Why the court says this auto insurer did not properly terminate policy

An auto insurance company cannot necessarily treat a policy as invalid under common law if it discovers the client made a material misrepresentation on the application, the Court of Appeal for Ontario has ruled.

In Merino v. ING Insurance Company of Canada, released Apr. 25, the Court of Appeal for Ontario overturned a 2017 ruling by Justice Gregory Verbeem of the Ontario Superior Court of Justice. The result is that ING (renamed Intact in 2009) owes Karla Merino more than $2 million.

Merino, a pedestrian, was catastrophically injured Sept. 12, 2002 after being hit by a Jeep driven by Timothy Klue.

Klue and his wife, Sonia Abou-Khalil, had applied for an ING auto policy in May of 2002.

Initially ING issued a policy, but then the insurer discovered some information provided on the application form was incorrect.  So ING sent Klue and Abou-Khalil a registered letter in July explaining their coverage is void from its inception date.

Abou-Khalil signed acknowledging receipt of that letter.

The couple said they did not drive the jeep and considered it uninsured. They did not insure it with a different carrier but instead left it in the driveway. But on the day of the accident, Klue used the jeep after losing his job and consuming some alcohol.

After the accident that injured Merino, she filed a lawsuit. An ING adjuster sent Merino’s lawyer a letter stating ING did not insure either Klue or Abou-Khalil.

Merino was awarded damages in a lawsuit against  Klue or Abou-Khalil, but that judgement has yet to be satisfied. So now Merino is suing ING, claiming the jeep that hit her on Sept. 12, 2002 was in fact insured by ING.

In the lower court, Judge Verbeem ruled in favour of ING. He reasoned that an insurer, upon its discovery of a material misrepresentation or non-disclosure made in an application, may rescind the contract and treat is as void ab initio (or invalid to begin with). That finding was overturned on appeal.

ING did not terminate the policy in the jeep in accordance with Ontario Regulation 777/93, which contains the statutory conditions for auto insurance, wrote Justice Kathryn Feldman of the Court of Appeal for Ontario. The regulation says that insurer may, subject to section 12 of the Compulsory Automobile Insurance Act, and sections 237 and 238 of the Insurance Act, give notice they are terminating a contract. If the termination is given for a reason other than non-payment, the termination does not take effect for 15 days if the notice is given by registered mail. But the letter from ING in July 2002 did not give Klue and Abou-Khalil 15 days’ notice.

When they applied for their insurance in May 2001, Klue signed a form at his broker’s office. The application form was not signed by Abou-Khalil.

The form indicates the applicants had no previous accidents or insurance claims, no history of convictions for motor vehicle related offences in the last three years and had not had their licences suspended within the previous six years.

But the ING investigation revealed that Abou-Khalil. had an at-fault loss in 2001, two speeding convictions, one careless driving conviction and a licence suspension for an unpaid fine.