


COURT OF APPEAL FOR ONTARIO

CITATION:

Kereluik v. Jevco
    Insurance Company, 2012 ONCA 338

DATE: 20120522

DOCKET: C54466

Cronk, Juriansz and Epstein JJ.A.

BETWEEN

Paul Kereluik

Applicant

(Respondent in Appeal)

and

Jevco Insurance Company

Respondent

(Appellant in Appeal)

W. Colin Empke, for the appellant

James E.S. Allin, for the respondent, Paul Kereluik

Jerry F.
    OBrien, for the interveners, Concetta Deabreu, Antonio Deabreu and Adriano
    Deabreu

John A. Nicholson, for the intervener, AXA Insurance
    (Canada)

Heard: May 7, 2012

On appeal from the order of Justice H.A. Rady of the
    Superior Court of Justice, dated July 14, 2011.

Cronk
    J.A.:

[1]

This appeal concerns the narrow issue whether the phrase authorized by
    law in s. 4(1) of O. Reg. 777/93, enacted under the
Insurance Act
,
    R.S.O. 1990, c. I-8 (the Act), extends to a personal undertaking given by an
    insured to a police officer as a condition of release from custody on an
    impaired driving charge.  By operation of s. 234(1) of the Act, s. 4(1) of O.
    Reg. 777/93 constitutes statutory condition number four (Condition Four) to the
    standard form automobile insurance policy in use in Ontario.

I.        Background

[2]

The pertinent background facts are undisputed.

[3]

On February 26, 2003, the respondent, Paul Kereluik, was arrested for
    impaired driving causing bodily harm following a motor vehicle accident.  He
    was released from custody subject to his undertaking, given to a peace officer,
    to abstain from the possession and consumption of any alcoholic beverages (the
    Undertaking).  A breach of the Undertaking constituted a criminal offence.

[4]

On December 12, 2003, the respondent was involved in a second motor
    vehicle accident in which he allegedly injured the intervener, Concetta
    Deabreu.  At the time of the second accident, the respondent was impaired.  He
    was charged with impaired driving and breach of his Undertaking.  He was
    subsequently convicted of both charges, as well as the impaired driving charge
    from the earlier accident.

[5]

On the date of the second accident, the respondent was insured under a
    valid, standard motor vehicle insurance policy (the Policy) issued by the
    appellant, Jevco Insurance Company (Jevco).  He also held a valid Ontario
    drivers licence, issued by the Ministry of Transportation of Ontario.  No
    express conditions attached to his licence.

[6]

Following the second accident, Ms. Deabreu and various family members
    commenced a negligence action against the respondent, claiming damages for
    losses allegedly occasioned by the accident.  For several years, Jevco provided
    the respondent with a defence to the action.

[7]

However, after Jevco learned of the respondents breach of the
    Undertaking, it notified him that it would no longer fund his defence or
    indemnify him in respect of any damages that might be awarded against him in
    the Deabreu action.  Jevco took the position that the respondents breach of
    the Undertaking constituted a breach of Condition Four of the Policy, resulting
    in the forfeiture of his automobile insurance coverage under the Policy.  In
    particular, Jevco maintained that, by reason of his breach of the Undertaking,
    the respondent was not authorized by law to drive at the time of the second
    accident, within the meaning of Condition Four.

[8]

Condition Four of the Policy states:

The insured shall not drive or operate or permit any other
    person to drive or operate the automobile unless the insured or other person is
    authorized by law to drive or operate it.

[9]

The intervener, AXA Insurance (Canada) (AXA), provided underinsured
    automobile insurance coverage to Ms. Deabreu.  When Jevco denied coverage to
    the respondent, AXA applied to the Superior Court of Justice for declarations
    that Jevco was required to defend and to indemnify him under the Policy, up to
    the $1 million limits of the Policy, in connection with the Deabreu action.

II.       Application Judges Decision

[10]

The
    application judge granted the declarations sought.  She concluded that on the
    date of the second accident, the respondent was authorized by law to drive
    within the meaning of Condition Four since: (1) he held a valid Ontario
    drivers licence; (2) he was in compliance with the terms of that licence; (3)
    the licence contained no alcohol-related condition or prohibition; and (4) his
    licence was in good standing.

[11]

Jevco
    appeals.

III.      Discussion

[12]

I
    agree with the application judges interpretive analysis and with her ruling
    that the respondent is entitled to a defence and to indemnification from Jevco
    in respect of the Deabreu negligence action.

[13]

As
    the application judge noted, there is considerable jurisprudential support for
    the proposition that the phrase authorized by law as used in Condition Four
    is concerned with the validity and terms of an insureds licence to drive at
    the time of the relevant motor vehicle accident.  See for example,
Vanderwal
    v. State Farm Mutual Automobile Insurance Co.
(1994), 20 O.R. (3d) 401 (Div.
    Ct.);
Northover v. Regier
, [2001] I.L.R. 1-3889 (Ont. S.C.);
Peet
    v. Ethier
, [1988] I.L.R. 1-2261 (Sask. Q.B.), affd [1988] I.L.R. 8865 (Sask.
    C.A.).  These authorities suggest that the legal authority to drive, at any
    given time, depends on the existence of a valid licence issued by the
    responsible regulatory authority and compliance with the conditions attaching
    to the licence.

[14]

In
    this case, the respondent held a valid drivers licence, issued by the
    appropriate Ontario licensing authority, at the time of the second accident.  His
    licence was unconditional.  In particular, it contained no term regarding the
    possession or consumption of alcohol similar to the prohibition contained in the
    Undertaking.

[15]

In
    my view, nothing in the language or legislative history of Condition Four
    suggests that the phrase authorized by law, as used in Condition Four, is
    intended to apply to breaches of the law not directly connected with violations
    of driving licence conditions.

[16]

Jevco
    points out, correctly, that the regulation of driving behaviour in Ontario,
    including drinking and driving, is governed both by provincial law (the
Highway
    Traffic Act
, R.S.O. 1990, c. H.8) and federal law (the
Criminal Code
). 
    It therefore submits that driving conditions imposed under either body of law
    come within the intended scope of the phrase authorized by law in Condition
    Four.

[17]

I
    would not accede to this argument.  If Jevcos urged interpretation of
    Condition Four was to be accepted, the breach of any driving-related
    prohibition or restriction imposed under any law, including the criminal law,
    would result in the forfeiture of automobile insurance coverage because the
    breach would render an insured unauthorized at law to drive or operate a
    vehicle within the meaning of Condition Four.  For example, on Jevcos
    interpretation of Condition Four, if terms of bail applicable to an insured who
    has been charged with impaired driving included the imposition of a curfew, the
    breach of the curfew terms  even a minor or technical breach  could trigger
    the loss of the insureds automobile insurance.  Such a sweeping interpretive
    result should not be countenanced absent a clear expression of such intention
    by the legislature.

[18]

I
    also regard Jevcos proposed construction of Condition Four as inconsistent
    with s. 118 of the Act.  That provision, as applicable to motor vehicle
    insurance policies, provides that unless the relevant insurance contract
    otherwise stipulates, the commission of a criminal offence, by that fact
    alone, does not render unenforceable an indemnity claim under the contract,
    except where the contravention of the law is committed with the intent to bring
    about loss or damage.  There is no suggestion that this exception is engaged on
    the facts of this case.  Further, the Policy contains no specific exclusion
    clause for losses occasioned by criminal acts.

[19]

In
    my view, s. 118 of the Act signals a clear legislative intent to allow for the
    possibility of compensation for innocent tort victims beyond the statutory
    minimum amounts provided for under the Act, notwithstanding that the losses in
    respect of which compensation is sought may have been occasioned by a
    tortfeasors criminal wrongdoing.  I agree with AXAs submission that s. 118 is
    also designed to provide insurance protection for negligent tortfeasors who do
    not intend to cause harm.

[20]

These
    public policy choices by the legislature stand in stark contrast to former
    versions of the Ontario standard automobile insurance policy, which expressly
    prohibited the use of an automobile by an insured while incapable of the proper
    control of the automobile by reason of the influence of intoxicating liquor or
    drugs: see for example, former Statutory Condition 2(1)(a),
Insurance Act
,
    R.S.O. 1970, c. 224, s. 205.

[21]

The
    legislatures policy choices regarding the availability of compensation for
    tort victims injured in motor vehicle accidents require respect from the
    courts.  By enacting s. 118 of the Act, by repealing former statutory conditions
    under the Act that expressly precluded the operation or use of an automobile
    while under the influence of alcohol (
i.e.
, former Statutory Condition
    2(1)(a), above-cited), and by not incorporating a coverage exclusion in the
    current standard form automobile insurance policy pertaining to drunk drivers,
    the legislature must be taken as having elected to protect the potential of
    tort compensation for innocent victims of drinking and driving.  I see nothing
    in Condition Four that suggests that this protection is intended to extend only
    to the minimum amounts of coverage provided for under the Act.

[22]

Jevco
    relies on several cases, including
Gipson v. Pilot Insurance Co.
(2005), 74 O.R. (3d) 133 (S.C.), to argue that the breach of a specific
    driving-related undertaking, particular to a specific insured and given to a law
    enforcement official as a condition of release from custody on a
    driving-related offence, constitutes a condition precedent to the insureds
    lawful authority to drive.

[23]

I
    disagree.  Condition Four is concerned with an insureds legal entitlement to
    drive or operate a motor vehicle.  This entitlement depends on the insureds
    possession of a valid drivers licence and his or her compliance with the terms
    of the licence at the time of the incident giving rise to the challenge to the
    insureds lawful authority to drive or operate the vehicle.  Unlike this case,
    each of the authorities relied on by Jevco, including
Gipson
, involved
    the violation of one or more specific conditions attaching to the insureds
    drivers licence.  The conditions imposed therefore constituted conditions
    precedent to the lawful authority to drive.  That is not this case.

[24]

I
    reach a similar conclusion concerning Jevcos contention that there is a
    parallel between the position of the insured in this case and that of a novice
    driver under Ontarios graduated automobile licensing scheme.  In my view, the
    suggested parallel does not exist.  It is true, as Jevco points out, that
    novice drivers in Ontario are prohibited from consuming alcohol while driving. 
    This prohibition, however, forms an express part of the licence conditions
    imposed on novice drivers.  Again, that is not this case.

IV.     Disposition

[25]

For
    the reasons given, I would dismiss the appeal.  I would award costs of the
    appeal, as agreed by counsel: to the respondent, Paul Kereluik, in the total
    amount of $12,000; to the Deabreu interveners in the total amount of $11,000;
    and to AXA in the total amount of $5,000, each inclusive of disbursements and
    all applicable taxes.

Released:

MAY 22 2012                                   E.A.
    Cronk J.A.

EAC                                                I
    agree Russell Juriansz J.A.

I
    agree G.J.  Epstein J.A.


