The Ontario Court of Appeal has allowed an appeal of an Order dismissing the plaintiffs’ action against their excess carrier, made under the Family Protection Endorsement (OPCF 44R) on their auto policy.
The OPCF 44R endorsement is intended to protect an insured policyholder in the event she is involved in an accident in circumstances where the limit of liability she has under this endorsement is greater than the third party liability limits of the tortfeasor whose actions caused her injuries. In the event the policyholder’s damages exceed the third party liability coverage, then the policyholder can recover from her own insurer under the OPCF 44R endorsement to her own policy.
In Maccaroni v. Kelly, the Plaintiff Mary Maccaroni was injured in a motor vehicle collision while a passenger in her husband’s automobile. Their car was rear-ended by a vehicle operated by the defendant Kelly and owned by the defendant Ainsworth.
At the time of the collision, the Ainsworth vehicle was insured by Co-operators, with third party liability insurance in the amount of $1,000,000. A Statement of Claim was issued against the tortfeasors Kelly and Ainsworth, and against ING, the plaintiff’s own insurer under their OPCF 44R, which also carried $1,000,000 limits.
Co-operators claimed that the tortfeasors had breached the policy, so it obtained an Order adding itself as a statutory third party pursuant to s.258 of the Insurance Act, with an admission that Ainsworth was insured by it.
The plaintiffs settled their action with the tortfeasors and Co-operators in exchange for the statutory minimum limits of $200,000. ING neither consented to the settlement nor to the dismissal of the action against the tortfeasors and Co-operators.
The plaintiffs then sought to recover the additional money to which they claimed entitlement from ING pursuant to the OPCF 44R endorsement. The plaintiffs’ claims against ING under the OPCF 44R rested on a legal determination that the tortfeasors’ liability limits were only $200,000. Otherwise, the tortfeasors would not have been “inadequately insured motorists” under the OPCF 44R (since their Certificate of Insurance showed policy limits of $1,000,000).
ING moved for summary judgment to dismiss the claims against it. ING argued that the tortfeasors liability limits were never reduced by “operation of law” or otherwise from the certificate amount of $1,000,000 to the statutory minimum limit of $200,000. It also argued that no such legal determination could now be made because the plaintiffs had released both tortfeasors and Co-operators from the action.
The motion judge agreed with ING and dismissed the claims against it. Essentially, the judge found that the tortfeasors’ policy limits were not reduced to $200,000 by “operation of law” and, accordingly, the plaintiffs could not claim against ING under their OPCF 44R. The judge also found that the plaintiffs’ release prevented ING from disputing the policy breach alleged by Co-operators.
The Court of Appeal agreed with the motion judge that Co-operators’ decision to allege a breach of the policy was not enough to reduce the available limits to $200,000 (and trigger a valid claim against the OPCF 44R carrier). The Court held that the words “by operation of law” must have some meaning beyond a liability insurer merely taking an off-coverage position and settling on this basis:
The third party liability coverage is intended as first loss insurance and the OPCF 44R as excess. Therefore, there must be a legal determination that the third party liability coverage has been limited before the OPCF 44R excess coverage becomes available. . .
It is the effect of s. 258(11) of the Act that reduces the limits of the policy to the statutory minimum where it is determined there has been a breach of a policy condition “by operation of law”. Until there is a finding, however, the insurer’s allegation of policy violation is merely that, an unproved allegation, and the policy limit will remain that set out in the insured’s policy.
However, the Court of Appeal disagreed with the motion judge’s finding that there was no genuine issue for trial against ING. The Court held the plaintiffs would have to prove their entitlement to recover from ING and they would have to prove Co-operators’ off-coverage position in order to do so. The fact that Co-operators and the tortfeasors were not parties to the proceeding was irrelevant. The tortfeasors and representatives of Co-operators could be called as witnesses and could be examined under oath as non-parties. The Court concluded:
While a factual finding made in respect of the coverage issue will bind neither Co-operators nor the tortfeasors vis-à-vis the appellants in view of the release, such a finding can determine, as between the appellants and ING, whether the appellants are entitled to recover anything from ING. If the appellants are successful and establish that the tortfeasors were in breach of their policy provisions and hence, that the off-coverage position taken by Co-operators is correct, they may be entitled to recover from ING. If they are not successful, their action will be dismissed and they will, absent exceptional circumstances, be liable for the costs of those proceedings.
The Court of Appeal’s decision in Maccaroni highlights the often complex interplay between third party liability carriers and first party excess carriers. The decision affirms that the liability carrier’s decisions with respect to coverage cannot impose liability upon the excess carrier. Further, the decision provides some procedural guidance on how insurers, insureds, or third parties could or should pursue coverage issues when there is an underlying tort claim.
The Court of Appeal’s decision is available here.