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Case Comment: Lloyd's of London v. Royal and Sun Alliance
Published in the September 2008 issue of Transportation Notes - View Article
The Supreme Court of Canada recently dismissed an application for leave to appeal in a case involving the issue of the Court’s equitable power to grant relief from forfeiture of insurance policies, and the issue of what “imperfect compliance” means for the purposes of this discretionary relief.
The insured driver and his passenger stopped at the post office to pick up two registered letters before embarking on a day’s outing. The insured handed them to his passenger who later testified she peeked inside one of them and saw that it had something to do with driving fines. She then put the letters on the back seat. The insured did not look at them. After leaving the post office, the insured ran a stop sign. The resulting accident caused the death of the other driver and serious injuries to the passenger. At issue was the amount payable by the driver’s insurer, Royal & Sun Alliance (“Royal”) to the deceased’s insurer, Lloyd’s of London (“Lloyd’s”) and the passenger. Royal argued that it was liable for only a portion of the damages payable because the insured knew, or because of his driving record ought to have known, that his licence was suspended. He was in breach of a condition of his policy, as he was not authorized in law to operate a motor vehicle at the time of the accident. Lloyd’s and the passenger claimed relief from forfeiture in a bid to obtain the full amount for which Royal was potentially liable.
The trial judge went through a lengthy analysis of the evidence with respect to the two registered letters and what the passenger saw when she “peeked” into one of the ripped envelopes. The trial judge accepted the passenger’s evidence that she saw the Ontario Government logo and guessed it was something about tickets, but that she did not read the corner of the letter which read “Notice of Suspension of Driver’s Licence”. It was also accepted that she told the insured that the letter might have something to do with fines, to which the insured told the passenger to place the letters on the back seat as he would look at them later. The trial judge accepted the evidence that the passenger did not know the insured’s licence was suspended and that the insured did not look at the letters himself prior to the accident. In the absence of evidence from the insured, the trial judge held that Royal did not meet its onus of showing that the insured knew his licence was suspended but drove nonetheless. He rejected Royal’s submission that the court could infer that the insured knew his licence was suspended given his driving record which included past suspensions for unpaid fines.
Although the insured was in breach of a condition of his policy at the time of the accident, thereby forfeiting his insurance coverage, section 129 of the Ontario Insurance Act grants the court the discretion to rule that coverage should not be forfeited where the customer has been guilty of “imperfect compliance” with a statutory condition as to proof of loss. The statutory provision also refers to granting relief in respect of other omissions which relate to a loss where the court finds it inequitable that the insurance should be forfeited or avoided on that ground. The trial judge found that the insured’s failure to comply with his policy, by driving while unauthorized to do so, could be characterized as “imperfect compliance” and not the result of bad faith. He was, the judge found, not aware his licence was suspended.
The Court of Appeal overturned the lower court’s decision on the basis that the trial judge wrongly interpreted the relief from forfeiture provision. It held that the insured was in breach of a statutory condition by driving while unauthorized by law. It also found that the trial judge wrongly relied on the Court of Appeal’s judgment in Williams v. York Fire & Casualty Insurance Co. (2007) 86 O.R. (3d) 241 in support of his decision – the Court of Appeal stated that the Williams case stands for the proposition that the court’s power pursuant to s. 129 of the Insurance Act addresses matters in relation to a loss and that whether the insured is authorized by law to drive at the time of the accident is a matter of coverage, not a matter concerning proof of loss. The Court of Appeal also held that the insured’s conduct was anything but reasonable, given that his licence had been suspended twice previously and given the fact that he chose not to read the two registered letters from the Ministry of Transportation before continuing to drive. This demonstration of wilful blindness or recklessness was found to be incompatible with relief from forfeiture.
Lloyd’s of London v. Royal & Sun Alliance
[2008] S.C.C.A. No. 257,on appeal from the Ontario Court of Appeal, 2008 ONCA 266. Judgment at first instance, [2002] O.J. No. 2831.