Supreme Court of Canada
Co-Operative Fire & Casualty Co. v. Ritchie et al., [1983] 2 S.C.R. 36
Date: 1983-09-27
Co-Operative Fire & Casualty Company (Plaintiff) Appellant;
and
Lucien Ritchie and Debra Ritchie (Defendants) Respondents.
File No.: 17000.
1983: February 2; 1983: September 27.
Present: Ritchie, Dickson, Estey, McIntyre and Wilson JJ.
ON APPEAL FROM THE NOVA SCOTIA SUPREME COURT, APPEAL DIVISION
Insurance—Automobile insurance—Breach of statutory condition—Unnamed insured driving while intoxicated—Insurer seeking reimbursement from the named insured and the unnamed insured—Whether unnamed insured driving intoxicated reasonably foreseeable—Meaning of the word “insured”—Insurance Act, 1962 (N.S.), c. 9 (as amended by 1966 (N.S.), c. 79, s. 4), ss. 74(f), 82(1), 98(1),(4),(13), statutory condition 2.
Pursuant to s. 98(13) of the Insurance Act, the appellant, as insurer, sought to recover from the respondents the sum paid in their behalf to settle a claim made by innocent third parties resulting from an automobile accident. The respondent Debra Ritchie was responsible for the accident and she was, at the time of the collision, driving while intoxicated. The respondent Lucien Ritchie was the registered owner of the automobile and the insured named in the policy. His wife was the principal operator of the vehicle with his knowledge and consent. In first instance, the judge allowed appellant’s claim against both respondents. On appeal, the Appeal Division set aside the judgment and dismissed the appellant’s action. Hence this appeal to determine (1) whether the husband breached statutory condition 2(2)(a) of the insurance policy which provided that “the insured shall not permit, suffer, allow or connive at the use of the automobile” by a person who is intoxicated and (2) whether the word “insured” in s. 98(13) of the Insurance Act applied to an unnamed insured.
Held: The appeal against the respondent Lucien Ritchie should be dismissed. The appeal against the respondent Debra Ritchie should be allowed.
The respondent Lucien Ritchie was not in violation of statutory condition 2(2)(a). Where an insured has given
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someone an unqualified permission to drive his car and has no reason to expect that the car will be driven in contravention of the policy terms, he cannot be said to have permitted such a use within the meaning of the statutory condition and he cannot therefore be made liable to his insurer under s. 98(13) of the Insurance Act. Sections 74(f) and 82(1) of the Insurance Act, however, made it clear that the word “insured” in s. 98(13) applied also to an unnamed insured such as the respondent Debra Ritchie. The appellant was thus entitled to recover from the respondent wife who drove while intoxicated in breach of statutory condition 2(1)(a) of the insurance policy.
Peters v. Saskatchewan Government Insurance Office (1956), 2 D.L.R. (2d) 589, distinguished; McLeod (or Houston) v. Buchanan, [1940] 2 All E.R. 179, referred to.
APPEAL from a judgment of the Nova Scotia Supreme Court, Appeal Division (1981), 130 D.L.R. (3d) 536, 50 N.S.R. (2d) 68, 98 A.P.R. 68, [1982] I.L.R. 1-1514, setting aside a judgment of MacIntosh J. (1981), 45 N.S.R. (2d) 471, 86 A.P.R. 471, [1981] I.L.R. 1-1406, allowing appellant’s action against the respondents. The appeal against respondent Lucien Ritchie is dismissed and the appeal against respondent Debra Ritchie is allowed.
Clarence A. Beckett, for the appellant.
Norman Hill, for the respondents.
The judgment of the Court was delivered by
RITCHIE J.—This is an action brought by the appellant insurer for the recovery of the sum of $3,478.05 paid by it in settlement of a claim made by innocent third parties whose automobiles sustained extensive damage in a collision with a motor vehicle owned by the respondent Lucien Ritchie and insured by the appellant under the terms of a Standard (N.S.) Motor Vehicle Liability policy, which motor vehicle was being operated by Debra Ritchie at the time of the said accident.
The case was initially tried by MacIntosh J., sitting without a jury, and he concluded that, having regard to all the circumstances, the appel-
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lant was entitled to have judgment against both the respondents for the said sum of $3,478.05. This judgment was however set aside by the Appeal Division for reasons which will hereafter be discussed and it is from this judgment that the appellant now appeals; leave to appeal to this Court having been granted.
Most conveniently the circumstances giving rise to this litigation have in large measure been made the subject of an Agreed Statement of Facts signed by the solicitors for the parties concerned which reads as follows:
1. The Plaintiff, Cooperative Fire and Casualty Company is a party to a contract with at least one of the Defendants, Lucien Ritchie, which contract provides for a motor vehicle liability policy.
2. Lucien Ritchie, one of the Defendants, is a party to the contract referred to in the first paragraph herein. Lucien Ritchie is the husband to the second Defendant, Debra Ritchie. Lucien Ritchie is the registered owner of the subject automobile.
3. Debra Ritchie is the wife of Lucien Ritchie and was the operator of the subject automobile at the time of the automobile collision referred to hereinbelow.
4. The subject automobile is a 1971 Chrysler automobile. It is registered in Mr. Ritchie’s name. It was bought and paid for by Mr. Ritchie. Mr. Ritchie drove it very little. Mrs. Ritchie drove it regularly and treated it as her own with the knowledge and consent of Mr. Ritchie. It was represented by Mr. Ritchie in his application to the Plaintiff for the policy that Mrs. Ritchie was to be the principal operator and in fact she was the principal operator of the subject automobile.
5. The subject automobile liability policy is policy number 4604979 and was in force at the time of the automobile collision referred to hereinbelow. Mr. Ritchie was the only person throughout with whom the Plaintiff Insurance Company dealt. It was to Mr. Ritchie that the Plaintiff Insurance Company addressed itself in any letters and in any billings. Mr. Ritchie alone bought the policy and paid for it.
6. The automobile collision which gives rise to these proceedings occurred on the 9th day of April, 1979 at approximately 8:00 o’clock in the evening on Main Street, in the City of Dartmouth and Province of Nova Scotia.
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7. The subject automobile, collided with other automobiles and in the result Cooperative Fire and Casualty Company paid $3,478.05 to third parties who suffered damages on account of this collision. These third parties were persons who had claims, jointly and severally, against Lucien Ritchie, as the owner of the subject automobile and Debra Ritchie, as the operator of the subject automobile. The Defendants admit that these third parties would have been successful against both of the Defendants quite aside from the operation of any contract between the parties to this suit and aside from the operation of the Insurance Act. In fact these third parties did not recover judgments for their claims against the Defendants. The Plaintiff, insurance company, settled and paid the third party claims because it realized it would have to ultimately settle and pay out these claims of the third parties because of the operation of Section 98(1) of the Insurance Act.
8. The City Police in Dartmouth, took samples of Debra Ritchie’s breath shortly after the collision referred to hereinabove and did a chemical analysis of these samples. She was found to have approximately 205 milligrams of alcohol in 100 millilitres of blood. Debra Ritchie was ultimately convicted under Section 236 of the Criminal Code of Canada. The Defendants admit that at the time of the collision referred to at number 7 hereinabove Debra Ritchie was under the influence of intoxicating liquor to such an extent as to be, for the time being, incapable of the proper control of the automobile within the meaning of statutory condition number 2.
9. Mr. Ritchie had no reason to expect that Mrs. Ritchie would drink intoxicating liquor to such an extent as to effect her driving and then to drive. Mrs. Ritchie had a clear driving record and had never before given Mr. Ritchie any concern about driving in an intoxicated condition.
It will be noted that by paragraph 7 of the Agreed Statement of Facts it is acknowledged that no judgment was recovered by the third parties for their claims against the defendants and that these claims were settled and paid because the insurance company agreed that it would have to “ultimately settle and pay out these claims of the third parties because of the operation of Section 98(1) of the Insurance Act” which reads as follows:
98 (1) Any person who has a claim against an insured, for which indemnity is provided by a contract evidenced by a motor vehicle liability policy, notwith-
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standing 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.
The fact that no judgment was recovered in the present case does not exclude the claim of the third parties, the validity of which was acknowledged and the amount of which was agreed to so that the ability of the insurer to defend claims under s. 98(1) by relying on acts or defaults of the insured which would otherwise be available defences if the action were between insurer and insured is restricted inter alia by s. 98(4) of the Insurance Act which provides as follows:
(4) The right of a person who is entitled under subsection (1) to have insurance money applied upon his judgment or claim is not prejudiced by
(a) an assignment, waiver, surrender, cancellation, or discharge of the contract, or of any interest therein or of the proceeds thereof, made by the insurer after the happening of the event giving rise to a claim under the contract; or
(b) any act or default of the insured before or after that event in contravention of this Part or of the terms of the contract; or
(c) any contravention of the Criminal Code (Canada) or statute of any province or territory of Canada, or of any state or the District of Columbia of the United States of America by the owner or driver of the automobile;
and nothing mentioned in clauses (a), (b) and (c) is available to the insurer as a defence in an action brought under subsection (1).
If, as in the present case, the insurer has made a payment under s. 98(1) which, but for the section, it would not otherwise have been liable to make, it is entitled to seek reimbursement from the insured under s. 98(13) which reads as follows:
(13) The insured shall reimburse the insurer, upon demand, in the amount that the insurer has paid by
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reason of this Section and that it would not otherwise be liable to pay.
The appellant’s claim turns in great measure on the meaning to be assigned to the word “insured” in this subsection and in this regard reference to s. 82(1) of the Insurance Act is a controlling provision. That section reads:
82 (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 statutory conditions to be found in the schedule to Part VI of the Act are also of direct assistance in determining the true meaning to be assigned to “the insured” as it occurs in s. 98(13). These conditions are prefaced with the following:
In these Statutory Conditions, unless the context otherwise requires, the word “insured” means a person insured by this contract whether named or not. [The italics are mine]
The relevant statutory conditions applicable to the policy under consideration read as follows:
2 (1) Prohibited Use by Insured—The insured shall not drive or operate the automobile
(a) while under the influence of intoxicating liquor or drugs to such an extent as to be for the time being incapable of the proper control of the automobile; or
…
(2) Prohibited Use by Others—The insured shall not permit, suffer, allow or connive at the use of the automobile
(a) by any person under the influence of intoxicating liquor or drugs to such an extent as to be for the time being incapable of the proper control of the automobile; or
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The following paragraphs contained on page 1 of the policy are also pertinent:
The Insurer agrees to indemnify and, in the same manner and to the same extent as if named herein as the insured, every other person who with his consent personally drives the automobile, or personally operates any part thereof, against the liability imposed by law upon the insured or upon any such other person for loss or damage arising from the ownership, use or operation of the automobile and resulting from…
…
Where indemnity is provided by this section, every person insured by this policy
(a) …
(b) shall reimburse the Insurer, upon demand, in the amount which the Insurer has paid by reason of the provisions of any statute relating to automobile insurance and which the Insurer would not otherwise be liable to pay under this policy.
As the present claim is made pursuant to s. 98(13) it will be seen that the meaning to be attached to the word “insured” under that section is a vital consideration in the present context.
The meaning to be assigned to the word “insured” as employed in the policy is further elucidated by s. 74(f) of the Insurance Act where it is defined to mean “a person insured by a contract whether named or not”. By virtue of s. 82(1) every insurance 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”. The respondent Lucien Ritchie is the insured named in the contract and as such clearly comes within the meaning of the word insured in s. 98(13). As for the respondent Debra Ritchie, it is conceded that she was the principal operator of her husband’s automobile and treated it as her own with his knowledge and consent. This is sufficient to satisfy s. 82(1) and she therefore is also an insured for the purposes of s. 98(13).
The appellant submits that it is entitled to reimbursement from Lucien Ritchie as named insured
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because he breached statutory condition 2(2)(a) of the insurance policy, which reads as follows:
(2) The insured shall not permit, suffer, allow or connive at the use of the automobile
(a) by any person under the influence of intoxicating liquor or drugs to such an extent as to be for the time being incapable of the proper control of the automobile;
Since it is admitted that at the time of the collision the respondent wife was intoxicated to such an extent as to be incapable of the proper control of the automobile, the question that remains is whether it can be said that the respondent husband “permitted, suffered, allowed or connived” at the use of the automobile by his wife within the meaning of the statutory condition. The respondents argue that Mr. Ritchie’s conduct did not amount to a breach of the statutory condition because he had no reason to expect that his wife would drive while intoxicated and thus could not be said to have given her permission to do so. This argument was rejected by the trial judge. In his view when Mr. Ritchie gave consent to Mrs. Ritchie to drive the car as its principal operator, this amounted to permission within the meaning of statutory condition 2(2)(a). He said:
When one ‘consents’ to the use of one’s automobile, surely one is “permitting, allowing or suffering” its use in the usual sense or meaning applied to those words in the marketplace.
Accordingly, Mr. Ritchie was held liable.
I am however in agreement with the Appeal Division of Nova Scotia in holding that reasonable forseeability is the proper test to apply in such cases as the present and I would adopt the following passage from the reasons for judgment of Hart J.A., speaking for that Court:
The meaning of this statutory condition has been the subject of much discussion in cases where the question of the insurer’s right to reimbursement has been raised. After considering these various decisions I am of the opinion that the proper test to be applied to determine whether the insured was in breach of the conditions is
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simply this. If the insured knew, or ought to have known, under all of the circumstances, that the person he permitted to operate his vehicle would operate it in a manner that was not permitted by his insurance policy, he would be liable to reimburse his insurer for any amounts it was required to pay but would not otherwise have been liable to pay under the policy.
Most of the cases I refer to have been mentioned by Ruttan, J., in Bitz v. Northwestern Mutual Insurance Co. (1966), 58 D.L.R. (2d) 344, who followed the test enunciated by Culliton, J., in Peters v. Saskatchewan Government Insurance Office, 2 D.L.R. (2d) 589, at p. 592:
I think it is clear… that factors other then knowledge or the lack thereof may be considered in determining whether there was permission in any particular case… The plaintiff may be said to have permitted the use of his vehicle by an unauthorized and unqualified driver within the terms of the statutory condition, if the permission were expressed or unqualified, or if he failed to take those precautions which could be considered as reasonable and prudent to avoid a contravention of the condition…
I find this test too narrow and prefer the words used above since they have so often been used where it is necessary to determine the state of mind of a person charged with the failure to meet statutory or contractual obligations.
Since the male appellant had no reason to believe that his wife would operate his vehicle in breach of the statutory conditions of the policy, I would differ with the finding of the trial judge on this point and hold that there was no right in the insurance company to recover against him as a named insured under the policy.
There may be cases where the evidence supports an inference that the permission which was granted by an insured in unqualified terms was intended to extend to the particular use contrary to the policy which in fact occurred (see McLeod (or Houston) v. Buchanan, [1940] 2 All E.R. 179 (H.L.)) or that the insured ought reasonably to have contemplated that such a use might occur. But if an insured who has given someone an unqualified permission to drive his car has no reason to expect that the car will be driven, as in fact occurs, in contravention of the policy terms, then in my view he cannot be said to have permitted such use within the meaning of the statutory condition and he cannot therefore be made liable
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to his insurer under s. 98(13). In the present case, paragraph 9 of the Agreed Statement of Facts, supra, makes it clear that the respondent husband is not therefore liable to reimburse the appellant.
The appellant relies on the case of Peters v. Saskatchewan Government Insurance Office (1956), 2 D.L.R. (2d) 589, and in particular on the above quoted passages from the reasons for judgment of Culliton J.A. in that case. In my view the Saskatchewan Court of Appeal in deciding the Peters case did not intend to establish a rule whereby every case where the insured gave unqualified permission to someone to drive his car such permission would fall within the scope of the statutory condition no matter how unforeseeable or unforeseen the conduct of the driver may be.
In any event the Peters case is in my opinion clearly distinguishable as it was based on the failure of the plaintiff to take reasonable precautions to discover whether the driver of his motor vehicle was licensed or not and no such consideration is a factor in the present case.
In my opinion the sections of the statute to which reference was made at the outset of these reasons make it clear that the word “insured” wherever it is used in the statute clearly applies to an unnamed insured such as the respondent Debra Ritchie.
In the result, I find that Lucien Ritchie was not in breach of any provision of the policy and is accordingly not liable to reimburse the appellant, while Debra Ritchie as an “insured” was in breach of statutory condition 2 in that she drove the automobile while under the influence of intoxicating liquor so “as to be for the time being incapable of the proper control of the automobile” and she is liable accordingly.
For all these reasons I would dismiss the appeal as against the respondent Lucien Ritchie and allow it as against the respondent Debra Ritchie as an insured under s. 98(13) who was driving whilst intoxicated in breach of statutory condition 2.
The order of this Court granting leave to appeal provided that the appellant was to pay the costs in
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any event of the cause. Accordingly costs are awarded against the appellant.
Appeal against respondent Lucien Ritchie dismissed. Appeal against respondent Debra Ritchie allowed.
Solicitors for the appellant: Patterson, Smith, Matthews & Grant, Truro.
Solicitors for the respondents: Landry & McGillivray, Dartmouth.
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