Gudzinski Estate v. Allianz Global Risks US Insurance Company, 2011 ABQB 283

Court of Queen ’ s Bench of Alberta Citation: Gudzinski Estate v.

Allianz Global Risks US Insurance Company, 2011 ABQB 283 Date: 20110426 Docket: 0703 10500 Registry: Edmonton Between: Cheryl Anne Gudzinski, as the Executor under the will of Nicholas Joseph Gudzinski and Administrator Ad Litem of his Estate Respondents (Plaintiffs) - and - Allianz Global Risks US Insurance Company and AIM Underwriting Limited Appellants (Defendants) Corrected judgment: A corrigendum was issued on April 28, 2011; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice B.A.

Browne _______________________________________________________ I. Introduction [ 1 ] The Defendants, Allianz Global Risks US Insurance Company and AIM Underwriting Limited (Allianz), appeal the Master’s September 3, 2010 decision in an application brought in the form of a Special Case under Rule 232 of the Former Rules ( Alberta Rules of Court , Alta. Reg. 390/1968). The application was for an opinion on a stated question – the correct

interpretation of an Allianz insurance policy covering an airplane owned by Nicholas Joseph Gudzinksi (N.J.G.).

[ 2 ] Nicholas Joseph Gudzinksi (N.J.G.) was the owner and pilot of a Cessna 177B Cardinal aircraft (the plane) that crashed on August 19, 2006. The Plaintiff, Cheryl Anne Gudzinski, is the executor under N.J.G.’s will and administrator ad litem of his estate (the Executor). Allianz holds an insurance policy relating to the aircraft, Policy No. AIN 0611747 (the Policy) which provided insurance from May 11, 2006 to May 11, 2007. [ 3 ] The Executor filed a Statement of Claim against Allianz seeking recovery of $60,000 for damage to the plane based on the Policy coverage.

Allianz denied coverage arguing that N.J.G. did not have a valid medical certificate and therefore did not have “the required license” under the policy. [ 4 ] The issue before the Master and now before this Court is the

interpretation of the Policy condition that a pilot have “the required license” thus determining the validity of the Policy. The Master held that the deceased has complied with the requirements of the policy and that the aircraft was insured at the time of the crash. Allianz now appeals that decision. II. Facts [ 5 ] The relevant facts are not in dispute and are set out in the Agreed Statement of Facts filed by the parties and in the Master’s decision. An abbreviated

summary of those facts follows: [ 6 ] On August 19, 2006 the plane crashed and N.J.G. and his passengers died at the scene. The Executor sued under the Policy seeking compensation for the damage done to the plane. Coverage was subject to the following condition: Who can fly your aircraft - The Insurance applies only if your aircraft is flown by an approved pilot whose name is stated on Item 5 of the Declaration Page who has the required license or endorsements to fly your aircraft. [ 7 ] N.J.G. had a Canadian private pilot’s license PA420798 issued in 1993.

His last medical examination took place on May 22, 2003, following which he was issued a medical certificate that expired on June 1, 2005. At the time of the crash, N.J.G. did not hold a valid or current medical certificate. [ 8 ]

Section 401.05 of the Canadian Aviation Regulations , S.O.R./96-433 (the Regulations ) requires that operators of aircraft must have a valid medical certificate and must prove recent flight experience (take offs and landings). As a result, according to the Regulations , N.J.G. was not legally permitted to operate the plane at the time of the crash. [ 9 ] At the hearing of the Appeal, the parties submitted an Additional Agreed Statement of Facts. The additional facts are as follows:

a) The wording contained on standard pilot license issued by Transport Canada form 26-0266, under (IX): This Licence is valid only for the period specified in the Medical Certificate (Form 26-0055) which must accompany this licence.

b) The form of medical certificate held by N.J.G., which had expired on June 1, 2005, was issued on Transport Canada Form 26- 0055: This certificate is part of a Personnel Permit or Licence issued under the Canadian Aviation Regulations . It constitutes medical validation

and must be carried with the Permit or Licence it validates. The Master’s Decision [ 10 ] The Master held (at paras. 17-19), after considering in detail the appropriate principles of

interpretation, the following: Despite this natural reaction, it is crucial to remember that the issue to be decided is not regulation of pilots and safety but

interpretation of an insurance contract. Fundamentally, it is not the role of the insurance industry to regulate the airline industry. External evidence of what Parliament imposes for licensing should not cause the court to draw an inference of subjective intent. The legislative requirements cannot override the intentions of the parties as expressed in the wording of this particular contract. This contract is the Defendant’s form. The policy was drafted exclusively by the Defendant. Both parties present plausible and reasonable argument as to how the wording should be interpreted.

In my view the language chosen by the Defendant is ambiguous. It is entirely appropriate in this case to apply the contra proferentem rule giving an

interpretation of the contract that favours the insured Plaintiff. Accepting the

interpretations argued by the Plaintiff subsequent compliance with the legislative requirements does not in my view “result in an unrealistic result nor in a result that would not be contemplated in the commercial atmosphere in which the insurance was contracted.” Accordingly, I conclude that the Plaintiff had the “required license” to fly aircraft at the time of the accident. Issues [ 11 ] The issues raised in this Appeal are: 1. Standard of review; 2. Submission of new evidence; and 3.

Interpretation of insurance policy. 1. Standard of Review: [ 12 ] Under Rule 6.14 (3) of the New Rules ( Alberta Rules Of Court , Alta.

Reg. 124/2010), an appeal from a Master’s decision is now an appeal on the record: 6.14(3) An appeal from a master’s judgment or order is an appeal on the record of proceedings before the master and, if the judge permits, may also be based on new evidence that is significant enough that it could have affected the Master’s decision. [ 13 ] Under R. 15.1 of the New Rules dealing with transition, the New Rules apply to an existing proceeding commenced, but not concluded under the Former Rules , and under R. 15.12 if the New Rules impose a new test, provide new criteria, or provide an additional ground for an application in an existing proceeding, the New Rules apply: 15.1 In this Part, (a) “existing proceeding” means a court proceeding commenced but not concluded under the former rules; ... 15.2

(1) Except as otherwise provided in an enactment, by this Part or by an order under rule 15.6, these rules apply to every existing proceeding.

... 15.12 Where these rules impose a new test, provide new criteria or provide an additional ground for making an application in anexisting proceeding, these rules apply in respect of the application if the application was made but has not been heard prior to the cominginto force of these rules. [14] Both the Former Rules and the New Rules are silent on the standard of review applicable to Master’s decisions. Case lawdecided under the former Rules of Court established that the standard of review applicable to a Master’s decision is one of correctness:United Utility Workers' Assn. of Canada v.

Transalta Corp., 2004 ABCA 200, 354 A.R. 58 at para. 20, leave to appeal denied [2004]S.C.C.A. No. 386, cited in Desoto Resources Ltd. v. Encana Corp., 2010 ABQB 448, 31 Alta. L.R. (5th) 282 at para. 27. [15] The process for hearing appeals from the Master has changed from being a hearing de novo under the Former Rules to ahearing “on the record of proceedings before the Master” under the New Rules. Recent decisions of this Court have concluded that thischange mandates an appellate standard of review, as set out in Housen v.

Nikolaisen, 2002 SCC 33 , [2002] 2 S.C.R. 235: SeeJanvier v. 834474 Alberta Ltd., 2010 ABQB 800 (at para. 13); Royal Bank of Canada v. Place, 2010 ABQB 733 (at para. 28); Lee v.Lepage, 2010 ABQB 829 (at para. 24); Heritage Station Inc. v. Professional Stucco Inc., 2011 ABQB 18 (at para. 14); and Ma v.Quinn, 2011 ABQB 103 (at para. 15). I agree. [16] In Janvier, Macklin J. summarized the applicable standards (at para. 18): In

summary, the standard of review on a decision from the Master on a question of law is correctness. The standard of review for factsaccepted by the Master or factual inferences drawn by the Master from the evidence is reasonableness. The finding must amount to apalpable and overriding error. The imputed error must be plainly identified and must be shown to have affected the result. On a questionof mixed fact and law, if the principle of law cannot be extricated from the question, then the standard of review is again one ofreasonableness only to be interfered with if a palpable and overriding error can be shown.

If the principle of law can be extricated fromthe question, then the standard of review on the principle of law is correctness. [17] The

interpretation of an insurance contract is a question of law: Pivotal Capital Advisory Group Ltd. v. NorAmera BioEnergyCorp., 2010 ABCA 199, 487 A.R. 313 (at para. 18); Jager v. Liberty Mutual Fire Insurance Co., 2001 ABCA 163, 281 A.R. 273 (atpara. 14). When a court makes fact findings or inferences to determine the essential terms of a contract, however, those findings warrantdeference absent palpable and overriding error: Double N Earthmovers Ltd. v. Edmonton (City), 2005 ABCA 104, 363 A.R. 201 (atpara. 16), aff'd, 2007 SCC 3, [2007] 1 S.C.R. 116. Here, there are no fact findings or inferences necessary and the question is purely aquestion of the correct

interpretation of the phrase “required license”. The standard of review is therefore correctness. 2. New Evidence Submitted [18] The admissibility of new evidence on an appeal from a Master’s decision is preserved in Rule 6.14(3) of the New Rules, butthe New Rules only allow new evidence if it “is significant enough that it could have affected the Master's decision.” In HeritageStation, Wilson J concluded (at para. 51) that R. 6.14 essentially incorporated the test for new evidence found in R. v.

Palmer, (1979) (SCC), 50 CCC (2d) 193 (SCC) at p. 205: (1) the evidence should generally not be admitted if, by due diligence, it could have been adduced at trial, (2) the evidence must be relevant in the sense that it bears upon a decisive or potentially decisive issue in the trial; (3) the evidence must be credible in the sense that it is reasonably capable of belief; (4) it must be such that if believed it could reasonably, when taken with the other evidence adduced at trial, be expected to haveaffected the result. (See also Royal Bank of Canada v.

Place, (at paras. 52-53). [19] In Heritage Station Wilson J. held that the evidence must be “new”, in keeping with the language of the New Rule, the first

part of the Palmer test, and in the interests of consistency among appellate levels. However, here the parties agreed to the admission ofthe form of the private pilot’s license and the form of the Medical Certificate in the Transport Canada forms. In my view, the evidence issignificant and could have affected the Master’s decision, and in light of the parties’ consent, the evidence is admissible on the appeal. 3.

Interpretation of Insurance Policy [20] The issue, therefore, is whether the phrase “required license” contained in the insurance policy includes the requirement of avalid medical certificate. If it does include that requirement then the insurance policy is not valid as the pilot did not have a valid medicalcertificate at the time of the accident. [21] It is useful to review a number of important cases dealing with the

interpretation of insurance contracts. The Supreme Court of Canada in Brissette v. Westbury Life Insurance Co., (SCC), [1992] 3 S.C.R. 87 at para. 55, 96 D.L.R. (4th) 609(S.C.C.), noted the following general principles of insurance contract

interpretation : (

a) Courts should search for an

interpretation that, by reference to the language of the entire contract, promotes the true and reasonableintention of the parties at the time of entering into the contract; (

b) Courts should look at the words of the contract to determine if there is any ambiguity; and (

c) Any ambiguity found in the insurance contract should be interpreted in favour of the insured. (Cited in Duke v. Clarica Life Insurance Co., 2008 ABCA 301 at para. 16). [22] The Supreme Court in Consolidated Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Company, (SCC), [1980] 1 SCR 888 also noted that the normal rules of construction require a court to search for an

interpretation which, fromthe whole of the contract, appears to promote and advance the parties’ true intent at the time they entered into the contract. The Courtwent on to conclude (at para. 26): Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not becontemplated in a commercial atmosphere in which the insurance was contracted... [T]he courts should be loath to support a constructionwhich would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which could neither besensibly sought nor anticipated at the time of the contract. [23] In Wingtat Game Bird Packers

(1993) Ltd. v. Aviva Insurance Co. of Canada, 2009 BCCA 343, 276 B.C.A.C. 10 the BritishColumbia Court of Appeal summarized the

interpretation principles (at para. 19):

a) the factual matrix existing at the time the parties enter into the contract may be considered in interpreting the words of thecontract, but the words of the contract must not be overwhelmed by a contextual analysis;

b) the plain meaning of the words used should be given effect unless it would bring about an unrealistic or commerciallyunreasonable result;

c) one must search for an

interpretation from the whole of the contract that promotes the true intent of the parties at the time theyentered into the contract;

d) in the event of an ambiguity in the meaning of the words, the contra proferentem rule of

interpretation will be applied in favour of the insured unless it will bring about an unfair result by way of the insured achieving an unanticipated recovery; and

e) coverage provisions should be construed broadly, while exclusion clauses should receive a narrow

interpretation. Allianz (Appellant’

s) Submissions [ 24 ] Allianz argues that the Policy must be interpreted within its “factual matrix,”or in the context of the surrounding circumstances in which the contract was entered into: Jesuit Fathers of Upper Canada v. Guardian Insurance Co. Of Canada, 2006 SCC 21 , [2006] 1 S.C.R. 744 at para. 27 . Allianz argued that part of this factual matrix is the fact that all aspects of the operation of aircraft in Canada are governed and specifically set out in legislation.

As a result, it argued that the phrase “required license or endorsements to fly” should be interpreted as “license or endorsements required by law to fly.” [ 25 ] The Regulations require a person to have a valid medical certificate and to fulfil recency requirements for flying experience in order to “exercise the privileges of a ... licence”: ss. 401.03(1)(a), 404.03 and 401.05(1). Allianz argues that N.J.G. was not operating the plane legally under the Regulations because he did not have a valid medical certificate. Therefore N.J.G. did not have the license required by law to fly.

Allianz argues that interpreting the Policy as requiring all of the formal requirements under the legislation is reasonable and reflects the intention of the parties. [ 26 ] Allianz further argues that the ordinary meaning of the word “required” and the word “licence” both involve the issuance of a permit or permission granted through legislation, and therefore the combination of the words “required licence” adopts what is required according to the legislation. [ 27 ] Allianz argues that it would be absurd and contrary to public policy to find that the parties reasonably intended for the deceased to be insured for illegal activity, relying on Consolidated Bathurst Export Ltd. : ...the courts should be loath to support a construction which would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract. [ 28 ] The suggestion that the parties intended that there be insurance coverage if a person was flying illegally is neither sensible or anticipated at the time of the contract.

An insurance contract that promotes or encourages unlawful conduct would be contrary to public policy. [ 29 ] Allianz also argued that the fact that N.J.G. had at one time possessed a valid medical certificate indicates that the parties reasonably intended that he adhere to the requirements under the legislation before operating the plane. [ 30 ] Allianz argues further that the rule of contra proferentem has no application as there is no ambiguity in the contract. [ 31 ] Moreover, Allianz argues, the new evidence strengthens its case as it illustrates that the validity of a license is directly tied to the validity of a medical certificate.

Therefore, not only did N.J.G. not have the required license that would enable him to legally operate the plane, but he also did not have a license at all, since his pilot’s license, No. PA420798, was invalid at the time of the crash. Executor’s (Respondent’

s) Arguments [ 32 ] The Executor argues that the plain meaning of the phrase “required licence” means that N.J.G. was required under the Policy

to have a pilot’s license and he did. The Plaintiff argues that the question of whether a person has a license and whether one complies with the Regulations and therefore has the ability to fly are two different things and here we are only dealing with the

interpretation of the policy. Further the Plaintiff argues that this is an appropriate

interpretation of the policy reflecting the parties true and reasonable intentions when the insurance contract was entered into. She argues that the insurer’s main concern when entering into the insurance contract was to ensure that the insured had the knowledge and ability to fly the plane, which he had established by obtaining a pilot’s license.

She submitted that the insurer was not concerned with whether he was able to continually satisfy the extensive requirements set out in the Regulations in order to be able to “exercise the privilege” of his license. [ 33 ] The Executor argues that Allianz considers risk and the matter in which they drafted the insurance contract satisfies their requirements of risk as the deceased had at one time a pilot’s license and a medical certificate. [ 34 ] The Executor need only demonstrate that her

interpretation of the contract is a reasonable possibility and any ambiguity should be resolved in her favour. [ 35 ] Finally the Executor argues contra proforentem which would require any ambiguity in the contract to be construed against the party who drafted the contract. If Allianz wished to require a Medical Certificate they should have specifically set out that requirement in the Policy without ambiguity. They failed to do so. [ 36 ] The Executor argues that the actual wording of the license submitted as new evidence makes no difference to the arguments nor to the outcome.

Analysis [ 37 ] It is common ground that the “required license” referred to in the Policy is at least the pilot’s license issued under the Regulations . It is also common ground that N.J.G.’s license did not allow him to legally operate the plane. Master Smart found as follows in his decision at para. 6: In short, a person first obtains a license to fly an aircraft. At that time the person in addition to demonstrating competency to fly the aircraft must have a valid medical certificate and the mandated experience.

Thereafter, failure to maintain a valid medical certificate or satisfy recency requirements under the regulations does not result in revocation of the license, but rather the regulations state that the holder shall not exercise the privileges of the license. [ 38 ] With all due respect I must disagree. In making his decision, Master Smart did not have the benefit of the new evidence submitted by the parties. The license indicates that it is valid only for the period for which the medical certificate is valid, thereby providing an integral link between the documents.

The Policy provides: “The Insurance applies only if your aircraft is flown by an approved pilot ... who has the required license ...to fly your aircraft.” There is no ambiguity based on the ordinary meaning of the words. [ 39 ] The Policy does not define the term “license.” However, the term “license” is defined in Black’s Law Dictionary , 9th ed. (St. Paul, Minn.: Thomson Reuters, 2009) at p. 1002 as follows: 1. A permission, usu. revocable, to commit some act that would otherwise be unlawful ... 2.

The certificate or document evidencing such permission. [ 40 ] The ordinary meaning of both words “required” and “license” can only be interpreted to mean that a legal permit is required. The only reasonable and logical meaning to be given to both words is “required by law” or “licensed by law”. Both of these ordinary meanings necessarily infer the requirement of a pilot’s license and medical certificate. [ 41 ] It would be illogical to interpret the Policy as intending to cover someone who had an invalid license; that is inconsistent with

the plain wording of the clause – the “required license” – must mean a valid license. It stretches the bounds of common sense to find that an invalid license is still a license and that insurance coverage is valid. [ 42 ] Whether one defines “license” as the permission itself or the document which evinces the permission, the concept of permission is inherent in the meaning of “license.” Where that permission is revoked, the license cannot be said to exist any longer.

As a result, I would find that N.J.G. did not have the “required license” set out as a condition of the Policy. [ 43 ] N.J.G. had been a pilot since 1993 and the owner of an aircraft for some time. He had obtained and held medical certificates in the past. It is therefore appropriate to presume some basic knowledge of requirements of the Aeronautics Regulations when the license was negotiated in the context of the intention of the parties. [ 44 ] Moreover, it would be contrary to public policy to find that the Policy encouraged flying aircraft without the appropriate legal permission.

That would be dangerous and contrary to public policy. Conclusion [ 45 ] I therefore find that the Master erred in law in his

interpretation of the meaning of “required license” contained in the Policy. I therefore allow the appeal and find that the Policy was not in force as N.J.G. did not have a valid medical certificate at the time of the accident and therefore was not the holder of a “required license”. Heard on the 2 nd day of February, 2011. Dated at the City of Edmonton, Alberta this 26 th day of April, 2011. B.A. Browne J.C.Q.B.A. Appearances: A. D. Schmit Chomicki Baril Mah LLP for the (Appellants) Defendants Dave R. Shynkar Mathieu Hryniuk LLP for the (Respondents) Plaintiff

_______________________________________________________ Corrigendum of the Reasons for Judgment of The Honourable Madam Justice B.A. Browne _______________________________________________________ The citation line has been corrected to read: Gudzinski Estate v. Allianz Global Risks US Insurance Company, 2011 ABQB 283 . Previously, the word “Estate” was omitted.