The insured was in a motor vehicle accident at a time when her driver’s license was expired. The insured was entitled to be relieved from forfeiture for non-compliance with the statutory condition and the insurer had a duty to defend the motor vehicle accident action and indemnify the insured for liability.

[2014] O.J. No. 753

2014 ONCA 130

Ontario Court of Appeal

M. Rosenberg, J.C. MacPherson and H.S. LaForme JJ.A.

February 19, 2014

The insurer appealed an order declaring that the insurer had a duty to defend and indemnify the insured in an action brought against the insured for injuries arising out of a motor vehicle accident in Florida.

At the time of the accident, the insured’s driver’s license was expired. The license had been expired for four months prior. Three days after the accident, the insured returned to Canada and renewed her license without difficulty.

The insurer denied that it had a duty to defend the insured on the basis that, at the time of the accident, the insured was in breach of statutory condition 4(1) of Statutory Conditions --- Automobile Insurance, O. Reg. 777/93, enacted pursuant to the Insurance Act, RSO 1990, c I.8. Specifically, the insured was in breach of the statutory condition in that, when she drove without a driver's license, the insured was not authorized by law to drive.

The lower court held that the insurer had a duty to defend and indemnify the insured because the insured exercised due diligence and was not in breach of statutory condition 4(1). The lower court also held that the insured could not obtain relief from forfeiture under s.98 of the Courts of Justice Act, RSO 1990, c. C.43 as the statutory condition was a fundamental term or condition precedent of the insured’s policy.

On appeal, the court confirmed that the insurer had a duty to defend and indemnify the insured, but for different reasons.

The appellate court found that the insured had not proven that she exercised due diligence with respect to her driver’s license renewal.

The appellate court then considered whether the insured was entitled relief from forfeiture under s. 98 of the Courts of Justice Act. The insured’s breach of the statutory condition did not constitute non-compliance with a condition precedent. There were no grounds to believe that statutory condition 4(1) was a fundamental term or that the insured’s breach of it was of a fundamental nature. Furthermore, there was nothing in the contract that identified the relevant contractual term as a condition precedent.

In determining whether the insured was entitled to relief against forfeiture, the appellate court considered the following factors: (i) the conduct of the insured, (ii) the gravity of the breach, and (iii) the disparity between the value of the property forfeited and the damage caused by the breach. With respect to the first factor, the insured's conduct was reasonable. The insured renewed her license as soon as she discovered it had expired. The insured always paid her premiums and acted in good faith on all occasions. With respect to the second factor, the insured’s breach had no impact on her ability to drive safely or on the contractual rights of the insurer. In considering the third factor, the court found that the disparity was enormous. The insured stood to lose a million dollars in insurance coverage, while the breach of statutory condition 4(1) caused no prejudice to the insurer.