Leeson v. Canadian Northern Shield Insurance Co.

2002BCSC1490 Citation: Leeson v. Can. Nrth. Shield Ins. Co. Date: 20021025 2002 BCSC 1490 Docket: 35068 Registry: Nanaimo IN THE SUPREME COURT OF BRITISH COLUMBIA BETWEEN: RONALD A. LEESON PLAINTIFF AND: CANADIAN NORTHERN SHIELD INSURANCE COMPANY DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE MR. JUSTICE HARVEY (IN CHAMBERS) Counsel for the Plaintiff: J.S. Godfrey Counsel for the Defendant: H.C. Hayden Date and Place of Hearing: October 10, 2002 Nanaimo, BC [1] A special case is stated by the parties under Rule 33 of the Supreme Court Rules. It is in these terms. FACTS [2] The plaintiff, Ronald Leeson, is a former construction supervisor. [3] The defendant, Canadian Northern Shield Insurance Company ("CNS"), is an insurance company licensed to carry on business, in part, as an excess motor vehicle liability insurer in the province of British Columbia. [4] The plaintiff was injured in a motor vehicle accident which occurred on September 9, 1999 near Campbell River, British Columbia, suffering multiple injuries. [5] At the time of the accident, the plaintiff was riding as a passenger in a 1985 Hyundai Pony, which the plaintiff owned, and which was being driven by his grandson, Steven Leeson. [6] The accident occurred as a result of a collision with a 1984 Jeep Cherokee, which was owned by Michelle Lenton, and which was being driven at the time by her then common law husband, Ian Thornette. [7] At the time of the accident, Ian Thornette was unlicensed and prohibited from driving. [8] The primary insurer of Michelle Lenton was the Insurance Corporation of British Columbia ("I.C.B.C."). Under the primary I.C.B.C. policy, I.C.B.C. provided third party liability insurance up to the maximum statutory requirements of $200,000, subject to the statutory requirements of the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c.231, and the Revised Regulations. [9] The plaintiff brought an action against Michelle Lenton and Ian Thornette in the Supreme Court of British Columbia, Courtenay Registry, Action No. S5330 ("the underlying action"). [10] The I.C.B.C. primary policy of insurance issued to Michelle Lenton contained the following provisions pursuant to the Revised Regulations (1984) under the Insurance (Motor Vehicle) Act: 55(3) An insured shall not operate a vehicle for which coverage is provided under section 49 or 49.3 (1) (a) and (c), Part 6, 7 or 9, or Division 2 of Part 10 (a) if he is not authorized and qualified by law to operate the vehicle, . . . (5) An insured named in a certificate, policy or endorsement shall not permit the vehicle described in the certificate, policy or endorsement to be operated by a person or for a purpose that breaches a condition of this section, Part 6, section 109 or Division 2 or 3 of Part 9. (6) The corporation is not liable to an insured who breaches a condition of this section or is deemed under subsection (7.1) or (8) to have breached a condition of section 49, Part 6, section 109 and Division 2 or 3 of Part 9. [11] In the underlying action, it was alleged that Ian Thornette had the express or implied consent of Michelle Lenton to drive her vehicle. [12] At all material times, Michelle Lenton knew that Ian Thornette was unlicensed and prohibited from driving. [13] I.C.B.C. denied coverage to Michelle Lenton and Ian Thornette as a result of the alleged breaches of section 55 of the Revised Regulation, and I.C.B.C. defended the underlying action against Michelle Lenton and Ian Thornette in its statutory capacity as a third party. [14] The plaintiff obtained judgment in default of an Appearance against Ian Thornette and Michelle Lenton on March 8, 2002. [15] The plaintiff entered into an agreement with I.C.B.C. in the underlying action that the plaintiff's claim was valued at $400,000 plus costs and disbursements. [16] Notwithstanding the position of I.C.B.C. that Michelle Lenton and Ian Thornette were in breach of the terms and conditions of the I.C.B.C. policy, the plaintiff was entitled to direct recourse against I.C.B.C. for the sum of $200,000 plus costs and disbursements, pursuant to the provisions of section 21 of the Insurance (Motor Vehicle) Act, and I.C.B.C. has paid that sum. [17] The plaintiff is an insured person as defined in section 148.1 of the Revised Regulation and is thus entitled to underinsured Motorist Protection benefits as set out in Part 10 of the Revised Regulations. [18] CNS issued a policy of motor vehicle insurance to Michelle Lenton which provided for excess third party liability coverage up to $1,000,000. [19] The CNS policy contains the following terms and conditions: Excess Liability Coverage 2.1 Introduction Excess Liability Coverage insures against liability that you or other Insured Persons may have to pay as compensatory damages for bodily injuries or property damage suffered by others in an accident involving the Automobile. This coverage is subject to the limits and conditions contained in this policy and applies only in excess to (but inclusive of) valid, enforceable liability coverage from ICBC under an Owner's Certificate respecting the Automobile. 2.4.2 When We Pay Any liability on our part to make any payments under this Excess Liability Coverage shall not attach unless and until ICBC has: admitted coverage for the claim(s) against the Insured Person(s) pursuant to the third party liability insurance under the Owner's Certificate respecting the Automobile; 2.6 Limitations On Your Excess Liability Coverage 2.2.1 Illegal and Prohibited Use There is no coverage for any Insured Person under this policy if: that Insured Person breaches any condition of or in any manner forfeits the insurance coverage extended by ICBC under the Owner's Certificate respecting the Described Automobile(s); the Insured Person uses, drives or operates the Automobile or allows anyone else to use, drive or operate the Automobile; while not authorized by law; Section 7 - Statutory Terms and Conditions Prohibited use by others (2) The insured shall not permit, suffer, allow or connive at the use of the automobile (b) by any person, (i) unless that person is for the time being either authorized by law or qualified to drive or operate the automobile; . . . [20] CNS has denied coverage under the excess policy to both Michelle Lenton and Ian Thornette based on the facts referred to herein, namely: (a) Ian Thornette was unlicensed and prohibited from driving; (b) Michelle Lenton permitted or allowed Ian Thornette to drive her motor vehicle knowing that Ian Thornette was unlicensed and prohibited from driving; (c) both were in breach of the conditions of the primary I.C.B.C. policy and I.C.B.C. has denied coverage to them. [21] The plaintiff is seeking direct recourse against CNS for the amount in excess of the I.C.B.C. primary limits. CNS denies that the plaintiff is entitled to direct recourse against it where the insureds are in breach of conditions of the primary policy and the excess policy. [22] The parties have agreed that, in the event that the plaintiff has a right to direct recourse against CNS, the value of his claim is $400,000 plus costs. Thus the plaintiff, in the action herein, would be entitled to judgment, as against CNS, for the sum of $200,000 plus the costs and disbursements of this action. [23] The issue as to whether the plaintiff has a direct recourse in the circumstances of this case depends on the interpretation of the Insurance (Motor Vehicle) Act and Revised Regulations (1984) under the Insurance (Motor Vehicle) Act, Part 6 of the Insurance Act, R.S.B.C. 1996, c.226, and the CNS policy. ISSUE TO BE DETERMINED BY THE COURT [24] Considering the application of the applicable statutes and the terms of the CNS policy, is the plaintiff entitled to direct recourse against CNS for the amount agreed to be in excess of the amount paid by I.C.B.C. pursuant to section 21(5) of the Insurance (Motor Vehicle) Act? [25] With regard to "the applicable statutes", it is common ground the applicable statute in particular requiring consideration is the Insurance Act and the provisions of ss.151(1), 159(1) and (4), and 160(3) thereof, which read as follows: 151(1) Every contract evidenced by a motor vehicle liability policy insures, in respect of any one accident, to the limit prescribed by regulation, exclusive of interest and costs, against liability resulting from bodily injury to or the death of one or more persons. . . . 159(1) A person who has a claim against an insured for which indemnity is provided by a contract evidenced by a motor vehicle liability policy, even though the person is not a party to the contract, may, on recovering a judgment for it in any province or territory of Canada against the insured, have the insurance money payable under the contract applied in or towards satisfaction of the judgment and of any other judgments or claims against the insured covered by the contract and may, on behalf of himself or herself and all persons having those judgments or claims, maintain an action against the insurer to have the insurance money so applied. . . . (4) The right of a person who is entitled under subsection (1) to have insurance money applied on his or her judgment or claim is not prejudiced by (a) an assignment, waiver, surrender, cancellation or discharge of the contract, or of any interest in it or of the proceeds of it, made by the insured after the happening of the event giving rise to a claim under the contract, (b) any act or default of the insured before or after that event in contravention of this Part or of the terms of the contract, or (c) any contravention of the Criminal Code (Canada) or a Statute of any province or territory of Canada or of any state or the District of Columbia of the United States of America by the owner or driver of the automobile, and nothing mentioned in paragraph (a), (b) or (c) is available to the insurer as a defence in an action brought under subsection (1). . . . 160(3) If one or more contracts provide for coverage in excess of the limits referred to in section 151, except as provided in subsection (4), the insurer may, (a) with respect to the coverage in excess of those limits, and (b) as against a claimant, avail itself of any defence that it is entitled to set up against the insured, despite section 159 (4). [26] In the event the plaintiff is not entitled to direct recourse against CNS for the amount to be in excess, the sum of $200,000, it is common ground that the plaintiff, as an insured person, is entitled to recover essentially this amount as uninsured motorist protection benefits as set out in part 10 of the Revised Regulations. It is readily apparent, therefore, the issue is one between the respective insurers. POSITION OF THE PARTIES [27] The plaintiff's position is that CNS, as an insurer who has issued a contract evidenced by a motor vehicle liability policy in British Columbia, is liable to indemnify its insured to the minimum limit in s. 141(1) of the Insurance Act, before it can raise a defence with respect to coverage in excess of those limits pursuant to s. 160(3) of the Insurance Act. [28] The defendant's position is that I.C.B.C. has provided third party liability insurance up to the statutory minimum required by the Insurance (Motor Vehicle) Act, and CNS has provided true excess insurance over and above the $200,000 statutory minimum, as per the Insurance Act. The defendant submits that the position of the excess insurer is separate and distinct from the position of I.C.B.C.. It submits that s. 160(3) applies to excess insurance, and gives the insurer the right to raise defences in respect of any amount that exceeds the statutory minimum limits. As there is only one excess insurance policy, the excess insurer may avail itself of any defence that it is entitled to set up against the insured with respect to coverage in excess of the minimum statutory limits. THE LAW [29] Both the Insurance (Motor Vehicle) Act and the Insurance Act, allow a third party who has obtained a judgment against an insured to proceed directly against the insurer. Subsection (4) of s. 21 of the Insurance (Motor Vehicle) Act is an "absolute liability" provision which allows direct recourse by an injured party against I.C.B.C. for the limits of the insurance policy, notwithstanding a breach by the insured. It precludes an automobile insurer from raising against a third party any defences it has against the insured, except in those cases involving property damage, in which case I.C.B.C. can limit direct recourse to the minimum limits of $200,000. [30] Subsection (4) of s. 159 of the Insurance Act is also an "absolute liability" provision which entitles the claimant to have the insurance money applied on his or her judgment even if the insured is in default under the terms of the insurance contract and would have no right of recovery. However, an important qualification to the provision in the Insurance Act denying the insurer's right to resort to defences is that it applies only up to the limit of the statutory minimum liability coverage. After the minimum limit of $200,000 has been paid by the insurer, it is provided in s. 160(3) of the Insurance Act that, as against the third party, the insurer may, in respect of coverage in excess of the limits, avail itself of any defence that it is entitled to set up against the insured, despite s. 159(4). Unlike the Insurance (Motor Vehicle) Act, this provision does not restrict the insurer to defences concerning claims for property damage. [31] As a claimant who has obtained judgment, Mr. Leeson is accorded the statutory right to have the insurance money payable under Ms. Lenton's contract applied in or towards the satisfaction of his judgment. The question is whether he is entitled to the amount of the judgment in excess of the minimum $200,000 coverage paid by I.C.B.C.. The difficulty arises because there are two insurers; I must determine whether each is liable up to the limit before defences arising from the insured's conduct can be raised, or if only one fund (I.C.B.C.) is liable up to the limit without regard to defences. [32] Both parties rely upon a decision of the Supreme Court of Canada as being determinative of the question. The decision is MacKinnon v. Canadian General Insurance Co., [1974] 46 D.L.R. 427 (N.S.C.A), affirmed [1976] 2 S.C.R. 606. [33] In this case, the respondents suffered damages in a collision between their motor vehicle and one owned by David Murray Coldwell and driven by Clifford Roy Smith. They sued and obtained judgment against both Coldwell and Smith in the sum of $67,287.53. They applied to have the insurance money, payable under separate policies issued to Coldwell and Smith by different insurers, applied to satisfy that judgment. Each policy provided for indemnification to the minimum limit of $35,000 prescribed by Nova Scotia's Insurance Act, 1962, c. 9 as amended by 1966, c. 79. As the victims' claim was for more than the statutory minimum, the insurers argued that there was just one fund for the purpose of deciding when the insurers could set up defences against the victim. The appellant insurer argued it could raise against the judgment creditors any defence open to it against its insured in respect of any indemnity in excess of the minimum $35,000, even when a different insurer had provided that minimum sum. [34] The issue turned on the interpretation of the provisions of s. 98(11) of the Nova Scotia Insurance Act, which reads almost identically to s. 160(3) of B.C.'s Insurance Act. This section was considered in the context of other relevant provisions of Nova Scotia's Insurance Act, such as s. 92, which corresponds to s. 151(1) of B.C.'s Insurance Act, and ss. 98(1) and 98(4) which correspond to ss. 159(1) and (4) respectively. [35] The majority of the Supreme Court of Canada adopted the reasoning of Cooper J.A. of the Nova Scotia Supreme Court, Appeal Division, dismissing the appeal by the defendant insurance company. [36] The appellant insurer Canadian General had argued that in relation to Co-Operative's primary policy, which was first loss insurance, the Canadian General policy could be considered "excess insurance" when the two policies were viewed together. Cooper J.A. rejected this argument. He found that the Canadian General insurance may be excess in relation to one policy being first loss insurance, but not in relation to the statutory minimum limits. [37] Cooper J.A. held that neither Co-Operative nor Canadian General could set up any defences until they had each paid the statutory minimum. His reasons are set out in the Appeal decision at 431-432: I have concluded that [the meaning of s. 98(11)] is that if there is more than one contract each must be treated equally so that defences which might be set up against each insured are available only with respect to the coverage provided the insured under his policy in excess of the limits under s. 92. The result follows that there is not here one fund of $35,000 exhausted by the coverage under the Co-operative Company policy but separate funds each of that amount under each policy, that of the Co-operative Company and that of Canadian General. And further: It may well be that the wording of s. 98(11) could be clearer, but in my opinion "coverage" is referable to what is provided under an insurance policy. I think it would be doing violence to the purpose and intent of s. 98(11) if the coverage of each policy were lumped together to arrive at a total amount of insurance provided by insurers and term that the "coverage" intended by s. 98(11) with respect to injured persons having claims under s. 98(1). The wording nowhere refers to coverage in total nor is there in my view any language used to indicate that "coverage" is the sum of that provided under two or more policies. The use of the word "insurer" in the singular I regard as supporting the view which I have expressed. [38] Mr. Godfrey, for the plaintiff, submitted that the above statement of the law is determinative of the issue; because s. 160(3) was interpreted to refer to coverage provided under each applicable policy, not to the sum of coverage provided by all applicable policies, both CNS and I.C.B.C. are liable up to the limit of $200,000 before defences arising from Ms. Lenton's conduct can be raised. In other words, CNS can only avail itself of defences to Mr. Leeson's claim with respect to any amount claimed against it over $200,000. As the amount being sought from CNS is $200,000, the defence allowed by s. 160(3) of the Insurance Act is not available to CNS. [39] Mr. Hayden submitted that Cooper J.A.'s judgment can be distinguished from the case at bar because the policies under consideration by him were not true primary and excess situations, but rather, two primary policies. Further, as I understood Mr. Hayden, he said that if the judgment of Martland J. in MacKinnon, is correctly considered and interpreted, it supports the position of the defendant. The relevant portions of Martland J.'s judgment are at 609-610: In my opinion [s. 98(11)] is intended to enable an insurer who has issued a policy in excess of the $35,000 minimum established by s. 92(1), in respect of such excess, to rely, as against a claimant, upon any defence to which he is entitled as against the insured. And further: When s. 98(11) uses the words "provide for coverage in excess of the limits mentioned in s. 92" it is referring to any policy which provides for the benefit of the insured a coverage in excess of the $35,000 minimum. It is the insurer in such a policy to whom is given the rights of defence given by the subsection "with respect to the coverage in excess of those limits. [40] In this case, the I.C.B.C. policy obtained by Ms. Lenton provides third party liability insurance up to a maximum of $200,000. The CNS coverage obtained by Ms. Lenton provides for excess third party liability coverage up to $1,000,000. I am in agreement with the defendant that the CNS policy provides for true excess coverage. [41] As noted in the BC Motor Vehicle Accident Claims Practice Manual, 2nd edition, looseleaf (CLE, 2002), it is increasingly common for British Columbia residents to obtain only the mandatory primary liability coverage from ICBC, and to purchase from private auto insurers optional coverages, including excess liability insurance. Lambert J.A. in British Columbia (Public Trustee) v. Asleson et al. (1991), 53 B.C.L.R. (2d) 194 at 197, stated the following with regard to excess insurance: The Insurance Act R.S.B.C. 1979, c. 200, on the other hand, was in effect before the I.C.B.C. insurance scheme came into effect. The Insurance Act is still in operation as far as automobile insurance coverage is concerned for coverage in excess of the minimum limit of $200,000 for third party liability. With respect to that insurance, the Insurance Act permits private insurers to provide an alternative to the insurance scheme provided by I.C.B.C. If there is only one policy issued to an insured driver and owner then it follows that I.C.B.C. must issue it. But it is open to an owner to obtain an I.C.B.C. policy for the minimum limits under the Insurance (Motor Vehicle) Act, and then to obtain another excess policy from a private insurer for further third party liability insurance above the minimum limit under the Insurance Act. [42] This is exactly what Ms. Lenton did; she obtained her minimum coverage from ICBC, and then obtained true excess liability coverage from CNS. [43] I find myself in agreement with the defendant's submission that MacKinnon can be distinguished on the basis that in that case Cooper J.A. dealt with two primary policies, whereas in this case Ms. Lenton obtained both primary and excess insurance policies. [44] I also agree that Martland J.'s reasons can support the defendant's position. Martland J. established that where an insurer has provided coverage in excess of the statutory minimum (as is the case here), in respect of that excess, the insurer is entitled to rely, as against a claimant, upon any defence to which it is entitled as against the insured. In my view, Martland J.'s reasons confirm that the majority, agreeing with Cooper J.A., had decided the case on the basis that no excess insurance had been provided. Martland J. was then setting out that where there is true excess insurance, the insurer is entitled to rely on defences available to it. [45] I do not accept that a victim should potentially have a greater claim against two insurers who have each insured for $200,000 than he would have against one insurer for $400,000. I find in this case, he should not. CNS provided a policy which provides for coverage in excess of the $200,000 statutory minimum. As per s. 160(3), CNS has rights of defence "with respect to the coverage in excess of those limits". [46] For these reasons, I would answer the issue to be determined by the Court in the negative. The application is dismissed with costs. "R.B. Harvey, J." The Honourable Mr. Justice R.B. Harvey These Reasons for Judgment were released from the Nanaimo Registry on October 25, 2002 and are date stamped accordingly.