Terrigno v. Peace Hills General Insurance Company, 2011 ABQB 474

Court of Queen ’ s Bench of Alberta Citation: Terrigno v. Peace Hills General Insurance Company, 2011 ABQB 474 Date: 20110721 Docket: 1001 00684 Registry: Calgary Between: Antonietta Terrigno, Rocco Terrigno and Michael Terrigno Appellants - and - Peace Hills General Insurance Company Respondent _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice A.B.

Sulatycky _______________________________________________________ [ 1 ] The issue in this appeal from a judgment in the Provincial Court of Alberta is whether, by failing himself to take steps to resolve a claim, a person insured under a policy of automobile insurance authorizes his insurer to settle the issues of liability and quantum of damages arising from a motor vehicle accident, in the absence of judgment or legal action of any kind.

More broadly stated the issue is whether a judgment against an insured or an admission of liability by an insured is a precondition to compellable reimbursement of the insurer for monies paid to satisfy an insured’s liability. Facts [ 2 ] The Appellants Antoinetta Terrigno and Rocco Terrigno are the parents of the Appellant Michael Terrigno. I will hereafter refer to Michael Terrigno only as “the Appellant” because the learned trial judge made no error of law in granting judgment against the

other two Appellants and their appeal is dismissed. [ 3 ] The Appellant was a unnamed insured under a policy issued by the Respondent and held by his parents but he was prohibited by the policy from driving any of their vehicles.

He breached the prohibition and became involved in an accident causing very minor damage to another vehicle. [ 4 ] Immediately after the accident, the Appellant, who was a law student at the time, denied liability and advised the Respondent insurer that he would be handling the claim himself. [ 5 ] Within one month of the accident the Respondent advised its insureds that it had denied the claim made by the other parties and had directed their solicitor to deal directly with the Appellant.

Another month later the Respondent advised that it was closing its file on this matter. [ 6 ] Shortly thereafter the Appellant provided the Respondent with a brief exculpatory statement. In reply the Respondent advised the Appellant to go to court to get the liability issue settled otherwise it would settle the third party claims as it saw fit but inexplicably it did not seek to obtain a non-waiver agreement with the Appellant.

The Appellant urged the Respondent to investigate the third party claims more thoroughly. [ 7 ] Nothing further passed between the Respondent and Appellant until about one year later when the Respondent advised the Appellant that it had settled and paid the claims. It claimed reimbursement from the Appellant and commenced this suit. The Statute [ 8 ] The statutory provisions which apply in this case, as cited by the learned trial judge, are found in the Insurance Act, R.S.A. 2000, c.I-3, (“the Act ”), specifically,

Section 635 as follows: 635

(1) Any 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 that person is not a party to the contract, may, on recovering a judgment in respect of the claim in any province or territory against the insured, have the insurance money payable under the contract applied in or toward satisfaction of the judgment and of any other judgments or claims against the insured covered by the contract and may, on the person’s own behalf and on behalf of all persons having such judgments or claims, maintain an action against the insurer to have the insurance money so applied. (2) ... (3) ...

(4) The right of a person who is entitled under subsection (1) to have insurance money applied on the person’s judgment or claim is not prejudiced by (

a) an assignment, waiver, surrender, cancellation or discharge of the contract, or of any interest in or of the proceeds of the contract, 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 Subpart or of the terms of the contract, or (

c) any contravention of the Criminal Code (Canada) or a statute of any province or territory 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 clause (a), (

b) or (

c) is available to the insurer as a defence in an action brought under subsection (1). (5) ... (6) ...

(7) When a person has recovered a judgment against the insured and is entitled to bring action under subsection (1) and the insurer admits liability to pay the insurance money under the contract, and the insurer considers that (

a) there are or may be other claimants, or (

b) there is no person capable of giving and authorized to give a valid discharge for payment who is willing to do so, the insurer may apply to the Court ex parte for an order for payment of the money into Court, and the Court may, on the notice, if any, it thinks necessary, make an order accordingly. (8) ... (9) ... (10) ... (11) ... (12) ...

(13) The insured must reimburse the insurer on demand in the amount that the insurer has paid by reason of this

section and that it would not otherwise be liable to pay.

(14) When an insurer denies liability under a contract evidenced by a motor vehicle liability policy, it must, on application to the Court, be made a third party in any action to which the insured is a party and in which a claim is made against the insured by any party to the action in which it is or might be asserted that indemnity is provided by the contract, whether or not the insured enters an appearance or defence in the action.

(15) On being made a third party, the insurer may (

a) contest the liability of the insured to any party claiming against the insured,

(

b) contest the amount of any claim made against the insured, (

c) deliver any pleadings in respect of the claim of any party claiming against the insured, and, (

d) have production and discovery from any party adverse in interest, and (

e) examine and cross examine witnesses at the trial, to the same extent as if it were a defendant in the action. (16) ... [ 9 ] The learned trial judge correctly determined that by these provisions the legislature intended to achieve the following objectives: (

i) to give third parties a right of recourse against the tortfeasor’s insurer, i.e. the right to have the insurance money payable under the motor vehicle liability policy applied in satisfaction of their claims against the insured, so long as such third parties have recovered a judgment against the insured; (ii) to give the insurer the right to contest the liability of its insured to such third parties; and (iii) to give the insurer the right to demand reimbursement from its insured for amounts it might have had to pay to third parties by reason of the third parties’ rights, under Section 635(1), to have the insurance monies applied in satisfaction of their judgments in circumstances where, but for the

section ( i.e., but for the right of recourse), the insurer would not be liable to pay such insurance monies. Trial Decision [ 10 ] The Appellant argued that since he disputed his liability and the fact of third party personal injuries (none were noted on the police report of the accident) let alone the quantum of damages, the Respondent’s settlement with the third parties absent a judgment precluded its claim for reimbursement. [ 11 ] To the learned trial judge the evidence suggested that the third parties’ personal injury claims were exaggerated and that the compensation they received was excessive.

He doubted that the Appellant received an opportunity to contest his liability. But he found that the Appellant was the author of his own misfortune. He came to this conclusion because the Appellant had been urged twice by the Respondent to get the issue of his liability determined failing which the Respondent said it would do it alone (I note that this is after the Respondent advised that it had closed its file). By failing to take steps to get the issue of his liability resolved the learned trial judge considered that the Appellant had acquiesced in the Respondent settling the third party claims as it saw fit.

The Law [ 12 ] It is fundamental to the fairness of the law that the onus of proving an allegation always reposes on the one who makes it. The Respondent may have urged the Appellant to get the issue of his liability resolved by proving that he was not negligent but the onus rested on the third parties and not on the Appellant. Insurers such as the Respondent know well that the onus of proving negligence rests on the one who asserts it.

It is an error of law to find the Appellant acquiesced in the Respondent ’s conduct by failing to do something which for reasons of fundamental fairness the law does not require of him. [ 13 ] The error in placing the onus of proof on the Appellant should be sufficient to dispose of this appeal. However, I consider it

necessary to comment on certain conclusions in the trial judgment which have the effect of eviscerating

Section 635 of the Act. [14] The plain language of

Section 635 suggests that once a judgement is obtained against an insured, and the insurer satisfies it,the insurer may seek reimbursement from the insured. As already noted the learned trial judge correctly determined the intention of thelegislature. [15] In a discussion of the jurisprudence respecting

Section 635 and similar legislation in other provinces, the learned trial judgeconcluded that it has been repeatedly held that those provisions prevent insurers from obtaining reimbursement where there has been nojudgment against the insured. He also cited legal literature supporting the requirement of a judgment with the sole exception being wherethe insured and insurer enter into a non-waiver or other post-accident agreement. Curiously the learned trial judge went on to say : The uninitiated might not be faulted to (sic) questioning how the courts have repeatedly inferred that a judgment against an insured is anecessary prerequisite to reimbursement from statutory provisions similar to

Section 635 of the Alberta Insurance Act. [16] With respect, the answer to any such questions is simple; The courts have done nothing more than follow the plain andunambiguous words of the legislation as they are bound to do. [17] The learned trial judge considered that the search for an answer required consideration of what

Section 635 was intended toachieve, although he had earlier in the trial judgment correctly stated the intention of the legislature. He believed that such re-consideration was necessary to resolve authorities which he considered in conflict on the effect of

Section 635 and similar legislativeprovisions. He recognized that the prevailing authorities hold that a judgment against an insured or an admission of liability by an insuredis a precondition to compellable reimbursement of the insurer for monies paid to satisfy the insured’s liability. For authorities contrary tothe prevailing view he cited Economical Mutual Insurance Co. v. Geldart (1984), (NB KB), 57 N.B.R. (2d) 130(N.B.Q.B.), London Assurance Co. v. Jonassen, (ON CA), [1968] 1 O.R. 487 (C.A.) and Co-Operative Fire &Casualty Co. v.

Ritchie, (SCC), [1983] 2 S.C.R. 36. [18] In Co-Operative Fire & Casualty Co. v. Ritchie, an insurer’s claim for reimbursement of settlement costs from an insuredwithout judgment was allowed because the insurer and insured agreed on the amount and validity of liability to injured third parties.London Assurance Co. v. Jonassen established that the judgment requirement of the statute does apply when the insured and the insurerenter into a non-waiver agreement before settlement with the third party. The essential point of these two authorities is that insurer andinsured may agree to avoid the statutory provisions.

They do not approve unilateral action by an insurer which deprives an insured of theopportunity to contest liability and the quantum of damages. On that point the Geldart decision and Thomas v. Wawanesa Mutual Ins.Co. (1982), (NS CA), 52 N.S.R. (2d) 86 (S.C.C.) stand alone. In my respectful opinion those cases must be read andapplied with an abundance of caution. [19] In Geldart, an insurer cancelled an automobile insurance policy on the grounds of misrepresentation by the insured. Prior tothe cancellation the insured vehicle was involved in a collision for which the insured was completely responsible.

Absent any judgmentor other legal action by the third party the insurer paid for the property damage caused by the insured and sued the insured forreimbursement of the amount paid. Judgment was granted the insurer following Thomas v. Wawanesa Mutual Ins. Co. because “[t]here,after an extensive review of the cases, (my emphasis) the court held that the insurer could recover against the insured for payment to athird party although no judgment had been signed and no waiver or agreement obtained”. [20] In Thomas v. Wawanesa Mutual Ins.

Co. the insured was fleeing in his vehicle from the police when he lost control andstruck a power pole causing $6,723.90 damage to his vehicle and $2,149.57 to the pole. The insured was charged and convicted ofdangerous driving. The third party claim was paid by the insurer without any judgment being obtained against insured but the insurerrefused to pay the insured under the collision provision of the policy for damages to the insured’s vehicle.

The insured sued to recoverhis collision damages and the insurer counterclaimed for the payment made to the third party. [21] The position taken by the insurer was that the insured at the time of the collision was engaged in a speed test or race contraryto a provision of the policy and further that it would be contrary to public policy to indemnify the insured because at the time of thecollision he was engaged in a criminal act. The trial court rejected those arguments, granted judgment for the insured and dismissed theinsurer’s counterclaim. The insurer appealed.

[22] On appeal, the Court of Appeal of Nova Scotia extensively reviewed the authorities relating to the position taken by theinsurer on the collision claim. But on the issue of reimbursement of the insurer in the absence of judgment, the appeal decision in myrespectful view is cursory in its reference to authorities.

Except for the omission of paragraph 70, which quotes the relevant statutoryprovisions, it reads as follows: 67 The appellant has not specifically appealed from the dismissal of the counter-claim nor did it make any submissions with respectthereto, either in its factum or on the hearing of the appeal, save for a bald request that the counter-claim be allowed. 68 The entire decision, is, however, appealed; the grounds of appeal are broad and the notice of appeal concludes with a request that“... the decision appealed from or any order based thereon be reversed and the counter-claim be allowed.” 69 It appears to me that the dismissal of the counter-claim is technically under appeal and I shall consider it although norepresentations were made with respect to it. 70 ... 71 The appellant negotiated a settlement with the Power Corporation and hence the latter did not sue Mr.

Thomas to judgment. Theobtaining of such a judgment is not a condition precedent to the appellant’s claim to indemnity from its insured.--Co-Operative Fire &Casualty Co. v. Ritchie and Ritchie (1981), (NS CA), 50 N.S.R. (2d)68 (N.S.C.A.) and The London Assurance Co. v.Jonassen

(1968) D.L.R. (2d) 692 (Ont. C.A.). 72 In the Jonassen case Mr. Justice Jessup said of the Ontario counterpart to s.98(13) that its essential purpose (p.695) “...is toprovide indemnity to an insurer against a loss it has been compelled by the statute to assume despite the insured’s breach of the insurancecontract”. [23] With respect I do not share the view expressed in Geldart that the authorities were extensively reviewed in Thomas. TheNova Scotia Court of Appeal expressed a conclusion and cited two authorities in support.

It did so despite the fact that the question it wasthen addressing was not specifically under appeal and no submissions on it were made either in the factum or on the hearing of theappeal nor did the court before giving judgment seek representations from the parties on the issue which had not been addressed. In myrespectful view it is preferable to rely on authorities in which the court had the benefit of full submissions, both written and oral.

Byrelying entirely on the Thomas decision the Geldart case rests on uncertain footing. [24] On a clear reading of the authorities there is no conflict as found by the learned trial judge. Because he perceived a conflict hewas of the view that there was no “hard and fast rule requiring a judgment” (para. 75). In my respectful view there is such a hard and fastrule. It is the one the legislature set out in s.635 of the Act.

Of course, as the authorities hold, an insured can agree that his liability andthe amount of damages for which he is responsible may be determined by means other than a third-party judgment against him. But thereis no authority holding that the insured’s acquiescence, doing nothing, is sufficient to permit an insurer to reimbursement in the absenceof a judgment against the insured. In holding otherwise, in my respectful opinion, the learned trial judge erred in law. [25] The appeal by the Appellant Michael Terrigno is allowed with costs here and at trial. Heard on the 18th day of February, 2011.

Dated at the City of Calgary, Alberta this 21st day of July, 2011.

A.B. Sulatycky J.C.Q.B.A. Appearances: Dennis McDermott McDermott & Company for the Appellants Michael Assen Bryan and Company LLP for the Respondent