Haraba v Wawanesa Mutual Insurance Company (The), 2017 ABQB 190

Court of Queen’s Bench of Alberta Citation: Haraba v Wawanesa Mutual Insurance Company (The), 2017 ABQB 190 Date: 20170321 Docket: 1514 00288 Registry: St. Paul Between: Kristen Haraba Plaintiff - and - Wawanesa Mutual Insurance Company (The) Defendant _______________________________________________________ Reasons for Decision of the Honourable Madam Justice D.L. Shelley _______________________________________________________ Background [ 1 ] Ms. Haraba was named as the primary driver of a car, and the sole insured, under Policy 4059283 (the Policy) issued by Wawanesa Mutual Insurance Co. (Wawanesa).

Sometime thereafter, her then live-in boyfriend, Mr. Gardiner, was unable to obtain a loan because of his poor credit. Therefore, Ms. Haraba purchased a truck for him in her name. She then insured the truck under the Policy, listing Mr. Gardiner as a co-insured and the primary driver of the truck. She had previously seen Mr. Gardiner driving vehicles at his worksite, and he told her he held a valid Nova Scotia driver’s license. As part of the application to add him as an insured under the Policy, Mr. Gardiner provided a Nova Scotia identification card, which both Ms.

Haraba and Wawanesa (or its agent) mistook to be a driver’s license. In fact, Mr. Gardiner’s driver’s license was suspended at the time. [ 2 ] Each month the loan payment for the truck was to be made by Ms. Haraba, and Mr. Gardiner was to reimburse her. Eight days after Mr. Gardiner and the truck were added to the Policy, Mr. Gardiner got into an accident in the truck.

[3] Wawanesa now claims that the Policy is void as against both Ms. Haraba and Mr. Gardiner due to the misrepresentation, andhas refused the claim made for the truck. Issues [4] There is no question that Mr. Gardiner’s misrepresentation renders his insurance contract voidable. The first issue I mustdetermine is whether Mr. Gardiner’s misrepresentation invalidates Ms. Haraba’s coverage as a co-insured under that Policy. [5] The second issue is whether Ms.

Haraba breached Statutory Condition 2(2), which requires insureds to permit others to drivethe insured vehicle only if they are legally authorized to do so. [6] The third issue is whether, if the answer to the first two issues is “yes”, Ms. Haraba ought to be granted relief from forfeiture. Analysis The Effect of Mr. Gardiner’s Misrepresentation on Ms. Haraba’s Ability to RecoverUnder the Policy A. Relevant Legislative Provisions [7]

Part 2, Subpart 2 of the Insurance Act, RSA 2000, c I-3, governs the

interpretation of automobile insurance policies. Section549(

e) defines “insured” as: ...a person insured by a contract whether named in the contract or not and includes any person who is stated in a contract to be entitled tobenefits payable under the insurance mentioned in s 573 whether described in the contract as an insured person or not.” [8]

Section 554 sets out the consequences of making misrepresentations when applying for an automobile insurance policy,stating that a claim by an insured is invalid and the right to recover under the policy if forfeited if, among other things, the applicant: (

a) knowingly misrepresents or fails to disclose any required fact; (

b) contravenes a term of the contract; (

c) commits a fraud; or (

d) wilfully makes a false statement in respect of a claim. [9]

Section 556 sets out the statutory deemed conditions included in every contract for automobile insurance. StatutoryCondition 2(1) provides that the insured must not drive the insured vehicle unless he is authorized by law and qualified to drive theautomobile, and further he must not drive while his license is suspended or he is prohibited from driving by court order. [10]

Section 559 describes the scope of coverage under an owner’s automobile insurance policy, stating that every insurancecontract insures the named insured and every other person who drives the insured automobile with the named insured’s consent againstliability for loss and damage arising from ownership, use, or operation of the automobile and from liability for damage to property. B.

Case Law [11] The leading Supreme Court of Canada case discussing the effect of fraudulent actions of one co-insured on the ability ofinnocent co-insureds to claim under the same policy is Scott v Wawanesa Mutual Insurance Co, (SCC), [1989] 1 SCR1445 [Scott]. In that case, the appellants’ home was damaged in a fire set deliberately by their son without their knowledge andcomplicity.

The policy included “relatives of the named insureds” under the definition of “insured”, and excluded recovery for “loss ordamage caused by a criminal or wilful act or omission of the Insured or of any person whose property is insured hereunder.” Wawanesatook the position that, since the son was an “insured” under the policy, the parents were precluded from recovering under the policy byoperation of the exclusion clause. [12] Writing for the majority, L’Heureux-Dubé J found that the wording of the exclusion clause was clear, and that it was intendedto exclude any recovery for damage caused by the intentional acts of any insured.

This exclusion was held to also prevent innocent co-insureds from recovering under the policy.

The majority held that specific construction of each insurance contract must be considered todetermine whether intentional acts of one insured are intended to prevent innocent co-insureds from recovery. [13] In dissent, La Forest J agreed with the majority that determining whether the interests of multiple co-insureds are joint orseveral is fundamentally an interpretive exercise, but he argued that determining whether an exclusion caused by the wrongful act appliesboth to the insured who committed the act and to an innocent insured requires interpreting the relevant clause taking into account thedivergent public policies underlying the clause and determining whether the insurer's indemnification obligation is joint or several (atpara 6). [14] On this point, La Forest J concluded that multiple co-insureds’ interests are presumed to be several unless express language tothe contrary is included in the contract, because insurance contracts should be interpreted based on how a reasonable member of thepublic would understand it – the “modern approach” to interpreting insurance contracts (at para 11).

[15] Therefore, when interpreting insurance contracts the Court must determine a reasonable person’s reasonable expectations, andthis will generally be several (at para 14): As I see it, reasonable persons, unversed in the niceties of insurance law, would, in purchasing fire insurance, expect that a policy namingthem as an insured without qualification would insure them to the extent of their interest. Moreover, reasonable persons would expectthat they would lose the right to recover for their own willful destruction.

But the same persons would find it an anomalous result ifinformed that they stood to lose all if their spouse burned down their house. The following responses would be forthcoming: "I hadnothing to do with that act of arson so why am I being punished for it? My 50 per cent interest in the house belongs to me. I could havetaken out my own insurance policy on my interest; in that case if my spouse burnt down the house I was protected. Why should mygetting paid depend on whether there is one policy or two? If it had been made clear to me, why would I have ever agreed to take out a'joint' policy?

I only stood to lose. [16] It is up to the insurer to clearly demonstrate an intention to consider the interests of multiple co-insureds to be “joint” insteadof “several”, because a person entering such a contract would be agreeing to assume vicarious liability for the criminal conduct ofanother, something fundamentally at odds with the reasonable person’s expectation when buying insurance. “He or she insures on theassumption that his or her undivided interest is protected.

That is the whole point of taking out insurance.” [17] Shortly after the Supreme Court’s decision in Scott, the Alberta Legislature amended tthe Insurance Act, effectivelyabrogating the majority opinion and adopting La Forest J’s reasoning. Section 541(1) provided that exclusionary clauses for criminal orintentional acts or omissions applied only to the responsible insureds. [18]

Section 541, while not found in Subpart 2 dealing with automobile insurance, applies to automobile insurance because it is notinconsistent with any of the specific provisions found under Subpart 2. However, s 541 only applies to intentional acts that causedamage, and not to intentional misrepresentations when applying for an insurance contract.

Therefore, it is not directly applicable to thefacts in this case. [19] The impact of misrepresentations in insurance applications on the ability of innocent co-insureds to collect under the policywas explored again by the Supreme Court in National Bank of Greece (Canada) v Katsikonouris, (SCC), [1990] 2 SCR1029, 74 DLR (4th) 197 [Katsikonouris]. In that case, Mr. Katsikonouris purchased fire insurance for a property he owned that wassubject to a mortgage, after a series of six fires at the premises caused his previous insurer to cancel his fire insurance coverage.

In hisapplications, Katsikonouris intentionally failed to disclose the previous fires and the fact that his previous policy was cancelled. Theinsurance contract contained a standard mortgage clause in favour of the mortgage company that expressly stated that the policy “shall bein force notwithstanding any act, neglect, omission or misrepresentation attributable to [Katsikonouris].” Soon thereafter, a firedestroyed the property.

The insurance company refused to pay the indemnity to the mortgage company pursuant to the standardmortgage clause, arguing that the misrepresentations made by Katsikonouris rendered the policy void ab initio. [20] La Forest J, this time writing for the majority, followed the modern approach set out in his dissent in Scott and interpreted thestandard mortgage clause to give effect to its ordinary meaning, as an average person would understand it.

La Forest J found the use ofthe word “any” preceding “act, neglect, omission or misrepresentation” meant that the standard mortgage clause would applynotwithstanding when the misrepresentation was made, including in the application for insurance. Since the insurance company wasunaware of Katsikonouris’ misrepresentation, it could claim the benefit of the standard mortgage clause.

He concluded that, in theabsence of clear and explicit language pointing to a different meaning in the policy itself, mortgagee purchasers of fire insurance, readingthat their coverage would not be denied for "any" misrepresentations or omissions by their mortgagor, would be entitled to rely on theirinsurance (at para 18): If, in fact, the insurer were reserving to itself the right to invalidate the coverage of the mortgagee as a result of some misrepresentationsand omissions of the mortgagor (i.e., those made at the inception of the contract between the insurer and the mortgagor), I would holdthat it was incumbent on the insurer, in drafting its insurance form, to make this known in clear, express and easily intelligible terms. [21] In Wigmore v Canadian Surety Co, [1997] I.L.R.

I-3398 (Sask CA) [Wigmore], Mr. and Mrs. Wigmore, co-insureds on ahome insurance policy with Canadian Surety Co, filed a proof of loss for damage used by a flood to their basement. Mr. Wigmoremisrepresented the damaged carpet’s value, and Canadian Surety argued that the entire insurance contract was void against both Mr. andMrs.

Wigmore, relying on Statutory Condition 7: Any fraud or wilfully false statement in a statutory declaration in relation to any of the above particulars [including proof of loss], vitiatesthe claim of the person making the declaration. [22] At trial, the Court distinguished this case from Scott, noting that Scott dealt with a wrongful act related directly to the lossitself, while Wigmore dealt with a misrepresentation pertaining to the proof of loss.

Nevertheless, the Court of Appeal in Wigmorefound Scott helpful, particularly La Forest J’s dissent, and chose to examine the language of the policy, noting that the minority in Scottwere prepared to extend coverage to an innocent co-insured. [23] The Court of Appeal distinguished the majority opinion in Scott, construing it narrowly, because the circumstances were lessegregious and because the majority did not overrule Higgins, relied on by the minority.

It found that L’Heureux-Dubé J did notdisapprove of La Forest J’s framework itself; she only disagreed on how that particular insurance contract should be interpreted. TheCourt concluded that the issues canvassed by the minority in Scott remained alive and adopted La Forest J’s “modern approach” tointerpreting whether the interests of multiple co-insureds are joint or several. [24] The Court found Mrs. Wigmore had no knowledge of her husband’s misrepresentation, and consequently was entitled to asserther claim to the full amount of coverage.

The Court of Appeal looked at the specific construction of Statutory Condition 7 and found thatthe language, “the person making the declaration”, could only apply to Mr. Wigmore (as the person who made the falsemisrepresentation), and not to Mrs. Wigmore (who had no knowledge of the misrepresentation and did not make it herself). This

demonstrates that La Forest J’s “modern approach” can be used to interpret statutory conditions as well as insurance contracts drafted bythe insurer. [25] I conclude that, given that the Supreme Court cited La Forest J’s interpretive framework with approval in Katsikonouris, it ispossible to follow the Saskatchewan Court of Appeal’s line of reasoning in Wigmore to narrowly construe the majority decision in Scott,adopt La Forest J’s framework from the dissent, and apply it to situations where one co-insured makes a misrepresentation that mayaffect the ability of innocent co-insureds to collect under the policy. [26] The British Columbia Court of Appeal discussed the Scott decision in McKay v Cowan (1995), (BC CA), 3BCLR (3d) 161, 123 DLR (4th) 336 (BCCA) [McKay].

In that case, Cowan, Fisher and Shaver were partners at a law firm. Mr. Cowanabruptly quit the partnership and absconded with approximately $715,000 in trust money. A judgment was issued against the partnershipto recover the amount stolen. The partnership carried basic professional liability insurance up to a maximum of $100,000 per partner,and therefore the coverage was insufficient to cover the full claim. Without the other partners’ knowledge, Mr. Cowan applied foradditional professional liability coverage under the partnership’s existing insurance policy.

He fraudulently represented he was the “solepartner” at the firm, despite no longer being affiliated with the firm at the time. He also misrepresented that he did not anticipate anyclaims against him for professional negligence at the time the application was filed. The insurer argued that Mr. Cowan’smisrepresentation should also exclude Mr. Fisher and Mr. Shaver from claiming additional coverage under the policy. [27] The waiver clause in the contract stated: Whenever coverage under any provision of this Policy would be excluded, suspended or lost:

i) Because of any dishonest, fraudulent, malicious or criminal act or omission by any Insured, or ii) Because of non-compliance with any notice condition required solely because of the default or concealment of such default by oneor more Insureds responsible for the loss or damages otherwise insured hereunder, The Insurer agrees that such insurance as would otherwise be afforded under this policy shall continue in effect, cover and be paid withrespect to each and every Insured who did not commit or personally participate in, or acquiesce in such activity... [28] The insurer argued that Mr.

Cowan should be treated as the agent of the innocent co-insureds, so that they would be faultedfor his actions. The Court rejected this theory because there was “no evidence that either Fisher or Shaver had any knowledge ofCowan’s false statements in the application at the time the application was made”. The Court examined the contract and found it was a“claims made” policy that did not require personal declarations from all insureds regarding the status of existing claims against them.

Furthermore, the insurance company was found to be in a better position than the insureds to protect itself from misrepresentations, sinceit could have required personal declarations from the other co-insureds, but elected to not do so.

Overall, the Court found the bestapproach is to examine the language the insurer chose to employ in the policy, rather than proceed with an agency analysis. [29] The British Columbia Court of Appeal followed the approach set in Katsikonouris and Scott to interpret the waiver clause:“what would a reasonable and honest insured understand upon a reading of that language?” It found in favour of Mr. Fisher and Mr.Shaver, concluding (at para 67): It is therefore clear, in my view, that Cowan's dishonesty cannot be imputed to either Fisher or Shaver, simply on the basis that he appliedfor the insurance on their behalf.

To render the policy void as against either, Guardian would have to prove the insured in question wasoutside the waiver clause by reason of conduct, as described in either Conditions I. or L., disentitling him to coverage. [30] In Charles v Peace Hills General Insurance Co, 2007 ABQB 515, 55 CCLI (4th) 32, a husband and wife (who were in theprocess of getting a divorce) were co-insureds under a home insurance policy for the matrimonial home despite the husband havingmoved out.

The insurance policy included an exclusionary clause expressly stating there was no coverage resulting from any intentional or criminal act or failure to act by … all persons insured by this policy … even though the intentional orcriminal act or failure to act is by only one or more of the other persons insured by the policy. [31] The Court found this clause clearly precluded coverage to all insureds, even if the intentional or criminal act that caused theloss was caused by only one of the insureds.

The Court also denied the wife’s application for relief from forfeiture under both s 552(now s 520) of the Insurance Act and s 10 of the Judicature Act. The Court found the wife knew or ought to have known that thehusband remained as a co-insured on the home insurance policy, and that the terms of the contract including the exclusionary contractwere made clear to her when the insurance was renewed. On that basis, the Court found the exclusionary clause was neither unjust norunfair, and denied relief from forfeiture on that basis. C. Application to Ms.

Haraba [32] The specific wording of the statutory condition or insurance contract determines if the interests of multiple co-insureds arejoint or several. If their interests are joint, then the misrepresentations of one may allow the insurance company to disclaim recovery byother innocent co-insureds. If the interests are several, then the misrepresentations of one co-insured will not prevent innocent co-insureds from collecting under the same policy. [33] Insurance contracts and statutory conditions should be interpreted based on how an ordinary person would understand them(Scott, Wigmore, Katsikonouris).

The Supreme Court decisions in Scott (particularly, the dissent by La Forest

J) and Katsikonourissuggest that the ordinary person would reasonably assume that the interests of multiple co-insureds are several, and not joint, unlessexpress language to the contrary is included in the statutory condition or insurance contract to the contrary (e.g. Charles). Furthermore,where one co-insured makes a misrepresentation that affects the coverage of other innocent co-insureds, it is unlikely that co-insured willbe considered the “agent” of the innocent co-insureds unless the innocent co-insureds authorized the changes to the coverage (McKay).

[34]

Section 554 of the Insurance Act indicates “a claim by the insured is invalid and the right of the insured to recover indemnityis forfeited” if “an applicant ... knowingly misrepresents or fails to disclose in the application any fact required to be stated in theapplication”.

The statutory condition does not contain express language indicating misrepresentations made by one applicant willinvalidate the policy as against innocent co-insureds. [35] Using the modern approach to interpreting insurance contracts set by La Forest J in Scott and Katsikonouris, s 554 should beinterpreted based on how an ordinary person would understand it. Following Scott, the ordinary person will generally believe that theinterests of multiple co-insureds under the same policy are several and not joint, and that the misrepresentations of one co-insured willnot affect the other co-insureds’ interests.

Following this

interpretation, Mr. Gardiner`s misrepresentations do not affect Ms. Haraba’sability to claim under the policy because the statute and the insurance contract do not contain express language indicating that the policywill be void against innocent co-insureds if another co-insured makes a material misrepresentation. Ms. Haraba’s Obligation to Ensure that Vehicles Insured Under the Policy areOperated by Qualified Drivers A.

Relevant Legislative Provisions [36] Statutory Condition 2(2) under s 556 of the Insurance Act prohibits insureds from permitting or allowing others to operate theinsured vehicle unless those persons are qualified and authorized to drive. B. Case Law [37] There are no cases which discuss specifically whether an insured violates Statutory Condition 2(2) even if they have anhonest but mistaken belief in the approved driver’s qualifications to drive.

However, there are a number of cases that touch on relevantpoints. [38] In Haugseth v Burleigh, 2013 ABPC 84, two parents and their daughter were named insureds under an automobile insurancepolicy. The daughter permitted Ms. Burleigh to drive the vehicle, without knowing that Ms. Burleigh lacked a valid driver’s license. Ms.Burleigh then wrecked the car in an accident. [39] The Court found that Ms. Burleigh operated the vehicle with the insureds’ consent and that this consent was not vitiated byfailing to disclose her lack of a driver’s license. Under the insurance policy, Ms.

Burleigh was therefore considered an unnamed insuredand, since she was not qualified to drive, the Court found the insurance company could seek recovery from her. Importantly, theinsurance company conceded that the named insureds were able to recover under the policy despite the driver’s misrepresentation.

Noexplanation was given for why the insurance company conceded this point. [40] In Bremner v Jones, 2012 ABPC 6, the issue before the Court was whether an insurer had a subrogated claim against thedriver of an insured vehicle where the driver had the consent of the insured to operate the vehicle, but misrepresented that he had a validdriver’s license (the driver held a Class 7 Learner’s License, and he represented that he held a full Class 5 license).

Alberta’s StandardAutomobile Insurance Policy (SPF1) contains a clause waiving the insurer’s right to subrogate against anyone who operates the motorvehicle with the insured’s consent. The insurance company abandoned its claim against the insured for breach of Statutory Condition 2. Therefore, the only issue before the Court was whether the driver had the consent of the insured to allow him to claim the protection ofthe waiver of subrogation clause.

Judge Ingram found that the driver had the insured’s consent to operate the motor vehiclenotwithstanding the misrepresentation, and did not comment on whether the insured breached Statutory Condition 2. [41] In McClure v Co-Operative Fire and Casualty Co (1986), (NB KB), 75 NBR (2d) 205, 24 CCLI 308(QB), the insured denied permission to the driver to operate the motor vehicle after he observed the driver drinking. The driver alsolacked a valid driver’s license. The driver operated the motor vehicle notwithstanding the insured’s express prohibition from doing so.

The Court found the insured had not breached the statutory condition because he did not give express or implied permission to the driverto operate the motor vehicle. C. Application to Ms. Haraba [42] Ms. Haraba had a duty pursuant to Statutory Condition 2(2) under s 556 of the Insurance Act to ensure that anyone sheauthorized to drive vehicles insured under her policy was legally qualified to drive. She authorized Mr. Gardiner to drive the truckinsured under her policy despite his misrepresentation (such as in Bremner, and consistent with McClure).

I conclude that she did notbreach the Statutory Condition, as she had a reasonable basis to believe that Mr. Gardiner was legally qualified to drive (i.e. she observedhim driving at his job site, and she believed his identification card was a driver’s license). Further, she made inquiries to ascertain thatthis was the case. Relief from Forfeiture [43] Having concluded that Ms. Haraba’s claim is not invalid because of her co-insured’s misrepresentation and that she did notbreach the statutory conditions, it is not necessary to address whether she is entitled to relief from forfeiture under

Section 520 of theInsurance Act or s 10 of the Judicature Act, RSA 2000, c J-2. Conclusion [44] I conclude that Ms. Haraba’s claim in respect of the truck was not invalidated, nor her right to recover indemnity forfeited,

under the Insurance Act because she did not knowingly misrepresent or fail to disclose any required fact when she submitted the application to add Mr. Gardiner to the Policy. She was an innocent co-insured who remained entitled to recover under the Policy, notwithstanding Mr. Gardiner’s misrepresentation. Heard on the 3 rd day of November, 2016. Dated at the City of Edmonton, Alberta this 21 st day of March, 2017 . D.L. Shelley J.C.Q.B.A. Appearances: Mr. James E. Morrow Morrow Tchir LLP for the Plaintiff Mr. Damian Shepherd Chomicki Bail Mah LLP for the Defendant