Canada: Improper Policy Cancellation Leads To "Risky Business"

Case Comment: Minister Of Finance v AXA Insurance



Introduction

The appeal decision in Ontario (Minister of Finance) v AXA Insurance1 is an important lesson for insurers who claim to have cancelled an insured's automobile policy, specifically when a priority dispute later arises.

Background Facts

In this case, the claimant was involved in a motor vehicle accident on December 29, 2011. He received accident benefits from the Motor Vehicle Accident Claims Fund ("the Fund"), which is administered by the Minister of Finance. The Fund disputed its priority to pay benefits and argued that the claimant had a valid automobile policy with Elite Insurance ("Elite") on the date of loss.

As background, the claimant had an "Autograph" policy with Elite for a six-month term that renewed for a second, six-month term ending on September 20, 2010. In exchange for lower premiums, this policy required the claimant to install a device in his vehicle that would record driving information. Elite could cancel this policy by filing Declination Rule 56 with the Financial Services Commission of Ontario ("FSCO"). This rule allowed Elite to cancel the contract associated with the policy if the claimant failed to install the "Autograph" device "within [the] two previous terms (12 months)".

On August 12, 2010, Elite wrote to the claimant about its intention to cancel the "Autograph" policy based on Declination Rule 56. Prior to that date, the claimant had not installed the "Autograph" device in his vehicle as required by the policy. The claimant obtained an automobile policy through AXA Insurance ("AXA") for the same vehicle on September 23, 2010, which was cancelled before the date of loss and not at issue on appeal.

Key Issues

The key issues on appeal were:

  1. whether Elite gave valid notice of its intention to cancel the claimant's "Autograph" policy and,
  2. whether the "Autograph" policy was still in effect on the date of loss.

In the priority dispute arbitration, Arbitrator Densem concluded that while Elite did not give valid notice of its intention, the "Autograph" policy was not in effect on the date of loss. Arbitrator Densem based this decision on the fact that both Elite and the claimant demonstrated an intention not to be bound by the terms of the policy; Elite gave notice of its intention to cancel the policy, while the claimant obtained a new policy with AXA.

Legislation

Section 238(1) of the Insurance Act ("the Act") states that an insurer cannot cancel an automobile contract except on a ground filed with the FSCO Superintendent.2 Where there is a proper ground for cancellation – for example, Declination Rule 56 – the insured must receive proper notice of the cancellation. Section 236(1) and (3) require that reasons be given for the cancellation with a minimum of 30 days' notice, respectively.3 If these requirements are not met, then the relevant contract remains in force until there is compliance.4

Decision onAppeal

Justice Cavanagh agreed with the reasons of Justice Matheson in Echelon General Insurance Co. v Ontario (Minister of Finance) ("Echelon").5 He specifically endorsed the idea that section 236(5) ousts the common law rules around contracts, namely that a fixed-term contract expires on its own or can be terminated by a mutual intention not to be bound. Rather, the plain wording of the statute must be given its full meaning. Based on the plain wording of the Act, an automobile insurance contract continues until the insurer gives proper notice of its cancellation.

As mentioned above, proper notice in these circumstances required filing a valid ground with the FSCO Superintendent. Elite relied on Declination Rule 56, effectively stating that the claimant did not install the required "Autograph" device within the 12 months prior to the cancellation notice. However, at the time of the notice, the "Autograph" policy had not even been in place for 12 months. Justice Cavanagh agreed with Arbitrator Densem that notice could not be "validly given until at least two, six-month policy terms (12 months)" had been completed.6

Justice Cavanagh ultimately ruled that Elite did not properly cancel the claimant's "Autograph" policy in accordance with sections 236 and 238 of the Act. As such, the policy was in effect on the date of loss and Elite was the priority insurer responsible for paying the claimant's accident benefits.

Conclusion

The appeal decision in Ontario (Minister of Finance) v AXA Insurance7 confirms that insurers who fail to give proper notice of a policy cancellation will, to quote Justice Matheson in Echelon, "bear the risk".8 This risk can ultimately be that an insurer must pay accident benefits for a claimant it no longer considers an insured. When cancelling an automobile insurance policy, insurers should take steps to comply with the requirements in sections 236 and 238 of the Act. The courts have sent a clear message that proper notice is the only notice where obligations to an insured are concerned.

Read the full judgement.

Footnotes

1. 2017 ONSC 3414, 2017 CarswellOnt 8326.

2. Insurance Act, RSO 1990, c I.8, s 238(1).

3. Ibid, s 236(1) and (3).

4. Ibid, s 236(5).

5. 2016 ONSC 5019, 133 OR (3d) 233.

6. Her Majesty the Queen v AXA Insurance (Canada), Elite Insurance Company, and Intact Insurance Company (Arbitrator Scott Densem, May 12, 2016) at 21.

7. Supra note 1.

8. Supra note 5 at para 27.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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