British Columbia Insurance Blog : Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

This appeal raised the question of whether the subrogation right of an insurer under the Standard Mortgage Clause in a home insurance policy may be exercised simply on the insurer paying the loss award to the mortgagee without the insurer establishing that it has no liability to the insured.

The Respondent Insurer had insured the home of the Appellant Insureds. The Insureds had a mortgage with the Bank of Montreal. The Insureds submitted a claim to the Insurer seeking indemnity for repairs to the house, damage to its contents, and additional living expenses following a fire. The Insurer denied their claim on two grounds:

1)         the Insureds had voided the policy by failing to notify the Insurer of a material change in the risk, namely, a change in the heating system of the premises; and

2)         the Insureds had made wilfully false statements with respect to their contents claim and their claim for alternative living expenses, thus vitiating their right to recover.

The Bank of Montreal submitted a Proof of Loss seeking payment of the mortgage under the Standard Mortgage Clause and the Insurer paid that claim. The Insurer then, relying on its right of subrogation under the Standard Mortgage Clause, claimed the sum it had paid to the Bank of Montreal from the Insureds. The motions judge granted summary judgment against the Insureds in the amount paid by the Insurer to the Bank of Montreal. The Insureds appealed seeking an Order dismissing the Insurer's Motion for Summary Judgment directing that the two Actions be tried together (the Insureds had commenced a separate proceeding against the Insurer seeking a Declaration that the policy was valid and enforceable).

The Court of Appeal held that there are two preconditions to the Insurers' entitlement to subrogation under the Standard Mortgage Clause. First, the Insurer must make payment of the loss award, or part of it, to the mortgagee. Second, the Insurer must establish a claim that it has no liability to the mortgagor insured. The Court found that this conclusion flows from the construction of the Standard Mortgage Clause and is not dependent on the specific facts of the case.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

The Insureds held a policy of insurance on a home they rented to tenants. They were covered for fire and loss of rental income. The Insureds' property was severely damaged by a fire on or about October 10, 2006. The Insureds' tenants had moved out of the property on August 5, 2006 and the Insureds had not replaced them. When the tenants moved out of the property, they only returned the keys to the front door. The Insureds did not change the back door locks nor advise the Insurer that the previous tenant had failed to return the back door keys. The Insurer denied coverage on the basis of an exclusion clause which provided that the Insurer would not insure direct or indirect loss or damage "occurring after your dwelling has, to your knowledge, been vacant, even if partially or fully furnished, for more than thirty consecutive days". The Insurer also denied coverage on the basis that the Insureds had breached statutory condition no. 4 of the Insurance Act, R.S.O. 1990, C1.8, which requires an Insured to advise an Insurer of any change material to the risk within the control and knowledge of the Insureds. The Insureds disagreed with the decision of the Insurer to deny coverage and commenced this action.

The Court found that the damage caused by the fire occurred after the rental property had, to the Insureds' knowledge, been vacant for more than thirty consecutive days. Further, the Court found that the Insureds should have advised the Insurer when the last tenants moved out and that they had not returned all of the keys.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

The Plaintiff Insured appealed the dismissal of his action against the Defendant Insurer. The Insured held a long term disability policy with the Insurer. The Insured subsequently became disabled as a result of meningitis. He applied for long term disability benefits but his application was rejected by the Insurer who took the position that the Insured had materially misrepresented his medical history on the initial questionnaire.

The trial judge found that the policy was void ab initio because the Insured had not disclosed material facts. In particular, the Insured had not disclosed the identity of his attending physician or his consultation with that physician four or five months prior to the date of the insurance application regarding lumbar pain. The trial judge found that had the Insured not misrepresented his medical history, the coverage offered would have been subject to full exclusions for back and hip related ailments. The Insured's appeal, which was on the basis that the trial judge had committed errors of facts, was dismissed.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

The insured was the owner of a truck-mounted concrete boom truck that collapsed on a construction site. The accident was reported to the insurer, but the insured advised it was seeking recovery from the truck manufacturer and distributor. It started an action against those parties on June 29, 2005. However, it advised the insurer that, should it be unsuccessful in the claim, it would be seeking recovery under the policy.

On September 9, 2005 the insurer wrote to the insured confirming that the loss was covered by the policy and that the insurer was prepared to pay the cost of repairing the truck minus the deductible. The letter confirmed that the insurer was aware that the insured was seeking to recover the loss without recourse to the insurer. The letter also confirmed that the claim could be "re-opened for processing" anytime before the one year limitation period expired on January 5, 2006.

The insured never filed a proof of loss form, but it did start an action against the insurer on December 25, 2005. The main action against the manufacturer and distributor is scheduled for February 2010. Should the insured be unsuccessful in that action then it sought, in the action at bar, to recover from the insurer under the policy.

The insurer argued that the insured could not succeed in the action against it because it did not submit a proof of loss to initiate the claim and specifically elected to pursue remedies against the other parties in the main action. As there was never a claim advanced under the policy, there was never a denial of the claim and therefore no breach of contract on which to sue.

The insured argued that it issued a formal claim within the limitation period, by serving the Statement of Claim. Further, it argued that the insurer had, in fact, denied the claim when it issued its Statement of Defence.  The Insured argued that it would be open to the court to conclude that a breach of contract occurred when the claim was defended. Lastly, it argued that the insurer's position concerning a failure to complete a formal proof of loss is merely a question of form over substance and that the court has liberal powers under s. 129 of the Insurance Act to relieve from forfeiture.

The court held that, although the insured was not in technical compliance with the proof of loss procedures under the policy, it was difficult to see how the insurer had been prejudiced by the insured's actions. While the formal proof of loss might not have been filed, the insurer was immediately on notice of the loss, had all the information that would be contained in a proof of loss, and had been kept fully aware of the status of the main action. The court was not persuaded that the insured could not succeed in its arguments and, therefore, there were triable issued raised by the facts and the law. Accordingly, the summary judgment motion was dismissed.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.

The insured owned a pick-up truck insured by the insurer. His son was an 'excluded driver' under the policy. His son used the truck, accompanied by another driver, and was involved in a motor-vehicle accident. Both the insured and his son were sued by the occupants of the other vehicle.

The insurer brought an application for a declaration that it had no duty to defend or indemnify either the insured or his son. The insurer argued that there was no coverage on three grounds: (1) The son was an 'excluded driver'; (2) The son drove the truck on public roads without the insured's consent; and (3) The insured allowed the son to drive while in breach of the conditions on his G-1 driver's license.

On the first ground, the court agreed that the insurer had no duty to defend or indemnify the son, as he was clearly listed as an 'excluded driver'. However, the insured argued that he understood this to mean that his son had no coverage, not that he was not himself protected from third party liability. The court questioned whether the insurer had taken adequate steps to bring the coverage implications to the insured's attention. The form that was originally sent to the insured, clearly explaining the implications of having an excluded driver on the policy, only listed another vehicle owned by the insured, not the truck in question. Although the insurer sent a revised form, listing the truck, the insured had left the country and claimed he did not receive it prior to the accident. Since the evidence was unclear, the court was not prepared to make a finding on the evidence that the insurer had taken all the appropriate steps to ensure the insured fully understood the coverage implications of having his son listed as an 'excluded driver'. The court directed the trial of an issue on the 'excluded driver' endorsement.

On the second ground, the court found that although both the insured and his son had sworn affidavits that the son did not have express consent to drive the vehicle, he did have implied consent. Email evidence suggested that when the insured found out that his son was using the truck on some public roads, he simply told his son to "be careful."  The court found that, at the very least, the insured had acqueised and had impliedly consented to his son using the truck on public roads.

On the third ground, the court found that the insured did not allow his son to drive while unauthorized to do so. The son had his G-1 license, which required him to have another driver in the vehicle with more than four years driving experience. At the time of the indicent there was another driver with the son, but he had less than the requisite experience. The court found that it could not be stated that the insured allowed his son to drive his truck in breach of the liscensing requirements since he could not have known that his son's passenger lacked the requisite experience.

The court directed a trial of an issue under Rule 38.10(1)(b) with regard to the coverage implications of the 'excluded driver' endorsement in relation to the insured. It also declared that the son was not covered and that the insurer had no duty to defend or indemnify him in the upcoming actions.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.

Sakinofsky, a lawyer, was sued for professional negligence after an action commenced by one of his clients was dismissed for delay. Sakinofsky took the position that his former law clerk, Rosso, was responsible for the loss because Rosso failed to meet the necessary deadlines to keep the action active.   Sakinofsky commenced third party proceedings against Rosso on this basis. Rosso commenced a fourth party claim against LawPro claiming contribution and indemnity for any liability found against him in the claim commenced by Sakinofsky. LawPro brought a motion seeking an order striking Rosso's fourth party claim on the basis that it disclosed no cause of action against it.

The Court held that there was no genuine issue for trial arising from either Rosso's claim for contribution and indemnity from LawPro under Sakinofsky's policy of insurance or from his allegations of misrepresentation.  Rosso conceded he was not a named insured under the policy issued to Sakinofsky and that he never understood LawPro would be liable to him directly as there was no contractual relationship between them. The policy specifically excluded coverage for law clerks. Any right of coverage for the errors of Sakinofsky's staff belonged to Sakinofsky who was the sole insured under the policy. Rosso did not establish that he relied on representations by either Sakinofsky or LawPro to the effect that he would be covered under the policy.

The Court held that there was no genuine issue with respect to Rosso's direct claim of negligence against LawPro as LawPro did not owe Rosso a duty of care. The Court noted that an insurer is not obliged to minimize the liability of a party adverse in interest or to protect his interest, relying upon Overload Tractor Services Ltd. v. British Columbia (Insurance Corp. of British Columbia, [1988] B.C.J. No. 94 (BCSC). In this case, LawPro owed Rosso no duty of care and, consequently was not obligated to take into account his interest.

In the result, LawPro was granted summary judgment dismissing Rosso's claim against it.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

Cirillo's home was extensively damaged in a fire. TGA General Contracting ("TGA") was  retained to repair the damage. TGA was not fully paid for its work and commenced a lien claim against Cirillo for $153,000. Cirillo took the position that Wawanesa was responsible for all outstanding amounts owed to TGA and sued Wawanesa for payment of those amounts. Wawanesa contended that it had fully indemnified Cirillo under the Policy. Wawanesa further contended that it had no connection with TGA who had been retained by Cirillo and was Cirillo's contractor.

Cirillo's action against Wawanesa was dismissed. The court found that it was readily apparent that the sole reason Cirillo commenced an action against Wawanesa was to force Wawanesa to satisfy TGA's account. The court held that TGA was not entitled to any payment from Wawanesa directly as there was no contract between Wawanesa and TGA. Similarly, there was no agreement between Cirillo and Wawanesa that Wawanesa would pay TGA's account. The guaranteed replacement cost endorsement in the Policy merely provided coverage up to the lowest estimate of repair with materials of like kind and quality. Cirillo was advised of this limit and provided with the lowest cost estimate. Cirillo did not take issue with the scope or cost of repairs based on that estimate. Cirillo did not take issue when Wawanesa made final payment pursuant to that lowest cost estimate. Following the final payment, Wawanesa had no further obligation to Cirillo. Any further dealings with TGA were solely the responsibility of Cirillo.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

MedCentra Inc. (“MedCentra”) was a third party service provider which provided MRI examinations to persons who were involved in motor vehicle accidents and who were insured persons under standard automobile policies of insurance Economical Mutual Insurance Company (“Economical”). MedCentra directly billed Economical for the MRI services provided to persons insured through Economical pursuant to the direct billing provisions set out in section 44 of the Statutory Accident Benefits Schedule (SABS). Economical paid for some but not all of the services performed by MedCentra. MedCentra sought to compel payment from Economical directly for the MRI examination services that it rendered to individuals insured by Economical. The issue for determination on this motion for summary judgment was whether MedCentra was entitled to bring an action directly against Economical to compel payment of any amounts that might be owing to MedCentra for MRI services rendered to persons insured by Economical.

To be entitled to recover payment directly from Economical for services rendered to insured persons, MedCentra would have to establish that it met the test of the principled exception to the doctrine of privity of contract. The “critical and cumulative” factors necessary to satisfy the test were set out by the Supreme Court of Canada in Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd, [1999] 3 S.C.R. 108:

(a) Did the parties to the contract intend to extend the benefit in question to the third party seeking to rely on the contractual provision? and,

(b) Are the activities performed by the third party the very activities contemplated as coming within the scope of the contract in general, or the provision in particular, again as determined by reference to the intentions of the parties?

The Court found no evidence that Economical or any of the insured persons to whom MedCentra provided services intended to confer any benefit on MedCentra, let alone the benefit of direct billing. The Court further found that any attempt by an insured person to confer the benefit of direct billing on MedCentra would be invalid because of the prohibition contained in section 65 of the SABS against an insured person making any assignment of benefits under the SABS. The option of allowing a service provider to bill an insurer directly was within the insurer’s discretion alone. The Court agreed with Economical’s submission that MedCentra could not be in a better position than an insured person under the SABS and thus could not be in a position to compel Economical to extend the benefit of direct billing to it.

The Court also found that to allow MedCentra to compel payment directly from Economical would undermine the statutory benefit regime provided under the Insurance Act and would be contrary to the explicit statutory provisions that kept the claims dispute process between insurers and insured persons. The provision allowing for direct billing at the option of the insurer did not change the basic nature of the claims process, namely, that claims are made by the insured person and any resulting dispute is between the insured person and the insurer, and not between the service provider and the insurer.

In the result, MedCentra had no right to bring an action directly against Economical for payment for the examinations provided to insured persons. There was no contractual relationship between Economical and MedCentra and no basis on which to relax the doctrine of privity of contract.

This case was originally summarized by Emily M. Williamson and originally edited by David W. Pilley.

The plaintiff insured Janey McQueen (“McQueen”) was injured in a rollover motor vehicle accident in January 2004. At the time of the accident, McQueen was not employed and had been receiving disability benefits for 10 years, primarily due to manic depression. She was 35 years old and resided with her husband and 14 year old daughter. Following the accident, the defendant insurer, Echelon General (“Echelon”), paid some benefits but eventually terminated housekeeping benefits, refused to pay transportation benefits, and refused to fund a psychological assessment. McQueen experienced 21 denials of 16 separate benefits over a period of three years and after two failed mediations, brought a suit seeking certain statutory benefits pursuant to the Statutory Accident Benefits Schedule and alleging that Echelon had breached its obligation to act in good faith in handling her claims.

McQueen’s evidence was that prior to the accident, she did the cooking, cleaning, shopping, etc. but that after the accident, she was bedridden for two months and her husband was obliged to leave his job to take care of her and take on the household responsibilities. McQueen obtained a certificate from her family doctor and an occupational therapy assessment which both supported her entitlement to housekeeping benefits. Echelon paid housekeeping benefits until the end of July 2004 and then ceased payments based on a medical report completed by Dr. Kwok, following a half-hour examination of McQueen and without the benefit of seeing the occupational therapy assessment. Echelon also denied McQueen funding for an in-home assessment for housekeeping benefits that was recommended by the occupational therapist, saying it was not “reasonable and necessary.”

The Court found that the onus was on Echelon to provide reasons for the assessment being unreasonable and unnecessary, which it did not do. It further found that McQueen had a substantial inability to carry out housekeeping activities without assistance during the relevant time and that she had established her entitlement to housekeeping benefits on a balance of probabilities. She was awarded benefits of $100 per week for the relevant period.

With regard to McQueen’s claim for transportation benefits, the Court found that these benefits had been denied in spite of the occupational assessment indicating that she required taxi transportation. Dr. Kwok’s report stated that McQueen was not disabled from operating a motor vehicle and Echelon incorrectly assumed that McQueen had a vehicle, though hers had been destroyed in the motor vehicle accident, and denied the benefit. The Court awarded McQueen a transportation allowance of $7,500.

The Court also awarded McQueen the cost of a number of psychological, neurological and occupational therapy assessments that had been recommended but not carried out.

The Court reviewed the law regarding awarding damages for mental distress, citing the BC Court of Appeal and the Supreme Court of Canada decisions in Fidler v. Sun Life Assurance, 2004 Carswell BC 1086 and [2006] 2 SCR 3. The Court held that for an award of damages for mental distress to be appropriate, it must be satisfied that:

a) An object of the contract was to secure a psychological benefit that brings mental distress upon breach within the reasonable contemplation of the parties; and,

b) The degree of mental suffering caused by the breach was of a degree sufficient to warrant compensation.

The Court found that Echelon’s file notes were evidence of an adversarial approach to McQueen ab initio and that in behaving in that manner, Echelon had breached its contract of insurance with McQueen. Echelon adopted this adversarial approach early on, in spite of file notes indicating that McQueen had serious injuries that required treatment and notwithstanding the duty of good faith it owed to McQueen throughout. The Court held that the object of the contract of insurance was to secure psychological benefits to McQueen in the form of peace of mind and that the nature of the contract was such that its breach would bring about mental distress and that this was within reasonable contemplation of the parties. McQueen had endured mental suffering as a result of the breach, which was of a sufficient character to warrant compensation. McQueen was accordingly awarded $25,000 in damages for mental distress.

This case was originally summarized by Emily M. Williamson and originally edited by David W. Pilley.

The appellant leased a single unit in a commercial mall owned by the respondent.  A fire occurred in the appellant’s unit, causing damage to the building and its contents, and interrupting the appellant’s business.  The parties brought a motion seeking a determination regarding whether the respondent or its insurer was entitled to claim damages against the appellant.  This question was itself dependant on whether the terms of the Offer to Lease had passed risk of loss caused by the fire on to the appellant or the respondent.  For the purposes of the motion, it was assumed that the appellant’s negligence occasioned the loss.  The Superior Court ruled that the appellant had assumed the risk of loss, and that the respondent was therefore entitled to pursue its claim.

The Court of Appeal disagreed, holding that the respondent had assumed risk of loss.  In so ruling, the Court of Appeal turned to the terms of the Offer to Lease and the Supreme Court of Canada’s decision in Ross Southward Tire Ltd. v. Pyrotech Products Ltd., [1976] 2 S.C.R. 35.  In Ross, the lease contained a condition requiring the tenant to pay for insurance, but did not contain a covenant requiring the landlord to obtain such insurance. The lease did not specifically mention insurance for losses occasioned by fire.  The Supreme Court of Canada ruled that given the terms of the lease, the risk of losses caused by fire passed to the landlord and precluded a subrogated claim against the tenant for damages.  The Court of Appeal found that the Offer to Lease in the case at bar was in substance identical to the lease in Ross, insofar as it required the appellant to contribute to the cost of insurance, but imposed no reciprocal obligation on the respondent.  The Court of Appeal held that if a tenant is required to pay for insurance, it is entitled to the benefit of that insurance.  As a result, in order for the appellant to be deprived of such a benefit, the Offer to Lease must contain a specific term to that effect.

This case was originally summarized by Kim Yee and edited by David W. Pilley.