Defence & Indemnity - June 2017 : I. INSURANCE ISSUES A. Haraba v. Wawanesa Mutual Insurance Company (The), 2017 ABQB 190, per Shelley, J. [4225]

by Field Law

Field Law

I. INSURANCE ISSUES A. Insurance policies are to be interpreted how an ordinary person would understand them such that, absent clear policy wording to the contrary, the interests of co-insureds are to be considered several such that the misrepresentation of one co-insured will not render the coverage of an innocent co-insured voidable.

Haraba v. Wawanesa Mutual Insurance Company (The), 2017 ABQB 190, per Shelley, J. [4225]

Haraba was the primary driver of a vehicle and the sole insured under an auto policy issued by Wawanesa. When her live-in boyfriend Gardiner could not obtain a loan because of poor credit, she purchased a truck for him in her name. She insured the truck under her policy, listing him as a co-insured and the primary driver of the truck. She had seen Gardiner driving vehicles at his work site and he told her that he had a valid Nova Scotia driver’s licence. In fact, his driver’s licence was suspended at the time. As part of the application to add him as an insured under the policy, he provided a Nova Scotia Identification Card which both the Wawanesa agent and Haraba mistook to be a driver’s licence. The deal between Haraba and Gardiner was that she would make the monthly payments on the truck loan but he would reimburse her. 
Gardiner got into an accident with the truck. Wawanesa claimed that the policy was void as against both Haraba and Gardiner because of his misrepresentation. The issues were as to: (1) whether or not Gardiner’s misrepresentation invalidated Haraba’s coverage as a co-insured; and (2) whether Haraba had breached Statutory Condition 2(2) which requires insureds to permit others to drive the vehicle only if they are legally authorized to do so. It was not in dispute that Gardiner’s coverage was voidable because of his misrepresentation.  
II. HELD: For the insured Haraba; her coverage held not to have been invalidated.

1. Madam Justice Shelley reviewed the statutory provisions and case law regarding the position of an innocent insured where that person’s co-insured has been guilty of fraud or breach of policy.
(a) She noted that in Scott v. Wawanesa Mutual Insurance Co., [1989], 1 SCR 445, the majority of the Supreme Court of Canada held that the parents of their son were precluded from recovering for a fire loss under their fire policy because he was covered under the definition of “insured” and the policy excluded coverage for “loss or damage caused by a criminal or willful act or remission of the Insured or of any person whose property is insured thereunder” [emphasis ours]. This was held to be so notwithstanding that the parents were found not to have had any knowledge or complicity in the son’s deliberate arson. In dissent, Mr. Justice La Forest held that insurance policies should be interpreted under the “modern approach,” i.e. as to how a reasonable member of the public would understand the policy provisions in question. He had also held that a reasonable member of the public would understand the interests of multiple co-insureds to be several unless there is clear policy wording to the contrary.
(b) The Court further held that notwithstanding that Scott was a case involving the intentional act of a co-insured causing the loss, as opposed to having made a misrepresentation on the policy application, the minority decision of La Forest was found to be helpful in passing upon the situation where one co-insured misrepresents the facts in a policy application and the co-insured is innocent of participation of that misrepresentation: National Bank of Greece (Canada) v. Katsikonouris [1990] 2 SCR 1029. In that case, the owner of property had misrepresented his fire history in an application for fire insurance. His mortgage company was covered pursuant to a standard mortgage clause which provided that the mortgage company’s coverage “shall be enforced notwithstanding any act, neglect, omission or misrepresentation attributable” to the owner of the property. The Court followed the minority decision of La Forest, J. in Scott, and concluded that the mortgage company could claim the benefit of a standard mortgage clause notwithstanding the owner’s misrepresentation because there was an “absence of clear and explicit language pointing to a different meaning in the policy itself.” 
(c) The Court held that if the interests of co-insureds are joint, then the misrepresentation of one will invalidate the claim of the other (innocent) co-insured but not if their interests are several:
[32] The specific wording of the Statutory Condition or insurance contract determines if the interests of multiple co-insureds are joint or several. If their interests are joint, then the misrepresentations of one may allow the insurance company to disclaim recovery by other innocent co-insureds. If the interests are several, then the misrepresentations of one co-insured will not prevent innocent co-insureds from collecting under the same policy. 

(d) The Court reiterated that insurance policies and Statutory Conditions are to be interpreted on how an ordinary person would understand them:

[33] Insurance contracts and Statutory Conditions should be interpreted based on how an ordinary person would understand them (Scott, Wigmore, Katsikonouris). The Supreme Court decisions in Scott (particularly, the dissent by La Forest J) and Katsikonouris suggest that the ordinary person would reasonably assume that the interests of multiple co-insureds are several, and not joint, unless express language to the contrary is included in the Statutory Condition or insurance contract to the contrary (e.g. Charles). Furthermore, where one co-insured makes a misrepresentation that affects the coverage of other innocent co-insureds, it is unlikely that co-insured will be considered the “agent” of the innocent co-insureds unless the innocent co-insureds authorized the changes to the coverage (McKay).

[34] Section 554 of the Insurance Act indicates “a claim by the insured is invalid and the right of the insured to recover indemnity is forfeited” if “an applicant ... knowingly misrepresents or fails to disclose in the application any fact required to be stated in the application.” The Statutory Condition does not contain express language indicating misrepresentations made by one applicant will invalidate the policy as against innocent co-insureds.

[35] Using the modern approach to interpreting insurance contracts set by La Forest J in Scott and Katsikonouris, s 554 should be interpreted based on how an ordinary person would understand it. Following Scott, the ordinary person will generally believe that the interests of multiple co-insureds under the same policy are several and not joint, and that the misrepresentations of one co-insured will not affect the other co-insureds’ interests. Following this interpretation, Mr. Gardiner’s misrepresentations do not affect Ms. Haraba’s ability to claim under the policy because the statute and the insurance contract do not contain express language indicating that the policy will be void against innocent co-insureds if another co-insured makes a material misrepresentation.

2. The Court held that Ms. Haraba had not breached Statutory Condition 2(2) because she had a reasonable basis to believe that Gardiner was legally qualified to drive:

[42] Ms. Haraba had a duty pursuant to Statutory Condition 2(2) under s 556 of the Insurance Act to ensure that anyone she authorized to drive vehicles insured under her policy was legally qualified to drive. She authorized Mr. Gardiner to drive the truck insured under her policy despite his misrepresentation (such as in Bremner, and consistent with McClure). I conclude that she did not breach the Statutory Condition, as she had a reasonable basis to believe that Mr. Gardiner was legally qualified to drive (i.e. she observed him driving at his job site, and she believed his identification card was a driver’s licence).  Further, she made inquiries to ascertain that this was the case.

[44] I conclude that Ms. Haraba’s claim in respect of the truck was not invalidated, nor her right to recover indemnity forfeited, under the Insurance Act because she did not knowingly misrepresent or fail to disclose any required fact when she submitted the application to add Mr. Gardiner to the Policy. She was an innocent co-insured who remained entitled to recover under the Policy, notwithstanding Mr. Gardiner’s misrepresentation.


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