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Endorsement Subject to Territorial Restrictions
Published in the August 2007 issue of Litigation Notes - View Article
The Ontario Court of Appeal recently dealt with the question of whether the territorial limitation contained in a basic automobile policy and in the Ontario Insurance Act, applied to restrict coverage in an underinsured motorist endorsement. The principal respondent is a resident of Ontario who was insured under the Family Protection Coverage set out in an optional endorsement (the “Endorsement”), which provided additional coverage in the event of an accident caused by a driver who should have less than $1,000,000 of coverage. The additional coverage would be equal to the difference between the at-fault driver’s limits of coverage and one million dollars.
As a result of an accident which took place in Jamaica, the principal respondent was rendered a quadriplegic.
At first instance the motions judge held that the territorial limitation contained in the standard automobile policy, which restricted coverage to incidents in North America, did not apply to the Endorsement.
She came to this conclusion notwithstanding the fact that the Endorsement contained the following clause:
“Except as otherwise provided in this change form, all limits, terms, conditions, provisions, definitions and exclusions of the Policy shall have full force and effect.”
In Pickford Black Ltd. v. Canadian General Insurance Co. the Supreme Court held that a similar clause which was introduced by the words “subject to” effectively incorporated the relevant terms of the policy into the endorsement there under consideration.
The motions judge thought she could distinguish this binding precedent on the basis that the words “except as otherwise provided in this change form” were insufficient to establish that the Policy was the dominant document and governed the Endorsement. The motions judge also reasoned that in the absence of express language creating a territorial limitation, there was a state of ambiguity in the Endorsement to be resolved in favour of the insured. Finally, she seized upon an earlier case (Szela v. Gore Mutual Insurance Co.) which referred to a predecessor of this Endorsement as “almost a self-contained code and policy”.
The Court of Appeal overturned the decision, stating that on a plain reading of the Endorsement, the provision in fact incorporates the territorial limitation set out in the Policy because the Endorsement specifically provides that the limits in the Policy are in full force and effect, “except as otherwise provided in this change form”. The Court of Appeal held that there is no significant difference between the words “except as otherwise provided” and the words “subject to all… limitations”. Both phrases adequately express the same intended result, namely that the provisions of the Policy should govern unless the Endorsement provides otherwise. Szela was not a relevant precedent. In that earlier case the conflict was between words in the policy and a specific amendment of those words in the endorsement. The endorsement in Szela did “otherwise provide”.
The Court of Appeal also confirms the proper concept of an endorsement as an element which is built on the foundation of the policy and one which does not have independent existence.
The second argument accepted by the judge at first instance is based on the Ontario Insurance Act which mandates coverage for damage caused by uninsured motorists and unidentified automobiles. As a result of judicial interpretation (and now statutory amendment) it is clear that these forms of mandatory insurance are mandated only subject to territorial restrictions. On behalf of the insured, it was argued that since the Act specifically addresses territorial restrictions in the two cases referred to (uninsured motorist or unidentified auto) and does not address the case of underinsured motorist coverage, it can be taken that no such restriction is available in the latter case. At the very least, it was argued, this statutory scheme creates an ambiguity which should be resolved in favour of the insured. The motions judge accepted this argument.
Again, the Court of Appeal reversed. There is an important distinction between the two types of cover. Cover for underinsured drivers and unidentified autos is mandatory whereas underinsured cover is only available at an extra cost on election by the insured. Given that the coverage is not mandatory, insurers are free to stipulate restrictions, including territorial restrictions..
The Court acknowledged the unfortunate plight of the insured but concluded that the terms of the policy were clear, there was no statutory prohibition of territorial restrictions and no ambiguity. Accordingly, the Court declared that the Endorsement did not provide cover for the consequences of the accident which occurred in Jamaica. In view of the circumstances, the Court made no order as to costs.
Pilot Insurance Company v. Sutherland,
2007 ONCA 492