The Unbearable Lightness of Auto Liability

Insurers find it a bit of a stretch. Given the prevalence of cars in our society, why should an auto insurance policy respond if there is merely an indirect link between an incident, or even criminal action, and a vehicle? Is the auto policy simply used as the scapegoat to compensate innocent victims in a potentially wide range of scenarios? These questions relate to a controversial part of most provincial insurance acts; they are particularly relevant to Ontario’s Insurance Act.

In Ontario, section 239 (1)(a) of the Insurance Act states the auto insurance policy will provide coverage for loss, injury or damage “arising directly or indirectly from the use or operation of an automobile.” In other provinces, such as British Columbia, the precise phrase is “arises out of the ownership, use or operation of a vehicle.” On the face of it, the wording reflects the typically bland language of legalese. But it has opened the possibility of claims emerging for auto insurers for which coverage was never contemplated – and for which premiums were never collected.

Two cases heard by the Ontario Court of Appeal in 2005 – Herbison v. Lumbermens Mutual Casualty Co. and Vytlingam v. The Citadel General Assurance Company – have tested how far courts will go in interpreting the “direct/indirect” section of the act. In both cases, the court held by a two-to-one majority that incidents not directly involving a motor vehicle trigger coverage under an auto insurance policy.

HOW DIRECT IS DIRECT?

William Breckles, senior vice president, insurance operations of AXA Assurances Inc. (which recently acquired Citadel) says the specific wording in the section of the act “appears to be highly subjective. When you have (cases) like this that certainly weren’t on anyone’s radar when prices were set, one of two things has to happen – either you start putting in cost for uncertainty and have your prices reflect that, or the product has to change to remove the exposure. It is simple insurance.”

“What these judgments do is introduce a substantial element of uncertainty into the system,” Mark Yakabuski, vice president, Ontario region, Insurance Bureau of Canada, adds. “It is difficult enough at any given time to try to predict risk and price it accordingly. It is even more difficult when you have cases that, if taken to their logical conclusion, extend the scope of the auto policy almost indefinitely.”

Plaintiff lawyers strongly disagree – including Stanley Tessis, a lawyer with Laxton Glass LLP who represents Michael Vytlingam. “Since June 1990, when the Ontario government brought in no-fault insurance and the particular wording in this section of the act, there have been four or five cases where somebody has tried to go after an insurance company on the basis of direct/indirect,” Tessis says. “I think the insurance industry is blowing this way out of proportion in terms of how it is going to affect them.”

Other plaintiff lawyers – such as Barry Laushway, a partner in Laushway Law Office who represents Harold Herbison – note the words “or indirect” were removed from the no-fault Statutory Accident Benefits Schedule (SABS) in Ontario in November 1996. And yet, these same words were left in the tort or liability side of auto insurance legislation, he observes.

“We think there is a really persuasive argument that if the legislature had wanted to remove the words ‘or indirect’ from the tort side they could have done it at the same time they did the SABS change,” Laushway says. “They did not do that, and the only logical inference is that the legislature intended a broader application for tort coverage.”

JUST THE FACTS, MA’AM

The court judgments in Vytlingam and Herbison, of course, rest on the facts of the case and the legal tests that determine whether a policy will respond, In March 1999, Michael Vytlingam was driving with his father in the family’s Ford Explorer through North Carolina on the way home from a Florida vacation. The vehicle was struck by boulders thrown off an overpass by two North Carolina residents, Todd Farmer and Anthony Raynor. The rocks smashed through the windshield and roof of the Explorer, resulting in catastrophic injuries to the 18-year-old driver.

Neither Farmer nor Raynor were in a vehicle at the time of the event. They used Farmer’s car to drive themselves and the boulders to the overpass. Vytlingam commenced an action against Farmer, whose auto liability limits were US$25,000, the minimum required by the State of North Carolina. However, Vytlingam also turned to his own insurer, Citadel General, for CD$1 million coverage under the underinsured motorist endorsement, OPCF 44R. This section has the same wording “arising directly or indirectly from the use or operation of an automobile.”

The Citadel brought a motion for summary judgment on the basis that Farmer was not driving a vehicle at the time of the incident, nor were Vytlingams’s injuries the result of use or operation of an automobile. That motion was dismissed.

The Citadel appealed and Ontario Court of Appeal Justice Jean MacFarland, writing for the majority, stated: “In my view it matters not that Todd Farmer’s vehicle was not in motion at the time of the incident . . . As long as there is a sufficient connection between the use or operation of the underinsured vehicle and the throwing of the boulder one may conclude that the use or operation of the vehicle contributed to Michael Vytlingam’s injuries.”

Ontario Court of Appeal Justice Russell Juriansz offered a dissenting opinion. “We live in a car culture. People use cars to get to the places where they cause or suffer damage . . . More is required than the fact that the participants and objects involved in the event have been conveyed to the site of the event in a car.”

Lawyers for The Citadel appealed the case to the Supreme Court of Canada, which granted leave Feb. 16, 2006. Insurers and other observers expect a decision sometime this year.

In the Herbison v. Lumbermens case, Ontario hunter Fred Wolfe spotted what he thought was a deer in the headlights of his parked pickup truck. Moving out of the truck and loading his rifle, he shot into the darkness and struck fellow hunter Harold Herbison in the leg, leaving him permanently disabled.

In the subsequent negligence action against Wolfe, the injured hunter was awarded damages of more than CD$830,000. Wolfe was unable to pay. Herbison then started a recovery claim against Lumbermens, the auto insurance company for Wolfe’s pickup truck, arguing that his injuries arose indirectly from the use of the truck in the moments before the shooting. In the original trial court decision, Ontario Superior Court Justice Bernard Manton dismissed the claim, concluding “the accident resulted from the negligent handling of a hunting rifle – something totally unrelated to the use of the truck for transportation.”

BROAD SCOPE

The Ontario Court of Appeal set aside Manton’s trial decision and ordered Lumbermens to provide coverage for the amount of the original judgment. Ontario Court of Appeal Justice Stephen Borins, writing for the majority, stated: “It is unnecessary that the damages arise directly from the use or operation of vehicle to engage coverage; the damages can arise indirectly, or can be more or less remotely connected to or grow out of the vehicle’s use or operation.”

This broad interpretation is consistent with the wording of Ontario’s auto insurance legislation, as found in Section 239 of Ontario’s Insurance Act, according to Ontario Court of Appeal Justice Kathryn Feldman’s concurring decision. “The policy of the legislature in defining liability coverage as broadly as it has is to provide very extensive vehicle liability consequence to injured parties,” she wrote. “Furthermore, the case law has confirmed the legislative policy by according the statutory provisions a very expansive interpretation.”

Lumbermens and its lawyers have also sought leave to appeal Herbison to the Supreme Court o f Canada. A decision is expected before the summer.

Vytlingam and Herbison are not the first cases to test the limits of the auto insurance policy. In Amos v. Insurance Corp. of British Columbia (1995), the Supreme Court of Canada ruled on a case in which a gang attacked a Vancouver resident while the resident was driving his van in California. The Supreme Court concluded a two-part test was necessary:

Did the accident result from the ordinary and well-known activities to which automobiles are put (purpose test)?

Is there some nexus of causal relationship (not necessarily a direct or proximate causal relationship) between the appellant’s injuries and the ownership, use or operation of his vehicle, or is the connection between the injuries and the ownership, use or operation of the vehicle merely incidental or fortuitous (causation test)?

In many cases, agreement on the purpose test is relatively straightforward, assuming the vehicle was used for its normal purposes – driving. It is the causation test that usually spurs the legal fight and the differing interpretations.

In Herbison, Lumbermens lawyers assert Justice Borins weakened the requirements of the causation test. In his decision, Justice Borins states the “phrase ‘directly or indirectly’ in section 239(1) of the Insurance Act has effectively removed the requirement of an unbroken chain of causation from the causation test.”

Mark Charron, a lawyer with Williams McEnery who represents Lumbermens, says this weakening of the causation test formed a key argument in his firm’s submission to the Supreme Court of Canada. “It is really Justice Borins’ decision that the insurance industry has to look to,” Charron says. “Just because the word indirect exists doesn’t take away the necessity for a causal link to be present between the use of the motor vehicle and the injury. We went right after this point in our submission to the Supreme Court panel. There is a need for clarity on this issue.”

Plaintiff’s lawyers contend if insurers had their way, there would be virtually no meaning to the term indirect. “The case law is all factual driven,” Tessis says. “If you use the insurer’s interpretation, the link can’t be anything other than direct. Otherwise, what indirect loss or injury would insurers be agreeable to pay?”

Laushway says the wording in the Ontario legislation is not accidental, but related to a “bargain” struck between regulators and the insurance industry upon the introduction of no-fault insurance in 1990. “As best as we can determine, the industry said all these frivolous injuries were driving them into bankruptcy,” he notes. “The government said: ‘We will put a threshold in, but, in exchange, we will expand the definition to include indirect injuries – more types of accidents, but fewer injuries.’ The industry seems to have forgotten this was a quid pro quo.”

Yakabuski says if insurers had any real anticipation of claims for these types of accidents, they would have charged a premium based on exposure. “What cases like Vytlingam and Herbison do, before anything else, is create an unfunded liability,” he says. “This doesn’t seem to be much of a preoccupation for courts, but it does have real implications for people who are paying premiums and for governments acting as the stewards of an affordable system.”

In fact, several observers contend that Section 239 of the Insurance Act and its expansive wording is another example of tapping deep pockets to pay for large court awards. “I just see this as a continuing evolution of finding coverage in order to provide compensation to accident victims where there might otherwise not be coverage,” Charron says.

DIRECT CAUSE

In Vytlingam, reference was made to case law in Australia, particularly Dickinson v. Motor Vehicle Insurance Trust (1987). This case also interpreted the language “caused by or arising out of the use of” a vehicle and applied coverage broadly to an indirect injury. However, since that decision, several Australian states have introduced new wording into insurance legislation. The Western Australian government, in particular, now requires that any death or injury must be “directly caused by, or by the driving of, (a) motor vehicle.”

Could this be the future direction in Canada, particularly Ontario? “I can tell you that we have asked for it (legislative change),” Yakabuski says. “We have recognized this as a source of uncertainty and a threat to affordability for some period of time, and we have repeatedly brought it to the attention of governments.”

Breckles is not optimistic the government will respond. “It is public policy that drives that,” he says. “I question whether the government would perceive the industry’s needs as being paramount enough to introduce legislative change.”

“Whatever the courts do, we are likely to need a cleanup,” Yakabuski says. “Governments have a choice: do they want to wait until there is a mess, or do they want to clean it up before that happens? Our preference is the latter, but that is not generally the preference of governments.”

Many observers hope to see a definitive Supreme Court of Canada ruling in the cases of Vytlingam v. Citadel and Herbison v. Lumbermens. This is not always the result when courts are asked to interpret ambiguous or expansive legislative wording.

“In a general sense, the Supreme Court is being asked to bring clarity,” Breckles says. “Whether in fact they will or not, we will see.”