Highway Victims Indemnity Fund v. Federal Fire Insurance Co. of Canada, [1979] 2 SCR 289

Supreme Court of Canada

Highway Victims Indemnity Fund v. Federal Fire Insurance Co. of Canada, [1979] 2 S.C.R. 289

Date: 1979-05-22

Highway Victims Indemnity Fund, by suggestion (formerly Dame Antoinette Bouchard and Robert Foster) Appellant;

and

Federal Fire Insurance Company of Canada Respondent.

1979: January 25; 1979: May 22.

Present: Pigeon, Dickson, Beetz, Estey and Pratte JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC

Insurance—Motor vehicle liability—Accident caused by a trailer—Definition of “automobile” in insurance policy. Motor vehicles—Indemnity Fund—Direct remedy against the insurer—Nature of the insurer’s obligation of guarantee—Highway Victims Indemnity Act, R.S.Q. 1964, c. 232, ss. 3, 6, 39 and 43.

The Fosters were injured in a traffic accident, when their car was struck by a trailer which suddenly separated from a car travelling in the opposite direction and driven by one Beaumier. As the judgments obtained against the latter were not satisfied, the Fosters brought an action directly against respondent, the insurer of Beaumier. The Superior Court and the Court of Appeal dismissed the action, and in this Court the Highway Victims Indemnity Fund, having been subrogated in the interests of the Fosters, continued the suit in place of the latter. The automobile insurance policy issued by respondent included an undertaking regarding the civil liability of the insured. The car driven by Beaumier at the time of the accident is that described in the policy, but the latter contained no description of the trailer. However, it was admitted that this was a home-made trailer which was owned by Beaumier, and which he used to sell and display the fruits and vegetables in which he was dealing.

Held: The appeal should be dismissed.

The issue is solely as to whether, in the circumstances, respondent is directly liable to the Fosters under s. 6 of the Highway Victims Indemnity Act for the damages which the insured failed to pay. Although this section denies the insurer the right to rely on defences which it could advance against the insured, it does not have the

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effect of including among the insured risks an uncertain event which the parties intended to exclude. In the case at bar, examination of the clauses of the policy, in particular the definition of the word “automobile” for the purposes of the section of “Civil Liability”, leads to the conclusion that the trailer which struck the automobile in which the Fosters were seated was not included within the definition of the term “automobile” contained in the policy. Moreover, the damage was caused first and foremost by the use of the trailer, rather than by use of the automobile itself. The risk which, when it materialized, became the basis for the damages is thus not one which is covered by the liability insurance contracted by respondent. In such circumstances s. 6 cannot support the action taken by the Fosters. Further, no decision supports the argument that interpretation of the insurance contract should not take into account the meaning contractually ascribed by the parties to the word “automobile”.

General Security Insurance Company of Canada v. Bélanger, [1977] 1 S.C.R. 802, followed; Stevenson v. Reliance Petroleum Ltd., [1956] S.C.R. 936; Irving Oil Co. v. Can. General Ins. Co., [1958] S.C.R. 590; Law, Union & Rock Insurance Co. Ltd. v. Moore’s Taxi Ltd., [1960] S.C.R. 80; Thibault v. The North American Accident Insurance Company, [1960] Que. Q.B. 1088; Danis v. Fonds d’indemnisation des victimes d’accidents d’automobile, [1967] C.S. 289, referred to.

APPEAL from a decision of the Court of Appeal of Quebec[1] reversing a judgment of the Superior Court[2]. Appeal dismissed.

Jean Tremblay, for the appellant.

J. Vincent O’Donnell, Q.C., for the respondent.

The judgment of the Court was delivered by

PRATTE J.—This appeal is from a decision of the Court of Appeal of the Province of Quebec, affirming a judgment of the Superior Court for the district of Trois-Rivières (Nichols J.) which dismissed the direct action brought by appellants, the Fosters, against respondent, the insurer of one Beaumier pursuant to an automobile insurance policy.

The Fosters were seriously injured in a traffic accident, when their car was struck by a trailer

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which suddenly separated from the car to which it was coupled and which was being driven in the opposite direction by Beaumier. Both the Fosters sued Beaumier for damages and each won his case: Beaumier was found solely responsible for the accident and was ordered to pay the amount of damages each had suffered. Beaumier failed to satisfy these two judgments; by their action, the Fosters sought to obtain payment directly from respondent, which is Beaumier’s insurer. After the appeal to this Court was entered the Highway Victims Indemnity Fund, having been subrogated in the interests of the Fosters in accordance with s. 39 of its enabling statute, continued the suit in place of the latter.

The facts are not in dispute.

The accident occurred in the circumstances which are described by the Superior Court in the two judgments which it rendered against Beaumier:

[TRANSLATION] … the accident occurred when plaintiffs car, which was about to pass that of defendant, was struck by a trailer which became detached from defendant’s car; under the impact plaintiff lost control of his car, which collided with vehicles parked on a lot of land on the west side of Thibeau Street.

At the time of the accident Beaumier was insured under an automobile insurance policy issued by respondent in the form approved by the Superintendent of Insurance of Quebec, and including an undertaking regarding the civil liability of the insured. The car driven by Beaumier and owned by him is that described in the policy, a 1962 eight-cylinder Pontiac Parisienne hardtop used primarily, according to the insurance proposal, for [TRANSLATION] “private and pleasure driving”. Neither the insurance proposal nor the policy itself contained a description of the trailer. However, it was admitted that this was a homemade trailer which was owned by Beaumier, and which he used to sell and display the fruits and vegetables in which he was dealing.

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The issue before this Court is solely as to whether, in the circumstances, respondent is directly liable to the Fosters under s. 6 of the Highway Victims Indemnity Act (R.S.Q. 1964, c. 232) for the damages awarded against Beaumier, but not paid by him.

This section reads as follows:

6. Subject to the conditions of this contract and up to the amount stipulated, an insurer is directly responsible towards third parties for any damage covered by liability insurance.

Furthermore, up to the amount, for each automobile, prescribed in section 14, he cannot set up against them the causes of nullity or of lapse that might be set up against the insured.

He cannot be sued by the third parties before final judgment executory against the insured.

He may if necessary intervene in the action taken against the insured.

The section creates a direct connection between the insurer and the victim of an automobile accident; it denies the insurer the right to rely as against the victim on defences which it could advance against the insured. However, this section does not have the effect of including among the insured risks an uncertain event which the parties intended to exclude. In a recent case, General Security Insurance Company of Canada v. Bélanger[3], Pigeon J. at p. 808, speaking for the Court, said the following concerning the first two paragraphs of s. 6:

… The first paragraph sets forth the general rule, and the second states an exception to this rule. The scope of the exception is limited in two ways: first, as to the amount, and second, in that it covers causes of nullity or of “lapse” only, not every condition. As examples of conditions contemplated in the first paragraph not excluded by the second, one would clearly have to include the definition of the extent of the coverage afforded to the insured. It is clear that while causes of nullity or of “lapse” cannot be set up against the victims within the prescribed limits, the Act does not extend the insurance contract to what it does not cover.

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Comparing lapse and exclusion of risk, André Besson observes (Picard and Besson, Les assurances terrestres en droit français, t.1, 4^th ed., No, 125, p. 218):

[TRANSLATION] Lapse relates to a risk accepted by the insurer, in consideration of which the premium was determined and paid. By definition, the loss which occurred was one foreseen by the parties; the risk which materialized is in fact the one assumed by the insurer and the guarantee should ordinarily be given. By an exception, however, because of the wrongful act of the insured, this risk is not covered: the guarantee which is ordinarily due is withdrawn from the insured, as a penalty for his negligence. Lapse can thus be seen to be a withdrawal of a right, solely with regard to the loss in which the insured failed to perform his obligations.

Where there is a non-insurance or exclusion of risk, on the other hand, if the insurer is not held to the guarantee this is because the risk was not one foreseen by the parties: the excluded risk was not covered by the insurer, who at no time and in no way intended to be bound. There can be no question here of a sanction or penalty, of negligence or bad faith by the insured; the latter has no right to cause the insurance to have an effect apart from the formal conditions stated in the policy. Non-insurance may thus be seen simply as an absence of a right: the insured is not covered because under the contract the risk which materialized had not been assumed by the insurer.

In the case at bar, therefore, the question is whether the damages which Beaumier was ordered to pay the Fosters were covered by the liability insurance contracted by respondent, regardless of any relevant provision respecting nullity or lapses.

Respondent’s undertaking relating to the civil liability of its insured is set forth in section A of the policy, under the title “Civil Liability”, and reads in part as follows:

[TRANSLATION] The Insurer agrees to indemnify the Insured … for any obligation imposed by law upon the Insured … on account of the loss or damage resulting from the ownership, use or operation of the automobile

In order to determine the scope of this obligation undertaken by respondent, it is clearly necessary to consider the other provisions of the contract, in particular the definition section. A clause

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cannot be interpreted in isolation from its surrounding context, or without due regard to the meaning ascribed by the parties to the words they used. Here the policy contains a definition of the word “automobile” for the purposes of section A, “Civil Liability”; the relevant parts of this definition read as follows:

[TRANSLATION] Definition of the automobile In this policy, unless otherwise indicated, the word “automobile” includes the following vehicles:

For the purposes of sections A (Civil Liability) …

1. Automobile described, to wit, an automobile or trailer the description of which is contained in this policy; the word “trailer” shall include a semitrailer;

2. …

3. …

For the purposes of sections A (Civil Liability) …

4 …

For the purposes of section A (Civil Liability) only

5. (a) Miscellaneous use trailer, to wit, a trailer owned by the Insured, not described in this policy and used with a private motor car or station wagon, but not a trailer designed and used to carry passengers, for displays or sale or as an office or dwelling.

(b) Non-proprietary trailer, to wit, a trailer not owned by the Insured and used with the automobile described.

The word “automobile” as used in section A, “Civil Liability”, has therefore, in certain circumstances, a meaning that is broader than usual; it may or may not include a trailer, depending on whether the latter is described in the policy, belongs to the insured, is used for commercial purposes, and so on. If the word “automobile” does not always include a trailer, the words [TRANSLATION] “damage resulting from … use … of the automobile”, used in section A, “Civil Liability”, must themselves be given a different interpretation depending on whether or not the word “automobile” includes a trailer. In seeking to determine the true extent of the insurer’s undertaking, account must necessarily be taken of the fact that the word “automobile” has a variable meaning: sometimes it

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includes a trailer and sometimes it excludes it. The scope of the insurer’s obligation must itself vary: it will be wider or narrower depending on whether or not the “automobile” includes a trailer.

When the word “automobile” does not refer to a trailer, therefore, a distinction must be made between the use of the automobile and the use of the trailer as the immediate cause of the alleged damage. If in such circumstances damage is caused first and foremost by the use of the trailer, it cannot also be said that the same damage is caused by the use of the automobile: this would be to deny any practical effect to the contractual definition of the word “automobile”.

In the case at bar it is admitted that the trailer which struck the automobile in which the Fosters were seated is not included within the definition of the word “automobile” contained in the policy. It also appears certain that the damage for which repayment is sought was caused first and foremost by the use of the trailer, rather than by use of the automobile itself, apart from the trailer. The risk which, when it materialized, became the basis of the claim for damages is thus not one which is covered by the liability insurance contracted by respondent. In such circumstances s. 6 cannot support the action taken by the Fosters.

Appellants argued that the use of the automobile, strictly speaking, was the cause of the damage suffered by them, since if the trailer had not been coupled to the automobile it could not have separated from it, and there would have been no accident. I am not persuaded by this reasoning, inter alia because it relieves the definition of the word “automobile” contained in the policy of all practical meaning. In support of their point of view appellants referred us to two of our decisions, Stevenson v. Reliance Petroleum Ltd.[4] and Irving Oil Co. v. Can. General Ins. Co.[5], to a decision of the Court of Appeal of Quebec, Thibault v. The North American Accident Insurance Company[6],

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and to a judgment of the Superior Court of Quebec, Danis v. Fonds d’indemnisation des victimes d’accidents d’automobile[7]. None of these decisions is relevant. In none of these cases was it necessary to construe s. 6 of the Highway Victims Indemnity Act together with a contractual provision similar to that here in question. In all these cases, only one vehicle was involved, the insured vehicle; the question was whether the damage had been caused by its use or by an independent human agency. None of these decisions related to the question whether the damage claimed resulted from the use of a vehicle other than the one insured. In Law, Union & Rock Insurance Co. Ltd. v. Moore’s Taxi Ltd.[8], my brother Ritchie J. commented as follows on the decisions of this Court in Stevenson and Irving Oil, at p. 85:

… In those cases the negligence had to do with the delivery of petroleum products from tank trucks by means of a mechanism that was a part of the truck itself and, therefore, the entire delivery operation was effected in the course of using the motor vehicles in question. In both those cases the ultimate damage was occasioned by the presence on the premises in question of petroleum products which had been deposited there through the negligent use of such a mechanism.

In Thibault the Court of Appeal of Quebec held, as Hyde J.A. observed at p. 1093, that “the spilling of oil on the street resulted from improper stowage and that was also part of the ‘use’ of the vehicle covered by the policy”. Finally, in Danis the Superior Court had to rule on the interpretation of ss. 3 and 43 of the Highway Victims Indemnity Act, and it held that these provisions should apply if an event causing damage to a third party occurred during the use of an insured truck.

I therefore see nothing in these decisions to support the argument that the interpretation of section A, “Civil Liability”, in the contract of insurance should not take into account the mean-

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ing contractually ascribed by the parties to the word “automobile”.

I would dismiss the appeal with costs.

Appeal dismissed with costs.

Solicitors for the appellant: Gilbert, Magnan, & Marcotte, Montreal.

Solicitors for the respondent: Lavery, Johnston, O’Donnell, Clark, Carrière, Mason & Associates, Montreal.