Court File and Parties

COURT FILE NO.: CV-2699-17 DATE: 2024-01-31 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

JOE HESCH, HAILEY CHRISTINA MARIE HESCH, by her Litigation Guardian, Joe Hesch, TRISTEN MATTHEW ALFRED KERR, by his Litigation Guardian, Mary Evans, ROBERT LAWRENCE EVANS, MARY EVANS and CURTIS WANT Plaintiffs

– and –

GREGORY LANGFORD, PAFCO INSURANCE COMPANY and KENT AND ESSEX MUTUAL INSURANCE COMPANY Defendants

Counsel: Sandi J. Smith, counsel, for Pafco Insurance Company Bruce Mitchell, for Kent and Essex Mutual Insurance Company

Heard: December 13, 2023 by videoconference

Before: HEENEY J.

Endorsement

[1] This motion involves a dispute between the two defendant insurers, regarding whether the defendant Kent and Essex Mutual Insurance Company (“Kent”) is obligated to contribute to the $950,000 settlement paid by the defendant Pafco Insurance Company (“Pafco”) to the plaintiffs, in satisfaction of their claims under the OPCF 44R Family Protection Coverage endorsement (“44R”) in the automobile insurance policy issued by Pafco.

[2] Pafco insured Ashley Kerr (“Ashley”), who was tragically killed in a car accident on January 3, 2017. It was the sole fault of the defendant Langford, who was uninsured, and has been noted in default. The claims of the plaintiffs, who are all relatives of Ashley, are all pursuant to Part V of the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”), for loss of care, guidance and companionship resulting from Ashley’s death. Pafco’s insurance policy included 44R coverage. At issue is whether the insurance policy issued by Kent to Ashley’s common law spouse, Joe Hesch (“Joe”), which also contained a 44R endorsement, also provides Family Protection Coverage for this accident, such that Kent must contribute to the settlement. None of the plaintiffs were in Ashley’s automobile, and none had any involvement in the accident.

[3] There is also a request for judgment against Langford personally, arising out of the insurer’s subrogated interest. This will be dealt with at the end of my reasons.

Overview

[4] Ashley was driving a 2003 Chevrolet Cavalier, owned by her, on January 3, 2017, when an oncoming automobile, driven by the defendant Langford, crossed the centre line of the road, resulting in a head-on collision which caused her death. She was the named insured in a Standard Ontario Automobile Policy, OAP 1, issued by Pafco, and her Cavalier was the designated vehicle under that policy.

[5] Her common law husband, Joe, was the owner of a 2010 Chevrolet Silverado, and was the named insured in an OAP 1 policy issued by Kent. His Silverado was the designated vehicle under that policy.

[6] Both policies contained a 44R endorsement, and both had insurance limits of $1 million.

[7] The plaintiffs Hailey Hesch and Tristen Kerr are children of Ashley, Mary Evans is her mother, Robert Evans is her stepfather, and Curtis Want is her brother. All of the plaintiffs brought FLA claims against Langford and both insurers. These claims were settled by Pafco for the global and all-inclusive sum of $950,000. The portion attributable to the minor plaintiffs has received court approval, and the settlement funds have been paid by Pafco in full.

[8] Since Langford was uninsured, both “uninsured” and “underinsured” coverage comes into play. Uninsured coverage is mandatory, as required by s. 265 of the Insurance Act, R.S.O. 1990, c. I.8 (“the Act”). This mandatory coverage is set out in OAP 1 and provides for payment of claims against the uninsured motorist up to the minimum limits of $200,000. Pursuant to s. 277(1) of the Act, Pafco is solely responsible for paying this sum. This is not in dispute.

[9] Since the plaintiffs’ damages were well in excess of $200,000, there is also a claim for underinsured coverage. Underinsured coverage is provided for by the 44R endorsement. It is optional coverage, and both Ashley and Joe chose to purchase that coverage in their respective insurance policies.

[10] There is no question that all plaintiffs are “eligible claimants” under Ashley’s 44R coverage with Pafco. What is in dispute is whether Pafco is solely liable to pay the remainder of the settlement, in the amount of $750,000, or whether Kent also has an obligation to provide 44R coverage under Joe’s policy.

[11] None of the plaintiffs, other than Joe, are the named insured under an automobile insurance policy with 44R coverage.

[12] As will be discussed below, an eligible claimant is defined as the insured person who sustains bodily injury, as well as any other person who is entitled to maintain an action against the inadequately insured motorist, for damages arising out of injury to or the death of an insured person. An FLA claim relating to the death of Ashley is such an action. Since she was the named insured under Pafco’s policy and was an occupant of the automobile insured by Pafco, it is clear that all plaintiffs are entitled to recover from Pafco their underinsured damages, pursuant to Ashley’s 44R coverage.

[13] However, Pafco argues that all plaintiffs have a right of recovery against the Joe’s 44R coverage as well. Since the definition of “eligible claimant” in this case is tied to a claim arising out of the death of an “insured person”, Pafco’s argument can only succeed if Ashley also meets the definition of an “insured person” under Joe’s 44R coverage with Kent.

[14] Kent submits that Ashley does not meet that definition, and that Pafco’s 44R coverage is the only coverage available to the plaintiffs. Pafco submits that she does. If she does, Pafco argues, in its Notice of Motion and Factum, that Kent must contribute, on a pro rata basis, to the underinsured portion of the settlement, pursuant to s. 18 of 44R.

[15] It should be noted, though, that Pafco’s position on the extent of Kent’s contribution changed from its written position during the course of oral submissions. In response to questions from me, Ms. Smith, counsel for Pafco, agreed that s. 18 appeared to say that if Joe is an eligible claimant on the 44R coverage in his own policy, Kent’s coverage would be first loss insurance for the portion of the settlement attributable to Joe, and any other insurance would be excess. If that is the case, Kent would be obligated to pay the whole of Joe’s claim, not just make a pro rata contribution.

[16] Section 18 reads in part as follows:

18. The following rules apply where an eligible claimant is entitled to payment under family protection coverage under more than one policy: (a) (i) if he or she is an occupant of an automobile, such insurance on the automobile in which the eligible claimant is an occupant is first loss insurance and any other such insurance is excess; (ii) if he or she is not an occupant of an automobile, such insurance in any policy in the name of the eligible claimant is first loss insurance and any other such insurance is excess.

[17] Joe was not an occupant of an automobile at the time of the accident, so if he was an eligible claimant for 44R coverage against his own policy, section 18(a)(ii) would apply, such that the insurance policy in his name would be first loss insurance. The family protection coverage under Ashley’s policy would be excess.

[18] There is no need to consider this issue in depth at this point in time, since it will be academic if I conclude that Joe is not an eligible claimant on his own 44R coverage. This will depend upon the interpretation of the applicable provisions of that endorsement, to which I now turn.

General Principles

[19] The governing principles for interpreting insurance policies are set out in Kahlon v. ACE INA Insurance, 2019 ONCA 774. Speaking for the court, Lauwers J.A. said the following, at paras. 37-9:

The burden of proof rests on the insured to establish a right to recover under the terms of the policy, and, once that is done, the onus shifts to the insurer to show that coverage is precluded: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, at para. 51; Shakur v. Pilot Insurance Co. (1990), 74 O.R. (2d) 673, 1990 CarswellOnt 623 (Ont. C.A.), at para. 30.

The governing principles for the interpretation of insurance policies are found in Progressive Homes Ltd., at paras. 22-24, per Rothstein J., whom I quote and paraphrase: Where the language of the policy is unambiguous, the court gives effect to clear language, reading the contract as a whole. However, where the language is ambiguous, the court applies general rules of contract construction. The interpretation of the language should be consistent with the reasonable expectations of the parties, so long as the interpretation can be supported by the text of the policy. The court avoids interpretations that would give rise to an unrealistic result, or that would not have been in the contemplation of the parties when they entered into insurance contract.

The rules of construction are to be applied in order to resolve ambiguity, not to create ambiguity where there is none. When the application of the rules of construction fails to resolve an actual ambiguity, courts will construe the policy contra proferentem — against the insurer. The corollary is that coverage provisions are interpreted broadly, and exclusion clauses narrowly.

The Insuring Agreement

[20] The starting point for determining whether coverage is provided is to examine what the insurer has agreed to pay and to whom. This is found at s. 3 of 44R:

3. In consideration of a premium of $ ................. or as stated in the Certificate of Automobile Insurance to which this change form is attached, the insurer shall indemnify an eligible claimant for the amount that he or she is legally entitled to recover from an inadequately insured motorist as compensatory damages in respect of bodily injury to or death of an insured person arising directly or indirectly from the use or operation of an automobile.

[21] The first thing to notice is that the insurer is obligating itself to pay an “eligible claimant”, not the person insured under the contract. The insured person may well be an eligible claimant if he or she meets the definition, but his or her entitlement flows from meeting that definition and not because he or she purchased 44R coverage.

[22] The second thing to notice is that the insurer is only obligated to pay compensatory damages in respect of bodily injury to or death of an “insured person”. Thus, unless the person who died meets the definition of “insured person” in 44R, there is no coverage.

[23] These points are important because a recurring theme in the submissions of Ms. Smith, for Pafco, was that 44R coverage “follows the person, not the automobile”. That is not quite the law.

[24] Lauwers J.A. considered the mobility element of 44R coverage in Kahlon. At para. 45 he referred to the reasons of Laskin J.A. in Schneider, where he describes the personal nature of underinsured coverage:

… while the policy covers automobiles, as does the endorsement, the endorsement has a mobility element. In Schneider v. Maahs Estate (2001), 56 O.R. (3d) 321 (Ont. C.A.), at para. 26, Laskin J.A. observed: “the current form of coverage for named insureds and their families is portable, following them as passengers of other cars and as pedestrians.” This flows from the definition of “insured person” in the endorsement. Since the underinsurance coverage is personal, it applies regardless of which automobile the insured is driving, subject to any applicable exclusions: Olchowy v. ING Insurance Co. of Canada, 2011 ABQB 463, 100 C.C.L.I. (4th) 165 (Alta. Q.B.).

[25] However, at para. 68, Lauwers J.A. noted that this portability is limited, in the sense that coverage is granted to specific people, while they are in specific automobiles:

… Mr. Kahlon’s counsel enlisted the definition of “insured person” in the endorsement, and argued that the definition is especially important “because the insurance is granted to specific people, not specific automobiles.” But this is an incomplete description of the definition. The insurance is granted to specific people while they are in specific automobiles, as I note below in addressing the third argument. Although the underinsured coverage is portable, as Laskin J.A. noted in Schneider, that portability is limited.

[26] As will be seen below, whether a person occupies an automobile, and whether that person owns that automobile, play a critical role in determining whether that person is an “insured person”, as defined by 44R. If the person who died does not meet the definition of an “insured person”, then the insurer is not obligated to pay compensatory damages in respect of their death.

“Eligible Claimant” and “Insured Person”

[27] It is necessary to examine the definitions of both of these terms together, because “eligible claimant” contains a reference to “insured person”, so one definition feeds into the other.

[28] The phrase “eligible claimant” is defined at s. 1.3 of 44R:

1.3 “eligible claimant” means (a) the insured person who sustains bodily injury; and (b) any other person who, in the jurisdiction in which an accident occurs, is entitled to maintain an action against the inadequately insured motorist for damages because of bodily injury to or death of an insured person.

[29] The phrase “insured person” is defined at s. 1.6:

1.6 “insured person” means (a) the named insured and his or her spouse and any dependent relative of the name insured and his or her spouse, while (i) an occupant of the described automobile, a newly acquired automobile or a temporary substitute automobile as defined in the Policy; (ii) an occupant of any other automobile except where the person leases the other automobile for a period in excess of 30 days or owns the other automobile, unless family protection coverage is in force in respect of the other automobile; or (iii) not an occupant of an automobile who is struck by an automobile;

[30] I have not reproduced s. 1.6(b), because that relates to named insured who are corporations, or other business entities, and has no relevance to the case at bar.

[31] In order to analyse the effect of these definitions on the issues before the court, it is necessary to consider claims against the Pafco policy and the Kent policy separately. I will deal with the Pafco policy first.

[32] Ashley is the “named insured” on the Pafco policy. She was killed “while… an occupant of the described automobile”, i.e., the automobile that was insured by Pafco under Ashley’s policy. She is, therefore, an “insured person” within the meaning of s. 1.6(a)(i) of this definition.

[33] Turning to the definition of “eligible claimant”, Ashley would have fit within the definition in s. 1.3(a) as the “insured person who sustains bodily injury”, had she only been injured and not killed in the accident.

[34] The relevant definition for purposes of this case is s. 1.3(b). All of the plaintiffs, given their status as spouse, children, parents and brother, respectively, have a right of action under s. 61(1) of the FLA to sue the inadequately insured defendant for damages arising out of Ashley’s death. Since Ashley is an “insured person”, the damages therefore arise out of “the death of an insured person”, and thus the plaintiffs all meet the definition of “eligible claimant”.

[35] Accordingly, the plaintiffs are all entitled to seek 44R underinsured coverage from Pafco. This has, obviously, been conceded, and Pafco has paid the $950,000 settlement of their claims.

[36] I now turn to the issue at the heart of this case, which is the purported claim against Joe’s 44R coverage with Kent. I will consider Joe’s claim, if any, first, and will deal with the rest of the plaintiffs afterward.

[37] To meet the definition of “eligible claimant”, he must again rely on the definition in s. 1.3 (b), since he himself was not involved in the accident and did not sustain bodily injury. To qualify as an “eligible claimant”, he must be entitled to maintain an action against the inadequately insured motorist, for damages he suffered because of the death of an “insured person”. Since the person who died was Ashley, she must meet the definition of “insured person” in order for Joe to have a claim against his own policy.

[38] Turning to the definition of “insured person”, Ashley meets the first part of the definition in s. 1.6(a), which refers to the “named insured” (in this case Joe) “and his or her spouse” (i.e., Ashley). However, simply being Joe’s spouse is not enough. She must meet one of the three conditions in (i), (ii) or (iii) which follow the word “while” in order to qualify as an “insured person”.

[39] Subsection (i) requires her to be an occupant of the “described automobile”, which she was not. The described automobile here is Joe’s Silverado. She occupied her own Chevrolet Cavalier at the time of the accident. Thus, she does meet this definition.

[40] Subsection (iii) requires her to not be the occupant of any automobile and be struck by an automobile. Obviously, this does not apply.

[41] Thus, if she is to be considered as an “insured person”, she must meet the definition in s. 1.6(a)(ii). She meets the first part of it, because she is the spouse of the named insured, Joe, “while… an occupant of any other automobile”. Any automobile that is not Joe’s Silverado would be considered to be “any other automobile”, because it is a generic term. However, there are two exceptions to whether any specific “other automobile” will qualify under this definition:

• “except where the person leases the other automobile for a period in excess of 30 days or owns the other automobile”; or,
• “unless family protection coverage is in force in respect of the other automobile”.

[42] In this case, Ashley is “the person” in question, and she owned the “other automobile” that she occupied at the time of the accident. Thus, she does not meet the definition of “insured person”. To use the words of Lauwers J.A., while Joe’s 44R coverage applies to “specific people”, including his spouse, Ashley, she was not driving a “specific automobile” as specified in the definition.

[43] Even if she had not been the owner of the automobile, she would not have met the second exception, because family protection coverage was in force on the automobile she occupied at the time of the accident (i.e., her own 44R coverage). Although it is not necessary to decide, it appears that the impact of this exception would be to compel the occupant, and those who seek damages arising out of the injury or death of that person, to seek compensation from the family protection coverage that was in force in respect of the automobile the person was occupying.

[44] Ms. Smith, at para 40 of her Factum, made the following submission:

To be considered an “insured person” pursuant to the Kent policy, she must be considered an occupant of “any other automobile” and can be the owner of the other automobile if family protection coverage was in force in respect of the other automobile.

[45] In other words, she is arguing that the fact that she had family protection coverage on her automobile somehow cancels out the first exception and permits her to own that automobile and have it qualify as an “other automobile” despite the express exclusion. With respect, that is a distorted reading of this section, and runs contrary to the plain meaning of the words.

[46] In my view, the second exception regarding family protection coverage cannot be read as cancelling out the first exception. It is an additional exception. Thus, if she did not own the automobile, and was therefore not disqualified by the first exception, she could still be disqualified as an “insured person” if the other automobile had family protection coverage in force.

[47] The interpretation I have arrived at flows from the plain meaning of words that I find to be clear and unambiguous and, reading the insurance contract as a whole, is in harmony with the rest of the contract. In that regard, s. 22 of 44R provides as follows:

Except as otherwise provided in this change form, all limits, terms, conditions, provisions, definitions and exclusions of the Policy shall have full force and effect.

[48] The OAP 1 policy has provisions that deal with “other automobiles”. Section 2.2.3, which has the subtitle “Other Automobiles”, provides as follows:

Automobiles, other than a described automobile, are also covered when driven by you, or driven by your spouse who lives with you.

[49] However, that section goes on to prescribe certain “Special Conditions” that apply:

Special Conditions: For other automobiles to be covered, the following conditions apply:

1. Both the other automobile and a described automobile must not have a manufacturer’s gross automobile weight rating of more than 4,500 kilograms.
2. The named insured is an individual, or if the described automobile is owned by two people, the named insureds are spouses of each other.
3. Neither you nor your spouse is driving the other automobile in connection with the business of selling, repairing, maintaining, storing, servicing or parking automobiles.
4. The other automobile is not being used to carry paying passengers or to make commercial deliveries at the time of any loss.
5. For all coverages, except Accident Benefits, the other automobile cannot be an automobile that you or anyone living in your dwelling owns or regularly uses. (For the purposes of this paragraph, we don’t consider use of an automobile rented for 30 or fewer days to be regular use.) Nor can the other automobile be owned, hired or leased by your employer or the employer of anyone living in your household. However, if you drive one of these other automobiles while an excluded driver under the policy for that automobile, this policy will provide Liability and Uninsured Automobile Coverages while you drive that automobile.

[50] The relevant Special Condition for purposes of the case at bar is #5, which states that “the other automobile cannot be an automobile that you or anyone living in your dwelling owns or regularly uses”. The “regular use” exclusion won’t apply for an automobile rented for 30 days or less. It applies for “all coverages, except Accident Benefits”, so it clearly applies to 44R coverage.

[51] It can readily be seen that this exclusion is, in effect, virtually identical to the first exception in s. 1.6(a)(ii), which provides 44R coverage for an occupant of another automobile “except where the person leases the other automobile for a period in excess of 30 days or owns the other automobile”. The only difference is that the 44R exception applies to “the named insured and his or her spouse and any dependent relative of the name insured and his or her spouse”, whereas Special Condition #5 in s. 2.2.3 of OAP 1 applies to “you [i.e., the named insured] or anyone living in your dwelling”.

[52] However, that difference has no relevance here since both would apply to Ashley in any event. To the extent that there is any difference, Kahlon held that the provisions of the change endorsement 44R would prevail. At para. 66, Lauwers J.A. quoted with approval from the decision of Lang J.A. in Shakur v. Pilot Insurance Co. (1990), 74 O.R. (2d) 673, 47 C.C.L.I. 235, [1990] I.L.R. 1-2641, 41 O.A.C. 51, 73 D.L.R. (4th) 337, 1990 CarswellOnt 623 (Ont. C.A.), where she said, in part, the following:

… the provisions of the Policy govern unless the Endorsement provides otherwise or, to put it the other way, the provisions of the Endorsement are subject to the limitations in the Policy. Thus, the Endorsement, aptly entitled the “Change Form”, may change the Policy, but only to the extent set out in the Endorsement.

[53] Kahlon dealt with a situation where the “other automobile” driven by the insured was a heavy commercial tractor trailer, which he was operating in Florida in the course of his employment when he was injured. The court held, at para. 72, that since the 44R endorsement used the term “other automobile” generically, without qualification, Special Condition #1 of s. 2.2.3 of OAP 1, which excluded heavy automobiles with a gross weight of more than 4,500 kg., applied. Thus, the plaintiff did not meet the definition of “insured person” and was denied 44R coverage.

[54] The case at bar is even stronger than Kahlon, because both the terms of the 44R endorsement, and Special Condition #5 in OAP 1, exclude coverage for the “other automobile” Ashley occupied at the time of the accident, because she owned that automobile. While the exception in s. 1.6(a)(ii) of 44R is sufficient on its own to deny coverage, I mention Special Condition #5 to reinforce my interpretation of that exception. It is not a strained interpretation, but rather is exactly what the insurance contract, read as a whole, contemplates.

[55] Since Ashley does not meet the definition of an “insured person” in the 44R endorsement in Joe’s policy, Joe is not an “eligible claimant” as defined in s. 1.3(b). He would only be eligible if the damages he claimed arose out of the death of an “insured person”.

[56] The discussion to this point has only focussed on Joe’s claim against his own 44R endorsement. It is also necessary to deal with the claims of the other plaintiffs, because Pafco argued, in its Notice of Motion and Factum, that Kent was obligated to contribute, pro rata, toward the settlement of the claims of all of the plaintiffs.

[57] This can be quickly dealt with because the same reasoning applies. Like Joe, the other plaintiffs all fall under s. 1.3(b) in the definition of “eligible claimant”. That is to say, they are “any other person” who is entitled to maintain an action for damages arising out of the death of “an insured person”.

[58] I have already concluded, above, that Ashley was not an “insured person” under Joe’s 44R endorsement, because she was the owner of the “other automobile” that she occupied at the time of the accident. Thus, the other plaintiffs are not “eligible claimants” for 44R coverage under Joe’s insurance policy.

[59] Accordingly, I conclude that Kent has no obligation to contribute to the settlement of the plaintiffs’ claims.

Subrogated Claim

[60] Pafco is subrogated to the rights of the eligible claimants pursuant to s. 20 of 44R and is therefore entitled to judgment against the at-fault defendant Gregory Langford, in the amount of the settlement of $950,000. Judgment shall issue accordingly.

Result

[61] For the above reasons, Pafco’s motion against Kent for contribution toward the settlement is dismissed. The claim for judgment against the defendant Langford is allowed, as outlined above.

[62] Costs are awarded to Kent in the agreed-upon amount of $10,000 all inclusive.

Mr. Justice T. A. Heeney Released: January 31, 2024