Marjak Services v. Insurance Corp. of British Columbia [2004] B.C.J. No. 1838 British Columbia Court of Appeal

The B.C. Court of Appeal dismissed the appeal of a chambers judge’s ruling that the Insurance Corporation of British Columbia ("I.C.B.C.") had a duty to defend an action on behalf of an employee of a named insured in which the employee of the named insured under a "Garage Automobile Policy" was alleged to have been negligent in failing to stop for medical assistance when his passenger became unconscious as a result of diabetes during the course of a business trip. I.C.B.C. alleged that the chambers judge erred in refusing to consider a written statement made by the insured’s employee after the trip. I.C.B.C. also alleged that the chambers judge erred in concluding that the underlying action could possibly trigger indemnity under the terms of I.C.B.C.’s policy. The Court of Appeal dismissed a cross-appeal by the Co-Operators General Insurance Company who was similarly found to have a duty to defend the corporate defendant, North Okanagan Truck and R.V. Sales Ltd ("North Okanagan") and the defendant driver under its CGL policy.

This was an appeal of a chambers judge’s ruling that I.C.B.C. had the duty to defend, in the name of Ian Scargill, an action taken by Mr. Scargill’s passenger Robert Forsen in the Superior Court of Washington State while Mr. Scargill was acting in the course of his employment with North Okanagan. The Co-Operators cross-appealed the finding of the chambers judge that it had a duty to defend the corporate defendant North Okanagan and Mr. Scargill under the terms of their CGL policy.

By the time this matter reached the Court, the underlying action had been resolved. Prior to the underlying action, I.C.B.C. had issued a "Garage Automobile Policy" to North Okanagan which provided coverage for third party liability imposed by law on the insured for loss or damage arising from the use or operation of an owned vehicle. North Okanagan was the named insured and Mr. Scargill, the general manager of North Okanagan, was an additional insured when using the vehicle in connection with North Okanagan’s business.

The underlying litigation arose on October 1, 1997 when Mr. Scargill and Mr. Forsen (an employee of North Okanagan) were returning to British Columbia from a convention in Nevada in a truck owned by their employer. Mr. Forsen was a diabetic and as a result became seriously ill and eventually became unconscious on the journey home. Mr. Scargill knew that Mr. Forsen was a diabetic but refused to stop the car in order to obtain medical assistance for Mr. Forsen until they reached their destination.

Mr. Forsen subsequently filed a complaint in Washington State Superior Court alleging that Mr. Scargill intentionally continued driving Mr. Forsen towards B.C. without stopping despite knowing that Mr. Forsen was suffering as a result of the delay in seeking medical treatment. It was alleged that as a result Mr. Forsen suffered damage requiring a kidney transplant. It was also alleged that Mr. Scargill was acting within the scope of his duties and on behalf of the Defendant North Okanagan and that therefore, any intentional and negligent acts of Mr. Scargill were directly attributable to the employer.

After the Washington action was initiated, North Okanagan and Mr. Scargill filed a petition in B.C. Supreme Court seeking declarations that all insurers were required to defend the Washington action. As part of the material filed in response to the petition, I.C.B.C. filed a transcribed statement of Mr. Scargill that contained among other things, an allegation that Mr. Forsen told Mr. Scargill he did not want to stop for medical attention.

The chambers judge ruled that Mr. Scargill’s statement was extraneous and therefore inadmissible.

With regards to the second issue, the chambers judge applied the 3-step process for determining whether the duty to defend arises in a particular case as set out in Non-Marine Underwriter’s, Lloyd’s of London v. Scalera, [2000] 1 S.C.R. 551]. Using this test, the chambers judge first determined that the allegations were properly pleaded based on the true nature of the claims. The chambers judge held that the pleadings alleged a negligent act (which was covered) rather than a deliberate act (which was not covered) because Mr. Scargill negligently failed to consider the effect of the continued driving and delay of treatment on the passenger. Second, the chambers judge determined that none of the claims were derivative in nature. This was because when the pleadings were examined in light of the 2-part test in v. Amos I.C.B.C., [1995] 3 S.C.R. 405, it was determined that the loss or damage arose from the use or operation of the vehicle. Finally, the chambers judge decided that at least one of the properly pleaded claims could potentially trigger indemnity under the policy and that therefore I.C.B.C. had a duty to defend. This was because the exclusion clause relied on by I.C.B.C. to deny coverage did not apply to Mr. Scargill because it only excluded coverage for liability imposed on an insured for injury to an employee of an insured and Mr. Forsen was not Mr. Scargill’s employee.

On appeal, I.C.B.C. alleged that the chambers judge made two errors.

The first ground of appeal was that the chambers judge erred in refusing to admit into evidence a written statement made by Mr. Scargill after the accident. The Court of Appeal dismissed the first ground of appeal holding that while the case law left it open on a duty to defend application to go beyond the pleadings and look at extrinsic evidence, the court could not look at premature evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation.

The second ground of appeal was that the chambers judge erred in concluding, under the Scalera test, that I.C.B.C. owed Mr. Scargill a duty to defend in the claims brought against him in the Washington action. The Court of Appeal focussed on two aspects of this ground: first, whether the action involved a claim for damages "arising from the use or operation of the vehicle" and second, if there was such a use, whether the exclusion clause relied on by I.C.B.C. to deny coverage applied.

The wording of the policy required the insurer to indemnify for third party liability imposed upon the insured for loss or damage "arising from the use or operation of an owned vehicle." Similar wording was found in s. 64 of the Revised Regulations (1984) under the Insurance (Motor Vehicle) Act -- B.C. Reg. 447/83 (1984). The Supreme Court of Canada examined this phrase in Amos, supra in the context of "no-fault" benefits and restated the two-part test to interpret the phrase. The purpose test requires that the accident result "from the ordinary and well-known activities to which automobiles are put". The causation test requires some nexus between the appellants injuries and the ownership, use or operation of the vehicle.

Applying the two-part test, the Court of Appeal agreed with the chambers judge who found that that the injury to Mr. Forsen occurred while he was in a vehicle that was being put to its well-known and usual activity. Secondly, because Mr. Scargill had control of the vehicle and failed to stop in order to seek medical attention, the use or operation of the motor vehicle contributed in some manner to the plaintiff’s injury.

The Court of Appeal also found that the exclusion relied on by I.C.B.C. to deny coverage applied to North Okanagan but not to Mr. Scargill. This was because the exclusion clause was determined to be ambiguous and the reasonable expectations of the parties could not be sufficiently ascertained. Accordingly, the contra proferentum rule was applied resulting in the policy being construed in favour of the insureds. For these reasons the Court of Appeal dismissed the second ground of appeal.

The Court of Appeal also upheld the chambers judge’s holding that Co-Operators had a duty to defend both North Okanagan and Mr. Scargill under the terms of its CGL policy because the exclusion clauses relied on by the corporate defendant did not apply.

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