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B E T W E E N : |
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TRANSPORTACTION LEASE SYSTEMS INC. |
Jamie Pollack |
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- and - |
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THE GUARANTEE COMPANY OF NORTH AMERICA and
MARTIN BEALS |
Gregory J. Van Berkel |
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Heard: May 4, 2005 |
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On appeal from the judgment of Justice Blenus Wright of the Superior Court of Justice dated December 19, 2003.
[1] This appeal examines the relationship between named co-insured and an insurer in a contract of automobile insurance. The contract provides for coverage on a several basis.
[2] Specifically, this appeal asks whether an insurer can avoid an automobile lessor’s claim for damage coverage on the basis that the lessor’s co-insured, the automobile lessee, cancelled damage coverage under the policy. For the reasons that follow, I conclude that one co-insured cannot unilaterally cancel or delete the coverage of the other under the policy. For the cancellation or deletion by the co-insured lessee to be effective against the co-insured lessor, the insurer had to give fifteen days prior notice of that cancellation or deletion to, and obtain the express or implied consent of, the co-insured lessor, and otherwise comply with the applicable statutory conditions.
[3] The appellant, Transportaction Lease Systems Inc., leased a motor vehicle to Martin Beals. As part of the lease agreement, Beals was required to secure insurance on the vehicle naming both the appellant and Beals as named insured. The respondent, The Guarantee Company of North America ("Guarantee"), issued a standard form Ontario automobile insurance policy naming both the appellant and Beals as insured.
[4] Because he was placing the leased auto in storage over the winter, Beals directed Guarantee to delete all insurance coverage on the vehicle except for fire and theft. The vehicle was subsequently damaged in an accident while being driven by Beals.
[5] On February 11th, 2002, the appellant received notice from Guarantee of Beals' deletion of coverage. This was 10 days before Beals damaged the vehicle beyond repair. Specifically, by letter dated February 1st, 2002, Guarantee wrote the appellant: "Please be advised that effective January 8, 2002 the following coverage has been deleted from the above noted vehicle". The letter goes on to list the deleted coverage, which included third party liability, basic accident benefits, and collision.
[6] One day after receipt of the notice from Guarantee, the appellant contacted Beals by mail, demanding that he execute and return a letter stating that the vehicle was to be put away for seasonal storage and surrender the auto's licence plates to the appellant within ten days.
[7] The appellant sought judgment against Guarantee for indemnity under the automobile insurance policy on the basis that the insurance coverage was not deleted as against the appellant at the time of the accident. The trial judge found that the appellant was not entitled to judgment against Guarantee, but only against Beals, who had been previously noted in default. He held, at paragraph 14, that the notice given by Guarantee to the appellant "was in accord with legislative requirements, which did not require a 15-day notice period".
[8] To complete the background, the trial judge considered the application of statutory condition 11(1), [1] pursuant to the Insurance Act, R.S.O. 1990, c.I.8. This subsection provides that the insurer may terminate an automobile insurance contract by giving fifteen days advance notice of termination. I will say more about the application of this statutory condition below.
[9] As was principally argued on appeal, the concern regarding this issue is whether an automobile leasing company, a named insured in the standard insurance contract, is entitled to the fifteen day notice provision in circumstances where the lessee, as the other named insured, terminates portions of the insurance coverage.
[10] The parties place much emphasis in their arguments on points of statutory interpretation. The appellant submitted that the cancellation of multiple coverages under the policy, including collision, amounted to a termination of coverage and that Guarantee was therefore required to provide fifteen days advance notice to the appellant in accordance with the statutory conditions. Guarantee asserts that the statutory conditions permit an insured to unilaterally cancel coverage at any time on request, and that the insurer is then only required to give notice to any other named insured, rather than fifteen days advance notice.
[11] As noted above, the appellant received notice ten days prior to the accident.
[12] The answer to this appeal does not lie in statutory interpretation alone. The statutory conditions are only a part of the policy evidenced by an insurance contract, and contracts should be interpreted as a whole. In my view, it must first be determined whether the contract treats the rights of co-insured as joint or several. It is within this context that the statutorily provided notice requirements under the policy can be understood.
[13] I am persuaded by the appellant’s submission that a reasonable interpretation of the policy of insurance provided by Guarantee to the appellant and Beals is one that encompasses protection of the separate interests of each of the named insured. However, I am not persuaded by either of the parties’ submissions regarding the ability of one of two co-insured to cancel or delete coverage under the policy. As I will demonstrate below, the relevant statutory conditions are ambiguous in cases with multiple named insured. Nevertheless, the contract, properly interpreted, requires that a co-insured be provided with advance notice of a cancellation by another co-insured to be effective. For the following reasons, I would allow the appeal.
[14] Approach to Interpreting the Policy
[15] Although neither are automobile insurance cases, I find the analysis of the Supreme Court of Canada in Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888, and Scott v. Wawanesa Mutual Insurance Co., [1989] 1 S.C.R. 1445 to be instructive of the general interpretation of insurance contracts and the determination of co-insured’s rights under an insurance contract, respectively.
[16] Justice Estey, writing for the majority in Consolidated-Bathurst, considered the normal rules of construction of contracts in construing an insurance contract at pages 901-02:
Even apart from the doctrine of contra proferentem as it may be applied in the construction of contracts, the normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted…. [A]n interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result.
[17] In Wawanesa, writing in dissent, LaForest J. adopted the “modern” approach to determining the rights of co-insured under an insurance contract. This modern approach was developed in answer to the old approach's patent unfairness of denying insurance coverage to an innocent co-insured. The approach is well summarized in the passages that he quoted from the Ontario Court of Appeal decision of Higgins v. Orion Insurance Co. (1985), 50 O.R. (2d) 352, that had come to the same conclusion: “The terms of the policy itself … should be of more significance to the resolution of whether the innocent co-insured may recover than the form of ownership of the property” (p. 372). And as regards policy terms: “Where a fire insurance policy covers the interests of more than one person, the obligation of the insurer, in the absence of clear and precise language in the policy to the contrary, should be considered several as to each of them” (p. 372).
[18] The latter aspect of the approach, considering the rights and obligations of co-insured as several in the absence of clear language to the contrary, was affirmed by LaForest J. writing for the majority of the Supreme Court in National Bank of Greece (Canada) v. Katsikonouris, [1990] 2 S.C.R. 1029.
[19] In the case at bar, the terms of the agreement and the other factors that demonstrate the intention of the parties and their objectives in entering into a commercial transaction involving insurance coverage are set out below. In my view, the only commercially reasonable interpretation of these factors is that the rights and obligations of the co-insured under the policy are several, not joint.
[20] It is clear from the insurance agreement that both Beals and the appellant are named insured. Guarantee, in its "Certificate of Automobile Insurance", names both the appellant and Beals as "Named Insured". The "Confirmation of Insurance on Leased Vehicle" form, faxed by the insurance broker to the appellant, acknowledges that the appellant is a "named insured". The "Form OPCF 5: Permission to Rent or Lease Automobiles and Extending Coverage to the Specified Lessee(s)" endorsement specifically refers to the “Lessor” as a party to the insurance agreement, and provides that Beals was to be included as a named insured under the policy. This demonstrates that there was an intent to treat the parties separately under the contract.
[21] The lease agreement evinces a similar intent: Beals was to create an insurance contract where he and the appellant were to be treated separately, not to create a single agency agreement. The terms of the lease required obtaining insurance coverage "from an insurance company acceptable to [the] Lessor", and that it be "a Standard Automobile Insurance Policy (Owner's Form)". The agreement required Beals to deliver to the appellant the original Certificate of Insurance showing the appellant as the "named insured". And finally, the lease agreement included a specific signed undertaking by Beals to obtain the above noted insurance coverage "in the name of the Lessor".
[22] Importantly, the plain language of the insurance agreement does not alter the starting position taken from the case law – that the co-insured’s rights and obligations are separate in the absence of clear language in the policy to the contrary. The insured is referred to throughout the automobile policy as “you” and “your”. Section 1.7 of the policy provides that “you may cancel your insurance any time by advising us”. “You” and “your” can be taken as referring to one insured or both. There is nothing on the face of the contract that would indicate to an insured that its rights were in any way qualified by the conduct of the other named insured.
[23] Both insured had separate and distinct interests in the automobile insurance policy. For example, only Beals was required to pay premiums on the policy while the appellant, who owned the vehicle, could claim its value if it was destroyed during the period of the lease: See Jackson v. Dennis, (1998), 50 C.C.L.I. (2d) 173 (Ct. J. (Gen. Div.)), aff'd [1999] O.J. No. 3468 (C.A.).
[24] As the owner of the vehicle, the appellant suffered the loss when the vehicle was damaged. It may be important for Beals to be a party to the insurance contract for protection from claims of property damages or personal injuries caused by or to third parties, but Beals had no direct financial interest in the automobile. Further, it certainly could not have been the parties’ intention that the owner be left without coverage for loss of the automobile simply because Beals attempted to cancel portions of the coverage.
[25] A plain reading of the insurance contract and the attached "Form OPCF 5" indicates that the insurance policy treats the insured’s rights and obligations as several. Guarantee is a sophisticated commercial party, and has entered into a contract of insurance that expressly extended the benefits of that contract to the appellant as a separate named insured. Nothing in the contract clearly states that the parties were considered to be jointly insured. The whole of the contract was for the benefit of the appellant, not simply some portion of it.
[26] The appellant was aware of its risk as owner of the vehicle and required Beals to insure against that risk as part of his lease agreement, and proceeded on the basis that it was thus protected against that risk. It would be commercially unreasonable to suggest that the only party with an actual interest in the vehicle in question can have its protection under the insurance contract revoked unilaterally by another party without appropriate prior notice.
[27] The statutory conditions are prescribed by the Minister and “deemed to be part of every contract to which they apply..." by ss. 234.7 and 121(1) of the Insurance Act. The policy clarifies that where the contract is in conflict with the statutory conditions, the conditions prevail. Where the parties’ rights and interests are joint under the policy, statutory condition 11(2) would clearly provide for cancellation by the insured, as the actions of one insured would be effective against the rights of both. However, where the rights of co-insured are several, like in the present case, the statutory condition is ambiguous.
[28] Statutory condition 11(2) provides that “this contract may be terminated by the insured at any time on request.” It is not clear from this language whether the term "insured" means one or both of the co-insured or, more specifically, whether "insured" means that one co-insured may terminate on behalf of all co-insured. However, as I will explain, where the rights and obligations of co-insured are several, statutory condition 11(2) must be taken to require the knowledge and consent -- either express or implied -- of the co- insured in order to terminate the policy, or to cancel or delete coverage that is tantamount to termination in respect of the coverage involved vis-à-vis the co-insured.
[29] This interpretation of statutory condition 11(2) is consistent with the balance of the insurance contract. The reasons that indicated an intent to treat rights of the co-insured as several apply with equal strength to the ability of one co-insured to extinguish the rights of the other co-insured without prior notice and consent. The intention and objective of the commercial relationship between all of the parties, including Guarantee, was to insure the separate interests of both the appellant and Beals.
[30] Further, in the section dealing with liability coverage, the contract specifies that “if there is more than one named insured under the policy” and the named insured make claims against each other, “[the insurer] will act as if a separate policy was issued to each named insured”. If the insurer were to treat termination of two insured so differently than the liability coverage of two insured, the legislature would have used clear language to that effect.
[31] In cases where the terms of an insurance contract are unclear, whether statutorily imposed or not, contra proferentem requires that the ambiguity be resolved against the insurer: See Consolidated-Bathurst, supra. An interpretation that requires the consent of all named insured in order to terminate coverage under the policy favours the insured, not the insurer. In my view, therefore, Beals could only have deleted portions of the policy that impacted upon the protected rights of the appellant with appropriate prior notice to, and either express or implied consent of, the appellant.
[32] Statutory condition 11(1) -- the provision that permits an insurer to terminate on five days notice -- is not directly applicable in these circumstances. It reads:
Subject to section 12 of the Compulsory Automobile Insurance Act and sections 237 and 238 of the Insurance Act, this contract may be terminated by the insurer giving to the insured fifteen days notice of termination by registered mail or five days written notice of termination personally delivered. (Emphasis added)
[33] Guarantee did not attempt to terminate coverage however; rather Beals requested that the relevant coverage be deleted. Moreover, s. 12 of the Compulsory Automobile Insurance Act, R.S.O. 1990, c. C.25 provides limited grounds upon which an insurer may cancel coverage. None of those grounds applied in the present case. Therefore, Guarantee was not in a position to terminate as against the appellant. However, it was entitled, and required, to put the appellant on notice of Beals' cancellation to determine whether the appellant wished to continue its coverage, and was prepared to pay the premiums in order to keep its policy in good standing.
Entitlement to Notice
[34] Having found that statutory condition 11(2) requires prior notice to the appellant for the cancellation by Beals to be effective against it, it is necessary to determine the nature of notice that will satisfy this requirement. I do not accept the argument of Guarantee that s. 232(3) of the Insurance Act specifies the appropriate form of notice. Instead, I find by analogy to statutory condition 11(1), that fifteen days prior notice is sufficient.
[35] I would simply note here the obvious differences that the notice requirement under statutory condition 11(2) is distinct from the provisions of statutory condition 11(1). This examination is concerned only with a cancellation or deletion of material coverage by one of multiple co-insured, not a cancellation by the insurer. Statutory condition 11(1) is only relevant to this case to the extent that it is helpful by way of analogy.
[36] Guarantee submits that subsection 232(3) of the Insurance Act makes it clear that the deletion or cancellation of coverages is an amendment to the policy and, therefore, the insurer must provide notice of the amendment by delivery or mail. Section 232(2) provides that:
Subject to subsection (5), the insurer shall deliver or mail to the insured named in the policy, or to the agent for delivery or mailing to the insured, the policy or a true copy thereof and every endorsement or other amendment to the contract.
Subsection (5) has no application in this appeal.
[37] The submission of Guarantee is that, while this section provides that an insurer must give an insured notice of any change in a policy, it does not require an insurer to give any length of advance notice to a named insured when coverage is cancelled or altered at the request of an insured. The argument has no application in this case. Subsection 232(3) deals with notice of an amendment to the contract when the amendment is validly made. It does not address, nor is it relevant to, the circumstances of this case where there is an attempt to amend the contract without the prior notice to, and consent of, all the named insured.
[38] Although I have noted that statutory condition 11(1) is not directly applicable, nevertheless, the rationale for notice upon cancellation by the insurer is equally applicable where a co-insured attempts to cancel or delete coverage affecting another co-insured. One co-insured cannot purport to affect the contractual rights of another co-insured by deleting a portion of its coverage unless with the express or implied consent of the other. Fairness requires that the affected co-insured be given prior notice in order to protect its interest. Failure to act upon receipt of the notice may constitute consent.
[39] Statutory condition 11(1) requires fifteen days notice to the insured prior to termination of the policy by the insurer. In these cases, the insurer is acting unilaterally. Similarly, Beals was acting without the knowledge or consent of the appellant. I see no reason why the appellant would not be entitled to similar notice in these circumstances. Therefore, in circumstances where co-insured are severally insured, I interpret the contract together with statutory condition 11(2) as requiring fifteen days prior written notice to an insured before a cancellation or deletion of coverage by another co-insured can become effective.
[40] Guarantee did not provide fifteen days prior notice to the appellant of Beals' amendment to the policy of insurance to which the appellant was a named co-insured. Because the appellant is a party to the contract as a named co-insured, Guarantee could not amend or cancel coverage as requested by Beals, except with fifteen days prior notice of Beals' request to -- and the express or implied consent of -- the appellant. As noted above, and as conceded, this was not given. Having failed to perform its contractual obligations to the appellant, Guarantee was in breach of its contractual obligations and the appeal must be allowed.
[41] For the foregoing reasons, I would allow the appeal and set aside the judgment dismissing the action. There will be an order that Transportaction is to have judgment against the insurer in the amount of $38,400, together with pre-judgment and post-judgment interest. Transportaction will have its costs of the trial, to be assessed if necessary, as well as its costs of the appeal on a partial indemnity scale fixed in the amount of $4,500 inclusive of disbursements and GST.
“H.S. LaForme J.A.”
“I agree R.A. Blair J.A.”
BORINS J.A. (Concurring):
[42] I have had the opportunity to read the reasons for judgment of my colleague LaForme J.A. I agree with his disposition of the appeal on the application of contract law. In my view, any consideration of notice is unnecessary and creates the potential for complications in future cases that raise a similar issue.
[43] As LaForme J.A. concluded, the contract of automobile insurance is several, rather than joint, and, as such, effectively creates two insurance contracts, one insuring the interests of Transportaction as the owner and lessor of the vehicle, and the other insuring the interests of Beals as the lessee of the vehicle. Because the several nature of the contract provides for separate coverage of the insurable interests of each co‑insured, one co‑insured could not delete the coverage affecting the insurable interests of the other co‑insured without the consent of the latter. As such, I do not subscribe to the view, on the facts of this case, that Beals could have effectively deleted Transportaction’s coverage under its separate contract of insurance in the absence of its consent even if the insurer had provided Transportaction with some form of notice that Beals had deleted a portion of the coverage provided by the insurance policy.
[44] Indeed, I do not see this as a “notice” case. In my view, Statutory Condition 11(2), which my colleague relies on by analogy in requiring that notice be given to Transportaction, has no application to the circumstances of this case. It reads as follows:
This contract may be terminated by the insured at any time on request.
Beals did not purport to terminate the insurance contract. Rather, he asked the insurer to delete all coverage on the vehicle except for fire and theft. Nor is Statutory Condition 11(1) helpful by analogy as it applies where an insurer terminates an insurance contract.
[45] The parties argued this appeal on the basis that the issue was the effect on Transportaction’s coverage of what was referred to as the insurer’s “notice” of February 1, 2002 to Transportaction. As I understand my colleague’s reasons, it is implicit that he considered the insurer’s letter of February 1, 2002 to Transportaction to be “notice” that part of the coverage had been deleted, but as that the notice was defective Transportaction’s coverage was not deleted. In my view, this document was not a notice and as I explain in the next paragraph, there is no purpose to be gained by writing a notice requirement into the Insurance Act, R.S.O. 1990, c. I.8. It was a letter that merely informed Transportaction that, effective January 8, 2002, certain specified coverage had been deleted, without indicating by whom it had been deleted. Significantly, Transportaction replied to the insurer’s letter to advise it that it had not requested the deletion of any coverage. Indeed, the notice of termination of a contract of insurance that an insurer is required to give to an insured is prospective in that it informs the insured that the contract will come to an end at the conclusion of a stipulated period of time. This is to provide the insured with a reasonable opportunity to obtain replacement insurance. Statutory Condition 11(1) read together with paragraph 11(5) provides an example of a prospective notice that informs an insured that its insurance contract will be terminated by the insurer within a specified number of days. Clearly, the insurer’s letter of February 1, 2002, was retrospective as it informed Transportaction of coverage that had been deleted about four weeks earlier, and, as such did not constitute a notice as contemplated by the Insurance Act.
[46] I find nothing in the insurance contract, the relevant legislation and the Statutory Conditions that enabled Beals to delete Transportaction’s coverage, in whole or in part, without its consent on fifteen days prior written notice sent to it by Beals or by the insurer. In my view, there is no need to write a notice requirement into the Insurance Act to address the situation that arose in this case. As the several nature of the contract of insurance precluded Beals from making any changes to Transportaction’s coverage without its consent, it is difficult to appreciate what is gained by adding a notice requirement. As one co‑insured cannot change the coverage of the other co‑insured without the latter’s consent, I do not understand how the required consent can arise from the requirement of a notice. As I have suggested, the requirement of a notice provides the risk of creating unnecessary issues. For example, issues may arise concerning whether the notice was received and the proper calculation of the notice period.
[47] I prefer to base my decision on the narrow ground that, because Transportaction and Beals were separately insured, Beal’s deletion of all of the coverage except for fire and theft affected only his coverage, and not that of Transportaction, which had an insurable interest in the car. Put simply, because the contract of insurance between the insurer and Transportaction was a separate and distinct contract insuring its ownership interest in the leased car, its coverage was not deleted when Beals, who also had a separate and distinct contract, instructed the insurer to delete coverage that applied to him. Accordingly, under its contract of automobile insurance with Transportaction, the insurer was required to indemnify it for the value of the car.
[48] For the foregoing reasons, I would allow the appeal and set aside the judgment dismissing the action. Like LaForme J.A., I would order that Transportaction is to have judgment against the insurer in the amount of $38,440, together with pre‑judgment and post‑judgment interest. Transportaction will have its costs of the trial, to be assessed if necessary, as well as its costs of the appeal on a partial indemnity scale fixed in the amount of $4,500 inclusive of disbursements and GST.
“SB” “S. Borins J.A.”