Lafont v. Alberta Motor Association Insurance Company, 2011 ABQB 305

Court of Queen ’ s Bench of Alberta Citation: Lafont v. Alberta Motor Association Insurance Company, 2011 ABQB 305 Date: 20110503 Docket: 0703 07119 Registry: Edmonton Between: Teresa Lafont and Richard Lafont Plaintiffs - and - Alberta Motor Association Insurance Company, A.M.A. Insurance Agency Ltd. and AMA Insurance Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice Don J. Manderscheid _______________________________________________________ I.

Introduction [ 1 ] Following a fire that destroyed the Plaintiffs’ home and personal property, the Plaintiffs seek either indemnity under Policy No. HO7347 (the “Policy”) issued by the Defendant, Alberta Motor Association Insurance Company (the “Insurer”), or damages for wrongful termination of that Policy.

The Plaintiffs submit that the Defendants have denied coverage without justification and in breach of the terms of the Policy or, alternatively, are liable in negligence for improper termination of that Policy. [ 2 ] The Defendants deny the Plaintiffs are entitled to coverage under the Policy and allege that the Policy had not been renewed

and was no longer valid or in force at the date of the loss. II. Facts [ 3 ] The pertinent facts of this case are as follows: 1. The Plaintiffs were the legal registered owners of a residential mobile home situated on leased lands municipally described as 28 Maple Terrace, Edmonton, Alberta (the “Mobile Home”). 2. The Mobile Home was mortgaged by the Plaintiffs to the vendor from whom the Mobile Home was purchased, Alberta Mobile Home Listings (the “Mortgagee”). 3. The Insurer is a corporation under the Alberta Insurance Act , R.S.A., 2000 c. I-3 .

The Insurer issued the Policy to the Plaintiffs for the Mobile Home on January 7, 2004 insuring the Plaintiffs against all risks of direct physical loss or damage, including loss or damage caused by fire, to the Mobile Home, detached structures and personal property in the Mobile Home, as well as resulting additional living and medical expenses incurred, to specified Policy limits. 4. It was a term of the Policy that the first loss payable under the Policy would be paid to the Mortgagee, to the extent of the outstanding mortgage balance owing by the Plaintiffs. 5.

The Plaintiffs paid the premiums under the Policy in monthly installments, which the Insurer withdrew directly from the Plaintiff’s bank account. 6. Although the Alberta Motor Association (“AMA”) is a distinct corporation from the Insurer, it wholly owns the Insurer. AMA offers memberships which entitle its members to certain services and benefits, like automotive service calls, fuel delivery, roadside assistance, as well as certain insurance products like travel accident insurance, personal accident insurance, and trip collision reimbursement. 7.

On January 7, 2004, the Plaintiff, Teresa Lafont was sold a membership with the AMA. The only requirement to obtain membership in the AMA was payment of a fee. There were no other criteria or requirements. 8. Upon obtaining that membership, Ms. Lafont was provided with the membership receipt marked as Exhibit 1, Tab 4 (the "Membership Receipt"). The Membership Receipt was signed on behalf of AMA by Donna Stankovic, an AMA employee, and provides for a term of membership commencing on January 7, 2004 and expiring on January 7, 2008. A permanent membership card was issued to Ms.

Lafont, which states on its face that it expires January 7, 2007. 9. In answer to questions by the Court, Ms. Sherwin, an employee of the Defendants, testified that although she could not remember a time that AMA ever offered a membership for a period greater than one year, particularly on joining. However, the AMA has made exceptions for existing members in limited and exceptional circumstances, where the member is travelling and it would be more convenient for them to make a two-year payment. Ms. Sherwin further testified that such instances were very much an exception and certainly not a rule. 10.

The Plaintiffs completed a Property Application at the time the Policy was purchased, and it makes no reference to a requirement for AMA membership. There is no term or condition in the Policy requiring the Plaintiffs to maintain membership in the AMA as a condition of insurance coverage or renewal.

11. The Policy was automatically renewed by the Insurer on or about January 7, 2005, and January 7, 2006, without the requirement for further application for insurance coverage by the Plaintiffs. 12. The Personal Property Declarations for the periods from January 7, 2005 to January 7, 2006, and from, January 7, 2006 to January 7, 2007, both contain the following statement at the top right hand corner: “For continuous insurance coverage be sure your membership is current”. This statement was not contained in the initial Personal Property Declaration for the period from January 7, 2004 to January 7, 2005.

Furthermore, there is no mention in these two subsequent Personal Property Declarations as to whom the membership must be with. In this respect, there is no mention of the AMA in either of these two Personal Property Declarations and the only mention of an organization is the presence of the CAA logo at the top left-hand corner of the document. 13. In the first renewal period of the Policy from January 7, 2005 to January 7, 2006, Ms. Parker, an employee of the Defendants, testified that she was not aware of any document that would have been sent to the Plaintiffs concerning membership with the AMA. 14.

During cross-examination by Plaintiffs’ counsel, Ms. Parker confirmed that when the Plaintiffs’ initial one year membership with AMA expired, the AMA would then give them a one-year grace period to pay their membership fees. Ms. Parker further confirmed that there is nothing in the documents that she has seen that go out to the Insurer’s customers that talks about this grace period. 15. Ms. Sherwin testified that there were four attempts to contact Ms.

Lafont by phone in regards to the renewal of her AMA membership, all in the month of April of 2005, and each of the attempts resulted in a message which stated, “the customer you are attempting to contact is currently unavailable, please try again later”. During cross-examination by Plaintiffs’ counsel Ms. Sherwin confirmed that an employee who takes down information for insurance can also take down information for membership in the AMA, and the information obtained by the Insurer for Ms.

Lafont included two phone numbers: the phone number that is handwritten at the top of Exhibit 12 recording those attempts, and a business phone number. Ms. Sherwin further confirmed that she did not find any records where an attempt was made to contact Ms. Lafont about membership at that business number. 16. On or about November 21, 2006, the Insurer sent the Plaintiffs, by registered mail, a letter advising as follows: The above noted policy is due for renewal on Jan 7, 2007. We would like to continue with your property insurance, but, your membership is not current.

In order to provide you with a renewal offer we would ask you contact your nearest AMA Insurance Agency, where you will be able to update your membership and obtain the renewal offer. This letter was not claimed by the Plaintiffs and it was returned to the Insurer on or about February 16, 2007. 17. No premium was withdrawn from the Plaintiffs' bank account in December 2006 or January 2007 by the Insurer. 18. On January 24, 2007, 16 days after the Defendants allege the Policy lapsed, a fire destroyed the Mobile Home and all personal property contained in the Mobile Home (the “Loss”). 19.

On the evening of January 24, 2007, Mr. Lafont reported the Loss to the Insurer. 20. On February 2007, the Plaintiffs attempted to submit particulars of the Loss to the Insurer at its offices, but the Insurer would not accept the document. On February 14, 2007, the Plaintiffs faxed the document outlining the particulars of the Loss to the Insurer. 21. By letter dated February 28, 2007, the Insurer denied the Plaintiffs' claim on the basis that the Policy had lapsed and was not renewed on January 7, 2007.

22. After the Loss, the Insurer paid the Mortgagee $23,072.81 under the Standard Mortgage Clause of the Policy, on the basis that the Mortgagee had not received confirmation by registered mail that the Policy would not be renewed on January 7, 2007. 23. The Plaintiffs’ total insurable claim under the Policy is $78,712.19, before interest or costs. III. Legislation [ 4 ] The relevant provisions of the Insurance Act , R.S.A. 2000, c.

I-3 , are outlined below: 513(1) All the terms and conditions of a contract of insurance must be set out in full in the policy or by writing securely attached to it when issued, and unless so set out no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or any beneficiary. (2) Subsection (1) does not apply to an alteration or modification of the contract agreed on in writing by the insurer and the insured after the issue of the policy. 515 When there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or another matter or thing required to be done or omitted to be done by the insured with respect to the loss and the consequent forfeiture or avoidance of the insurance in whole or in part and the Court considers it inequitable that the insurance should be forfeited or avoided on that ground, the Court may relieve against the forfeiture or avoidance on any terms it considers just. 517(1) No term or condition of a contract is deemed to be waived by the insurer in whole or in part unless the waiver is stated in writing and signed by a person authorized for that purpose by the insurer.

IV. Issues [ 5 ] This matter involves the following issues: 1. Was it a term or condition of the Policy that membership by the Plaintiffs in the AMA be current at the time for renewal of the Policy? 2. If the answer in Issue 1 above is in the affirmative, then did the Defendants waive any obligation for the Plaintiffs to maintain membership in the AMA? 3. If the answer in Issue 2 above is in the negative, then did the Plaintiffs have a valid membership in the AMA at the time of the Loss? 4.

Was it a term of the agreement between the Insurer and the Plaintiffs that the Policy would be automatically renewed on an annual basis, unless reasonable notice to the contrary was provided? 5. Were the Defendants negligent in failing to provide notice to the Plaintiffs of non-renewal of the Policy?

6. Did the Plaintiffs contribute to the Loss by failing to make inquiries regarding renewal of the Policy? 7. If the Defendants are liable to the Plaintiffs for damages, what is the measure of damages? V. Discussion A. Position of the Parties [ 6 ] The Plaintiffs argue that there was nothing in the agreements between the Insurer and the Plaintiffs that makes AMA membership a requirement of the Policy or any renewals of the Policy.

The Plaintiffs argue that s. 513 of the Insurance Act makes it clear that the Insurer cannot lead evidence of a term or a condition of an insurance policy that is not contained in writing and that is to the prejudice of the insured or any beneficiary.

Accordingly, the Plaintiffs argue that s. 513 prohibits the Insurer from requiring the Plaintiffs’ membership in the AMA, unless that term is expressly set out in the insurance contract documents. [ 7 ] The Plaintiffs further argue that even if there was an implicit requirement of membership, the Plaintiffs had a valid membership in the AMA as of January 7, 2008, citing the terms of the Membership Receipt and the membership card, and therefore the Plaintiffs were entitled to renewal of the Policy.

Alternatively, the Plaintiffs argue that even if they did not have membership in the AMA, the Insurer waived any such requirement by its conduct of renewing the Policy in 2005 and 2006, and the Plaintiffs should be entitled to relief from forfeiture. [ 8 ] Furthermore, the Plaintiffs argue that they are entitled to damages equal to the coverage under the Policy that would have existed on January 7th, 2007, on the basis that the Insurer did not meet the standard of care that would be required of them in providing notice of a non-renewal of the Policy. [ 9 ] The Defendants argue that an AMA membership has always been a condition precedent to the purchase and renewal of an insurance policy with the Insurer.

Accordingly, only AMA members could purchase the Policy. The Defendants argue that it is not a term of the Policy, because, with the exception of basic automobile coverage, only members of the AMA are offered the ability to purchase property insurance from the Insurer. Accordingly, the policy of AMA membership does not offend

section 513 of the Insurance Act . Alternatively, the Defendants submit that it is an implicit term of the Policy that the named insured is a member of AMA. As such, without an AMA membership, the Policy cannot be purchased or renewed. B. Analysis [ 10 ] The burden of proof in a civil case is proof on a balance of probabilities: F.H. v. McDougall , 2008 SCC 53 , [2008] 3 S.C.R. 41 at para. 49 . 1. Was it a term or condition of the Policy that membership by the Plaintiffs in the AMA be current at the time for renewal of the Policy?

Were the Plaintiffs told at the time they purchased the Policy that AMA membership was required to renew the Policy? [ 11 ] The facts surrounding the Plaintiff’s initial membership in the AMA are relevant to whether the Policy required the Plaintiffs to be AMA members for the Policy renewal.

[12] As stated previously, the Property Application completed at the time the Policy was purchased by the Plaintiffs made noreference to a requirement for membership in the AMA. Furthermore, there is no term or condition of the Policy that requires the Plaintiffs to maintain membership in the AMA as a condition ofcoverage or renewal. As well, the Policy makes no reference to the AMA or membership in that organization. [13] Ms. Sherwin, an employee of AMA testified that during the initial telephone call by Ms.

Lafont to the Insurer concerningobtaining property coverage, no reference was made to the fact that membership in the AMA was a pre-condition or pre-requisite toinsurance coverage with the Insurer, and that Ms. Lafont “was simply asked if she was an existing member with AMA”. In her testimony,Ms. Sherwin further confirmed that it was her understanding that in answer to this question, Ms. Lafont replied that she was not and theInsurer’s agent then quoted her a price for insurance. Ms.

Lafont testified that at the time she completed the Property Application, she didnot recall being told by any agent of the Defendants that buying a membership in the AMA every year was a condition of that insurance. [14] Unfortunately, Donna Stankovic, the AMA agent who initially dealt with Ms. Lafont in completing the Property Applicationand Policy documents, was not called as a witness by the Defendants. Accordingly, there is no direct evidence that Donna Stankovic, orfor that matter any other agent of the Defendants, ever advised Ms.

Lafont that membership in the AMA was a condition or requirementfor continuing insurance coverage. During cross-examination by Plaintiffs’ counsel, Ms. Parker confirmed that although it was a practiceof agents to tell customers who inquired about insurance that AMA membership was required, it was conceivable that this practice couldbreak down from time to time. Ms. Parker further confirmed that whether there was such a breakdown in the case of Ms.

Lafont, suchanswer could only be provided by Donna Stankovich. [15] The Plaintiffs submit that an adverse inference should be drawn against the Defendants because they failed to call DonnaStankovic at trial. In support of their submission the Plaintiffs cite: Mallet v. Administrator of the Motor Vehicle Accident Claims Act,2002 ABCA 297 at para. 81; Allied Signal Inc. v. Dome Petroleum Ltd. (1996), (AB KB), 195 A.R. 1, 8 C.P.C.(4th) 328 (QB) at paras. 91-92. In particular, they point to the Supreme Court of Canada decision in R. v.

Jolivet, 2000 SCC 29, whereBinnie J. discussed the drawing of adverse inferences (at para. 28): One must also be precise about the exact nature of the "adverse inference" sought to be drawn. In J. Sopinka, S. N. Lederman and A. W.Bryant, The Law of Evidence in Canada (2nd ed. 1999), at p. 297, para. 6.321, it is pointed out that the failure to call evidence may,depending on the circumstances, amount "to an implied admission that the evidence of the absent witness would be contrary to theparty's case, or at least would not support it" (emphasis added), as stated in the civil case of Murray v.

Saskatoon, (SKCA), [1952] 2 D.L.R. 499 (Sask. C.A.), at p. 506. The circumstances in which trial counsel decide not to call a particular witness mayrestrict the nature of the appropriate "adverse inference". Experienced trial lawyers will often decide against calling an available witnessbecause the point has been adequately covered by another witness, or an honest witness has a poor demeanour, or other factors unrelatedto the truth of the testimony.

Other jurisdictions also recognize that in many cases the most that can be inferred is that the testimonywould not have been helpful to a party, not necessarily that it would have been adverse: United States v. Hines, 470 F.2d 225 (3rd Cir.1972), at p. 230, certiorari denied, 410 U.S. 968 (1973); and the Australian cases of Duke Group Ltd. (in Liquidation) v. Pilmer & Ors,[1998] A.S.O.U. 6529 (QL), [page768] and O'Donnell v. Reichard, [1975] V.R. 916 (S.C.), at p. 929. [16] In R. v. Jolivet, Binnie J. specifically noted that drawing an adverse inference is dependant on the circumstances. See also R.v.

Onigbinde, 2010 ONCA 56, 258 O.A.C. 127 at para. 45. [17] Applying the relevant case law to the facts at hand, I am not persuaded that the Defendants’ failure to call Ms. Stankovic as awitness was in any way intended to shield themselves from the harmful effects of the disclosure of evidence which may have beenadverse to their position in regards to the requirement for membership in the AMA. In reviewing the circumstances as a whole, I notethat Ms. Sherwin testified that she did not believe that Ms. Stankovich was still employed by the AMA.

She further testified that anemployee who records information for insurance can also record information for membership with the AMA. Accordingly, given Ms.Stankovic’s duties as an agent of the Defendants, it is conceivable that in the course of a day, she discussed, reviewed, and entered into anumber of insurance related matters for the Insurer and a number of vehicle related matters for the AMA. Therefore, given the fact thather initial meeting with Ms. Lafont took place approximately four years ago, it is questionable whether Ms.

Stankovic could haveprovided any definitive answer about the conversation between herself and Ms. Lafont when the Policy and AMA membership wereinitially purchased in January 2004. [18] Considering all of the circumstances and pertinent evidence, I conclude that Ms. Lafont was not informed that AMA

membership was required to obtain the insurance when she purchased the Policy or for continuing insurance coverage. Did the Plaintiffs reasonably believe that their AMA membership was current? [19] From my review of the evidence provided, it is clear that a reasonable person in the Plaintiffs’ position could reasonably havebelieved that their membership with the AMA was for a period expiring either on January 7, 2008 as stated in the Membership Receipt oron the expiry date of January 7, 2007, as stated on Ms. Lafont’s permanent AMA membership card.

There is no evidence that indicatesthat the Plaintiffs’ membership with the AMA was only for a one year period. [20] The AMA entered into a contractual relationship with the Plaintiffs, evidenced by the Membership Receipt. The AMA cannotnow state that the membership was for a one year period and that it was, as explained by Ms. Sherwin, only a clerical error that theMembership Receipt was for a four year period. In this respect, the Membership Receipt was a form of the AMA and all materialinformation was filled in by its agent, Ms. Stankovic.

Furthermore, neither the Policy, Property Application or any of the PersonalProperty Declarations specifically state that membership by the Plaintiffs with the AMA must be current in order for the Policy to berenewed. Was AMA membership a prerequisite or condition precedent to the renewal of the Policy? [21] If AMA membership by the Plaintiffs was a condition precedent to the purchase and renewal of the Policy, such a conditionprecedent must be contained within either the AMA membership contract with the Plaintiffs or within the Policy itself.

From theevidence provided, it is clear that the AMA membership contract contained no such condition precedent. Although the Defendants arguethat an AMA membership has always been a condition precedent to the purchase and renewal of an insurance policy with the Insurer,from the evidence, the requirement for such a condition precedent was never communicated by the AMA to the Plaintiffs, neither at thetime when membership with the AMA was taken out by the Plaintiffs, or by the Insurer at the time that the Plaintiffs entered into thePolicy with the Insurer.

Accordingly, I conclude that there was no contract between the AMA or the Insurer and the Plaintiffs thatcontained a condition precedent to the purchase and renewal of an insurance policy with the Insurer. [22] If there is any ambiguity or confusion in regards to whether the Plaintiffs’ AMA membership is a prerequisite to renewal ofthe Policy, such ambiguity or confusion is the sole responsibility of the Defendants who created it by their own documents and actions.In accordance with the contra proferentem rule where there is ambiguity in a contract, the language should be construed against the partywho drafted the document.

See Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., (SCC),[1993] 1 S.C.R. 252 at para. 38. Additionally, The Defendants created the one-year grace period for membership, a policy it chose not todisclose to the Plaintiffs. By this act alone, the Defendants represented to the Plaintiffs that their membership was for a period greaterthan one year. [23] Moreover, the Defendants failed to take reasonable steps to resolve such confusion by failing to call the Plaintiffs’ businessnumber and inquire as to membership renewal. In Saint John Tugboat Co. v.

Irving Refinery Ltd., (SCC), [1964]S.C.R. 614, Ritchie J., in discussing what a reasonable man would interpret from the conduct of another, had this to say: In this connection reference is frequently made to the following statement contained in the judgment of Lord Blackburn in Smith v.Hughes [(1871), L.R. 6 Q.B. 597 at 607.], which I adopt as a proper test under the present circumstances: If, whatever a man's real intention may be he so conducts himself that a reasonable man would believe that he was consenting to theterms proposed by the other party and that other party upon that belief enters into a contract with him, the man thus conducting himselfwould be equally bound as if he had intended to agree to the other party's terms.

If there was an agreement that required AMA membership for the Policy renewal, is it enforceable? [24] The Defendants have argued that there was some form of contract, either oral or written, between the AMA or the Insurer andthe Plaintiffs to the effect that AMA membership by the Plaintiffs was a condition precedent to the purchase of an insurance policy withthe Insurer. Although I have concluded that such a contract did not exist, assuming that it did exist, since it is not contained within the

Policy, it must be within a collateral contract. Given the fact that the Policy contains no such contractual provision, such a contract wouldconflict with the main contract, the Policy. In such cases, the courts have held that such a collateral contract cannot apply where it isinconsistent with or contradicts the main contract. This conclusion was confirmed in Carman Construction Ltd. v.

Canadian PacificRailway Co., (SCC), [1982] 1 S.C.R. 958, where Martland J., in quoting Lord Moulton in Heilbut, Symons & Co. v.Buckleton, [1913] A.C. 30, stated: In his judgment in that case, Lord Moulton, at p. 47, said this: It is evident, both on principle and on authority, that there may be a contract the consideration for which is the making of some othercontract. "If you will make such and such a contract I will give you one hundred pounds," is in every sense of the word a complete legalcontract.

It is collateral to the main contract, but each has an independent existence, and they do not differ in respect of their possessing tothe full the character and status of a contract. But such collateral contracts must from their very nature be rare. The effect of a collateralcontract such as that which I have instanced would be to increase the consideration of the main contract by 100 pounds [Sterling], and themore natural and usual way of carrying this out would be by so modifying the main contract and not by executing a concurrent andcollateral contract.

Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are thereforeviewed with suspicion by the law. They must be proved strictly. Not only the terms of such contracts but the existence of an animuscontrahendi on the part of all the parties to them must be clearly shewn.

Any laxity on these points would enable parties to escape fromthe full performance of the obligations of contracts unquestionably entered into by them and more especially would have the effect oflessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreementsrelating to the same subject-matter. [25] Furthermore, in Hawrish v.

Bank of Montreal, (SCC), [1969] S.C.R. 515, Judson J., stated: Bearing in mind these remarks to the effect that there must be a clear intention to create a binding agreement, I am not convinced that theevidence in this case indicates clearly the existence of such intention. Indeed, I am disposed to agree with what the Court of Appeal saidon this point. However, this is not in issue in this appeal.

My opinion is that the appellant's argument fails on the ground that thecollateral agreement allowing for the discharge of the appellant cannot stand as it clearly contradicts the terms of the guarantee bondwhich state that it is a continuing guarantee. The appellant has relied upon Byers v. McMillan. But upon my

interpretation that the terms of the two contracts conflict, this case isreally against him as it is there stated by Strong J. that a collateral agreement cannot be established where it is inconsistent with orcontradicts the written agreement. To the same effect is the unanimous judgment of the High Court of Australia in Hoyt's ProprietaryLtd. v. Spencer [(1919), 27 C.L.R. 133.], which rejected the argument that a collateral contract which contradicted the written agreementcould stand with it.

Knox C.J., said at p. 139: A distinct collateral agreement, whether oral or in writing, and whether prior to or contemporaneous with the main agreement, is validand enforceable even though the main agreement be in writing, provided the two may consistently stand together so that the provisionsof the main agreement remain in full force and effect notwithstanding the collateral agreement. This proposition is illustrated by thedecisions in Lindley v. Lacey [supra], Erskine v. Adeane [supra], De Lassalle v.

Guildford, [1901] 2 K.B. 215, and other cases. [26] I conclude that if there was a contract provision requiring AMA membership as a condition precedent, it was not in the Policy;any such agreement would be collateral and such a term would be inconsistent with the Policy and therefore would not apply.

What is the effect of the Defendants accepting premiums for 2005 and 2006? [27] As well, it should be noted that the Defendants chose for the 2005 and 2006 insurance years to accept the payment of theinsurance premiums from the Plaintiffs without clearly demanding that the Plaintiffs bring their alleged lapsed membership with theAMA into good standing as a requirement for the provision of further insurance coverage by the Insurer. In such a case, the courts haveheld that a party cannot benefit from such inaction to the detriment of another. This fact was confirmed in Saskatchewan Co-op. WheatProducers Ltd. v.

Luciuk, (SK CA), [1931] 2 D.L.R. 981, where, at para. 7, Turgeon J.A., stated:

The first objection has to do with certain conditions precedent to the coming into effect of the contract, which were put in issue in the pleadings and concerning which no evidence was adduced by the plaintiffs at the trial. It was provided in the written contract that it should not become binding between the parties unless a certain number of growers entered into a similar contract with the plaintiffs before a date to be fixed later by the plaintiffs' directors. The date subsequently fixed was June 26, 1924.

It was also provided that the plaintiffs would cause notice of the number of growers who had signed the contract to be inserted in all the daily newspapers published in Saskatchewan, as soon as practicable after that date, in order that all might know whether the contract had become effective and whether the plaintiffs were to carry on the business for the pursuit of which they had been organized.

The plaintiffs answer this objection by pointing out that for several years after June 24, 1924, the defendant did business with the plaintiffs under the terms of the contract, receiving the benefit of the contract and performing its obligations, and that it is now too late for him to raise the question of the fulfilment of these conditions precedent in 1924. In my opinion this objection is well taken: Bentsen v.

Taylor, Sons'& Co. , [1893] 2 Q.B. 193 . [ 28 ] I conclude that the Insurer continued to do business with the Plaintiffs, and that if there were a condition precedent, it is now too late to raise the question.

What is the effect of s. 513 of the Insurance Act ? [ 29 ] Section 513(1) of the Insurance Act , clearly requires that: ... all of the terms and conditions of a contract of insurance must be set out in full in the policy or by writing securely attached to it when issued, and unless so set out no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or any beneficiary. [ 30 ] Given such clear legislative direction, the absence of a written requirement in the Policy that AMA membership by the Plaintiffs is a condition precedent to the purchase and renewal of the Policy, operates to the detriment of the Defendants.

Furthermore, as there is no evidence that there was “an alteration or modification of the contract agreed on in writing by the insurer and the insured after the issue of the policy”, as stated in 513(2) of the Insurance Act , the Insurer cannot come within the exception stated therein. [ 31 ] Based upon the evidence provided to this Court and taking into consideration all of the circumstances, it is my conclusion that it was not a term or condition of the Policy that membership by the Plaintiffs in the AMA be current at the time for renewal of the Policy. 2.

If the answer in Issue 1 above is in the affirmative, then did the Defendants waive any obligation for the Plaintiffs to maintain membership in the AMA? [ 32 ] Having concluded that there was no obligation under the Policy for the Plaintiffs to maintain membership in the AMA, it is unnecessary to find that the Defendants waived the obligation for the Plaintiffs to maintain membership in the AMA. [ 33 ] If I am wrong, however, and there was an obligation for the Plaintiffs to maintain a valid membership in the AMA in order for the Policy to be valid, I find that this obligation was not waived by the Defendants. [ 34 ] The Plaintiffs argue that the Insurer’s conduct established a waiver of the obligation to maintain a membership.

The Plaintiffs submit that the January 7, 2005 and January 7, 2006 renewals provide evidence that the Defendants waived the membership requirement. In other words, the Plaintiffs submit that the Defendants’ conduct created a representation that their contractual right would not be enforced. [ 35 ] However, Section 517(1) of the Insurance Act provides:

No term or condition of a contract is deemed to be waived by the insurer in whole or in part unless the waiver is stated in writing andsigned by a person authorized for that purpose by the insurer. [36] The meaning of s. 517(1) of the Insurance Act is plain. In order for an insurer to waive a term or condition, the waiver must bein writing and signed by an appropriate authority.

Conduct alone is insufficient to waive a contractual requirement. [37] Since there is no evidence of any such written waiver, I conclude that if there had been an obligation on the Plaintiffs tomaintain an AMA membership, it was not waived by the Defendants. 3. If the answer in Issue 2 above is in the negative, then did the Plaintiffs have a valid membership in the AMA at the time ofthe Loss? [38] Having answered Issue 2 in the negative, I now turn to the question of whether the AMA membership was valid at the time ofthe Loss.

As with Issue 2, this question is relevant only if it was a term or condition of the Policy that the Plaintiffs were required tomaintain a valid AMA membership. [39] The Plaintiffs submit that they held a valid AMA membership since the Membership Receipt provided for an expiry date ofJanuary 7, 2008. It was issued by an authorized representative of the Insurer and forms a binding agreement. There is no evidence tosupport the conclusion that the Membership Receipt constituted a “clerical error”. They have also suggested that an adverse inferenceshould be drawn with respect to the lack of testimony from Ms.

Stankovic, but I have already declined to make such an inference. [40] The Defendants submit that the January 7, 2008 expiry date on the Membership Receipt was the result of a clerical error, andthat the membership contract was only valid for one year, lapsing in January, 2005.

They argue that the subsequent correspondencebetween the Plaintiffs and the AMA demonstrated that the membership had expired, and should have at least prompted the Plaintiffs toinquire as to the status of their membership if they believed that they held a four year membership. [41] The Membership Receipt provided to the Plaintiffs contained the terms of the agreement that had been reached. Putdifferently, the terms of the Membership Receipt have the contractual force to bind the parties.

The Defendants submit that theMembership Receipt, and more specifically the expiry date, does not represent the true agreement that was reached between the parties,but was a “clerical error”; in other words, a mistake. [42] If the terms of a written contract are mistaken and do not reflect the true agreement between the parties, then the courts cancorrect the error through the equitable remedy of rectification. The purpose of rectification is corrective. The test for rectification of acontract where there has been a mistake was set out by Binnie J. in Performance Industries Ltd. v.

Sylvan Lake Golf & Tennis ClubLtd., 2002 SCC 19, [2002] 1 S.C.R. 678 at para. 31: Rectification is predicated on the existence of a prior oral contract whose terms are definite and ascertainable. The plaintiff mustestablish that the terms agreed to orally were not written down properly. The error may be fraudulent, or it may be innocent. Whatis essential is that at the time of execution of the written document the defendant knew or ought to have known of the error and theplaintiff did not.

Moreover, the attempt of the defendant to rely on the erroneous written document must amount to “fraud or theequivalent of fraud”. The court’s task in a rectification case is corrective, not speculative. It is to restore the parties to their originalbargain, not to rectify a belatedly recognized error of judgment by one party or the other: Hart v. Boutilier (1916), (SCC), 56 D.L.R. 620 (S.C.C.), at p. 630; Ship M. F. Whalen v. Pointe Anne Quarries Ltd. (1921), (SCC), 63 S.C.R.109, at pp. 126-27; Downtown King West Development Corp. v. Massey Ferguson Industries Ltd., (1996), (ON CA),133 D.L.R. (4th) 550 (Ont.

C.A.), at p. 558; G. H. L. Fridman, The Law of Contract in Canada (4th ed. 1999), at p. 867; S. M.Waddams, The Law of Contracts (4th ed. 1999), at para. 336. In Hart, supra, at p. 630, Duff J. (as he then was) stressed that “[t]hepower of rectification must be used with great caution”. Apart from everything else, a relaxed approach to rectification as asubstitute for due diligence at the time a document is signed would undermine the confidence of the commercial world in writtencontracts. [emphasis added]

[ 43 ] Further, the onus of proof is on the party asserting the error in the written contract. The standard of proof is elevated beyond the regular balance of probabilities.

As noted at para. 41 of Performance Industries : The modern approach, I think, is captured by the expression “convincing proof”, i.e., proof that may fall well short of the criminal standard, but which goes beyond the sort of proof that only reluctantly and with hesitation scrapes over the low end of the civil “more probable than not” standard. [ 44 ] I am unable to conclude on the evidence before me that there was “convincing proof” that there was an error in the expiry date as written on the Membership Receipt.

There is nothing in the evidence that proves either the Plaintiffs or the Defendants intended to restrict the term of membership to one year. Ms. Sherwin testified that it was the general practice of the Defendants not to sell four year memberships at the time, and that annual memberships were regularly sold. However, there was also testimony that multi-year memberships were sold on occasion. The expiry date field on the form receipt was blank, and left to be filled in by an AMA employee.

These factors indicate that it was possible for a four-year membership to have been issued, and indeed, that seems to have been the case. [ 45 ] Given that the remedy of rectification is unavailable to the Defendants, the terms of the written contract must prevail. The Membership Receipt was issued by an authorized representative of the AMA and formed a binding agreement. As such, the AMA was obligated to honour the expiry date as written on the Membership Receipt. [ 46 ] I conclude that the Plaintiffs had a valid AMA membership as of January 7, 2007, as evidenced by the Membership Receipt. 4.

Was it a term of the agreement between the Insurer and the Plaintiffs that the Policy would be automatically renewed on an annual basis, unless reasonable notice to the contrary was provided? [ 47 ] The Plaintiffs submit that there was an automatic right to renewal of the Policy that had been established by the conduct of the parties. The Defendants, meanwhile, submit that there was no automatic renewal of the Policy. In the Defendants’ submissions, an offer of renewal was sent out each year, which was subsequently accepted through advance payment of the monthly premium.

Both parties agree that this is not a case where a continuous insurance policy was in place. [ 48 ] The general rules governing the

interpretation of insurance contracts in Alberta were laid out by the Court of Appeal in Engle Estate v. Aviva Insurance Company of Canada, 2010 ABCA 18 , 469 A.R. 342, where the Court stated at para. 16: This case must be decided according to the applicable principles that govern the

interpretation of insurance contracts, specifically:

(1) The court must search for an

interpretation from the whole of the contract that promotes the parties’ true intent at the time of entering into the contract.

(2) Where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention of the parties will be selected.

(3) Ambiguities will be construed against the insurer, often by use of the contra proferentem rule.

(4) An

interpretation that will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided.

(5) Coverage provisions should be construed broadly and exclusion clauses narrowly.

(6) The desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectations of the parties.

(6) The desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectations of the parties. See Brissette Estate v. Westbury Life Insurance Co.; Brissette Estate v. Crown Life Insurance Co., (SCC), [1992] 3S.C.R. 87, at para. 4, 96 D.L.R. (4th) 609, Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., (SCC), [1993] 1 S.C.R. 252 at 269, 99 D.L.R. (4th) 741. [49] It is clear that where there is uncertainty in an insurance contract, it will be resolved in favour of the insured. This followsfrom the inherent inequality of bargaining positions between an insurance company and an insured. With the direction from Engle Estatein mind, I turn to the

interpretation of the Policy itself. The conduct of the parties clearly reveals that there was an expectation that thePolicy would be renewed. In fact, the evidence from Ms. Monett demonstrates that the Plaintiffs would only contact the Insurer if theyno longer wished to continue their coverage. Furthermore, the renewal contract would automatically be generated and issued, withouteven the need for the insured to review the contract.

Clearly, the reasonable expectation of the parties was that the Policy would beautomatically renewed on an annual basis. [50] I conclude that the Insurer had an obligation to renew the Policy, and failed to do so. 5. Were the Defendants negligent in failing to provide notice of non-renewal of the Policy to the Plaintiffs? [51] The Plaintiffs’ submit that the failure of the Defendants to follow their automatic renewal practices triggers liability innegligence.

The Defendants failed to notify the Plaintiffs of the impending non-renewal of the Policy. [52] The Defendants submit that there was no statutory or contractual obligation for them to notify the Plaintiffs of the impendingexpiry of the Policy. However, even if there had been such an obligation, the Defendants argue that they had discharged it when theysent a letter to the Plaintiffs via registered mail, notwithstanding that the letter was ultimately not received. [53] The practice of automatically renewing an insurance contract has been prevalent for quite some time. This was confirmed inMorash v.

Lockhart & Ritchie Ltd., (NB CA), 24 N.B.R. (2d) 180 (C.A.), when Hughes C.J.N.B. noted at p. 183: It is a matter of common knowledge that insurance agents, motivated by their own interest in retaining insurance business, as a matter ofpractice, forward to their clients renewals of policies without any requests being made therefor, and that where such a practice has beenadopted clients expect the service and rely upon it for protection against the lapse of their policies. [54] The Court in Morash found that “the defendant by its past conduct created for itself a self-imposed duty in law to renew theplaintiff's policy”.

The insurer was therefore liable for a negligent breach of its duty. See also: Lewis v. C.M. & M. Insurance ServicesLtd., (NB KB), 51 N.B.R. (2d) 433; CIA Inspection Inc. v. Dan Lawrie Insurance Brokers, 2010 ONSC 3639. [55] This line of reasoning has also been applied in Alberta. In Banadera v. Co-Operators General Insurance, 2004 ABPC 122,Hess P.C.J. stated at para. 11: Using either approach, it seems to me the Co-Operators has been negligent by either breaching a duty imposed by law or breaching “aself-imposed” duty owed to Banadera to notify her of the failure to renew her Homeowner’s policy.

Morash requires not that renewalnotices be sent, but that a policy holder be notified of a failure to renew. This duty has not been discharged by the Co-Operators andBanadera has suffered damages as a consequence. [56] Turning to the facts of the present case, the evidence before me clearly establishes that the Policy was to be automaticallyrenewed every year, without the need for any further action by the Plaintiffs. The Plaintiffs reasonably expected that the Policy would berenewed again on January 7, 2007. The Defendants had a duty to notify the Plaintiffs of non-renewal, and they failed to do so.

Asobserved in Banadera, the obligation is not to merely send renewal notices, but to notify the policy holder of a failure to renew. Theregistered letter did not discharge this obligation, nor did the Defendants use either of Teresa Lafont’s phone numbers that were availableto them. Accordingly, I conclude that the Defendants are liable to the Plaintiffs for a negligent breach of their duty.

6. Did the Plaintiffs contribute to the Loss by failing to make inquiries regarding renewal of the Policy? [ 57 ] The Defendants submit that the Plaintiffs were contributorily negligent in this action. The Plaintiffs knew they had problems with their mail delivery, and did not take any steps to try and rectify the problem. This failure put the Plaintiffs in a position where it was possible, if not likely, that they would not receive important documents from third parties. [ 58 ] The Plaintiffs deny being contributorily negligent in this case.

They submit that they acted reasonably and did not contribute to the Loss. In their submission, a key element of a contributory negligence finding in a case such as this, is the length of time between the lapse of the Policy and the time of the Loss. Given the short passage of time in this case, the Plaintiffs should not be found contributorily negligent. [ 59 ] On the issue of contributory negligence, I accept the analysis of Hess P.C.J. in Banadera v. Co-Operators General Insurance , at paras. 12 and 13 : Having found the Co-Operators liable to Banadera in negligence, I must deal with two other matters.

The first is the question of contributory negligence. The authorities require I look at Banadera's failure to take steps to renew or place new insurance. The issue is resolved having regard to the length of time which passes between the date the policy lapsed and the date of the loss . In this case, Banadera's policy lapsed 8 1/2 months before she incurred her loss. There are no hard and fast rules or formulae to be applied, however, it seems to me that at some point, Banadera must share the responsibility for failing to make inquiries of the Co-Operators or Jack as to the status of her policy.

At page 650 of Morash , Hughes, C.J.N.B., says: “One circumstance which has caused difficulty in resolving the case is the fact the plaintiff was unaware for nearly 18 months after the expiry of his three-year policy that it had not been renewed. In my opinion the plaintiff's failure to keep himself informed concerning his insurance coverage during so long a period constituted a failure on his part to exercise reasonable care to act prudently in the management of his affairs, and was the principal cause of his loss resulting from his being uninsured.

This, in my view, is a case for the application of the Contributory Negligence Act , R.S.N.B. 1973, c. C-19, the plaintiff's loss being the result of the concurrent faults of both parties." In Morash , the New Brunswick Court of Appeal assessed the liability at 75% on the part of the plaintiff and 25% on the part of the defendant. In this case, Banadera had a yearly policy with an initial term of 15 months and the loss arose 8 1/2 months after the policy lapsed.

By failing to manage her own affairs in a prudent manner, and for a significant period of time, I am of the view Banadera contributed to her loss and I find her equally responsible with the Co-Operators . [emphasis added] [ 60 ] The Loss occurred on January 24, 2007, 16 days after the Policy lapsed. Additionally, the Plaintiffs provided evidence indicating that they did not receive their bank statements until the end of the month, and would not necessarily have reviewed them immediately.

In my view, it is clear that the length of time between the lapse of the Policy and the date of the Loss was insufficient to trigger a finding of contributory negligence on the part of the Plaintiffs. The Plaintiffs could not have reasonably been expected to know about the lapse of their Policy, and they certainly could not have been expected to have already taken corrective action. [ 61 ] I do not accept the Defendants’ submission that the Plaintiffs were contributorily negligent by failing to correct their problems in receiving mail.

There is no evidence that the problems related to mail delivery were within the Plaintiffs’ control. Further, the evidence shows that the Defendants had ample opportunity to contact the Plaintiffs by phoning either their home or business numbers, and they failed to do either. [ 62 ] It is my view that the Plaintiffs were not contributorily negligent, and the Defendants are therefore solely liable for the Loss.

7. If the Defendants are liable to the Plaintiffs for damages, what is the measure of damages? [ 63 ] Pursuant to paragraph 19 of the Agreed Statement of Facts which was entered as Exhibit 1, in the event that coverage is found to exist for the Loss under the Policy, the Plaintiffs’ total insurable claim under the Policy is $78,712.19, before interest and costs. [ 64 ] In addition, the Plaintiffs are also seeking punitive damages against the Defendants. Under the circumstances, I do not find this to be an appropriate case for punitive damages.

Punitive damages may be awarded only for “advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own”: Honda v. Keays , 2008 SCC 39 , [2008] 2 S.C.R. 362 at para. 62 . Although the Defendants’ conduct has not been business-like, I would not characterize it as malicious and outrageous. Vl. Conclusion [ 65 ] I find the Insurer had no legal basis for their failure to renew the Policy. [ 66 ] As a result, the Plaintiffs are entitled to: 1. Damages in the amount of $78,712.19; and 2. Interest pursuant to the Judgment Interest Act , R.S.A. 2000, c.

J-1. [ 67 ] The Plaintiffs are entitled to costs, as they have been largely successful in this action. If the parties cannot agree on costs, they may be spoken to within 30 days of this judgment. Heard on the 23 rd day of February, 2011. Dated at the City of Edmonton, Alberta this 3 rd day of May, 2011. Don J. Manderscheid J.C.Q.B.A. Appearances: Scott J. Hammel and Robyn Meara Miller Thomson LLP for the Plaintiffs

Kenneth B. Blake Alberta Motor Association Legal Department for the Defendants