The Beard Winter Defender – May 2024
By Damian Di Biase and Paul Omeziri
In a recent case of Smith v. Taylor, 2024 ONCA 223, the Ontario Court of Appeal clarified the entitlement to coverage under excess liability endorsements in an insurance policy. The appeal turned on the correct interpretation of a comprehensive homeowners insurance policy that included a “Personal Excess Liability Policy” endorsement. The Ontario Court of Appeal’s analysis is important for both adjusters and counsel to keep in mind when interpreting such endorsements.
Factual background
The action arose as a result of the Plaintiff’s husband suffering fatal injuries when the motorcycle he was driving was struck by a vehicle driven by the Defendant.
The Plaintiff had an automobile insurance policy (“Primary Auto Policy”) with Aviva Canada Inc. (“Aviva”), which included an optional family protection coverage endorsement (“OPCF 44R”). The OPCF 44R indemnified the Plaintiff for up to $1 million if an insured under the automobile policy was injured or killed by an “inadequately insured motorist.” An “inadequately insured motorist” was defined in the OPCF 44R to mean a third-party motorist with “total motor vehicle liability insurance” less than the “limit of family protection coverage” provided by the policyholder’s OPCF 44R.
The Plaintiff’s husband also had a comprehensive homeowners insurance policy with Aviva (“Primary Homeowners Policy”). The Primary Homeowner’s Policy included a “Personal Excess Liability Policy” endorsement (“the Excess Endorsement”). The Excess Endorsement provided $1 million of excess “Family Protection Coverage.”
The Defendant was insured under an automobile insurance policy issued by Wawanesa Mutual Insurance Company, with $1,000,000.00 in liability coverage. As a result of the accident, the Plaintiff brought an action against the Defendant and Aviva in which she claimed damages of $3,500,000. The plaintiff sought to recover under both the Primary Auto Policy and Primary Homeowners Policy. Aviva denied coverage under the Excess Endorsement of the Primary Homeowners Policy.
The motion judge ruled the Plaintiff could not seek coverage under the Excess Endorsement
Aviva brought a summary judgment motion to determine the Plaintiff’s eligibility for payment under the Excess Endorsement.
The motion judge interpreted the Excess Endorsement as not providing the Plaintiff with coverage for damages arising from the accident. He interpreted the Excess Endorsement as requiring the Defendant to be an inadequately insured motorist, as that term was defined in the OPCF 44R, for the Plaintiff to claim under the Excess Endorsement. He reasoned that since the Defendant was not an “inadequately insured motorist” under the OPCF 44R, he could not be an inadequately insured motorist under the Excess Endorsement. The motion judge also interpreted the Excess Endorsement as requiring the Plaintiff to have exhausted the OPCF 44R limits before she could recover under the Excess Endorsement.
The Ontario Court of Appeal allowed the appeal
To determine whether the motion judge erred in interpreting the Excess Endorsement, the court had to determine whether the motion judge erred in (1) his interpretation of the relevant provisions of the Excess Endorsement; and (2) concluding the Plaintiff had to exhaust the OPCF 44R limits before she could claim under the Excess Endorsement.
The motion judge had misinterpreted the definition of “inadequately insured motorist”
The Court found the motion judge erred in applying the definition of “inadequately insured motorist” in the OPCF 44R to those words in the first paragraph of the Excess Endorsement. The motion judge’s interpretation essentially converted the Excess Endorsement into a second OPCF 44R policy with the result that the Plaintiff could not recover under the Excess Endorsement.
Furthermore, the Court disagreed with the three reasons the motion judge gave for using the definition of “inadequately insured motorist” in the OPCF 44R to interpret the words “inadequately insured motorist” in the Excess Endorsement.
First, adopting the underlying definition undermined the purpose of the Excess Endorsement which was to provide the Plaintiff with coverage in excess of that provided by the OPCF 44R.
Second, the Excess Endorsement existed outside of the automotive insurance regulatory regime. It is not coverage that is, or can be, set out in the Certificate of Automobile Insurance. Thus, the additional coverage provided by the Excess Endorsement could not fall within the “limit of family protection coverage” in the OPCF 44R.
Third, the motion judge was fortified by a term in the Excess Endorsement that coverage is “subject to all the same terms, conditions, limitations and exclusions” as the Primary Auto Policy. However, this provision related to liability coverage, not family protection coverage. It addressed the circumstances in which the insurer will pay on behalf of an insured who is found legally liable to pay damages. It did not address an insured’s right to claim indemnity under family protection coverage.
Therefore, as the words “inadequately insured motorist” were not defined in the Excess Endorsement, the Court interpreted them by their plain meaning. The Defendant was found to be an inadequately insured motorist as his insurance coverage would leave the Plaintiff with a $2.5 million shortfall if successful. On that basis, the Excess Endorsement extends coverage to pay amounts the Plaintiff is entitled to recover, as damages for her husband’s death, beyond that which might be recovered under the OPCF 44R.
The Court ruled the OPCF 44R did not have to be exhausted before accessing the Excess Endorsement
The Court found the motion judge erred in interpreting section 18 of the OPCF 44R. This section, which stipulated when an insured may recover under more than one policy, applies to situations in which an insured has coverage under multiple OPCF 44Rs. It did not apply to this situation where the Plaintiff sought family protection coverage under two different types of policies.
Concurrently, the Court found exhausting the OPCF 44R before being able to recover under the Excess Endorsement went against the Excess Endorsement’s purpose. The Excess Endorsement coverage “stacks” on the OPCF 44R coverage. The Court stated that had Aviva wished to make recovery under the Excess Endorsement contingent on exhaustion of the OPCF 44R limits, it had to make that clear in the Excess Endorsement.
The Court concluded that the appropriate interpretation of the Family Protection Coverage provision of the Excess Endorsement is one that allows the Plaintiff to claim under the additional coverage provided by the Excess Endorsement in excess of that which she recovers under the OPCF 44R. The Court stated this interpretation was the most favorable to the insured and, therefore, must be adopted. Further, because the Family Protection Coverage provision of the Excess Endorsement is a coverage granting provision, it must be construed broadly and in a way that gives effect to the grant of additional family protection coverage afforded by the Excess Endorsement.
Key takeaway
The case demonstrates the importance of carefully reviewing the wording of any endorsements involved as a difference in the wording can lead to different outcomes and coverage implications. The fact that the Excess Endorsement did not include specific policy language defining the term “inadequately insured motorist,” meant the term would be interpreted in the sense most favorable to the insured. Adjusters and counsel alike should not assume that because two different policies used the same wording, they will be defined in the same way.