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Monday Morning Case Bites for November 23, 2020

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Amanda Kostek & Steven Graham

Royal & Sun Alliance Insurance Company of Canada v Wawanesa Mutual Insurance Company, 2020 ABQB 720
Duty to Defend | Contribution | Unjust Enrichment

Tokio Marine & Nichido Insurance Company v Security National Insurance Company, 2020 ABCA 402
Priority of Policies | Primary Insurer

Royal & Sun Alliance Insurance Company of Canada v Wawanesa Mutual Insurance Company, 2020 ABQB 720

Royal and Sun Alliance Insurance Company of Canada (“RSA”) was the insurer of Russell and Shelley Penson pursuant to a standard auto policy. Wawanesa was the insurer of Russell and Shelly Penson for a personal insurance policy that provided coverage to their property.

A motor vehicle accident occurred between Devon Goodwin and Cole Penson on the Penson acreage. Cole Penson was operating a vehicle owned by Russell Penson with his permission. A claim was commenced by Devon Goodwin against Cole, Russell and Shelley Penson, where it was alleged that Cole was intoxicated at the time of the accident, and Russell and Shelley failed to properly supervise a social event at their property where alcohol was being consumed and motor vehicles were being operated (the “Social Event Allegations”).

RSA defended on behalf of Cole and Russell through the standard auto policy, and Wawanesa defended on behalf of Russell and Shelley through the personal policy. Wawanesa successfully brought an application for summary dismissal of the action against Shelley and Russell with respect to the Social Event Allegations.

The issue in this application is whether Wawanesa owed any duty to defend Cole Penson with respect to the Social Event Allegations.

[14]           Wawanesa resists RSA’s application on the bases that: (1) RSA does not have standing to bring the application, as that standing belongs to Cole; and (2) in any event, Wawanesa did not have a duty to defend Cole based upon the three-step analysis that the court should undertake as follows:

(a)               The court should determine which of the plaintiff’s legal allegations are properly pleaded by examining the substance of the allegations contained in the pleadings;

(b)               The court should then determine whether any properly pleaded claims are entirely derivative in nature; and

(c)               The court must then decide whether any of the properly pleaded, non-derivative claims could potentially trigger the insurer’s duty to defend.

RSA argued that the Wawanesa policy was complimentary to the RSA policy and on that basis Wawanesa was obligated to participate in or contribute to the defence of Cole:

[15]           The Wawanesa Policy is a contract of insurance between an insurer and an insured. It is trite to note that RSA is not a party to that contract. If RSA has a right to make this application, the basis for doing so will be found in the law of equity.

[16]           There are many cases that deal with the claim of one insurer being made against another insurer on the basis of “equitable contribution”. This is where an insured has more than one policy of insurance that covers the same risk and one insurer has been called upon to pay the insured. Equitable contribution allows the insurer who has made payment to recover from the other insurer(s) so that the burden is shared among them pro rata.

[17]           RSA acknowledges that this is not a case of equitable contribution as the insurance policies of RSA and Wawanesa do not cover the same risk. Rather, RSA describes the policies as complementary, not overlapping.

[18]           RSA asserts that recent case law establishes the legal proposition that one insurer may recover from another insurer with a complementary policy, based upon the equitable doctrine of unjust enrichment. That case is Aviva Insurance Company v Intact Insurance, 2018 ONSC 238.

In the Aviva decision, the Court applied the equitable principle of unjust enrichment. RSA argued the same in this situation:

(a)               ENRICHMENT:  By defending Cole against the Motor Vehicle Allegation without Wawanesa’s participating defence of the Social Event Allegations, RSA confers a benefit on Wawanesa, who is spared from any expense it should have borne to defend their mutual insured. Ultimately, RSA may be required to indemnify Cole against liability arising from the Social Event Allegations, without contribution from the very insurer whose policy ought to respond.

(b)               CORRESPONDING DEPRIVATION:  RSA has incurred and (will incur further) expenses and costs in its defence of the Motor Vehicle Allegations. Without Wawanesa’s involvement in defending Social Event Allegations, from a practical perspective, RSA will ultimately be paying the cost of defending those allegations as well. RSA may be required to indemnify Cole for liability arising from the Social Event Allegations, which would have been Wawanesa’s responsibility had it honored its obligations to Cole.

(c)               ABSENCE OF JURISTIC REASON:  Cole is entitled to defence and indemnity under the Wawanesa Policy. The RSA Auto Policy does not covert Cole’s liability arising from the Social Event Allegations. There is no juristic reason why Wawanesa should retain the benefit of being shielded from the cost of defending (and potentially indemnifying against) the Social Event Allegations against Cole. The reasonable expectations of the parties (ie RSA, Wawanesa, and Cole) were that Wawanesa would honour its obligations under the Wawanesa Policy. There are no policy considerations favoring the retention of this unwarranted benefit by Wawanesa.

Ultimately, the Court held that RSA had not met out a case of unjust enrichment, and that this case was distinguishable from Aviva. As a result, the Court determined that RSA had no standing to bring the application, so did not determine whether Wawanesa had any duty to defend Cole in regard to the Social Event Allegations.

[23]           In my view, RSA has not made out a case of unjust enrichment.

[24]           RSA has not indemnified Cole with respect to the Social Event Allegations. In the passage above, RSA says that ultimately it may be required to indemnify Cole. However, a mere possibility that a payment may have to be made is not enough to create an unjust enrichment. In fact, later in its brief (at subparagraph 52(a)), RSA specifically denies that it has any responsibility to indemnify Cole with respect to the Social Event Allegations. RSA cannot have it both ways.

[25]           The same may be said with respect to the costs of defending Cole on the Social Event Allegations. RSA states that it has no legal obligation to defend Cole on the Social Event Allegations. RSA has not defended Cole on the Social Event Allegations. If RSA does not in fact defend Cole with respect to these allegations, there can be no unjust enrichment.

[26]           I find that this case is distinguishable from the Aviva case. In that case Aviva had in fact defended Patel and had paid part of Intact’s portion of the settlement. No such thing has occurred here.

[27]           Since RSA has no claim for unjust enrichment it does not have standing to bring this application. At this point in time it is Cole that must bring any application to compel Wawanesa to defend him on the Social Event Allegations.

[28]           Given this ruling that RSA does not have standing, I need not consider whether Wawanesa does have a duty to defend Cole on the Social Event Allegations.

Tokio Marine & Nichido Insurance Company v Security National Insurance Company, 2020 ABCA 402

This decision deals with determining the first-loss insurer. The facts can be summarized as follows:

[2]               Ms. Sran, as requested by Harjit Gill, drove Mr. Gill’s 2008 Acura MDX to the Northwest Acura dealership[2] so that it could be serviced.

[3]               Northwest Acura provided Ms. Sran with a courtesy car at no cost after she signed a loaner agreement between Northwest Acura and herself.

[4]               Ms. Sran allegedly collided with a skateboarder while she operated the courtesy car.

[5]               The skateboarder sued Ms. Sran, Honda Canada Finance Inc., the owner of the courtesy car, and 724053 Alberta Ltd., the owner of the dealership.

[6]               Honda Canada Finance Inc. leased the courtesy car to Honda Canada Inc.

[7]               Honda Canada Inc., in turn, lent the courtesy car to the Northwest Acura dealership.

[8]               Tokio Marine is the insurer of the owner of the dealer’s courtesy car, Honda Canada Finance Inc.

[9]               Security National issued an automobile insurance policy to Mr. Gill, the owner of the 2008 Acura MDX.

[10]           Tokio Marine and Security National cannot agree as to who is the first-loss insurer. The first-loss insurer is obliged to defend the skateboarder’s claim against Ms. Sran.

[11]           Tokio Marine filed an originating application seeking a declaration that Security National, and not Tokio Marine, is the primary insurer and must defend the third party claim against Ms. Sran.

The Court of Appeal confirmed some basic principles of insurance policy priority: (a) that an owner of an automobile is vicariously liable for negligence of anyone who drives that vehicle with the owner’s consent; (b) if a person is insured under two motor vehicle liability policies, s.596(1) of the Insurance Act provides that the owner’s insurer is the first-loss insurance and the driver’s insurance is excess insurance.

With respect to insurers of rental or lease vehicles, the Court of Appeal explained the concept of a “priority flip”:

[21]           First, Alberta imposed a $1 million vicarious liability cap for the negligence of rentees and lessees.[7]

[22]           Second, through a series of related enactments – the Insurance Amendment Act, 2008,[8] the Traffic Safety Amendment Act, 2007,[9] the Traffic Safety Amendment Act, 2009,[10] and the 2010 Miscellaneous Provisions Amendment Regulation[11] – Alberta introduced a priority flip. The purpose of the priority flip was to make the insurers of the rentees and lessees of the automobiles the car rental and car leasing companies owned the first-loss insurers instead of excess insurers.[Case Bites emphasis added]

[23]           Section 596(4) of the Insurance Act, introduced by the Insurance Amendment Act, 2008,[12] expressly authorized the Lieutenant Governor in Council to modify section 596(1) of the Insurance Act for the benefit of car rental companies that rented vehicles to the public and lessors of automobiles.

[24]           On November 24, 2010, the Lieutenant Governor in Council issued the Miscellaneous Provisions Amendment Regulation. This regulation amended the Miscellaneous Provisions Regulation, which was renamed the Miscellaneous Insurance Provisions Regulation[13] in 2016. It introduced the possibility of a priority flip “if a leased or rented automobile is a motor vehicle as defined in section 1(1)(x) of the Traffic Safety Act and section 187 of the Traffic Safety Act[14] applies [and a question arises as to which insurance policies] … shall apply in respect of liability arising from or occurring in connection with the ownership or … with the use or operation of the leased or rented automobile”.[15] Section 187 of the Traffic Safety Act is the provision that imposes vicarious liability on the owner of the automobile for the torts of the driver of the automobile.

Tokio Marine, the insurer of the owner’s courtesy car, argued that a priority flip exists in the above situation.

Ultimately the Court majority determined that there were three possible interpretations, and accepted two of them which yielded the same result – that there was no priority flip. The reasons and interpretations are detailed.

The first interpretation (“Option A”), is that the statutory framework that permits the “priority flip” is limited to businesses that rent or lease automobiles to the public. In this case, Northwest Acura was not determined by the Court to be in the car rental or car leasing business, and the courtesy car was neither rented nor leased – it was a temporarily loaned.

The second interpretation (“Option B”) is that the statutory framework permitting the “priority flip” is not limited as in Option A to rental or leasing companies. If so, then it is necessary to determine if the automobile is a “leased…automobile” under s.7.1(2) of the Miscellaneous Insurance Provisions Regulation. The Court determined that an automobile will not fit this definition unless the driver of the automobile that caused the third party loss or the person who gave the driver permission to drive that automobile is a lessee in a lessor-lessee relationship. As neither Ms. Sran nor Mr. Gill were lessees of the courtesy car, there could be no priority flip and Tokio Marine would be still be obligated to defend the claim as first-loss insurer.

The third interpretation (“Option C”) is that a priority flip is in effect if the automobile that caused damage is the subject of a lessor-lessee relationship between parties who entered into the lease agreement prior to the delivery of the automobile to the driver that caused the third party injury. The Court of Appeal determined this option could not be correct:

[60]           If section 596(4) of the Insurance Act allowed the Lieutenant Governor in Council to pass a regulation advancing the interests of only car rental or car leasing companies, a regulation advancing the interests of companies that are not in the car rental or car leasing business would be unlawful.

[61]           Even if section 596(4) does not restrict cabinet’s options in this manner, it makes no sense to interpret section 7.1(2) of the Miscellaneous Insurance Provisions Regulation this way. A priority flip is designed to protect the renter and lessor that are parties to a rental or lease agreement with the driver of the automobile that caused third party damages or loss, or a person who permitted the driver to operate the automobile. A “lessee”, according to section 7.1(1) of the Miscellaneous Insurance Provisions Regulation, means a person to whom a lessor leases … use of an automobile”. This assumes that the lessor and lessee are parties to the same lease agreement.

The majority of the Court of Appeal (Justices Wakeling and Crighton) concluded that either Option A or Option B were correct, and as they produced the same result (that there is no priority flip in this situation), they declined to decide which of Options A or B were correct and did not determine whether the loaner vehicle was a ‘temporary substitute automobile’.

Fraser C.J.A, concurring in the result, determined that the loaner vehicle qualified as a ‘temporary substitute automobile’ under SPF1, such that Security National (the insurer of Mr. Gill) owed coverage, though Tokio Marine remained the first loss payable.