and Statutory Condition 1(1) of O. Reg. 777/93: Statutory Conditions – Automobile Insurance (the “Statutory Conditions”) which were breached when Zalimoon and Lakeram failed to disclose upon the renewal of the Policy that Avinash was a licensed driver in the household.
[4] At the date of the renewal, Avinash had obtained his G2 license.[^1] Avinash previously held a G1 license.[^2]
[5] That change in risk was material to Allstate, who would have increased the premium almost two-fold based on a high-risk 17 year old male driver with a G2 license living in the household. Consequently, I find that the Policy, as renewed by Zalimoon and Lakeram prior to the accident, was void.
[6] Further, I would not grant relief from forfeiture as the failure to disclose a material change in the insured risk is not “imperfect compliance with a policy term”, but rather “non-compliance with a condition precedent”, and as such the relief is not available (Kozel v. Personal Insurance Co., 2014 ONCA 130, 119 O.R. (3d) 55 [Kozel], at para. 38).
Facts
i) The Policy and renewal
[7] On April 16, 2012, Lakeram applied for and purchased the Policy for automobile insurance. Zalimoon and Lakeram purchased the Policy from an Allstate agent, who advised Lakeram that he had “full coverage” under the Policy.
[8] As of January 20, 2012, Avinash obtained his G1 license. At that time, Avinash was learning to drive at driving school.
[9] Both Zalimoon and Lakeram were aware that Avinash obtained his G1 license at the date when he obtained it, or shortly thereafter. Both parents also knew before the Policy was issued that Avinash was a licensed driver living in their household.
[10] The only named insureds on the Policy were Lakeram and Zalimoon. Their evidence was that they thought that since the Policy was “full coverage”, “everything is covered like, anybody could like, drive it or so and if they need it”. Neither Lakeram nor Zalimoon took any steps or asked the agent to confirm their understanding.
[11] In February, 2013, Avinash obtained his G2 license. Both Zalimoon and Lakeram were aware that Avinash had obtained his G2 license when he obtained it, or shortly thereafter.
[12] The Policy was set to expire on April 17, 2013. On March 13, 2013, Allstate sent an insurance renewal offer (the “Policy Renewal Documents” or “PRD”) to Zalimoon and Lakeram. They received those documents shortly thereafter.
[13] In the PRD, Allstate advised that:
It is our pleasure to enclose your renewal offer for your Allstate insurance policy. The attached provides details about your coverage, benefits, discounts and premium.
[14] In the PRD, Allstate specifically advised the Applicants that they were required to review the information contained therein. Allstate stated:
Please review the information to ensure your coverage is accurate.
[15] Lakeram read the above statements in the PRD. Zalimoon did not read the paragraph and did not review the information contained in the PRD to ensure it was accurate.
[16] In the “renewal offer” in the PRD, Allstate set out terms of the proposed coverage, including the new premium. Allstate also set out the licensed drivers for the renewal. In that section (numbered as section 4 and entitled “Driver Information”), the only drivers listed were Lakeram and Zalimoon. That section, including the names of the licensed drivers, had been copied from the Policy issued in April 2012, which also set out only Lakeram and Zalimoon as drivers.
[17] In the Driver Information section, Allstate set out the question:
Are any other persons in the household or business licensed to drive?
[18] Lakeram and Zalimoon had answered “no” to that question when the Policy was issued. The question and answer were copied into the PRD which had been sent to Lakeram and Zalimoon for their review “to ensure your coverage is accurate”.
[19] Lakeram had read the Driver Information section at the time of the initial Policy prior to signing the application. His evidence was that he “didn’t understand it that good”.
[20] Lakeram’s evidence was that he read the page containing the Driver Information section again when he received the PRD but that he did not look to see whether any of his answers should be changed since he “didn’t think anything had to be changed”, assumed everything was “good”, and thought that it was the same policy going forward.
[21] Zalimoon did not read the statements in the Driver Information section. She only read the “Monthly Payment Schedule” on the PRD and put it in her drawer.
[22] Zalimoon acknowledged that if she had read the Driver Information question in the PRD, she would have corrected the “no” answer by notifying Allstate that Avinash was a licensed driver living in the household.
[23] The PRD also contained an excerpt from Lakeram’s application for insurance, including his signature directly below the heading “Consent”, which stated, “I am applying for automobile insurance based on the information provided above”.
[24] Prior to April 17, 2013, both Zalimoon and Lakeram knew that Avinash was a licensed driver living in their household with a G2 license and that Avinash had been driving with Zalimoon.
[25] Zalimoon and Lakeram did not disclose to Allstate that Avinash was a licensed driver living in their household when they applied for the Policy on April 16, 2012 nor upon renewal of the Policy.
[26] Had Avinash been disclosed to Allstate as a licensed driver living in his parents’ household when the Policy was renewed on April 17, 2013, Allstate would not have agreed to insure the Applicants at the stated premium of $2,112. Instead, the annual premium would have almost doubled to $3,954, since Avinash was in a high-risk insurance category as a 17 year old male with a G2 license.
ii) The accident and subsequent events
[27] On April 18, 2013, one day after the Policy was renewed, Avinash was driving one of the vehicles insured under the Policy. It was the first time Avinash drove alone. He was involved in an accident which occurred a short distance from the family home.
[28] On June 26, 2013, lawyers for Mr. Luigi Scelsi (“Scelsi”) sent notice letters to Avinash (as operator) and Lakeram (as owner), advising of their intention to sue for damages as a result of injuries Scelsi allegedly suffered in the accident. Scelsi’s counsel asked Avinash and Lakeram to provide “the name of your automobile insurer, the monetary limits to your policy of automobile insurance and the existence of any other policies of insurance you possess that may be eligible to respond” to the claim.
[29] Allstate obtained a statement from Lakeram dated July 8, 2013, in which he confirmed that (i) Avinash had driven the insured vehicle prior to the accident and (ii) Lakeram knew that Avinash had a G2 license which he received at the end of February 2013. Lakeram stated that he did not think he had to add Avinash to the Policy since Lakeram understood he had “full coverage”.
[30] Allstate also took a statement from Zalimoon on August 6, 2013 in which she confirmed that (i) she knew that Avinash had a G2 license and (ii) he had driven the vehicle with his mother before the accident. Zalimoon said that she did not add Avinash to the Policy since “he just got [the G2 license] a few months ago it didn’t come to our minds to add him on you know”.
[31] Allstate also took a statement from Avinash on August 7, 2013. He advised Allstate that his G2 license had been suspended since ”I hit a biker[^3] and I left I got nervous and I drove away so that’s how I got a careless driving and fail to remain tickets but somebody was following me and I stopped and then the cops came”. Avinash confirmed that he had driven the vehicle with his mother before “to buy groceries and stuff” but the accident occurred “my first time driving alone”.
[32] By registered letter dated September 4, 2013, Allstate returned the premiums paid under the Policy and renewal and advised Zalimoon and Lakeram that (quoted verbatim):
(i) [Allstate] does hereby declare void from April 17th, 2013 any coverage under the above policy;
(ii) Please take notice that voidance of the above noted policy leaves you without insurance protection by our company;
(iii) We have declared such policy to be void because our investigation has revealed that you have failed to disclose facts material to the evaluation of the risk; and
(iv) [Allstate] will take no further action with respect to any claim which you may have against it or with respect to any claim or suit against you which has arisen.
[33] By registered letters dated September 19, 2013, Allstate advised the Applicants and Avinash that (quoted verbatim):
(i) The investigation into your accident of April 18, 2013 has determined that you were in breach of Statutory Condition 1: Material Change in Risk and as you have failed to disclose facts material to the evaluation of the risk;
(ii) Coverage for all losses sustained in the accident of April 18, 2013 is hereby denied … In the event an action is commenced against you we will not enter a defence on your behalf;
(iii) [If Allstate] is required to make payment to any other person, we will seek reimbursement of any and all such payments from you;
(iv) Should you intend to contest this decision, take notice that every action or proceeding against an insurer in respect … of loss or damages to other property must be commenced within two years after the cause of action arose. Action or proceedings commenced after these time limits will be barred by stature [sic]; and
(v) We recommend you consult your own legal counsel immediately.
[34] On December 4, 2013, lawyers for Scelsi sent a “formal notice” by letters to Zalimoon and Avinash advising of Scelsi’s intention to sue them for damages for injuries Scelsi allegedly suffered in the accident.
[35] Scelsi subsequently issued a statement of claim in the MVA Action, which was personally served on all of the Applicants by April 14, 2015.
[36] The Applicants retained counsel[^4] to defend the MVA Action. The Applicants filed a statement of defence on April 9, 2016.
[37] On June 7, 2016, a lawyer at the Applicants’ law firm wrote by e-mail to Allstate’s counsel requesting “the specific reasons for the denial of insurance coverage by your client”, and the “specific information your client relied upon to conclude that our clients failed to disclose facts material to the evaluation of the risks and also the information relied upon to conclude that our clients were in breach of Statutory Condition 1”.
[38] On December 6, 2016, counsel for Allstate advised counsel for the Applicants that:
The material misrepresentation is based on the fact that Avinash Sitaram was not disclosed as an operator. Had he been listed on the policy, the premium would have risen from $2,112.00 to $3,954.00. … The difference in premium makes the misrepresentation of your clients a material one, pursuant to the appropriate provisions of the Insurance Act.
[39] The Applicants issued their notice of application on May 18, 2017.
Analysis
[40] At the hearing, the Applicants sought (i) a declaration of coverage under the Policy or (ii) in the alternative, relief from forfeiture.
[41] Allstate submitted that:
(i) the initial Policy when issued was void because Zalimoon and Lakeram did not disclose that Avinash had a G1 license, which Allstate submitted was a breach of s. 233(1)(a)(ii);
(ii) in any event, the Policy when renewed was void because Zalimoon and Lakeram did not disclose that Avinash had a G2 license, which Allstate submitted was a breach of s. 233(1)(a)(ii) and Statutory Condition 1(1); and
(iii) the application was statute-barred due to:
a. the Applicants’ alleged failure to promptly submit the statement of claim or the notice letters to Allstate, as required under Statutory Conditions 5(1)(c) and 9(3); and
b. the application was brought more than two years after the cause of action arose, as required under Statutory Condition 9(4) and section 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B (the “Limitations Act”).
[42] I do not address all of the arguments raised by the parties. For the reasons I set out below, I find that:
(i) The renewal of the Policy was void. I rely on Statutory Condition 1(1) and s. 233(1)(a)(ii) with respect to the failure of Zalimoon and Lakeram to disclose to Allstate upon renewal of the Policy that Avinash was a driver with a G2 license living in their household; and
(ii) The Applicants cannot rely on relief from forfeiture as their breach was with respect to a condition precedent of coverage which was material to the risk insured.
[43] I first briefly discuss the issues which are not necessary to resolve on the application, and then set out my analysis with respect to (i) breach of Statutory Condition 1(1) and s. 233(1)(a)(ii) upon the renewal of the Policy and (ii) relief from forfeiture.
[44] Allstate submitted that the initial Policy was void since Zalimoon and Lakeram did not disclose in the automobile insurance application that Avinash had a G1 license. However, Allstate filed no evidence that such a fact would have been material to the premium (as opposed to the evidence from Allstate that the G2 license was material to the premium for the renewed Policy).
[45] For this submission, Allstate relied upon the decision of Perell J. in Mirbaghery v. Pembridge Insurance Company, 2007 CanLII 7397 (Ont. S.C.) [Mirbaghery], in which the court held that the automobile insurance policy was void under s. 233(1)(a)(ii). However, in Mirbaghery (at para. 21), the issue before the court was the failure by the plaintiff to disclose that the plaintiff’s brother was a licensed driver living in the same household. Whether a G1 license holder was required to be disclosed was not at issue.
[46] In Mirbaghery, the court relied on evidence from the insurer that “the information sought to the question in the application form was material to Pembridge’s decision to provide insurance and to the cost of the premium if insurance was offered” (at para. 22).
[47] At the hearing before me, I raised a question as to whether a breach of s. 233(1)(a)(ii) to “fail to disclose in the application any fact required to be stated therein” required evidence of materiality. In other words, there was no authority before the court to address whether a breach of s. 233(1)(a)(ii) could be based on a failure to disclose a fact without evidence that such a fact was material to the insured risk. Given my findings below with respect to the renewal of the Policy, I do not address this issue in my reasons.
[48] At the hearing, Allstate did not pursue the submission that the alleged failure of the Applicants to promptly deliver the statement of claim or notice letters under Statutory Condition 5(1)(c) or 9(3) was a basis for the application to be statute-barred. There was no case law before the court to consider that issue. Consequently, I do not address this issue in my reasons.
[49] Finally, with respect to the limitations issue relied upon by Allstate, the Applicants submitted that the two-year period under Statutory Condition 9(4) or s. 4 of the Limitations Act should run only as of June 7, 2016, when Allstate advised as to the basis for its decision to deny coverage. The Applicants relied on s. 5(1)(a)(iv) of the Limitations Act and submitted that they did not know that “a proceeding would be an appropriate means to seek to remedy” Allstate’s decision until they knew why Allstate was denying coverage. Consequently, the Applicants submitted that when they issued their notice of application on May 18, 2017, they were within the two-year period running from June 7, 2016.
[50] Allstate submitted that the Applicants (i) knew of Allstate’s denial of coverage as of September 2013, and (ii) were served with the statement of claim by April 14, 2015. Allstate submitted that it is the denial of coverage that triggers the running of the limitation period, so that (i) the limitation period would expire by September 2015 (two years after denial of coverage), and (ii) in any event, even if a statement of claim is required to start the limitation period, the two-year period would have expired by April 14, 2017 (two years after service of the claim by April 14, 2015), and before the application was issued on May 18, 2017.
[51] The court was provided with no cases on either the general principles governing s. 5(1)(a)(iv) of the Limitations Act or Statutory Condition 9(4), let alone particular cases addressing how limitation periods are applied in the situations of denial of coverage. The court was asked to make a limitations period finding based only on the words of s. 5(1)(a)(iv) of the Limitations Act. Given my findings below with respect to the renewal of the Policy, I do not address this issue in my reasons.
[52] Consequently, I now address the issues of (i) breach of Statutory Condition 1(1) and s. 233(1)(a)(ii) upon the renewal of the Policy and (ii) relief from forfeiture.
Issue 1: Breach of Statutory Condition 1(1) and s. 233(1)(a)(ii) upon the renewal of the Policy
i) The applicable legislation
[53] Section 233(1)(a)(ii) provides that where an applicant for a contract of automobile insurance knowingly misrepresents or fails to disclose in the application any fact required to be stated therein, a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited.
[54] Section 234(1) of the Insurance Act states that statutory conditions shall be deemed to be part of every contract to which they apply.
[55] Section 1(2) of Ontario Regulation 777/93 states that the statutory conditions set out in the Regulation apply to all contracts of automobile insurance entered into or renewed on or after January 1, 1994.
[56] Statutory Condition 1(1) states: “The insured named in this contract shall promptly notify the insurer or its local agent in writing of any changes in the risk material to the contract and within the insured’s knowledge”.
ii) Disclosure of a change in material risk as a standard automobile policy insurance term in Ontario
[57] The Ontario Automotive Policy (OAP1) is the standard automotive insurance policy in Ontario as approved by the Financial Services Commission of Ontario (“FSCO”) under the Insurance Act. Clause 1.4.1 of OAP1 states:
You agree to notify us promptly of any significant change of which you are aware in your status as a driver, owner or lessee of a described automobile. You also agree to let us know of any change that might increase the risk of an incident or affect our willingness to insure you at current rates.
You must promptly tell us of any change in information supplied in your original application for insurance, such as additional drivers, or a change in the way a described automobile is used. [Emphasis in original, italics added.]
iii) Question about other persons in household licensed to drive is included in all automobile insurance applications in Ontario
[58] The question in the Driver Information section of the PRD, “Are any other persons in the household or business licensed to drive?” is a question all insurers in Ontario are required to include in their applications for insurance, as it is included in the Ontario Application for Automobile Insurance Owner’s Form (OAF 1), the standardized application for automobile insurance in Ontario, and is approved by FSCO.
iv) Applicable legal principles to the insured’s duty to disclose all material facts
[59] I set out the following legal principles applicable to the present case:
(i) An automobile insurance policy is not a single continuous policy with one application or offer and one acceptance. Instead, the automobile insurance policy expires at the end of its term each year and the renewal represents a new contract with its own offer and acceptance. A separate and distinct contract comes into existence at the time of renewal (Patterson v. Gallant, 1994 CanLII 45 (SCC), [1994] 3 S.C.R. 1080, 120 D.L.R. (4th) 1, at 1088-89);
(ii) Statutory Condition 1 is deemed to be known to insureds as part of their contract of automobile insurance (DeKoning v. Vector Insurance Network (Ontario) Limited, 2009 CanLII 43644 (Ont. S.C.) [DeKoning], at para. 54);
(iii) A contract of insurance “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” (Sagl v. Chubb Insurance Company of Canada, 2009 ONCA 388, 249 O.A.C. 234 [Sagl], at para. 51);
(iv) 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 (Sagl, at para. 51; Pereira v. Hamilton Township Farmers’ Mutual Fire Insurance Co., 2006 CanLII 12284 (Ont. C.A.) [Pereira], at para. 65);
(v) The duty to disclose all material facts applies even in the absence of questions from the insurer, although the absence of a question may be evidence that the insurer does not consider a fact to be material (Sagl, at para. 51; Gregory v. Jolley (2001), 2001 CanLII 4324 (ON CA), 54 O.R. (3d) 481, 201 D.L.R. (4th) 729 (C.A.), at paras. 31-32; W.H. Stuart Mutuals Ltd. v. London Guarantee Insurance Co., 2004 CanLII 48650 (ON CA), [2004] O.J. No. 5156 (C.A.), at para. 11);
(vi) 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 (Sagl, at para. 51);
(vii) The obligation of good faith under a contract of insurance requires an applicant for an insurance policy to carefully read questions in the application, and to carefully consider the questions and search his or her memory before answering the question. An insured cannot rely upon his or her carelessness or forgetfulness if reasonable care in reading a question and reasonable care in reflecting upon it would have resulted in a different answer than that which was provided in the application (Stewart v. Canada Life Assurance Co., 1999 CanLII 36845 (ON SC), [1999] O.J. No. 2842 (S.C.), at para. 54);
(viii) An applicant for insurance cannot escape the effect of a misrepresentation in an application for insurance by stating, or proving, that he or she did not read the document before signing it (1126389 Ontario Ltd. (c.o.b. Drew Auto Centre) v. Dalton, [2000] O.J. No. 668 (S.C.), at para. 94);
(ix) An “innocent misrepresentation” made by an insured engages Statutory Condition 1 (Pereira, at para. 58); and
(x) An insured’s application for insurance is the insured’s application, not the insured broker or agent’s application. The agent or broker has no legal duty to ensure the accuracy of the contents of the insured’s application for insurance. The agent of the insurance company is “merely the amanuensis”[^5] of the applicant for insurance, and any knowledge of the true facts by the agent cannot be imputed to the insurer (Salata v. The Continental Insurance Company, 1948 CanLII 118 (ON CA), [1948] O.R. 270 (C.A.) [Salata], at para. 18; Wolfe v. Western General Mutual Insurance, [2000] O.J. No. 2673 (S.C.) [Wolfe], at paras. 27 and 29).
v) Application of the above principles in cases addressing or commenting on the failure to disclose other licensed drivers living in the same household
[60] The relevant legislative provisions and legal principles set out above have been applied to cases addressing the failure to disclose other licensed drivers living in the same household, all of which have found that the automobile insurance policy was void.
[61] In Mirbaghery, the application form for the automobile insurance policy contained the same standard question asking “Are any other persons in the household or business licensed to drive?” The applicant said “No”, which was false because the applicant’s brother was a person living in the applicant’s household and was licensed to drive. The evidence from the insurer was that the answer was material to the decision of the insurer in either deciding whether to accept the risk or in setting the premium (Mirbaghery, at paras. 21-22).
[62] Perell J. held that it was not necessary for the insurer to establish that the applicant wilfully made a false statement. Perell J. relied on s. 233(1)(a) and held that the insured’s claim was invalid and his right to indemnity was forfeited, since he had “failed to disclose in the application a fact required to be stated therein” (Mirbaghery, at paras. 23 and 35).
[63] Similarly, in Schoff v. Royal Insurance Company of Canada, 2004 ABCA 180, 27 Alta. L.R. (4th) 208 [Schoff], the Alberta Court of Appeal reversed the decision of the trial judge who had held that the insurer was not entitled to deny coverage on the basis of the insured’s failure to disclose that her sons were living with her and all had licenses to drive at the time the insured applied for automobile insurance (Schoff, at paras. 3, 4, and 7).
[64] In Schoff, the Court of Appeal relied on the equivalent section to s. 233(1)(a)(ii) and held that the insurer was entitled to declare the policy void. The court further held that the number of licensed drivers living in the insured’s household was a fact that was within the insured’s special and unique knowledge, and that the insurer was entitled to rely on this representation about the insured’s household without further investigation (Schoff, at paras. 39, 51, 55 and 60).
[65] Other Ontario courts have referred to the failure to disclose the existence of other licensed drivers in the household as examples of a material misrepresentation resulting in the policy being void (Mailloux v. Mindorff, 2016 ONSC 6003, at paras. 53-54; DeKoning, at para. 66).
vi) The submissions of the Applicants
[66] The Applicants respond to the principles and case law cited above by making two submissions:
(i) The Applicants rely on the decision in Thomas v. Aviva Insurance Co., 2011 NBCA 96, 378 N.B.R. (2d) 343 [Thomas] for what they assert is the principle that an insurer has a duty to explain to the insured what constitutes a material change in risk; and
(ii) The Applicants are entitled to rely on cases in which the insured had a “full coverage” policy and submit that the Policy could not be void since the Applicants had an honest but mistaken belief of coverage.
1. Reliance by the Applicants on Thomas
[67] There is some uncertainty as to whether Thomas stands for the proposition that an insurer has a duty to explain to the insured what constitutes a material change in risk. In Thomas, Drapeau J.A. stated (at para. 9) that:
I am non-committal on the correctness of the trial judge's ruling that the “Material Change” condition is engaged only where the insured knows the change in circumstances is material to the risk.
[68] However, even upon an interpretation of Thomas that supports a principle that an insurer has a duty to explain to the insured what constitutes a material change in risk, such a principle has expressly not been followed in Ontario, nor in any other case before the court on this application.
[69] In Wolfe, Sedgwick J. rejected the submission of the insured that the insurer had a duty to advise the insured that the installation of a large space heater would be considered a “change material to the risk”. Sedgwick J. considered the equivalent statutory condition to Statutory Condition 1 and held (at paras. 20-21):
Counsel for the plaintiffs submits that the law requires the insurer to establish a causal connection between the "change material to the risk" and the loss. He says it is insufficient to prove that there was an objective change in risk and that the plaintiffs were aware of the change. The insurer must also prove that the plaintiff knew that the change in risk was material to the insurer. He relies on Long v. Commercial Union Assurance Co. of Canada et al. (1981), 1981 CanLII 1647 (ON SC), 32 O.R. (2d) 388, a decision of Linden J., in this court. On the facts, he says that the existence does not establish that there was a causal connection between the fire on December 14, 1994 and the large space heater installed by the plaintiffs. The cause of the fire remains uncertain. Further, the evidence does not establish that the plaintiffs knew that the installation of the large space heater would be considered by the insurer to be a "change material to the risk". No one ever told them that. Since they told no one of the installation of the large space heater as the primary heating source, that is not surprising. The obligation to disclose changes in material risk is clearly on the plaintiffs under the Policy.
In my view, Long v. Commercial Union Assurance Co. of Canada et al., supra, does not represent the law of Ontario on the insurer's burden of proof in cases involving the application of Statutory Condition No. 4 to particular circumstances. If a "change material to the risk" is found, the insurer is not required to prove that the insured knew that the change would be considered material by the insurer. The insurer must only prove that the insured was aware of the change and that the change was within the insured's control. Iacobelli et al. v. Federation Insurance Co. of Canada et al. (1975), 1975 CanLII 551 (ON SC), 7 O.R. (2d) 657, 661 (Holland J.); Heer v. Allstate Insurance Co. of Canada (1995), 1995 CanLII 9106 (AB KB), 30 Alta L.R. (3d) 8, 12 (Moreau J.). Statutory Condition No. 4 is directed to materiality of the risk to the insurer before a policy is issued. [Emphasis added.]
[70] The decision in Wolfe is consistent with the conclusion of the court in Pereira, in which Borins J.A. held that the trial judge erred by putting to the jury an instruction that the insurer had a duty to inform the insured about what information was relevant and material during the application process (at paras. 64-65):
In a similar vein, the trial judge also put to the jury the respondents' position that Mazza did not know that the status of the business was relevant and that the insurer had a duty to inform the applicant about what information was or was not relevant and material during the application process. This position was also wrong in law and on the facts. As such, it should not have been part of the instruction to the jury.
The duty of utmost good faith between parties to an insurance contract requires the applicant to disclose all material facts to the insurer. A fact will be material where, if properly disclosed, it would influence a reasonable insurer either to decline the risk or to accept a different risk, e.g., to charge a higher premium: Ontario Metal Products Co. v. Mutual Life Insurance Co. of New York, 1924 CanLII 336 (UK JCPC), [1925] 1 D.L.R. 583 (J.C. P.C.); Brown and Menezes, Insurance Law in Canada, 2nd ed. (Toronto: Carswell, 1991) at 93. [Emphasis added.]
[71] In Thompson v. Allianz Insurance Co. of Canada, 1996 CarswellAlta 1099 (Q.B.) [Thompson], the court rejected the insured’s position that (i) Alberta’s Statutory Condition 1 (which is identical to Ontario’s Statutory Condition 1(1)) is only engaged if the insured has knowledge of the factors which might affect the assessment of the risk by a reasonable insurer; and (ii) as such, the insurer must prove that the insured knew that the change in risk was material (at paras. 9, 75, and 82). Costigan J. held (at para. 85):
With respect, I do not agree that Statutory Condition 1(1) imposes a requirement upon the insurer of proving that the insured knew that the change in the risk was material. In my view, it is the fact of a changed circumstance which must be within the knowledge of the insured and not the materiality of the change. In my view, the purpose of Statutory Condition 1(1) is to allow the insurer the opportunity to assess whether changed circumstances produce a risk which a reasonable insurer would not underwrite. The insurer is possessed of specialized underwriting skills not possessed by all insureds. If the insured need only notify of those changes which the insured knows are material, then the insurer could be required to cover a materially changed risk because the insured lacked the skills to properly assess materiality. In my view, that is not the intent of Statutory Condition 1(1). Rather, as is the case in other aspects of the insurance relationship, the insured is obliged to disclose facts within the insured’s knowledge. It is the insurer who must assess the materiality of those facts. [Emphasis added.]
[72] I adopt the settled Ontario law in Wolfe and Pereira, as well as the reasoning in Thompson. I find that the insurer does not have a duty to explain to the insured what constitutes a material change in risk.
2. The Applicants’ understanding that they had “full coverage” under the Policy
[73] The Applicants rely on their understanding that they had “full coverage” under the Policy and submit that as such, they are entitled to a declaration of coverage even though they did not disclose that Avinash had a G2 license and was living in the household. The cases upon which the Applicants rely do not support such a proposition.
[74] In Fletcher v. Manitoba Public Insurance Co., 1990 CanLII 59 (SCC), [1990] 3 S.C.R. 191, 74 D.L.R. (4th) 636 [Fletcher], relied upon by the Applicants, the court held that the compulsory public automobile insurance plan owed a duty of care to the insured to advise as to all types of coverage available to them, similar to, although not as onerous as, the duties imposed on private agents and brokers.
[75] However, the issue in the present application is not that the Allstate broker failed to ensure sufficient coverage. The issue is whether the Applicants’ failure to disclose a material change in risk, based on having a teenage son with a G2 license, is a breach of Statutory Condition 1(1) and s. 233(1)(a)(ii). That issue does not arise in Fletcher.
[76] The Court of Appeal in Sagl imposes a duty on the insured to disclose all material facts even in the absence of questions from the insurer. A failure to disclose a material fact will void an insurance policy (Gregory and Pereira). The Court of Appeal in Salata affirmed that the agent of the insurer is only a “scribe” and the application for insurance remains that of the insured.
[77] These cases stand for the proposition that a misunderstanding as to the scope of “full coverage” does not validate coverage when an insured fails to disclose a material change.
[78] The issue in the present case is whether the renewal of the Policy is void, as Allstate’s denial of coverage is based on the omission of the Applicants (as required under s. 233(1)(a)(ii) and Statutory Condition 1(1)) to disclose that Avinash was a licensed driver, with a G2 license, living in the household.
[79] Consequently, the decision in Fletcher does not enable insureds to not disclose facts that materially affect the insured risk. I do not find that Fletcher assists the Applicants.
[80] Similarly, the Applicants’ reliance on Fine Flowers Ltd. v. General Accident Assurance Co. of Canada, 1977 CanLII 1182 (ON CA), [1977] O.J. No. 2435 (C.A.) [Fine Flowers] is ill-founded. The court in Fine Flowers addressed the liability of an agent who had advised the client that it had “full coverage” when, in fact, water supply pumps were not included.
[81] The issue on the present application is not whether a broker failed to obtain the “full coverage” represented to the insured. There is no evidence that the Allstate agent made any representation that “full coverage” meant that Zalimoon and Lakeram could have any, or all of their three children, drive the family’s vehicles at any time once they obtained their G2 licenses, without having to advise Allstate and with no change to the risk insured or premium charged. The Applicants acknowledge that they made no effort to determine whether their understanding was correct.
[82] A question by the Allstate agent as to how many drivers were in the household[^6] is not a representation that the Policy provided coverage for any additional drivers who might later be licensed drivers living in the same household.
[83] As I discuss with respect to Fletcher above, the decisions of Ontario courts in Sagl, Gregory, and Pereira impose a duty on an insured to disclose all material facts which affect the risk insured. It is that obligation which was breached by the Applicants.
[84] Finally, the case relied upon by the Applicants addressing a reasonable and honest belief of coverage with respect to Statutory Condition 4 (Tut v. RBC Insurance, 2011 ONCA 644, 107 O.R. (3d) 481 [Tut]) does not assist the Applicants.
[85] Statutory Condition 4(1) provides that an “insured shall not drive or operate or permit any other person to drive or operate the automobile unless the insured or other person is authorized by law to drive or operate it”.
[86] The test under Statutory Condition 4(1) is “whether the insured acted reasonably in all the circumstances”. As such, the test is objective, but takes into account the subjective view of the insured (Wawanesa Mutual Insurance Co. v. S.C. Construction Ltd., 2012 ONSC 353, 108 O.R. (3d) 762, at para. 13). Consequently, as in Tut, the honest belief of the insured can be relevant to Statutory Condition 4(1).
[87] However, the test under Statutory Condition 1(1) does not take into account the subjective view of the insured, for the reasons I discuss above. The test under Statutory Condition 1(1) is analogous to the test under s. 233(1)(a)(ii). That is, a fact will be material where, if properly disclosed, it could influence a reasonable insurer either to decline the risk or accept a different risk. As such, the approach in Tut does not apply.
vii) Summary
[88] For the above reasons, I find that that the Applicants breached Statutory Condition 1(1) and s. 233(1)(a)(ii) with respect to the renewal of the Policy. Avinash’s G2 license was a material change in the risk, as a high risk driver living in the same household. It is uncontested that the premium Allstate would have charged would have been almost double.
[89] The Driver Information question was expressly asked in the PRD (as required under OAF 1). The requirement to advise of additional drivers was expressly stated (as required in the Policy under clause 1.4.1 of OAP 1). Any failure by the Applicants to have read or understood the question or requirement cannot be visited upon Allstate. The insured had a positive obligation to volunteer the information, since a reasonable insurer would consider it relevant to assess the risk. As a new contract, the renewed Policy was void under s. 233(1)(a)(ii) and Statutory Condition 1(1), which is deemed part of the insurance contract.
Issue 2: Relief from forfeiture
[90] I address this argument briefly below.
[91] The Applicants rely on the decision of the Court of Appeal in Kozel. However, that decision does not support the Applicants’ position that the court ought to grant relief from forfeiture if the Policy is void.
[92] In Kozel, the court set out the test for relief from forfeiture. LaForme J.A. held (at paras. 30, 31, and 39):
In insurance cases, the purpose of the remedy "is to prevent hardship to beneficiaries where there has been a failure to comply with a condition for receipt of insurance proceeds and where leniency in respect of strict compliance with the condition will not result in prejudice to the insurer": Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778, at p. 783.
In exercising its discretion to grant relief from forfeiture, a court must consider three factors: (i) the conduct of the applicant, (ii) the gravity of the breach, and (iii) the disparity between the value of the property forfeited and the damage caused by the breach: [Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., 1994 CanLII 100 (SCC), [1994] 2 S.C.R. 490], at p. 504.
There are two threshold questions to resolve before undertaking the three-part analysis in Saskatchewan River Bungalows to determine whether the court should exercise its discretion to grant relief from forfeiture. First, does the breach in this case constitute imperfect compliance with a policy term or non-compliance with a condition precedent to coverage? Second, is relief available under s. 98 of the CJA despite the existence of a specific relief against forfeiture provision in the Insurance Act? [Emphasis added.]
[93] In Kozel, the issue before the court was whether a woman who drove without a license could obtain relief from forfeiture, as the court found that she had not acted with due diligence. That issue was one of “imperfect compliance with a policy term”.
[94] However, the breach of the Applicants in the present case constitutes “non-compliance with a condition precedent to coverage”. Coverage is not available under s. 233(1)(a)(ii) or Statutory Condition 1(1) if the insured fails to advise the insurer of a change material to the risk. The contract, which requires the utmost good faith, is not properly formed, and as such the insurer is not bound by it. It is void.
[95] For the above reasons, a failure to advise of a material change in the risk is not imperfect compliance with a policy term. It is not a breach of the nature that can be addressed by relief from forfeiture.
[96] The Applicants knew that Avinash was a licensed driver in their household with a G2 license that permitted him to drive on his own. The effect of such an additional driver on risk is clear – a high-risk driver in the household able to drive on his own would substantially affect the premium. Only the Applicants would have knowledge of that information, which put them in a position of the utmost good faith.
[97] Consequently, I do not grant order relief from forfeiture.
Order and costs
[98] For the above reasons, I dismiss the application.
[99] The matter was important to both parties. The motion records contained numerous affidavits, and cross-examination of the Applicants were required and appropriate. All parties prepared thorough factums and briefs of authorities. Based on the above factors, I fix costs at
$15,000 (inclusive of taxes and disbursements), payable by the Applicants to Allstate within 30 days of this order.
GLUSTEIN J.
Date: 20190125
[^1]: Under a G2 license, Avinash could drive on his own without supervision.
[^2]: Under a G1 license, Avinash could not drive on his own without supervision.
[^3]: The “biker” reference appears to be the motorcyclist (Scelsi) struck in the accident which is the subject of the MVA Action.
[^4]: (the same counsel who act for the Applicants on this application)
[^5]: (scribe or secretary)
[^6]: (which the Applicants rely upon as the basis for them not disclosing that Avinash was not a “driver” either at the date of the initial Policy or upon the renewal)