Kosanovic v. Wawanesa Mutual Insurance Company

Kosanovic v. Wawanesa Mutual Insurance Company Collection Decisions of the Court of Appeal Date 2004-03-26 Docket numbers C39121 Judges Laskin, John Ivan; Feldman, Kathryn N.; Armstrong, Robert Patrick Subject Civil Decision Content DATE: 20040326 DOCKET: C39121 COURT OF APPEAL FOR ONTARIO LASKIN, FELDMAN and ARMSTRONG JJ.A. BETWEEN: DEAN KOSANOVIC Plaintiff (Respondent) - and - THE WAWANESA MUTUAL INSURANCE COMPANY Defendant (Appellant) Peter Haney for the appellant Gary Petker for the respondent HEARD: September 11, 2003 On appeal from the order of Justice James C. Kent of the Superior Court of Justice dated October 3, 2002. LASKIN J.A.: A. Overview [1] The respondent, Dean Kosanovic, was injured in a car accident on September 7, 1997. The driver of the other car - who was at fault - left the scene of the accident and has never been identified. The appellant, The Wawanesa Mutual Insurance Company, insured Mr. Kosanovic under a standard Ontario automobile policy. The unidentified driver coverage in that policy entitled Mr. Kosanovic to the minimum policy limits of $200,000. However, Mr. Kosanovic also owned a disability policy with Great West Life. He was paid $102,400 under that policy because of his disability arising from the accident. Section 2(1)(b) of the Schedule to Uninsured Automobile Coverage (Insurance Act), R.R.O. 1990, Reg. 676 as amended ("O. Reg. 676") limits an insurer's liability to the difference between the minimum policy limits and recovery "under any valid policy of insurance". [2] The question on this appeal is whether s. 2(1)(b) of O. Reg. 676 entitles Wawanesa to deduct the money Mr. Kosanovic has received from Great West Life from the $200,000 unidentified driver coverage. On a motion under Rule 22 to determine this question, Kent J. concluded that Wawanesa was not entitled to the deduction. He held that s. 2(1)(b) does not override the common law private insurance exception to the rule against double recovery. Wawanesa appeals. I would allow the appeal, largely for the reasons of this court in Gignac v. Neufeld et al. (1999), 43 O.R. (3d) 741. B. Background a. Ontario's Insurance Act: a "threshold no-fault" system of compensation for persons injured in car accidents [3] Since 1990 the Ontario government had enacted various insurance regimes for compensating persons injured in car accidents. These regimes are summarized by my colleague Charron J.A. in her reasons in Gignac. All these regimes share a common characteristic: they implement the no-fault principle and restrict access to the courts. Injured persons are compensated by a variety of statutory accident benefits, without regard to whether they caused the accident. Resort to the court system is limited to cases where the injured person has died or the person's injuries meet a statutory threshold - now "a permanent serious disfigurement" or a "permanent serious impairment of an important physical, mental or psychological function": see the Insurance Act, R.S.O. 1990, c. I.8 s. 267.5 as amended ("the Act"). A person whose injuries meet the threshold may recover non-pecuniary damages, and, depending on the regime, some pecuniary losses. b. Mr. Kosanovic's injuries exceed the threshold and his damages exceed $200,000 [4] The accident in which Mr. Kosanovic was injured occurred during the Bill 59 regime, which covers accidents on or after November 1, 1996. Under the Bill 59 regime, a person whose injuries meet the threshold can sue for non-pecuniary damages[1] and up to 80 percent of net income loss or net loss of earning capacity. [5] Wawanesa acknowledges that Mr. Kosanovic's injuries from the accident exceed the threshold. He therefore has a tort claim. Wawanesa also acknowledges that a court would assess his damages in an amount exceeding $200,000. c. Unidentified driver coverage under an Ontario car insurance policy limits an insurer's liability to $200,000 [6] Because the at-fault driver has never been identified, Mr. Kosanovic's tort claim has no practical value to him. He must look to his own car insurer, Wawanesa, to recover damages for his injuries. The standard Ontario car insurance policy provides a "safety net" for insureds who are injured by an uninsured or unidentified driver: see Gignac. Under the policy an insurer such as Wawanesa is required to pay its own insureds a maximum of $200,000 exclusive of interests and costs for injuries caused by an uninsured or unidentified driver. This uninsured and unidentified driver coverage is mandated by a combination of s. 265(1) of the Act, ss. 1 and 2(1)(a) of O. Reg. 676 and s. 251(1) of the Act. [7] Section 265(1) of the Act provides that insureds may recover from their own insurer all sums they are legally entitled to recover from an uninsured or unidentified driver as damages for bodily injury, but "subject to the terms, conditions, provisions, exclusions and limits as are prescribed by the regulations." In other words, subject to the regulations, the insurer stands in the shoes of the uninsured or unidentified tortfeasor. Section 1 of O. Reg. 676 states that the Schedule to the regulation applies to payments under s. 265(1) of the Act. Section 2(1)(a) restricts an insurer's liability under 265(1) to the "minimum limits" provided for in s. 251 of the Act. Section 251(1) of the Act sets the minimum limits at $200,000 exclusive of interest and costs. In reality then these "minimum limits" are maximum limits. Mr. Kosanovic can recover against his own insurer, Wawanesa, a maximum of $200,000 exclusive of interest and costs.[2] d. The private insurance exception to the rule against double recovery [8] Like many other individuals in society, Mr. Kosanovic supplemented his car insurance coverage by purchasing a disability insurance policy, the Great West Life policy. Great West Life has paid him over $100,000 for the injuries he sustained in the car accident. [9] In cases where injured persons have more than one source of recovery for their losses arising from their injuries, a rational system of compensation ordinarily will seek to avoid overcompensation, and will apply what has become known as the rule against double recovery. However, our courts have carved out an exception to this rule: the common law private insurance exception. The Supreme Court of Canada affirmed this exception in Cunningham v. Wheeler, [1994] 1 S.C.R. 359, the case relied on by the motions judge. The rationale for the exception is two-fold: we should encourage individuals to protect themselves and their dependents against disabling injuries and we should not pass on the benefits of their having done so to tortfeasors. Cory J. explained the underpinnings of this exception at paras. 82-83 of his majority reasons in Cunningham: I think the exemption for the private policy of insurance should be maintained. It has a long history. It is understood and accepted. There has never been any confusion as to when it should be applied. More importantly it is based on fairness. All who insure themselves for disability benefits are displaying wisdom and forethought in making provision for the continuation of some income in case of disabling injury or illness. The acquisition of the policy has social benefits for those insured, their dependants and indeed their community. It represents forbearance and self-denial on the part of the purchaser of the policy to provide for contingencies. The individual may never make a claim on the policy and the premiums paid may be a total loss. Yet the policy provides security. Recovery in tort is dependent on the plaintiff establishing injury and loss resulting from an act of misfortune or nonfeasance on the part of the defendant, the tortfeasor. I can see no reason why a tortfeasor should benefit from the sacrifices made by a plaintiff in obtaining an insurance policy to provide for lost wages. Tort recovery is based on some wrongdoing. It makes little sense for a wrongdoer to benefit from the private act of forethought and sacrifice of the plaintiff. The application of the private insurance exception permits a person to recover twice for the same injuries: once from the tortfeasor and once from the private insurer. e. Legislatures may eliminate the private insurance exception [10] The private insurance exception is a common law principle. Legislation may override it. As Cory J. recognized in Cunningham, Ontario has done so for car accident compensation by enacting a number of provisions to eliminate double recovery. For example, s. 267.8(1)2 provides that a tort award for income loss or loss of earning capacity shall be reduced by any payments the injured person has received or that were available for income loss or loss of earning capacity. [11] The Ontario government has also passed Regulation 676. Section 2(1)(b) of that regulation - which is central to this appeal - is another provision intended to prevent double recovery. It does so by reducing an insurer's obligation to pay under the uninsured and unidentified driver coverage by the money an insured person has received under a valid policy of insurance. The question on this appeal is whether s. 2(1)(b) entitles Wawanesa to pay Mr. Kosanovic only $97,000 instead of $200,000. In other words, to deduct from the minimum limits of $200,000 the $102,400, Mr. Kosanovic has received from Great West Life. C. Does Wawanesa owe Mr. Kosanovic $200,000 or $97,600? [12] Section 2(1)(b) of O. Reg. 676 provides: 2. (1) The insurer shall not be liable to make any payment, . . . (b) where a person insured under the contract is entitled to recover money under any valid policy of insurance other than money payable on death, except for the difference between such entitlement and the relevant minimum limits determined under clause (a) [13] The motions judge acknowledged that "at first blush" s. 2(1)(b) "appears to be conclusive" and entitles Wawanesa to the deduction. He concluded, however, that s. 2(1)(b) had not eliminated the common law private insurance exception because the common law could not be changed by "[a]nything less than a clear and express provision in a statute". [14] In my view, that conclusion is untenable. Section 2(1)(b) draws its statutory authority from s. 265(1) of the Act, the statutory provision that addresses uninsured and unidentified automobile coverage. Section 265(1)(a) states: 265 (1) Every contract evidenced by a motor vehicle liability policy shall provide for payment of all sums that, (a) a person insured under the contract is legally entitled to recover from the owner or driver of an uninsured automobile or unidentified automobile as damages for bodily injuries resulting from an accident involving an automobile; subject to the terms, conditions, provisions, exclusions and limits as are prescribed by the regulations. [15] This court has said consistently that where the legislature makes contractual entitlement subject to "the terms, conditions, provisions, exclusions and limits" prescribed in a regulation, the court must look to the regulation to determine entitlement. The statute does not prevail over the regulation. They must be read together. Thus, the common law can be abrogated by statute, or where the statute so authorizes - as it has under s. 265(1) of the Act - by regulation: see Warwick v. Gore Mutual Insurance Co. (1997), 32 O.R. (3d) 76 (C.A.) and Alchimowicz v. Continental Insurance Co. of Canada (1996), 22 M.V.R. (3d) 41 (Ont. C.A.). [16] Mr. Kosanovic's Great West Life policy is a "valid policy of insurance" under s. 2(1)(b) of O. Reg. 676. On a plain reading of its terms s. 2(1)(b) authorizes Wawanesa to deduct from the amount it must pay to Mr. Kosanovic, the amount he received from Great West Life. Doing so would prevent double recovery out of the money available under the unidentified driver coverage. Put differently, the private law insurance exception would not apply when an insured such as Mr. Kosanovic seeks compensation from the safety net provided by his own insurer under the standard car insurance policy. [17] However, case law from this court has qualified the insurer's right to a deduction under s. 2(1)(b) of O. Reg. 676 in two ways. Our court has done so by interpreting s. 2(1)(b) in the light of its purpose, to prevent double recovery. Unfortunately for Mr. Kosanovic neither qualification applies in his case. [18] The first qualification is reflected in the colloquial phrase (referred to by Mr. Kosanovic's counsel in his factum) "apples should be deducted from apples". So, for example, in Quiroz v. Wallace (1998), 40 O.R. (3d) 737, Charron J.A. held that s. 2(1)(b) did not entitle an insurer to deduct from the minimum limits for uninsured driver coverage statutory no-fault benefits paid to the insured. The car accident in Quiroz occurred during the Bill 164 regime, under which an injured person who met the threshold could sue only for non-pecuniary loss. Thus, the $200,000 policy limits for uninsured driver coverage represented non-pecuniary damages. The no-fault benefits represented compensation for pecuniary losses. Because the payments represented different heads of damages the insured would not be overcompensated by receiving both payments. Permitting a deduction would have been inconsistent with the underlying purpose of s. 2(1)(b), which is to prevent double recovery. In Bannon v. McNeely (1998), 38 O.R. (3d) 659 (C.A.) Finlayson J.A. applied similar reasoning to deductions from tort awards. [19] This qualification to the wording of s. 2(1)(b) of O. Reg. 676 does not assist Mr. Kosanovic. Under the Bill 59 regime an injured person can sue for both pecuniary and non-pecuniary losses. Thus the $200,000 minimum policy limits reflect both heads of damages. Moreover, as I will discuss, the Great West Life payments were not payments for pecuniary loss, as Mr. Kosanovic's eligibility to receive them did not depend on his being employed at the time of the accident. [20] The second qualification is that the money paid by Great West Life cannot be deducted twice. This qualification emerges from Gignac. In that case, decided under the Bill 68 regime, the plaintiff, Ms. Gignac, was seriously injured when the car in which she was a passenger was hit by another car, which was uninsured. The court assumed that she met the threshold for suing in tort and that her damages exceeded the minimum limits of $200,000 to which she was entitled from State Farm, the insurer of the car in which she was a passenger. Ms. Gignac maintained her own car insurance policy with another insurer, and her policy included "SEF44 underinsured motorist coverage". Under this coverage her own insurer had paid her statutory no-fault benefits. The issue on the appeal was whether s. 2(1)(b) of O. Reg. 676 permitted State Farm to deduct the no-fault payments from the $200,000 that it would otherwise be required to pay Ms. Gignac. [21] Although the no-fault benefits were paid under "a valid policy of insurance" this court held that State Farm was not entitled to the deduction. The reason was that s. 267(1) of the former Act required that these no-fault benefits be deducted from the tort award for which, under s. 265(1) of the Act, State Farm stood in the shoes of the uninsured driver. Section 267(1) of the Act provided: 267(1) The damages awarded to a person in a proceeding for loss or damage arising directly or indirectly from the use or operation of an automobile shall be reduced by, (a) all payments that the person has received or that were or are available for no-fault benefits and by the present value of any no-fault benefits to which the person is entitled. [22] Charron J.A concluded that, as the no-fault benefits were deducted from the tort award, they could not be deducted again under s. 2(1)(b) of O. Reg. 676. She wrote at 750-751: If State Farm's position were adopted, the no-fault benefits would be deducted first under s. 267(1) and then again under s. 2(1)(b) of Reg. 676, resulting in a double deduction. It would also lead to the result that, in circumstances like those in this appeal, mandatory uninsured coverage is illusory and worthless. It is not clear to me that the legislature intended this result. I think, rather, that the interpretation urged by State Farm leads to an absurd result and should be avoided if possible. When read in context, I am of the view that it is reasonable to interpret s. 2(1)(b) of Reg. 676 as requiring that a deduction be made from the uninsured motorist coverage only for those no-fault benefits that have not already been deducted under s. 267(1). This is the only interpretation that achieves the dual purpose of preventing double recovery and providing compensation to the most severely injured from the tortfeasor (or, alternatively, from the insurance provider who steps in the shoes of the tortfeasor under the uninsured motorist coverage). [23] Charron J.A. so concluded even though Ms. Gignac could not recover more than $200,000 from State Farm, and likely had no prospect of recovering the tort award from the owner or driver of the uninsured car. [24] In Mr. Kosanovic's case the prospect of a double deduction does not arise. The only provision of the Act that might permit a deduction from the admittedly notional tort award is s. 267.8(1) 2, which I have referred to earlier and which provides: 267.8(1) In an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the damages to which a plaintiff is entitled for income loss and loss of earning capacity shall be reduced by the following amounts: . . . 2. All payments in respect of the incident that the plaintiff has received or that were available before the trial of the action for income loss or loss of earning capacity under the laws of any jurisdiction or under an income continuation benefit plan. [25] Payments under the Great West Life policy do not meet the statutory criteria for a deduction under s. 267.8(1) 2 of the Act. Mr. Kosanovic did not have to be employed at the time of the accident to receive disability benefits under his policy. The payments to him did not depend on his suffering an income loss and he did not have to prove an income loss to receive them. Because the payments Mr. Kosanovic received from Great West Life cannot be deducted from a tort award they are properly deducted under s. 2(1)(b) of O. Reg. 676 from the minimum policy limits of $200,000 for which Wawanesa is liable. [26] Indeed, the disability payments Mr. Kosanovic received from Great West Life are akin to the Canada Pension Plan disability benefits Ms. Gignac received, which Charron J.A. held could be deducted under s. 2(1)(b) of O. Reg. 676. The CPP benefits were payable whether or not Ms. Gignac was employed when she became disabled. Therefore they were not "payments... for loss of income" and were not deductible from the damages award. Deducting them under s. 2(1)(b) would not produce a double deduction. [27] Mr. Kosanovic makes two submissions to avoid the reasoning in Gignac. First, he seeks to distinguish it on the ground that unlike the Great West Life policy, the CPP is not privately paid insurance. I accept this difference between the two kinds of insurance, but this difference is not relevant to the application of s. 2(1)(b) of O. Reg. 676. Both CPP payments and the Great West Life payments are payments under a valid policy of insurance. Neither can be deducted from the damages award. Both, therefore, can be deducted under s. 2(1)(b). [28] Second, Mr. Kosanovic submits that the legislature could not have intended that seriously injured persons who have the foresight to buy their own insurance should be denied compensation from their unidentified driver coverage. In Gignac, Charron J.A. considered and rejected a similar argument on the ground that the deduction under s. 2(1)(b) gives effect to the legislative intent to prevent double recovery (at 754-755): Finally, the appellant argues that the legislature could not have intended that the very seriously injured who receive CPP benefits in excess of $200,000 receive no compensation from the uninsured coverage. In my view, this possible result does not detract from the clear intent to prevent double recovery. The deduction of CPP disability benefits under s. 2(1)(b) of Reg. 676 does prevent double recovery where, as in this case, disability benefits are payable as a consequence of the accident. [29] I add to her observations these two observations of my own. Although Wawanesa nominally stands in the place of an unidentified tortfeasor, it is not a tortfeasor. Therefore, a main rationale for maintaining the private insurance exception to the rule against double recovery - a tortfeasor should not benefit from an insured's prudence and foresight - does not apply here. Instead, Wawanesa's unidentified driver coverage provides a safety net to its insureds. Looked at from this perspective, giving effect to the rule against double recovery by deducting the Great West Life payments is more understandable. [30] Some of the results of applying the various insurance regimes seem anomalous. Perhaps that is the case here. Whether Mr. Kosanovic is entitled to $200,000 or $97,600 from Wawanesa turns on whether he can deduct the Great West Life payments from a tort award that is notional at best, because he can never realize on it. These results, however, are driven by the statutory and regulatory provisions of Ontario's insurance regimes. The judgments of Charron J.A. in Quiroz and Gignac and Finlayson J.A. in Bannon sought to ameliorate some of the unfairness that would be caused by a literal reading of these provisions. They have done so by interpreting these provisions in the light of their purpose, which is to reduce or eliminate double recovery. Nonetheless, provisions such as s. 2(1)(b) of O. Reg. 676 have to be given some meaning. The ruling of the motions judge and the position of Mr. Kosanovic would render s. 2(1)(b) meaningless. D. Conclusion [31] I therefore conclude that Wawanesa must pay Mr. Kosanovic $97,600 not $200,000. I would allow the appeal by striking out paragraph 1 of the order of the motions judge and substituting the following paragraph: 1.This court declares that the defendant is entitled to deduct the payments received by the plaintiff from Great West Life from the minimum policy limits. [32] Wawanesa is entitled to its costs of the appeal on a partial indemnity basis. I would fix those costs in the amount agreed on by counsel, $6,000 inclusive of disbursements and G.S.T. RELEASED: March 26, 2004 "JL" "John Laskin J.A." "I agree K. Feldman J.A." "I agree Robert P. Armstrong J.A." [1] Subject to a deduction. See s. 267.5 of the Act. [2] The motions judge held that "exclusive of interest" under s. 251(1) of the Act means exclusive of post-judgment interest, not prejudgment interest. That holding has not been appealed.