COURT OF APPEAL FOR ONTARIO

CITATION: BelairDirect Insurance Company v. Continental Casualty Company, 2023 ONCA 834

DATE: 20231218

DOCKET: COA-22-CV-0145

Simmons, Paciocco and Thorburn JJ.A.

BETWEEN

BelairDirect Insurance Company

Applicant
(Respondent)

and

The Continental Casualty Company

Respondent
(Appellant)

Brigette A. Morrison, for the appellant (via videoconference)

Sean Miller, for the respondent

Heard: November 21, 2023

On appeal from the order of Justice John Krawchenko of the Superior Court of Justice, dated August 4, 2022.

Simmons J.A.:

Introduction

[1]           The issues on this appeal arise from a priority/coverage dispute between automobile insurance companies with respect to third party liability coverage for the driver/lessee of a leased vehicle who was sued as a result of his involvement in a motor vehicle accident.

[2]          The Continental Casualty Company issued a policy of insurance that included third party liability coverage for the lessee/driver. BelairDirect Insurance Company (“Belair”) did not. Nonetheless, Continental contends that the application judge erred in holding that it, rather than Belair, is the priority insurer under s. 277(1.1) of the Insurance Act, R.S.O. 1990, c. I.8 (the “Act”)^[1] and has a duty to defend the lessee/driver in the underlying personal injury action.

[3]          For the reasons that follow, I disagree and would dismiss Continental’s appeal.

Background

[4]           Continental is the motor vehicle liability insurer for a car rental company, WTH Car Rental ULC. Under the terms of its insurance, Continental provides third party liability insurance coverage to WTH and its lessees.

[5]          WTH leased an SUV to George Sarantakos. While driving the leased SUV in July 2015, Mr. Sarantakos rear-ended another vehicle (the "accident").

[6]           In November 2016, Mr. Sarantakos and WTH were sued for $2,100,000 (the "personal injury action") by the driver of the other vehicle involved in the accident and her husband (the “plaintiffs”).

[7]           Continental appointed counsel (“Continental’s counsel”[2]) to defend the personal injury action. As a matter of course, Continental’s counsel conducted a priorities investigation to determine whether there was other insurance responsible for responding to the personal injury action.

[8]          Section 277(1.1) of the Act addresses the order in which the third party liability provisions of any available motor vehicle liability policies shall respond “in respect of liability arising from or occurring in connection with the ownership or, directly or indirectly, with the use or operation of [a leased] automobile”. Section 277(1.1) requires that insurance available to a lessee or driver respond in priority to insurance available to an owner which is excess to the lessee’s or driver’s available insurance.

[9]          Further, subject to certain exceptions, s. 267.12 of the Act caps the vicarious third party liability of rental car companies in respect of one incident at $1,000,000.

[10]       Following the priorities investigation, Continental’s counsel put Belair on notice that Mr. Sarantakos may be insured under a Belair policy issued to Mr. Sarantakos’ mother.

[11]       A Belair adjuster subsequently erroneously advised Continental’s counsel that Mr. Sarantakos was a named driver on a Belair policy with policy limits of $1,000,000. The adjuster also informed Continental’s counsel that Belair would be contacting plaintiffs’ counsel in the personal injury action about limiting the plaintiffs’ claim. Further, the adjuster advised, “we will happily release you from the action, contingent on their agreeing” (emphasis in the original).

[12]       Continental’s counsel and Belair’s counsel subsequently corresponded with plaintiffs’ counsel and each other about releasing WTH from the action on a without costs basis. However, included in such correspondence was a term proposed by Belair’s counsel that the plaintiffs agree to limit their claims to $1,000,000 as well as a term proposed by plaintiffs’ counsel that Mr. Sarantakos admit liability. Neither plaintiffs’ counsel nor Belair’s counsel would agree to the other’s terms. Continental’s counsel asserted from the outset that WTH would seek costs if not released promptly from the action.

[13]       Counsel’s correspondence culminated in the following exchanges in late December 2017 and early January 2018:

•        In a December 20, 2017 email to Belair’s counsel with a copy to plaintiffs’ counsel, Continental’s counsel confirmed to Belair’s counsel that her client would “seek no costs with respect to a dismissal of all claims against [WTH], on consent, at this time.” Further, Continental’s counsel stated she was making the same request of plaintiffs’ counsel;

•        In an e-mail to Continental’s counsel and Belair’s counsel on December 21, 2017, plaintiffs’ counsel stated that his client would agree to release WTH provided Mr. Sarantakos “admits liability and confirms it has a valid policy of 1 million dollars with no coverage issues”;

•        In an e-mail to plaintiffs’ counsel only on December 21, 2017, Continental’s counsel cautioned that if the plaintiffs chose to keep WTH in the action she “suspect[ed]” she would be instructed to seek costs from the plaintiffs for WTH’s unnecessary involvement in the action;

•        In an e-mail response to Continental’s counsel only on December 22, 2017, plaintiffs’ counsel maintained his previous position and noted that if “the co-Defendant [alleges] mechanical failure, or fails to cooperate, such that his policy limit is reduced, [Continental’s] policy would be exposed”;

•        In a further e-mail to plaintiff’s counsel only on December 22, 2017, Continental’s counsel stated, “That’s fine; however, costs will be sought against the Plaintiff … You already have confirmation that the co-Defendant is not alleging liability against the rental company, and there is absolutely no evidence of mechanical defect…”;

•        On January 9, 2018, Belair’s counsel responded to plaintiffs’ counsel and Continental’s counsel saying that while he could “confirm a valid policy of $1 million with respect to liability limits and no coverage issues at this time … [his] client [was] not agreeable to admitting liability unless the terms of the previous offer [which referred to limiting the plaintiffs’ claim] are accepted.” However, in a further paragraph, Belair’s counsel advised Continental’s counsel that she could execute a standard consent on his behalf.

[14]        In September 2018, Belair discovered it may have made a mistake relating to coverage. In January 2019, prior to discoveries scheduled for February 2019, Belair advised Mr. Sarantakos, Continental, and the plaintiffs that Mr. Sarantakos was not covered by its policy.

[15]       Subsequently, Continental declined Belair's request that it assume Mr. Sarantakos' defence.

The application judge’s findings

[16]        On an application by Belair, the application judge found that:

•        Mr. Sarantakos was not an insured under Belair's policy at the time of the accident;

•        Belair is not estopped from denying coverage and did not waive its right to deny coverage;

•        Belair did not enter into a binding agreement with Continental to abandon any priority dispute under s. 277(1.1) of the Act; and

•        Continental has a duty to defend Mr. Sarantakos.

[17]       In addition, the application judge ordered that Continental and Belair each bear their own costs.

The appellant’s position on appeal

[18]       On appeal, Continental does not dispute that Mr. Sarantakos was not covered under Belair’s policy at the time of the accident, that he was covered under its policy issued to WTH, and that Belair initially undertook his defence based on the erroneous belief that Mr. Sarantakos was a named driver in its policy issued to his mother. Further, Continental does not challenge the application judge’s finding that Belair is not estopped from denying coverage. Rather, Continental claims that the application judge erred in:

i)             failing to find that Belair entered into a binding agreement with Continental to abandon any priority dispute concerning coverage;

ii)            failing to find that there was a binding partial settlement agreement with respect to priority and coverage based on Belair's consent to an order dismissing the personal injury action against the car rental company;

iii)           failing to find that Belair had waived its right to dispute priority;

iv)          failing to award costs thrown away to Continental.

[19]        In addition, Continental submits that the application judge erred in failing to rely on caselaw decided under the statutory accident benefit priority regime set out in O. Reg. 283/95 (the “SABS priority regime”), by analogy, to find that Belair had accepted priority.

Discussion

[20]        We called on Belair only with respect to grounds i) and ii) set out above.

[21]       Like the application judge, I see no basis for drawing an analogy between priority cases decided under the SABS priority regime and the priority/coverage issues in this case. There is no similar regulation to that governing the SABS priority regime applicable to priority/coverage disputes among tort insurers and the policy implications differ. The rule applicable in the SABS context exists to ensure prompt payment of SABS benefits by preventing priority disputes from delaying payment. The urgency is less pressing in the tort context. For priority disputes relating to tort liability, the principles on which Continental sought to rely (contract, estoppel, waiver) are properly applicable.

[22]       We did not call on Belair to respond on the issue of waiver because, given the unchallenged circumstance that Belair was mistaken in its initial belief that Mr. Sarantakos was insured under his mother’s policy at the time of the accident, Continental cannot demonstrate that the requirements of waiver are satisfied. Waiver requires “full knowledge of rights” and “an unequivocal and conscious intention to abandon them”: Trial Lawyers Association of British Columbia v. Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47, 163 O.R. (3d) 398, at para. 75, citing Saskatchewan River Bungalows Ltd. v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490, at p. 500. Belair’s mistaken belief that Mr. Sarantakos was covered under its policy could not constitute full knowledge of its rights.

[23]       There are no “strong grounds” in this case that would support granting leave to appeal costs: Colistro v. Tbaytel, 2019 ONCA 197, 145 O.R. (3d) 538, at para. 65, leave to appeal refused, [2019] S.C.C.A. 173. Moreover, and, in any event, Continental did not seek leave to appeal costs.

[24]        Finally, I would reject Continental’s submissions concerning grounds i) and ii) because I agree with the application judge’s conclusion that Belair did not enter into any form of binding agreement (including any partial settlement) with Continental to abandon any priority or coverage dispute. I reach this conclusion for two reasons.

[25]       First, Belair’s adjuster’s advice to Continental’s counsel and the initial correspondence between counsel leaves no doubt that Belair’s initial agreement to “release” WTH from the action, or, in other words, consent to an order dismissing the personal injury action against WTH without costs, was conditional on the plaintiffs agreeing to limit their claim to $1,000,000. While Belair’s counsel eventually authorized Continental’s counsel to execute a consent to a without costs dismissal against WTH on his behalf, Belair’s counsel’s e-mail also made it clear that he would not accede to plaintiffs’ counsel’s demand to admit liability on behalf of Mr. Sarantakos unless his previously stated condition was met (the requirement that the plaintiffs limit their claim to $1,000,000).

[26]       In these circumstances, Continental cannot meet its onus of demonstrating that Belair’s counsel’s agreement to consent was no longer conditional. The plaintiffs’ counsel had made clear his position that he would not consent to a dismissal against WTH without an admission of liability by Mr. Sarantakos. Belair’s counsel had made it clear that there would be no admission of liability unless the plaintiffs agreed to limit their claim to $1,000,000. It was therefore obvious that Belair’s counsel’s consent could not operate to dismiss the personal injury action against WTH. The plaintiffs’ consent was also required, but there was no indication it would be forthcoming. Rather, Belair’s counsel and plaintiffs’ counsel were at an impasse. Continental failed to establish, in these circumstances, that Belair’s counsel was abandoning the condition attached to his consent.

[27]       Second, I observe that the correspondence between counsel was about extricating WTH from the action. In counsel’s correspondence there was no discussion about which of Belair or Continental was responsible for defending Mr. Sarantakos. In all the circumstances, by agreeing to consent to a dismissal of the personal injury action against WTH without costs, Belair's counsel was not agreeing, either explicitly or implicitly, to abandon any claims Belair might have vis- à-vis Continental concerning coverage. Although Belair's counsel confirmed, at the request of plaintiffs' counsel, that there was a $1,000,000 policy in place and no coverage issues, the latter confirmation was clearly subject to the qualifier "at this time". I see no indication from the correspondence that the parties were ad idem about abandoning any priority/coverage dispute.

[28]       Based on the foregoing reasons, I would dismiss the appeal. In accordance with the parties’ agreement, I would award costs of the appeal to Belair on a partial indemnity scale fixed in the amount of $7000.00, inclusive of disbursements and HST, and payable within 45 days of the release of these reasons.

Released: December 18, 2023 “J.S.”

“Janet Simmons J.A.”

“David M. Paciocco J.A.”

“Thorburn J.A.”

 

APPENDIX ‘A’

Insurance Act, R.S.O. 1990, c. I.8

Liability of lessors

267.12 (1) Despite any other provision in this Part, except subsections (4) and (5), in an action in Ontario for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of a motor vehicle that is leased, the maximum amount for which the lessor or lessors of the motor vehicle are liable in respect of the same incident in their capacity as lessors of the motor vehicle is the amount determined under subsection (3) less any amounts,

(a)  that are recovered for loss or damage from bodily injury or death under the third party liability provisions of contracts evidenced by motor vehicle liability policies issued to persons other than a lessor;

(b)  that are in respect of the use or operation of the motor vehicle; and

(c)  that are in respect of the same incident. 

Same

(2) For the purposes of subsection (1), the amounts referred to in clauses (1) (a), (b) and (c) include only amounts recovered under the coverages referred to in subsections 239 (1) and (3) and section 241 and exclude,

(a)  any sum referred to in subsection 265 (1);

(b)  any amount payable as damages by the Motor Vehicle Accident Claims Fund under the Motor Vehicle Accident Claims Act; and

(c)  any other amounts determined in the manner prescribed by the regulations. 

Maximum amount

(3) The maximum amount for the purposes of subsection (1) is the greatest of,

(a)  $1,000,000;

(b)  the amount of third party liability insurance required by law to be carried in respect of the motor vehicle; and

(c)  the amount determined in the manner prescribed by the regulations, if regulations are made prescribing the manner for determining an amount for the purposes of this clause. 

 

Exceptions

(4) Subsection (1) does not apply,

(a)  in such circumstances as may be prescribed by the regulations or to such persons, classes of persons, motor vehicles or classes of motor vehicles as may be prescribed in the regulations, subject to such terms, conditions, provisions, exclusions and limits as may be prescribed by the regulations;

(b)  in respect of amounts payable by a lessor other than by reason of the vicarious liability imposed under section 192 of the Highway Traffic Act; or

(c)  in respect of a motor vehicle used as a taxicab, livery vehicle or limousine for hire unless the lessor or lessors of the motor vehicle and the lessee are dealing with each other at arm’s length. 

Application of subs. (1)

(5) Subsection (1) applies only to proceedings for loss or damage from bodily injury or death arising from the use or operation of a motor vehicle on or after the day this section comes into force. 

Definitions

(6) In this section,

“lessor” means, in respect of a motor vehicle, a person who is leasing or renting the motor vehicle to another person for any period of time, and “leased” has a corresponding meaning; (“bailleur”)

“motor vehicle” has the same meaning as in subsection 1 (1) of the Highway Traffic Act. (“véhicule automobile”) 

…

Order in which policies are to respond

277 (1.1) Despite subsection (1), if an automobile is leased, the following rules apply to determine the order in which the third party liability provisions of any available motor vehicle liability policies shall respond in respect of liability arising from or occurring in connection with the ownership or, directly or indirectly, with the use or operation of the automobile on or after the day this subsection comes into force:

1.  Firstly, insurance available under a contract evidenced by a motor vehicle liability policy under which the lessee of the automobile is entitled to indemnity as an insured named in the contract.

2.  Secondly, insurance available under a contract evidenced by a motor vehicle liability policy under which the driver of the automobile is entitled to indemnity, either as an insured named in the contract, as the spouse of an insured named in the contract who resides with that insured or as a driver named in the contract, is excess to the insurance referred to in paragraph 1.

3.  Thirdly, insurance available under a contract evidenced by a motor vehicle liability policy under which the owner of the automobile is entitled to indemnity as an insured named in the contract is excess to the insurance referred to in paragraphs 1 and 2.