Executive Summary: Key Legal and Evidentiary Issues

• Appeal concerned whether the insurer could rely on Exclusion 3 of the Alberta Standard Owner’s Automobile Policy S.P.F. No. 1 to deny Section C coverage for damage to the insured’s 2013 Cadillac Escalade when it was being driven without his consent.

• The Court interpreted the term “occupant” in Exclusion 3 as requiring an element of intention and held that a person who is asleep, and who did not intend to be in the vehicle while the unauthorized driver was operating it, is not an “occupant” for the purposes of that exclusion.

• Section 574(1)(b) of the Insurance Act was found to apply to Section C (loss of or damage to the insured automobile) claims, so the insurer could not raise a defence under Alberta wording that would not be available if the policy were issued as an Ontario motor vehicle liability policy.

• Ontario’s OAP 1 exclusion applies only where a person “willingly becomes an occupant,” and the Court agreed with the Applications Judge that Amour, who was asleep when the unlicensed Driver began driving, was not a willing occupant and thus would not be excluded under the Ontario wording.

• The Court held that, if Exclusion 3 were interpreted without any intention component, section 545(1) of the Insurance Act could render it non-binding where it produces unjust or unreasonable results, such as where an insured is kidnapped in their own vehicle and an accident occurs.

• The appeal was dismissed; Amour is entitled to coverage for damage to his automobile, and there are no applicable exclusions under the Alberta SPF 1.

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Background and facts

Roger Sterling Amour was the plaintiff/respondent. He did not and does not have a valid policy with TD Insurance; rather, on the date of loss he had a valid policy with Security National Insurance Company, numbered 1158391, issued in Alberta (the “Policy”). There was no privity of contract between him and TD Insurance, and at the start of the appeal hearing the style of cause was amended by consent to name Security National Insurance Company as the defendant/applicant.

On July 7, 2015, Amour had a valid policy covering a 2013 Cadillac Escalade (the “Vehicle”). He was driving the Vehicle home to Alberta from Ontario with two friends, Andrew Rioux (“Drew”) and Max Matthews (the “Driver”). The Driver had been living with Amour as a member of the household “for the better part of a year.” At the time of the accident, the Driver did not have a valid driver’s licence and his right to obtain a licence was suspended; Amour was aware of this.

During the drive back to Alberta, Amour became fatigued. He pulled over at a rest stop, put the keys in the middle console, and told Drew, who was awake in the front passenger seat, that if Drew slept, then when he awoke, Drew should begin driving. Amour then went to sleep in the back of the Vehicle.

While Amour was still sleeping, the Driver woke up, moved from his position in the back of the Vehicle to the driver’s seat, and began driving. The Driver then fell asleep at the wheel and hit a rock somewhere near Ignace, Ontario, causing the accident. Amour, the Driver, and Drew all agreed that the Driver did not have permission to drive.

Amour sued the insurer for Section B benefits and for property damage to the Vehicle. The insurer applied for summary dismissal of the property damage portion of the claim, and Amour cross-applied with respect to Section B benefits. The matter was sent to Special Chambers. The parties resolved the Section B claim, and only the property damage claim remained outstanding.

The policy wording and exclusions at issue

The Policy was an Alberta Owner’s Automobile Policy S.P.F. No. 1 (“Alberta SPF 1”). The case turned on Exclusion 3, a General Exclusion titled “Consent of Owner,” which states:

“No person shall be entitled to indemnity or payment under this Policy who is an occupant of any automobile which is being used without the consent of the owner thereof.”

Under the Policy, “occupant” was defined as “a person driving, being carried in or upon or entering or getting on to or alighting from an automobile.” The insurer argued that Amour was “being carried in” the Vehicle while it was being used without his consent, and therefore was an “occupant” to whom Exclusion 3 applied.

The Ontario Automobile Policy (“OAP 1”) contained a different exclusion. In essence, under section 1.8.2 “Excluded Drivers and Driving Without Permission,” there is no coverage (with certain Accident Benefits exceptions) where an automobile is used without the owner’s consent, and there is no coverage for a person who, at the time he or she willingly becomes an occupant of an automobile, knows or ought reasonably to know that the automobile is being used or operated without the owner’s consent. The wording repeats that, except for certain Accident Benefits coverage, there is no coverage for a person who, at the time he or she willingly becomes an occupant, knows or ought reasonably to know the automobile is being used or operated without the owner’s consent.

The standard automobile policy wording in each province is legislated by that province. The accident occurred in Ontario, and before the Applications Judge the parties agreed that Ontario legislation and case law applied. Counsel for the insurer specifically confirmed that Ontario law should apply, including Ontario’s statutory policy.

Applications Judge’s decision

Before the Applications Judge, both parties agreed the Driver did not have consent to operate the Vehicle, so the issue was whether the exclusion barred Amour as an occupant. Relying on the Ontario OAP 1 wording and the Ontario Court of Appeal decision Thorne v Prets, 2003 CanLII 22084 (ONCA), the Applications Judge held that Exclusion 3 did not apply because, under the Ontario wording, Amour had to be a willing occupant for the exclusion to apply.

The Applications Judge found that Amour was asleep when the Driver began driving. Because Amour was asleep, he was not able to make a determination about being an occupant and thus was not a willing occupant. On that basis, the exclusion did not apply to deny coverage.

Positions of the parties on appeal

On appeal, the insurer changed its position regarding the relevance of Ontario law. Despite its earlier agreement before the Applications Judge, it now argued that Ontario legislation, statutory policy, and case law did not apply to claims under Section C (loss of or damage to the insured automobile) of the Alberta SPF 1. The insurer submitted that where an accident occurs in another province, the wording of the policy in that province may be relevant to third-party liability claims (Section A) and accident benefits claims (Section B), but not to property damage claims under Section C.

The insurer relied on principles of statutory interpretation and on the overall automobile insurance scheme, including the Insurance Act and the Powers of Attorney and Undertakings. It argued that these instruments operate to guarantee seamless benefits and coverage for individuals who suffer bodily injury regardless of where the accident occurs. The insurer said there were sound public policy reasons for this reciprocity for bodily injury coverage, and it pointed out that third-party liability and accident benefits coverages are mandatory. In its view, this reciprocity was not intended to extend to property damage claims, which are optional, and there was no public policy reason to do so.

Amour argued that because the accident occurred in Ontario, it was appropriate to consider the Ontario policy regardless of whether the claim was under Section A, B, or C, relying on principles of statutory interpretation. He also relied on section 574(1)(b) of the Insurance Act, RSA 2000, c I-3, which provides that every motor vehicle liability policy issued in Alberta must state that, in the case of liability arising out of the ownership, use, or operation of the automobile in any province or territory, “the insurer must not set up any defence to a claim that might not be set up if the policy were a motor vehicle liability policy issued in that province or territory.”

The insurer responded that the word “liability” in section 574(1) highlighted the distinction between mandatory and optional insurance. It argued that section 574(1)(b) only limits defences an insurer may rely on in relation to Section A and B claims arising in other provinces, and that it does not apply to Section C property damage claims.

Independent of section 574(1)(b) and the Ontario policy wording, Amour also argued that Exclusion 3 should be interpreted as applying only where an occupant is a willing occupant. The insurer submitted that this was contrary to the clear, plain, and ordinary meaning of the exclusion.

Finally, Amour relied on section 545(1) of the Insurance Act, which allows a court to declare a stipulation, condition, term, proviso, or warranty in an insurance contract non-binding on the insured if it is held to be unjust or unreasonable, other than certain prescribed exclusions. Section 545(1) applies where such a provision may be material to the risk, including provisions about the use, condition, location, or maintenance of the insured property. He argued that this section could be used if the exclusion produced unjust or unreasonable results.

Standard of review and interpretive framework

The standard of review for an appeal from an Applications Judge’s decision is correctness, and no deference is owed to that decision. The appeal is heard de novo, and parties may present new arguments.

Insurance contracts and the Insurance Act formed the interpretive backdrop. The Court noted that automobile insurance contracts are largely drafted by statute or with the approval of the Superintendent of Insurance. The Insurance Act requires that all insurance contracts be consistent with the Act and be in a form approved by the Superintendent. Statutory conditions in section 556 must be part of every insurance contract without variation, omission, or addition.

The Court characterised insurance contracts as a special category of contract that must be interpreted with attention to their statutory nature and the unequal bargaining power of the parties. It reiterated that courts must apply general principles of statutory interpretation: the language must be read in its entire context, in its grammatical and ordinary sense, and harmoniously with the scheme and object of the Act and the legislature’s intention (citing Rizzo & Rizzo Shoes Ltd (Re) and Cardinal v Alberta Motor Association Insurance Company, 2018 ABCA 69). Where policy language is clear and unambiguous, effect should be given to that language. If ambiguity remains, contract principles apply: the policy is to be construed against the insurer (contra proferentem), and coverage provisions are construed broadly while exclusions are construed narrowly (citing Jesuit Fathers of Upper Canada v Guardian Insurance Co of Canada, 2006 SCC 21 and Cardinal).

The Alberta Court of Appeal’s decision in Cardinal had previously interpreted Exclusion 3, but there the issue was whether an occupant must have knowledge that the driver lacked consent. The Court of Appeal held that Exclusion 3 did not import a knowledge component and was not ambiguous because other sections of the policy used explicit “knew or ought to have known” language. In this case, both parties agreed that consent was not in issue: they acknowledged the Driver did not have Amour’s consent to operate the Vehicle at any time. Justice Bokenfohr therefore found Cardinal did not assist with interpreting the part of Exclusion 3 at issue here.

Interpretation of “occupant” in Exclusion 3

The central contractual issue was the meaning of “occupant” in Exclusion 3. Amour did not know the Driver was driving at the relevant time. He went to sleep under the impression and instruction that Drew would take over driving, and in that sense he agreed to be an occupant on the condition that Drew would drive. The Court had to decide whether Amour’s lack of consent or lack of intention to be in the Vehicle while the Driver drove meant that he was, or was not, an “occupant” under Exclusion 3.

The Policy defined “occupant” as “a person driving, being carried in or upon or entering or getting on to or alighting from an automobile.” The insurer argued that Amour was “being carried in” the Vehicle and therefore was an occupant. Justice Bokenfohr observed that the remaining wording in the definition (“driving,” “entering,” “getting on to,” or “alighting from”) imports intention or at least active participation, as these words denote an intention to be in, on, or leaving the Vehicle. This raised ambiguity as to whether there is an intention component to the word “occupant.”

In the face of this ambiguity, and applying the principle that exclusions are to be interpreted narrowly, Justice Bokenfohr held that a person must have the intention to be an occupant for Exclusion 3 to apply. She found that Amour did not intend to occupy the Vehicle if the Driver drove, so he was not an occupant for the purposes of Exclusion 3.

Justice Bokenfohr expressly stated that this finding was made independent of the Ontario policy wording. She concluded that an individual can only be an occupant if they intend to be an occupant. If a person is unable to make a decision about being in a vehicle that is being driven—because they are asleep in the vehicle or have been forcibly placed into and confined in the vehicle—they cannot be an occupant for the purposes of the exclusion.

Section 574(1)(b) of the Insurance Act

Justice Bokenfohr then addressed Amour’s argument under section 574(1)(b) of the Insurance Act. The insurer had argued that this provision only applied to liability coverage under Sections A and B. The Court examined the statutory language and related provisions to determine whether Section C claims fell within its scope.

Section 574(1) refers to “every motor vehicle liability policy.” Section 1(ll) of the Insurance Act defines a “motor vehicle liability policy” as a policy or part of a policy insuring enumerated persons “against liability arising out of bodily injury to or the death of an individual or loss or damage to property caused by an automobile or the use or operation of an automobile.” Justice Bokenfohr noted that this definition focuses on liability arising from various types of claims and is broad enough to include Section C coverage.

The Court also considered the term “property.” Section 1(yy) defines “property” that is the subject of an insurance contract broadly. Section 556 of the Insurance Act, which sets out statutory conditions, distinguishes “loss or damage to persons or property” from “loss or damage to automobile.” The statutory condition about “loss or damage to persons or property” refers to any accident involving such loss or damage and any claim made on account of the accident; Justice Bokenfohr read this as applying to all claims of an insured. The “loss or damage to automobile” condition appears to provide additional requirements on top of that more general condition, and uses the more general term “property” in one subsection to refer to any property lost or damaged. Justice Bokenfohr reasoned that this use of “property” evidenced the legislature’s intention to use it as a general term that can encompass “automobile.” She noted that “property” could not refer to property carried in or on an automobile, as that is expressly excluded by section 550(2)(b) and (c). She concluded that “property” in section 574(1) also refers to the insured’s vehicle.

To interpret “liability” in section 574(1), the Court again looked to the statutory conditions. Under the “loss or damage to automobile” condition, such a claim is described as an insurer’s liability. Since section 574(1) does not limit the source of liability, and the loss or damage of the insured vehicle constitutes a liability under other parts of the Act, Justice Bokenfohr found that section 574(1) also applies to Section C claims.

This analysis aligned with Lindblom v Wawanesa Mutual Insurance Company, 2001 ABCA 102, where the Alberta Court of Appeal considered what is now section 33 of the Insurance Act. That section licenses insurers to provide automobile insurance and prohibits them from bringing defences in other jurisdictions that could not stand in that province or territory. In Lindblom, the insurer had argued that the provision only applied to third-party liability insurance. The Court of Appeal rejected that argument, holding that the wording suggested “a broad scope not limited to one particular head of coverage of auto insurance” and emphasising that, because the section was intended to modify common law conflict of laws rules, it would be antithetical to the legislature’s intention to allow a back-and-forth between common-law choice-of-law rules and statutory ones with little rhyme or reason.

Interpreting section 574(1) as applying to all heads of auto insurance ensures, in Justice Bokenfohr’s view, that the legislation’s conflict-of-laws scheme is upheld and absurdities are avoided. She concluded that section 574(1)(b) includes Section C claims such as Amour’s.

Applying section 574(1)(b), the Court compared the Alberta and Ontario exclusions. The Ontario exclusion clearly only excludes coverage for a person who willingly becomes an occupant. Justice Bokenfohr agreed with the Applications Judge that because Amour was sleeping, he was unable to make a determination about being an occupant and therefore was not a willing occupant. The Ontario exclusion could not apply to exclude coverage. The insurer would be unable to use this exclusion to deny coverage in Ontario, and by virtue of section 574(1)(b), it was also unable to raise the Alberta exclusion in this instance.

Section 545 of the Insurance Act

Justice Bokenfohr then considered section 545(1) of the Insurance Act in case her contractual or statutory interpretation analyses were wrong. Section 545 is part of the General Insurance Provisions and applies to all insurance contracts in Alberta. It has been judicially considered once by the Court of Appeal in Funk v Wawanesa Mutual Insurance Company, 2018 ABCA 200. In Funk, the insured sought to rely on section 545 although it was not in force on the date of the accident. The Court of Appeal commented that it would be rare for an insurance policy provision to be unjust, unreasonable, or contrary to public policy, given that the terms of insurance policies are highly regulated.

Justice Bokenfohr stated that, while she was cautious in light of the Court of Appeal’s comments, if Exclusion 3 did not contain any intention, the clause as it stood invited unreasonable and unjust results. She noted that, while Amour’s situation involved a car ride with friends, one could easily imagine a situation where an insured is kidnapped in their own vehicle. This hypothetical occurred to the Applications Judge as well without prompting from counsel. If someone were kidnapped in their own vehicle and an accident occurred, it would be unjust and unreasonable to disallow insurance coverage merely because the insured was in the vehicle. She considered that such a result could not be accepted simply because imprecise drafting enabled it, and identified this as the purpose of section 545(1): to prevent such results if the policy wording allows for them.

Accordingly, if the contract could not be interpreted to find an element of intention in the word “occupant,” or if section 574(1)(b) did not apply to Section C claims, section 545(1) would enable the Court to find that Exclusion 3 did not apply to Amour on these facts. In that event, he would still be entitled to his claim under Section C.

Ruling and overall outcome

In the Conclusion, Justice Bokenfohr held that Amour is entitled to coverage and that there are no applicable exclusions under the Alberta SPF 1. The appeal is dismissed. If the parties are unable to agree on costs, they may file written submissions of no more than three pages within 45 days of the decision.

The Court thereby confirmed that Amour’s claim for damage to his automobile is covered by both the insurance policy and, by operation of the Insurance Act, sections 574(1)(b) and 545.