Canadian automobile insurance companies won key business reassurances on Oct. 19 when the Supreme Court of Canada issued rulings on two closely watched cases.

The decisions overturn Ontario Court of Appeal rulings made in 2005. Both SCC decisions clearly limit insurers’ exposure to liability in the form of civil damages owed by parties at fault in automobile-based damages claims, insurance industry officials say.

“Had this gone the other way, it would have created almost endless exposure for auto insurers,” says Mark Yakabuski, president of the Insurance Bureau of Canada in Toronto. “This suggests that when we have key cases on the line, we need to litigate. The court has shown a good degree of common sense. That should be reassuring to money managers.”

The IBC acted as intervener in one of the appeals, which was argued by Citadel General Assurance Co. , which is now part of Paris-based AXA, Europe’s second-biggest insurer.

One case involved the tragic experience of the Vytlingham family from Toronto, attacked from a bridge on Interstate 95 in North Carolina. In March 1999, two intoxicated men drove a car loaded with boulders onto a bridge over the interstate, then dropped a rock onto the Vytlinghams’ car as it passed beneath them. The attack left the 17-year-old driver of the car, Michael Vytlingham, with severe brain damage; his mother and sister suffered psychological stress. The two men who dropped the boulder are in jail.

Although the SCC ruled that Citadel — which insured the Vytlinghams’ vehicle — is not liable for civil damages owed by the underinsured attackers, the Vytlinghams have already received $1.4 million in no-fault statutory benefits.

CLAUSE ADDRESSED

The court’s decision did not question the Vytlinghams’ entitlement to these benefits under Ontario’s no-fault insurance system. Instead, it addressed a clause in their insurance policy that allowed them to seek another $1 million from Citadel if “an inadequately insured motorist” caused injury. The OCA had ruled in 2005 that they were entitled to this further compensation.

The SCC, however, in a decision written by Justice Ian Binnie, concluded that Citadel should not be required “to stand in the shoes” of the criminals and pay the amount the offenders “ought to pay by way of civil damages.”

In the second case, an Ontario hunter named Fred Wolfe mistakenly shot fellow hunter Harold Herbison in the leg in 1999, after mistaking him for a deer illuminated in Wolfe’s truck headlights as he walked across a field before dawn.

Herbison’s insurance claim centred on Wolfe’s use of his vehicle headlights as a hunting aid. Wolfe’s vehicle insurance policy offered coverage for third-party damage “arising from the ownership or directly or indirectly from the operation” of a vehicle he owned.

Herbison sued Wolfe’s insurance provider, Lumbermens Mutual Casualty Co. , for compensation. On the same day in 2005 that the OCA released its decision against Citadel, the OCA ordered Lumbermens to pay Herbison $832,272.

These rulings surprised many legal analysts at the time, including some who argue personal injury cases against insurance companies.

In a commentary written shortly after the Lumbermens and Citadel decisions were released by the OCA, Joseph Griffiths, an insurance lawyer with Nelligan O’Brien Payne LLP in Ottawa, suggested that “the court has eviscerated the burden of proving a causal connection between the use or operation of an automobile and the injuries suffered by a plaintiff.”

Griffiths went on to suggest that the plaintiffs in these cases may have secured “hollow judgements.” It was “unreasonable,” he wrote, “that the automobile insurer should always be made the ‘go to’ when money is required to satisfy a claim.”

USE OF CAR AT QUESTION

Colin Dubeau, a colleague of Griffiths who helped win Lumbermens’ SCC appeal, says that the case turned on the linkage between the injury and the use of the car.

“Effectively, what it comes down to is a broken chain of causation,” he says. “The test, in order for there to be automobile coverage, is whether the incident arises out of direct or indirect use of the automobile.

“If you read the decision of the Court of Appeal,” he continues, “it takes that to mean that indirect means you don’t need that causal link directly. But the test has to be something more than incidental or fortuitous. [The SCC] has clarified this to say that there still has to be a direct causal link.”

@page_break@In the Lumbermens ruling, Justice Binnie notes that Wolfe “interrupted his motoring to start hunting, thereby breaking the chain of causation. The injury cannot be said to have arisen ‘directly or indirectly from the use or operation’ of the insured truck.”

In his reasoning for the Citadel decision, Justice Binnie notes that both cases resulted from the same error on the part of the OCA, which overlooked legal requirements that the wrongdoer “whose conduct is the subject matter of the indemnity claim be at fault as a motorist.”

After suggesting that the OCA “with the greatest of respect, did not focus” on the issue, Justice Binnie ruled that for coverage to exist: “There must be an unbroken chain of causation linking the conduct of the motorist, as a motorist, to the injuries in respect of which the claim is made.”

Dubeau says the SCC’s decisions place an “interesting” weight on the “reasonable expectations” of the parties involved in insurance contracts.

“Justice Binnie asks whether one would expect that a guy out deer hunting would reasonably be covered by an auto policy,” Dubeau adds.

“It is now clear,” Justice Binnie affirmed in his decision, “auto policies cannot be used as a pool of funding to cover losses unrelated to auto use, including criminal acts, simply because an automobile was used to get to the scene. The standard statutory indemnity language used in various provinces was never intended to cover these types of losses.” IE