Co-operative Insurance Services Ltd. v. McKarney et al., [1978] 2 SCR 1333

Supreme Court of Canada

Co-operative Insurance Services Ltd. v. McKarney et al., [1978] 2 S.C.R. 1333

Date: 1978-05-01

Co-operative Insurance Services Ltd. Appellant;

and

Steven McKarney

and

Elaine Hood Respondents.

1977: December 15; 1978: May 1.

Present: Ritchie, Spence, Dickson, Estey and Pratte JJ.

ON APPEAL FROM THE SUPREME COURT OF PRINCE EDWARD ISLAND IN BANCO

Insurance—Automobile insurance—Construction of statute and policy—Car pool arrangement—Payments towards expenses—Whether vehicle used for compensation or hire—Ejusdem generis rule—Insurance Act, 1967 (P.E.I.), c. 28 s. 197(1)(c)—Highway Traffic Act, now R.S.P.E.I. 1974, c. H-6, s. 275(1).

The respondent, Elaine Hood, had recovered judgment against Steven McKarney the owner of an automobile in which she was injured while being driven as a passenger and which was insured by the appellant. In rendering that judment in Miss Hood’s favour, Bell J. and the Court of Appeal of Prince Edward Island held that, at the time of her injury, she was not being trasported as a “guest without payment for such transportation” so as to exempt the owner from liability under the provisions of s. 275(1) of the Highway Traffic Act, R.S.P.E.I. 1974, c. H-6.

In the present case, however, the sole question is whether the automobile was, at the relevant time, being used “for carrying passengers for compensation or hire”, so as to relieve the appellant from liability to its insured under cl. 8 of the policy of insurance and s. 197(1)(c) of the Insurance Act, 1967 (P.E.I.), c. 28, and whether the finding of Bell J. and the Court of Appeal under the Highway Traffic Act was equivalent to a finding that the automobile was being so used. This question was set down for determination by Large J. based on an agreed statement of facts and his conclusion that the automobile was not being so used was affirmed by the Court of Appeal of Prince Edward Island whose judgment is the subject of this appeal. At the time of the accident in which Miss Hood was injured, the automobile was being driven by Janet McKarney, the niece of the insured, with his permission, and Miss Hood was being carried in the vehicle pursuant to an arrangement made between

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her and Miss McKarney whereby each agreed to drive the other to work in alternate weeks. On the day in question Miss Hood did not pay for the transportation for the reasons described in the agreed statement of facts although a third passenger, Miss Henneberry, did pay the agreed $6.00 fare.

Held: The appeal should be dismissed.

The use of the insured automobile for the carriage of Miss Hood did not constitute the carriage of a passenger for compensation or hire under cl. 8 of the policy, but rather the use of the automobile in exchange for Miss McKarney’s carriage in the Hood vehicle on other occasions within the meaning of cl. 8(c)(i) of the policy. It was further held that the use of the automobile for carrying Miss Henneberry for compensation was not an arrangement between the parties of a commercial nature and therefore did not constitute carriage “for compensation or hire” as those words are used in cl. 8 of the policy and s. 197(1)(c) of the Insurance Act and this arrangement therefore did not have the effect of relieving the insurer from liability under the policy.

Teasdale v. MacIntyre, [1968] S.C.R. 735; Ouelette v. Johnson, [1963] S.C.R. 96 adopted as governing the interpretation of the statute and the policy.

APPEAL from a judgment of the Supreme Court of Prince Edward Island in banco affirming a judgment of Large J. holding that at the time of an accident an insured automobile was not being used for compensation or hire. Appeal dismissed.

Kenneth M. Matthews, Q.C., and Allan Scales, Q.C., for the appellant.

Ronald V. Dalzell, for the respondents.

The judgment of the Court was delivered by

RITCHIE J.—This is an appeal from a judgment of the Supreme Court of Prince Edward Island in banco (hereinafter referred to as “the Court of Appeal”) affirming a judgment rendered by Mr. Justice Large and holding that, under the circumstances here disclosed, the insured automobile owned by Steven McKarney was not, at the time of the accident in which the respondent was injured, being used “for carrying passengers for compensation or hire” within the meaning of the excluded uses defined in clause 8(c) of the policy of insurance issued to the defendant, Steven

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McKarney, by the third party insurer in respect of the use and operation of the said automobile. The appellant insurer contends that the automobile was being so used at the relevant times and that there was, accordingly, a breach of clause 8(c) of the policy so that no indemnity was thereby provided in respect of the claim of the plaintiff, Elaine Hood, founded on the judgment which she obtained in this action against the insured.

The appeal comes to this Court pursuant to an Order granted by the Court of Appeal at the instance of the appellant insurer, and the following excerpt from the reasons for judgment rendered by Mr. Justice Nicholson on behalf of that Court describes the question giving rise to the appeal and recites the agreed facts upon which that appeal was based:

The question which gives rise to this appeal is whether or not the Appellant insurance company can be called upon to pay towards the amount of the Judgment the limit of the policy to which I have referred. In order to determine this question, an issue was directed before Large, J. based upon the following agreed set of facts:

“1. Janet McKarney, Elaine Henneberry and the Plaintiff travelled back and forth daily from Charlottetown to Summerside from approximately the middle of May, 1972, up to the date of the accident, namely, July 11, 1972. The arrangement was that Janet McKarney would take the car one week and the Plaintiff would take the car another week. For the first month each passenger paid the driver the sum of Six Dollars ($6.00) per week. Thereafter, the practice of paying Six Dollars ($6.00) per week by Janet McKarney and the Plaintiff was discontinued. Elaine Henneberry continued to pay each driver the sum of Six Dollars ($6.00) per week. On the week of July 3rd, it was Elaine Hood’s turn to take the car but since her father’s car was laid up, she asked Janet McKarney if she would mind taking the car for that week and she would pay her for taking it rather than what was originally done in switching cars week after week. She also agreed with Janet McKarney that she would take her car an extra week after the car came out of the garage. During the week of July 10th, Elaine Hood’s car was still in the garage and she again made arrangements with Janet McKarney as for the July 3rd week. The money had been paid to Janet McKarney by Elaine Hood for the week of July 3rd but no money had been paid for the week of July

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10th. Elaine Henneberry continued to pay on a weekly basis up to the time of the accident.

2. The motor vehicle driven by Janet McKarney was owned by her uncle, Steven McKarney, the Defendant herein, and was insured with the Third Party by Policy No. 4600482. Attached hereto is a copy of the said policy of insurance.

3. On the facts of the case, Mr. Justice Bell by Judgment dated the 20th day of March, 1975, found that the Plaintiff was not a ‘guest without payment for such transportation within the meaning of The Highway Traffic Act’.

4. The Third Party issue is whether or not there was a breach of the policy of insurance for carrying passengers for compensation or hire and thereby providing to the Third Party a complete defence as against the Plaintiff, Elaine Hood, on the Judgment recovered by the Plaintiff against the Defendant, Steven McKarney.” [The underlining is mine]

It is apparent from this Agreed Statement of Facts and from the reasons for judgment of Mr. Justice Bell that the sole issue before him was whether or not the defendant, Steven McKarney, should be held responsible for the damages sustained by the plaintiff as a result of the negligent operation of the McKarney vehicle by Janet McKarney.

The insurance company was joined as a third party of its own motion before the trial of the action by an Order purporting to be made under the provisions of s. 203A(13) of The Insurance Act, S.P.E.I. (1967), c. 28 (hereinafter referred to as “the Act”), but the reasons for judgment of Mr. Justice Bell disclose that his decision was made without any reference to that Act or to the policy referred to in the Statement of Facts.

In deciding that the plaintiff, Elaine Hood, was not “a guest without payment”, the learned trial judge was concerned exclusively with the meaning to be attached to those words as they occur in s. 275 of The Highway Traffic Act which read as follows:

275.(1) No person transported by the owner or operator of a motor vehicle as his guest without payment for such transportation shall have a cause of action for damages against the owner or operator for injury, death or loss, in case of accident, unless the accident was caused by the gross negligence or wilful and wanton misconduct of the owner or operator of the motor vehi-

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cle and unless the gross negligence or wilful and wanton misconduct contributed to the injury, death or loss for which the action is brought.

(2) The provisions of this Section shall not relieve any person transporting passengers for hire, or any owner or operator of a motor vehicle, while the motor vehicle is being demonstrated to a propspective (sic) purchaser or responsibility for any injuries sustained by such passenger or prospective purchaser.

Having found that the plaintiff was not “a guest without payment” within the meaning of this section, it follows that proof of gross negligence was not a necessary prerequisite to liability, although in rendering judgment the learned trial judge did indeed find that the driver had been grossly negligent. This judgment was appealed by both insured and insurer although the latter limited its appeal to the finding of gross negligence and perhaps naturally did not question the finding that the driver was not a guest without payment. Like the trial judge, Mr. Justice Peake, in delivering judgment on behalf of the Court of Appeal and dismissing the appeal, treated the issue as being confined to an interpretation of the relevant section of The Highway Traffic Act, and in particular he affirmed the finding that the plaintiff was not “a guest without payment” and, in so doing, referred to a number of authorities interpreting similar clauses in the Highway Traffic Acts of other provinces.

The record in this Court does not include a copy of the Order directing the trial of the issue before Mr. Justice Large or of the policy of insurance in accordance with the terms of which this appeal falls to be determined, but it is clear that the issue which he was required to decide turned, in great measure, upon the question of whether or not the finding of Mr. Justice Bell and the Court of Appeal that the plaintiff was not “a guest without payment” within the meaning of The Highway Traffic Act was equivalent to a finding that the McKarney vehicle was being used “for carrying passengers for hire” so as to relieve the insurer of liability under the terms of clause 8(c) of the insurance policy in question. That clause makes

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provision for exclusion of the liability of the insurer under the conditions specified in ss. 197(1)(c) and 197(4) of The Insurance Act and, insofar as it relates to the present circumstances, it reads as follows:

8. Unless coverage is expressly given by an endorsement of this Policy, the insurer shall not be liable under this Policy while:

(c) the automobile is used as a taxicab, public omnibus, livery, jitney or sightseeing conveyance or for carrying passengers for compensation or hire; provided that the following uses shall not be deemed to be the carrying of passengers for compensation or hire:

(i) the use by the insured of his automobile for the carriage of another person in return for the former’s carriage in the automobile of the latter;

(ii) the occasional and infrequent use by the insured of his automobile for the carriage of another person who shares the cost of the trip;

As the main issue in this appeal turns on the true meaning to be given to the language of this clause, I think it desirable to reproduce the relevant provisions of ss. 196, 197(1)(c) and 197(4) of The Insurance Act. These provisions read as follows:

196. Subject to the limitations and exclusions of the endorsement, the insurer may provide by endorsement to a contract evidenced by a motor vehicle liability policy,… that it shall not be liable for loss or damage,

(a) resulting from bodily injury to, or the death of, any person being carried in… the automobile;

…

197. (1) The insurer may provide under a contract evidenced by a motor vehicle liability policy in one or more of the following cases, that it shall not be liable while,

…

(c) the automobile is used as a taxi-cab, public omnibus, livery, jitney, or sightseeing conveyance or for carrying passengers for compensation or hire;

…

197.(4)

(i) The use by a person of his automobile for the

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carriage of another person in return for the former’s carriage in the automobile of the latter; or

(ii) The occasional and infrequent use by a person of his automobile for the carriage of another person who shares the cost of the trip; or

…

does not fall within the words ‘for carrying passengers for compensation or hire’ used in clause (c) of subsection (1).

In the present case the insurer did not take advantage of the right accorded to it by s. 196 to “provide by endorsement” to its contract that it should “not be liable for the loss or damage… resulting from bodily injury to, or the death of any person being carried in… the automobile;” but it will be seen that the terms of clause 8 of the policy expressly provide for exclusion of the liability of the insurer in the circumstances described in s. 197(4)(i)and(ii) of the Act.

It appears to me that if clause 8 had not been included in the policy there could be no question as to the liability of the insurer having regard to s. 188 of the Act which provides in part that:

(1) Every contract evidenced by an owner’s policy insures the person named therein and every other person who with his consent personally drives an automobile owned by the insured named in the contract and within the description or definition thereof in the contract against liability imposed by law upon the insured named in the contract or that other person for loss or damage:

(a) arising from the ownership, use or operation of any such automobile; and

(b) resulting from bodily injury to or the death of any person, and damage to property.

The policy here in question was an owner’s policy insuring the owner Steven McKarney, his niece was “another person” who, with his consent, was operating the insured automobile, and liability was imposed on the insured by a judgment by the Court of Appeal, arising from the use and operation of the automobile and resulting from bodily injury to Elaine Hood.

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It is apparent, as I have indicated, that unless it can be said that the insured automobile was being used “for carrying passengers for compensation or hire” within the meaning of the exclusion provided in clause 8 of the policy, that policy must be taken to have insured Steven McKarney against the events which occurred, and the insurer is, therefore, required to indemnify him to the extent of the judgment recovered by the plaintiff.

In disposing of the third party issue, Mr. Justice Large stated in the opening words of his reasons for judgment that the issue was one between the defendant and his insurer and, with all respect, I think this to be the proper view of the matter. In any event, Mr. Justice Large concluded that at the time of the accident the McKarney automobile was not being used “for carrying passengers for compensation or hire” within the meaning of clause 8 of the policy for the following reasons, (1) that the use of the automobile for the carriage of Elaine Hood was in return for the carriage of Janet McKarney in the Hood automobile on other occasions and was, therefore, not such a use by reason of the provisions of clause 8(c)(i) and (2) that the carriage of the second passenger, Miss Henneberry, was the result of a purely social arrangement which did not constitute carriage “for compensation or hire” notwithstanding her continued payment of $6 per week for the privilege.

In appealing from this judgment, it was contended, inter alia, on behalf of the insurer, that the finding made by Mr. Justice Bell and the Court of Appeal that the plaintiff was not “a guest without payment for transportation” was tantamount to a finding that she was being carried “for compensation or hire” and that the insurer was, therefore, relieved of liability by reason of clause 8 of the policy.

I should say at once that I agree with Mr. Justice Large and the Court of Appeal that the use of the insured automobile for the carriage of Elaine Hood as disclosed by the Agreed Statement of Facts was a use for carrying her in return for Janet McKarney’s carriage in the Hood vehicle on other occasions and that the provisions of clause 8(c)(i) of the policy are accordingly applicable so as to remove Elaine Hood from the category of a

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passenger being carried “for compensation or hire”. For reasons which will hereafter appear, I have no difficulty in concluding that the finding of Mr. Justice Bell and the Court of Appeal that the plaintiff was not a guest “without payment for transportation” within the meaning of s. 275 of The Highway Traffic Act is of no assistance in determining whether or not she was being carried as a passenger “for compensation or hire” under the provisions of clause 8(c)(i) of the policy and s. 197(4)(i) of The Insurance Act. No such provisions as these exist under The Highway Traffic Act, and the context in which the two phrases occur in the respective statutes is entirely different.

The finding that Elaine Hood was not being carried as a passenger “for compensation or hire” does not, however, in my view, dispose of the entire question raised by this appeal as the appellant contends that because Miss Henneberry, the second passenger in the McKarney automobile, was a constant rather than “an occasional and infrequent” user thereof and was paying $6 weekly for such use at the time of the accident, the automobile was, therefore, being used at that time under circumstances to which neither clause 8(c)(i) or (ii) apply and the insurer was, therefore, relieved of liability under the policy.

Mr. Justice Nicholson was satisfied, as I have indicated, that the issue here was between Elaine Hood and McKarney’s insurer, and he elected to treat the matter as if the former had brought a personal action against the latter. In this regard, the learned judge expressed himself as follows:

In this case Large, J. was asked to determine an issue between the insurer and the insured. In my opinion the real issue is between the Plaintiff and the insurer under Section 203A of the Insurance Act. The Plaintiff has a judgment against the insured Defendant for an amount in excess of the limits of the policy. The question would seem to be: Has the Plaintiff any right to recover against the Third Party Insurer?

In this context, Mr. Justice Nicholson’s reference to s. 203A must, as it seems to me, relate to subs. (1) of that section which reads as follows:

203A.(1) Any person who has a claim against the insured, for which indemnity is provided by a contract

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evidenced by a motor vehicle liability policy, notwithstanding that that person is not a party to the contract, may, upon recovering a judgment therefor in any province or territory of Canada against the insured, have the insurance money payable under the contract applied in or towards satisfaction of his judgment and of any other judgments or claims against the insured covered by the contract and may, on behalf of himself and all persons having such judgments or claims, maintain an action against the insurer to have the insurance money so applied.

In the present case the appellant insurer denies liability for the amount of the judgment recovered against its insured McKarney, but the plaintiff Elaine Hood has brought no action against the appellant to have the moneys applied in satisfaction of her judgment and she did not appear and was not represented at the hearing before Mr. Justice Large or on the appeal to the Court of Appeal.

In an extension of his approach to the question at issue as being one between the plaintiff and the insurer, Mr. Justice Nicholson expressed himself as follows:

In my opinion, if the Respondent was in breach of the policy in carrying Henneberry for compensation or hire this breach should not adversely affect the Plaintiff Hood. To find otherwise would lead to an absurd result. For example: Suppose Hood were a gratuitous passenger and Janet McKarney was grossly negligent at the time of the accident. And also assume that the automobile was being used to carry Henneberry for compensation or hire in breach of the policy. If Counsel for the Appellant is correct the Plaintiff Hood should fail in such circumstances notwithstanding the clear liability of the insurer to pay her claim. There is no breach of the policy qua the Plaintiff Hood and in my opinion where such a defence is set up by an insurer the policy violation must relate directly to the passenger making the claim. [The underlining is mine]

In invoking the provisions of clause 8 of the policy, the insurer is not, in my view, setting up a defence relating to an individual passenger. The exclusion for which provision is made in the clause does not relate to the status of any individual passenger but to “the use” being made of the automobile. Considering the issue as one between

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an insured and his insurer, I would find nothing absurd in holding that an insurer was entitled to rely on the clause 8 exclusion in its policy if the automobile was being used, for example, as “an omnibus” notwithstanding the fact that the indemnity claimed by the insured related to a judgment for injuries sustained by a passenger who was not paying for his carriage. If the McKarney vehicle could be said to have been used for “carrying passengers for compensation or hire” in this sense, the same considerations would, in my view, prevail.

The question which remains to be decided in this case is whether it can be said that the circumstances under which Miss Henneberry was being carried in the insured automobile constituted a use of the automobile “for the carriage of passengers for compensation or hire”. In this regard, the appellant relied on a number of cases decided under the Highway Traffic Acts of various provinces where the words “the business of carrying passengers for compensation” have been made the subject of judicial comment in light of the varying facts under consideration. I do not find it necessary to review all these cases as I think it enough to adopt the following passage from the reasons for judgment of my brother Spence in Teasdale v. Maclntyre[1], where, speaking on behalf of the majority of this Court, he refers to the judgment of Cartwright C.J. in Ouelette v. Johnson[2], and proceeds to say, at p. 740:

I point out that the tests as put in that judgment occurring in the last few lines is this, that once it has been determined that the arrangement between the parties was of a commercial nature the manner in which the amount of the fee to be paid was decided becomes irrelevant. The question to be resolved, therefore, is whether under the circumstances outlined above “the arrangement between the parties was of a commercial nature”. It must be remembered that if it is found that such an arrangement was of a commercial nature then it is a finding that the respondent was “in the business of carrying passengers for compensation”. [The underlining is mine]

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The latter case was decided in the context of s. 105(2) of The Highway Traffic Act, R.S.O. 1960, c. 172, which reads as follows:

105. (2) Notwithstanding subsection (1), the owner or driver of a motor vehicle, other than a vehicle operated for the business of carrying passengers for compensation, is not liable for any loss or damage resulting from bodily injury to, or the death of any person being carried in or upon or entering or getting into or alighting from the motor vehicle.

The test adopted by Mr. Justice Spence in construing this subsection must, in my view, apply with added force to the language used in clause 8(c) of the policy and s. 197(1)(c) of The Insurance Act where it is made apparent that the carriage referred to is of the same commercial character as carriage in “a taxicab, public omnibus, livery, jitney or sightseeing conveyance”. These words directly precede the words “for carrying passengers for compensation or hire” as they occur in the policy and the Act and, in my opinion, the latter words are to be treated as limited to risks of the same nature as those which directly precede them.

Mr. Justice Nicholson did not find it necessary to express any final view as to the effect of the carriage of the passenger, Miss Henneberry, on the liability of the insurer although Mr. Justice Large appears to have appreciated that the liability of the insurer under clause 8 of the policy depended on whether or not the automobile was being used “for carrying passengers for compensation or hire”, when the accident occurred, and in discussing this issue he was clearly not unmindful of the contention that Miss Henneberry was such a passenger. In this regard he said:

Here we have three student nurses, who, for social purposes, wished to live in Charlottetown rather than move to Summerside 38 miles away while they are taking a short hospital course. A weekly contribution of either money or exchange of car service was made by each of the two passengers to the girl who took turns to provide her own vehicle. The question is did the driver of the vehicle in use for the week under that informal arrangement provide transportation to the two passengers in performance of a contractual obligation or otherwise for a commercial or business purpose. To my mind it was a social matter only whether the girls moved to

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Summerside for their course or stayed in Charlottetown and travelled back and forth daily. The driver and her passengers were not engaged in a commercial or business operation in the provision and purchase of transportation for hire or profit. A 75-mile daily automobile trip could not be undertaken (even in the 1972 pre-gasoline price rise era) for the modest sums mentioned in evidence.

I agree with Mr. Justice Large that the Statement of Facts upon which these reasons must be based did not disclose that the McKarney vehicle was being used in a commercial or a business operation in the carriage of either Elaine Hood or Miss Henneberry and I would dismiss this appeal in conformity with his reasons for judgment. The respondent is entitled to his costs in this appeal.

Appeal dismissed with costs.

Solicitors for the appellant: Scales, Ghiz, Jenkins & McQuaid, Charlottetown; Patterson, Smith, Matthews & Grant, Truro.

Solicitors for the respondent: Farmer, Dalzell, Farmer, Douglas & Murphy, Charlottetown.