Shum Estate v. Dewetter, 2011 ABQB 670

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

Dewetter, 2011 ABQB 670 Date: 20111102 Docket: 0603 10329 Registry: Edmonton Between: Frank Ho, Personal Representative of the Estate of Sokow Shum (Rita), Frank Ho, Personally, So Han Shum (Agnes), Personally, Eric Fok, a Minor by His Next Friend, So Han Shum (Agnes), Kenneth Fok, a Minor by His Next Friend, So Han Shum (Agnes), Vincent Fok, Cindy Fok and Han Chan Plaintiffs - and - Faye Dewetter, Carla Dawn Carpenter, Jacky Chun-Kit Ho, Aviscar Inc., Tiffany Lafontaine, Stewart Darcy, Shaun Oppenheimer, Catherine Dawn Vernon, Donna Vernon, Ross Vernon, Continental Casualty Company, Co-Operators General Insurance Company of Canada, Her Majesty the Queen In Right of Canada, Her Majesty the Queen In Right of British Columbia Defendants - and - Vincent Fok, So Han Shum (Agnes) Personally and As Next Friend, Eric Fok, Kenneth Fok, Cindy Wong, Jacky Chun-Kit Ho, Frank Ho, Personal Representative of the Estate of Sokow Shum (Rita) Third Party Corrected judgment: A corrigendum was issued on November 3, 2011; the corrections have been made to the text and the corrigendum is appended to this judgment.

_______________________________________________________ Reasons for Decision of the Associate Chief Justice J.D. Rooke _______________________________________________________ I. Executive

Summary [ 1 ] The Application by the Applicants, Third Parties, Vincent Fok and So Han Shum, is granted for the following relief:

a) Directing Continental Casualty Company (“Continental”) to defend the Applicants regarding the Third Party Notices issued against them in the action pursuant to the Standard Automobile Policy of Insurance, CCP001700857 issued by Continental;

b) Directing Continental to pay to the Applicants all expenses incurred by them to date in defence of the Third Party Notices, including legal fees on a solicitor and his own client basis and all other reasonable expenses incurred to date; and

c) Granting the Applicants costs of this Application on a solicitor and his own client basis. The Reasons for granting this relief follow. II.

Issues [ 2 ] The issue agreed to by the parties is: Is Aviscar Inc., or the insurers of Aviscar Inc. [Continental], obliged pursuant to the Standard Automobile Policy to defend the Applicants in the action regrading the Third Party Notices issued against them by Cara Dawn Carpenter, Her Majesty the Queen in Right of Canada, and Jacky Chun-Kit Ho and Aviscar Inc.? [ 3 ] A sub-issue in this case is whether there was an operation of “any part” of an automobile or whether there was a failure to operate any part of an automobile, and whether there is a difference thereby in the duty to defend relating to the underlying collision.

III. The Policy

[4] The Standard Automobile Policy of Insurance in question provides in its operative part: The insurer agrees to indemnify the Insured and . . . every other person who with his consent . . . personally operates any part thereof,against the liability imposed by law upon . . . any such other person for loss or damage arising from the . . . use or operation of theautomobile and resulting from bodily injury to . . . any person. . . .(Emphasis added.) IV.

Background Facts and Positions [5] Without getting into all of the facts surrounding the claim (agreed to by the parties), it can be simply said that this involves amotor vehicle collision on August 19, 2004, whereby the vehicle in question was in a collision caused by a third party, the Defendant,Carpenter. Minor children of the Applicants were passengers, along with the Applicants, in the vehicle in question.

The allegations in theThird Party Notices in each case included an allegation to the effect (wording slightly, but no substantively, different) that the infantchildren were injured as a result of the Applicants’ “failure to insure . . . [the children] were properly wearing the available seat beltassembly, properly adjusted or securely fastened . . . ”. [6] The claim by the Applicants is that the use, or improper use, of the seat belts constituted an operation of “any part” of theautomobile.

The response by the Respondents to this Application is, in effect, that it’s not the operation, but rather the failure to operate,that was a cause of the injury. V. Analysis [7] It is clear law, as the parties agreed, that “general principles relating to the construction of insurance contracts support theconclusion that the duty to defend arises only where the pleadings raise claims which would be payable under the agreement toindemnify in the insurance contract.

Courts have frequently stated that ‘the pleadings govern the duty to defend’” . . . : Nichols v.American Home Assurance Insurance Co., (SCC), [1990] 1 SCR 801, at para. 16, relying upon Bacon v. Mcbride[1984], 6 DLR (4) 96 (B.C.S.C.) at page 99.

This is particularly important here because one allegation is the improper operation of “anypart” of the automobile, namely the seat belts. [8] It is a corollary to this basic principle that “[w]here it is clear from the pleadings that the suit falls outside the coverage ofthe Policy by reason of an exclusion clause, the duty to defend has been held not to arise”: Nichols, also at para. 16, relying upon OpronMaroons Construction Ltd. v. Canadian Indemnity Co. (NB CA), [1986] 19 C.C.L.I. 168 (M.B.C.A.), leave to appealrefused [1981] 1 S.C.R. xi.

Based on the allegations, I find it is not clear that the suit falls outside the coverage. [9] It’s a further principle that “the mere possibility that a claim within the Policy may succeed suffices. In the sense . . . theduty to defend is broader than the duty to indemnify” (emphasis added): Nichols, at para. 17. I find that possibility exists here. This latterpoint, however, is somewhat trumped by the Insurance Policy which ties the duty to defend to the indemnity in the words “whereindemnity is provided by this

section the insurer shall . . . defend . . . ”. [10] In Fraser v. Cooperators Insurance Association et al (ON SC), [1984] O.J. No. 3166 (upheld on appeal at[1986] 1.L.R.1-2106), coverage was provided because the passenger did “operate a part” of the motor vehicle by opening the door. [11] In Wilke v. Economical Mutual Insurance Co., (ON SC), [1996] O.J. No. 4355 (Ont. Court of Justice) itwas more the conduct of the passenger in interfering with the driver than any operation of any part of the vehicle, although the passenger

did grab the steering wheel, and attempt to exit the vehicle, thus operating the steering wheel, and, presumably, the door. In the course of the judgment the Court made a statement which I believe is key to the broader issue in the case at Bar: “I am of the view that it was the intention of the Legislature to insure the occupant of an automobile from liability which might be imposed upon that occupant for loss or damage arising directly or indirectly from the use or operation of the automobile . . .

The Legislature did not intend to restrict that indemnity to claims made against such occupants for conduct of the occupant in furthering the use or operation of the motor vehicle . . . ”. [ 12 ] The Court in Wilke set a three-step process to be employed: 1. Are there damages which were occasioned by the use or operation of a motor vehicle? 2. Are there allegations of liability for those damages made against an occupant of that motor vehicle? 3. If so, is there a possibility that, on the basis of the allegations in the pleadings, the insurer might be obligated to indemnify the occupant?

The first two in these questions are clearly answered in the affirmative. The real issue in this case is whether the third one would be answered in the affirmative because it appears, as I’ve noted above, that only if indemnity might follow does duty to defend pertain. [ 13 ] The Applicants respond to the Respondents’ arguments by reference to the case of Plett v. Black Rabbit , [2001] A.J. No. 1295 (QB-Park J.) where the allegation was that the parents of the children in question did not properly install the shoulder strap on a child restraint system in a rental vehicle.

Justice Park held that: the child restraint system was part of the automobile; that there was a duty to defend; and the issue of whether, as a matter of fact, the parties were operating a part of the vehicle in the improper installation or use of the restraint system, was a question to be decided by the trial judge. However, the Respondents here argue that the case is distinguishable because here it’s not the improper installation or operation of the child restraint system but the failure to operate or properly operate what was available in the vehicle.

Nevertheless, in both cases, going back to Wilke , it is clear that the loss or damage in question arose “directly or indirectly from the use or operation of the automobile”. [ 14 ] Some analogies may be useful in understanding the logic of duty or no duty to defend.

A driver is, by definition, operating the vehicle, and therefore there is a duty to defend in any aspect of that operation - his application or failure to apply the brakes; his application of the horn or failure to operate the horn to warn of an impending collision; his yanking the steering wheel to evade a collision, or failure to yank the steering wheel; or his improperly fastening or failure to fasten the seatbelt of an infant passenger. However, the Respondents’ arguments would mean that a passenger would have a defence provided only if he operated a part of the vehicle, but not if he failed to do so.

That is, a passenger, if seated close enough to the driver to do so, would have a paid defence: if he tried to apply the brakes of the vehicle to avoid a collision, but not if he failed to do so; if he applied the horn, but not if he failed to do so; if he yanked the steering wheel to avoid a collision (the situation in Wilke , even though that act was the cause of that collision), but not if he sat idly by; and, apparently, if he improperly fastened the seat belt of an infant passenger (that is one of the pleadings here - see supra - which, without more, as noted above, must result in a duty to defend), but not if he failed to fasten the seat belt at all (which is an additional explicit or implicit allegation in the pleadings).

This case is all about determining the law applicable to these types of situations relating to a passenger. In this sense, I find that the failure of the Applicants (if that be the case proven before the trial judge) to cause the seat belt system to be fastened for the children is, in this context, no different than the failure of the passenger (if otherwise able to do so) to brake, to blow the horn, or to yank the steering wheel to take evasive action.

In each case it arises out of the operation of a motor vehicle in which the passenger was present. [ 15 ] The Respondents in this Application argue that each of Fraser, Wilke and Plett involve the passengers who were physically operating a part of the motor vehicle, whereas, they argue, the Applicants weren’t so operating. [ 16 ] Are there cases on failure to operate as part of the debate of whether there, in fact, is an operation or no operation of “a part” of the vehicle? None have been brought to my attention with three exceptions that are distinguishable.

[17] The first case is Willson v. Nostadt, Ontario Superior Court of Justice, Action no. 00-GD-48350, upheld on appeal in Willsonv. Cartas Direct Insurance, (ON CA), [2002] O.J. No. 4702 (Ont.CA), which held that the duty to defend does notarise from a claim that cannot come within the indemnity provisions of the Policy. In this case the minor daughter of the applicant fatherwas not wearing a seat belt and coverage on a third party claim by the owner that the applicant father failed to instruct his daughter aboutthe use of seat belts was denied because the applicant father was not in the vehicle.

The Trial Court and the Appeal Court held that theclaim fell outside the insurance. [18] The Respondents argue that, like Willson, this case is a failure to supervise by the Applicants. However, note that theApplicants here were in the vehicle, unlike Willson. The blind application of Willson to this case, without recognizing the difference inthe applicant in that case being outside the vehicle and these Applicants inside, would deny representation to the Applicants.

However,as noted above, the failure to operate a seat belt in my view is no different than the failure to apply the brakes or honk the horn or yankthe steering wheel to take evasive action. Moreover, here it is specifically plead that there were negligent operations – “failure to ensurethat these Plaintiffs were properly wearing” the available seat belt assembly; properly adjusted or securely fastened . . . ”; “failure toensure that these minors were properly seat belted or properly restrained . . .”; and “were properly secured by a seat belt assembly”(emphasis added in each case).

Thus, it appears, in each case, that the injuries result from the operation of the motor vehicle in the broadsense as set out in Wilke. It arises “directly or indirectly from the use or operation of the automobile” in which the Applicants werepassengers. Thus, while indemnity may ultimately be denied, there is the possibility of indemnity and therefore a duty to defend underthe Insurance Policy, in my view. [19] However, the rationale in Willson needs to be examined more closely.

It appears that the applicant parents were not in thevehicle at the subject time and that their liability was based upon their “fail[ure] to instruct their daughter . . . about the proper use ofseat belts”, not the actual operation of the vehicle. It is further noted that the parties there conceded that there would be no indemnityunder the Policy and were only arguing a right to defend (see paragraphs 10 and 14). On that basis, the Court held that “Coverage isprovided for the use or operation of automobiles described in the Policy and . . . this accident involved none of these”.

In other words, asI understand it, the claim against the applicants who sought to enforce a duty to defend was not part of the operation of the motor vehicleand therefore it was outside the Policy. Looked at carefully in this light, the decision in Willson was correct. While the wording of thecoverage was different, the basic principle was that, if there was no duty to indemnify, there was no duty to defend. That would beconsistent with the Alberta language where a duty to defend only clearly arises where there was a duty to indemnify. Again, whetherindemnity results is a question for the trial judge.

I am only dealing with the duty to defend here and it appears that there is a possibilitythat there will be a requirement to indemnify and therefore the duty to defend arises. As noted above, this is dependent upon thepleadings not on the ultimate findings of the trial judge. [20] The Respondents also rely upon the cases of Warren v. Martin [1996] N.S.J. No. 438 (NSCA) and Alberta (Motor VehicleAccident Claims Act, Administrator) v. Royal Insurance, [2000] I.L.R. 1-3782 (Alta.

Q.B. - Dea J.) as authority that third party liabilitycoverage under automobile policy “is only extended to the person actually driving the vehicle or physically operating a part of thevehicle”. However, I find that not to be the situation but rather find that both of those cases dealt with an issue relating to the consent tooperate not the actual physical operation of the vehicle and are therefore of no assistance. VI.

Conclusion [21] Therefore, in conclusion, I find that the Applicants are entitled to the relief that they seek which is a duty to defend and theexpenses to date and the costs of the Application relevant to that right. [22] As the Applicants would have had no out of pocket expenses had Continental defended on their behalf, they are entitled to thesolicitor client costs of both the defence to date, and this Application, payable forthwith in any event of the ultimate result.

Heard on the 3 rd day of October, 2011. Dated at the City of Edmonton, Alberta this 2 nd day of November, 2011. J.D. Rooke A.C.J.C.Q.B.A. Appearances: Michelle E.. Grose - Dean Duckett Carlson for the Third Party Defendants, Vincent Fok and So Han Shum, (Applicants) Karen D. Ivanovik - Parlee McLaws LL for the Defendants, Aviscar Inc. and Continental Casualty Company, (Respondents) _______________________________________________________ Corrigendum of the Reasons for Decision of The Associate Chief Justice J.D. Rooke _______________________________________________________ Please note the citation line has been changed to read as follows: Shum Estate v. Dewetter, 2011 ABQB 670