A recent decision of the Court of Appeal of Alberta, Funk v. Wawanesa Mutual Insurance Company, 2018 ABCA 200, has restored certainty for both insurers and insureds in the scope of coverage under standard form automobile insurance policies. Dentons Canada LLP represented Wawanesa in this case. This note is based solely on facts in the public record of the Court.
Facts and the lower court decision
This decision arose out of an action on a SEF 44 Family Protection Endorsement (SEF 44). The Plaintiff, Mr. Funk, was injured in a single-vehicle rollover accident. While driving on a road at night, Mr. Funk alleged that a vehicle traveling in the opposite direction had moved into his lane of traffic. To avoid a collision, Mr. Funk alleged he swerved to the right, causing his vehicle to dip into the ditch adjacent to the road and roll over. The other vehicle was not identified, and Mr. Funk's vehicle did not collide with it. Mr. Funk obtained compensation from the Motor Vehicle Accident Claims Fund (Fund), and sought indemnification from Wawanesa under his SEF 44 for the remainder of his damages.
Wawanesa applied for summary dismissal of the action on the basis that there was no coverage under the SEF 44. The definition of an "unidentified automobile" in the SEF 44, which is directly incorporated from Section B of the SPF 1 Standard Automobile Policy, reads:
An unidentified automobile under this subsection means an automobile which causes bodily injury or death to an insured person arising out of physical contact of such automobile with the automobile of which the insured person is an occupant at the time of the accident, provided
- the identity of either the owner or driver of such automobile cannot be ascertained...
As Mr. Funk's automobile had no physical contact with the other vehicle, Wawanesa argued there was no coverage, because the other vehicle was not an "unidentified automobile" under the SEF 44. Mr. Funk cross-applied for summary judgment on the basis that the SEF 44 was ambiguous as to whether physical contact between the vehicles, or merely "physical evidence indicating the involvement of an unidentified automobile," was required for coverage to exist.
The Court of Queen's Bench dismissed both applications but found that Mr. Funk was entitled to coverage. The SEF 44 was not ambiguous, as there was only one definition of an "unidentified automobile," and on its face no coverage existed in the circumstances of this accident. However, the Court held that enforcing the "physical contact" requirement was contrary to public policy and thus unenforceable, as it required drivers to commit a tort (i.e. colliding with another vehicle) to obtain coverage. The Court further held that Mr. Funk was entitled to relief against forfeiture of his coverage, as it was not reasonable to deprive him of coverage because he took evasive actions to avoid a collision.
The Court of Appeal decision
The majority of the Court of Appeal held that the lower court's decision was incorrect, and that no coverage existed in the circumstances. While the SEF 44 existed to provide coverage for insureds where Section B coverage was deemed inadequate, it would not respond to all claims. The form of the SEF 44 is prescribed by the Superintendent of Insurance, and the premiums charged for it provide coverage in cases where underinsured, uninsured or unknown motorists cause damage in excess of what is recoverable from their insurance or the Fund. The majority agreed that the SEF 44 was not ambiguous, because the requirement of physical evidence to prove a claim was separate from the requirement of physical contact between the two automobiles. Coverage exists where an unidentified automobile makes physical contact with the insured's automobile; the existence of physical evidence is an evidentiary requirement to corroborate the preconditions for coverage (to distinguish a collision with an unidentified automobile from, for example, a collision with a concrete barrier).
Where the majority of the Court disagreed with the lower court was in relying on public policy and relief against forfeiture to modify the scope of coverage under the SEF 44. The "physical contact" requirement "merely describes the scope of coverage" (at para 23), and does not require insureds to commit a tort to obtain coverage (or do anything at all). "If an unidentified motorist had negligently made contact with his vehicle, [Funk] would have been entitled to indemnity for his damages, but [Funk] was not entitled to indemnity for damages for any uncovered risks" (at para 24). Similarly, relief against forfeiture was unavailable because there was no forfeiture; Mr. Funk's loss was simply not covered under the SEF 44. The majority of the Court further noted that "there is very little room for finding that a provision of an automobile insurance policy issued in Alberta is 'unjust or unreasonable' or contrary to public policy" (at para 27), as automobile insurance policies and the premiums charged for them are highly regulated.
The majority of the Court concluded that certainty in the interpretation of insurance policies and the scope of coverage is in the interest of both insurers and insureds, and it was not reasonable to undermine that certainty by relying on doctrines like public policy or relief against forfeiture. Those doctrines "must be applied with caution with respect to standard form, statutorily mandated insurance policies" (at para 30) to ensure that insurance coverage is meaningfully understood and premiums can be charged appropriately.
The dissenting Justice on the Court of Appeal would have found that the SEF 44 was ambiguous, as in his view, Mr. Funk had a reasonable expectation of coverage in the circumstances "provided that he was able to provide physical evidence indicating the involvement of the unidentified automobile" (at para 47). In his view, it was implausible that an independent witness would be available in the circumstances, and that a broad and liberal interpretation of the policy would favour finding coverage. We query whether this reasoning is circular, as it would find that coverage exists where physical evidence indicating the involvement of an unidentified automobile is provided, but disregards that the definition of "unidentified automobile" in the SEF 44 requires physical contact between the vehicles.
It remains to be seen if leave will be sought to appeal this decision to the Supreme Court of Canada, and if so, we will continue to update you on this matter. For now, however, the values of certainty in insurance coverage have been upheld.
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