Recently in Middleton v Pankhurst,1 the Court of Appeal confirmed the parameters in which insurers may deny coverage on the basis that the insured was not a “person authorized by law” in accordance to Statutory 4 (1) Condition of O. Reg. 777/93:
Authority to drive
4 (1) 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.
The defendant and respondent, Mr. Pankhurst, was insured by Aviva Canada and had a valid Class “G” license. Mr. Pankhurst was bound to a probation order that prohibited him from driving at night and driving with alcohol in his system as a result of a prior guilty plea to careless driving.
On January 24, 2009, Mr. Pankhurst went ice fishing with his friend and the plaintiff, Mr. Middleton. On that night both individuals had consumed alcohol. The plaintiff decided to leave the ice hut and go for a walk alone but he became lost and disoriented. As a result, he called the defendant on his cell-phone and requested to be picked up. The defendant was able to locate the plaintiff and both drove back together on the defendant's snowmobile. During their return, the defendant lost control of his snowmobile causing the plaintiff to strike a telephone pole and suffer significant injuries.
A settlement was reached and the defendant was to pay $900,000 to the plaintiff and his mother, the FLA claimant. Aviva Canada took the position that it was not obliged to pay any part of the settlement on the basis that the defendant was not authorized by law to drive at the time of the accident since he had been drinking and driving at night, in breach of his probation order.
The trial judge rejected Aviva's argument and found that Mr. Pankhurst was authorized by law to drive as he possessed a valid driver's license that was not subject to any restrictions imposed by the Ministry of Transportation. In arriving at this decision, the trial judge relied on the Court of Appeal's 2012 judgment in Kereluik v Jevco Insurance Company which expressed that “authorized by law” was not intended to apply to breaches of the law not directly connected with violations of driving license conditions.2
... “authorized by law” was not intended to apply to breaches of the law not directly connected with violations of driving license conditions.
The trial judge further held that Aviva's position was inconsistent with section 118 of the Insurance Act, which limits the exclusion of indemnification for loss or damages to criminal acts intended to bring about the loss or damage.3
Aviva appealed this decision and advanced three arguments:
This case was distinguishable from Kereliuk because in the present case, the restrictions impose relate directly to the operation of a motor vehicle;
Section 118 of the Insurance Act, is not applicable to the facts of this case as the defendant violated a court order and not a statute or any other law; and
The policy goal of ensuring the broadest possible insurance coverage for tort victims should not trump the rule of law, specifically, the sanctity of court orders.
On September 28, 2017, the appellate court affirmed the trial judge's decision and dismissed the appeal with costs.
With respect to Aviva's first argument, it was found that the trial judge correctly and necessarily relied on the judgment in Kereliuk as the focus of the analysis was the same in both cases whether the driver was disqualified under Statutory Condition 4. Furthermore, the effect of overturning Kereliuk would be contrary to legislative intent and inconsistent with the amendments to the Insurance Act that protect innocent third parties.
In addition, the Court concluded that Aviva's interpretation of section 118 is also inconsistent with the policy objective to provide insurance protection for negligent tortfeasors who do not intend to cause harm, and to their victims. More importantly, there is no meaningful distinction between a court order and any other law, both can act to restrict the operation of a motor vehicle.
Lastly, there is no conflict between the proper interpretation of Statutory Condition 4 and the proper operation of court orders. The decision of the trial judge did not advance the proposition that court orders should be ignored, nor is that a consequence of the decision.
As seen with this case, the mere existence of a criminal law violation while operating a motor vehicle is not suggestive that it operates to repudiate the insurer's obligations to provide coverage to their clients. It is apparent from this decision that a person “authorized by law” under Statutory Condition 4 is confined to restrictions imposed on drivers by the Ministry of Transportation (MTO). Further, Ontario's no-fault automobile insurance scheme continues to support the protection of innocent tort victims and this factor plays a considerable role in the interpretation of a standard form contract of insurance. When encountering interpretation issues related to coverage, insurers should pay special attention to not only MTO restrictions on their client's driver's license but also to the policy objectives behind the specific law.
Read the full Court of Appeal decision.