Authorized by law exclusions in automobile polices may be limited to valid driver's licences and may not apply to illegal activity
An insurer was required to defend and indemnify its insured in a motor vehicle action despite the fact the insured was impaired at the time of the accident and was in breach of an undertaking not to consume alcohol given in relation to a previous impaired driving incident.
Kereluik v. Jevco Insurance Co.,  O.J. No. 2226, May 22, 2012, Ontario Court of Appeal, E.A. Cronk, R.G. Juriansz and G.J. Epstein JJ.A.
The respondent, Paul Kereluik (“Kereluik”), was insured under a policy of automobile insurance issued by the appellant, Jevco Insurance Company (“Jevco”). Kereluik was involved in a motor vehicle accident and was arrested for impaired driving causing bodily harm. He was released from custody on an undertaking “to abstain from the possession and consumption of any alcoholic beverages”. Kereluik was subsequently involved in a second accident while he was impaired and Cencetta Deabreu, the plaintiff in the underlying action, alleged she suffered injuries as a result of that accident. Jevco defended Kereluik in the action brought by Deabreu until it learned of Kreliuk’s breach of the undertaking. Jevco’s position was that the breach of the undertaking was a breach of Condition Four in the policy, which stated:
The 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.
Jevco maintained that, by reason of his breach of the undertaking, Kereluik was not “authorized by law” to drive at the time of the second accident. On a motion to determine Jevco’s duty to defend and indemnify Kereluik in the action brought by Deabreu it was held that at the time of the second accident (1) Kereluik held a valid Ontario driver’s licence; (2) he was in compliance with the terms of that licence; (3) the licence contained no alcohol-related condition or prohibition; and (4) his licence was in good standing. Therefore, Kereluik was “authorized by law” to drive within the meaning of Condition Four and Jevco was required to defend and indemnify him under the policy.
On appeal, the Ontario Court of Appeal held the motion judge had correctly held that the phrase “authorized by law” as used in Condition Four is concerned with the validity and terms of an insured’s licence to drive at the time of the relevant motor vehicle accident. There was nothing to suggest that the phrase “authorized by law” is intended to apply to breaches of the law not directly connected with violations of driving licence conditions. In the result, the appeal was dismissed.