Co-operative Fire and Casualty Co. v. Twa et al., [1975] 1 SCR 97

Supreme Court of Canada

Co-operative Fire and Casualty Co. v. Twa et al., [1975] 1 S.C.R. 97

Date: 1973-10-02

Co-operative Fire and Casualty Company (Defendant) Appellant;

and

Daniel Twa (Plaintiff) Respondent;

and

The Administrator of the Motor Vehicle Accident Claims Act (Defendant by Order) Respondent.

1973: June 1; 1973: October 2.

Present: Martland, Judson, Ritchie, Spence and Pigeon JJ.

ON APPEAL FROM THE SUPREME COURT OF ALBERTA, APPELLATE DIVISION

Insurance—Motor vehicle liability policy—Exclusion of passenger liability if automobile other than private passenger type—Passenger injured on insured’s motor cycle—Liability of insurer.

The Appellate Division of the Supreme Court of Alberta dismissed an appeal by the appellant, C Co., from a judgment rendered at trial whereby it was ordered that the respondent T should recover from C Co. the sum of $30,000 being the amount of a judgment which T had been awarded against the estate of S whose motor bicycle had been insured by C Co. at the time when it was involved in an accident in which S was killed and T, who was a gratuitous passenger on the motor cycle, received the serious injuries in respect of which the $30,000 judgment was granted.

The policy in question was in the standard form. There was, however, a “passenger hazard excluded endorsment” forming a part of the policy which read in part: “the Insurer shall not be liable… in respect of bodily injury to or death of any occupant of the automobile if the automobile is of other than the private passenger, station wagon or bus type.” C Co. contended that the trial judge and the Appellate Division had erred in interpreting the word “automobile” as used in the endorsement as including a “motor cycle”.

Held (Judson and Pigeon JJ. dissenting): The appeal should be dismissed.

[Page 98]

Per Martland, Ritchie and Spence JJ.: A motor cycle was within the meaning of the word “automobile” as defined in s. 278(a) of The Alberta Insurance Act, R.S.A. 1955, c. 159, which was in force at the time when the policy was issued and which applied to all automobile insurance contracts made in the Province of Alberta.

However, there was an even more compelling argument against the appellant’s contention because the passenger hazard excluded endorsement in this case related expressly to the automobile and this must mean the automobile described in the application, which was S’s “motor bike”.

The said motor bike was of the private passenger type, that is it had a seat for the purpose of carrying passengers, and as it was the automobile referred to in the endorsement, it did not come within the exclusion therein referred to.

Per Judson and Pigeon JJ., dissenting: A motor cycle with a passenger seat was not an automobile of “the private passenger type” within the meaning of the passenger hazard excluded endorsement. The purpose of the endorsement could not be other than to relieve the insurer from responsibility for damages to be suffered by a passenger on the motor cycle being insured. The object of construction is to ascertain what the bargain was and to give effect to this bargain. Here the bargain was that in consideration of the substantially reduced premium, the policy would not cover the passenger hazard on the deceased’s motor cycle. Accordingly, the insurance policy did not cover the loss sustained by the respondent T.

[Indemnity Ins. Co. of North America v. Excel Cleaning Service, [1954] S.C.R. 169, referred to.]

APPEAL from a judgment of the Supreme Court of Alberta, Appellate Division[1], dismissing an appeal from a judgment of Milvain C.J.T.D. in an action brought pursuant to the provisions of s. 306(1) of The Alberta Insurance Act, R.S.A. 1970, c. 187. Appeal dismissed, Judson and Pigeon JJ. dissenting.

[Page 99]

R.E. Hyde, Q.C., for the defendant, appellant.

R. Cipin, Q.C., and E.G. Hughson, for the respondent Administrator.

The judgment of Martland, Ritchie and Spence JJ. was delivered by

RITCHIE J.—This is an appeal from a judgment of the Appellate Division of the Supreme Court of Alberta which dismissed the appellant’s appeal from the judgment rendered at trial by Chief Justice Milvain whereby it was ordered that the respondent should recover from the appellant the sum of $30,000 being the amount of a judgment which the respondent had been awarded against the estate of the late George William Sinclair whose motor bicycle had been insured by the appellant at the time when it was involved in an accident in which Sinclair was killed and the respondent, who was a gratuitous passenger on the motor cycle, received the serious injuries in respect of which the $30,000 judgment was granted.

This action was brought pursuant to the provisions of s. 306 (1) of The Alberta Insurance Act, R.S.A. 1970, c. 187, which provides, in part, that:

306. (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, notwithstanding that such 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 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 policy in question was in the standard form, Section A of which provides for third party liability, reading in part, as follows:

The insurer agrees to indemnify the insured… against liability… for loss or damage arising from

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the ownership, use or operation of the automobile and resulting from

BODILY INJURY TO OR DEATH OF ANY PERSON OR DAMAGE TO PROPERTY

subject to certain exceptions which are irrelevant to these proceedings.

In commenting on this clause of the policy the learned trial judge correctly observed:

If we go no further under the laws as they exist in this Province this would insure Mr. Sinclair with respect to injuries caused to passengers, or a passenger on his motor cycle.

There is, however, a “passenger hazard excluded endorsement” forming a part of the policy which reads as follows:

S.E.F. No. 1 PASSENGER HAZARD EXCLUDED ENDORSEMENT (other than automobiles of the private passenger, station wagon or bus type)

It is hereby understood and agreed that the Insurer shall not be liable under Section A of this policy in respect of bodily injury to or death of any occupant of the automobile if the automobile is of other than the private passenger, station wagon or bus type.

Beneath the endorsement and also forming part of the policy there occurs the following somewhat significant sentence:

Except as otherwise provided in this endorsement, all limits, terms, conditions, provisions, definitions and exclusions of the policy shall have full force and effect.

The form of this endorsement was the only one which had been approved by the Superintendent of Insurance and by virtue of the provisions of s. 281 of The Alberta Insurance Act, R.S.A. 1955, c. 159, that was the only form which the insurer was permitted to use in relation to passenger hazard exclusion, but in my opinion, as it clearly constitutes an exception to the coverage described in the policy, it falls to be construed in accordance with the general rule

[Page 101]

expressed by Estey J., in Indemnity Ins. Co. of North America v. Excel Cleaning Service[2], at p. 179, where he said:

It is, in such a case, a general rule to construe the language used in a manner favourable to the insured. The basis for such being that the insurer, by such clauses, seeks to impose exceptions and limitations to the coverage he has already described and, therefore, should use language that clearly expresses the extent and scope of these exceptions and limitations and, in so far as he fails to do so, the language of the coverage should obtain.

At the trial of this action evidence was tendered, subject to the respondent’s objection, to the effect that the appellant’s agent and the insured Sinclair understood that passenger hazard coverage was not included in the policy and that the premium had been reduced accordingly. This evidence was tendered in support of an amendment to the appellant’s defence whereby it pleaded, in the alternative, that it had intended by the endorsement to exclude any coverage under the policy for passengers riding on the motor cycle and that the insured agreed to this exclusion. In rendering judgment, however, the learned trial judge found this evidence to be inadmissible and it was further noted in the reasons for judgment rendered by Mr. Justice Prowse on behalf of the Appellate Division, that:

The only conclusion that can be drawn from his (the agent’s) evidence is that as the agent did not appreciate the effect of the endorsement the company now asserts a defence to the present action, an assertion that is in fact a claim for rectification based on mutual mistake.

Finding that any claim for rectification should have been brought either in a separate action or by way of counterclaim, the Appellate Division agreed that the evidence was inadmissible.

[Page 102]

At the hearing before this Court, counsel for the appellant expressly stated that he was not taking the position that rectification was an appropriate remedy and was resting his case entirely on the construction of the endorsement.

The initial contention of counsel for the appellant was that the trial judge and the Appellate Division had erred in interpreting the word “automobile” as used in the endorsement as including a “motor cycle”. This contention must be considered in light of the meaning attached to the word “automobile” by s. 278(a) of the 1955 Act which was in force at the time when the policy was issued and which applied to all automobile insurance contracts made in the Province of Alberta. The said section read as follows:

278. (a) “Automobile” includes all self-propelled vehicles, their trailers, accessories and equipment but not railway rolling stock, watercraft or aircraft of any kind.

In my opinion there can be no doubt that a motor cycle is a “self-propelled vehicle” within the meaning of this subsection.

There is, however, an even more compelling argument against the appellant’s contention because the passenger hazard excluded endorsement in this case relates expressly to the automobile and this must mean the automobile described in the application, which is Mr. Sinclair’s “motor bike”.

The only remaining question is whether the “motor bike” was “of other than private passenger, station wagon or bus type”. The complete answer to this appears to me to be contained in the reasons for judgment of Mr. Justice Prowse where he said that:

The motor cycle was of the private passenger type, that is it had a seat for the purpose of carrying passengers and it was privately owned. It was not a commercial type of motor cycle such as we see from time to time with an enclosed sidecar and used as a delivery vehicle.

[Page 103]

I did not understand appellant’s counsel to take issue with this statement of fact. He relied, however, on the argument that the words “private passenger… type” as they occur in the endorsement are used with reference to a motor vehicle with four wheels and capable of carrying passengers on bench seats therein and that the phrase “private passenger type automobile” is not employed in popular usage in reference to a two-wheel motor vehicle or motor bike.

In my opinion this latter contention cannot be determinative of the meaning to be given to the endorsement because, as I have said, the words “the automobile” as used therein must mean the automobile described in the policy which is a “1968 Triumph… motor bike” and in my view the endorsement is to be construed as if it had read:

“It is hereby understood and agreed that the insurer shall not be liable under Section A of this policy in respect of bodily injury to or death of any occupant of the insured Triumph motor bike if the said motor bike is of other than the private passenger… type.”

I think it can be accepted that there are motor bikes which are not equipped for carrying passengers and I have no doubt that such an “automobile” would come within the exception, but Sinclair’s motor bike was so equipped and as it was the automobile referred to in the endorsement, I am satisfied that it does not come within the exclusion therein referred to.

It was suggested by appellant’s counsel that if the word “automobile” in the endorsement were so broadly interpreted as to include the motor bike in question, it would result in the endorsement having no meaning, but I cannot give effect to this contention because I can envisage a great many self-propelled vehicles such as tractors and other farm equipment and vehicles used for road building and construction work

[Page 104]

which are automobiles within the meaning of s. 278(a) and yet could properly be said to be excluded as not being of the “private passenger… type”.

It was pointed out by counsel for the respondent that if the endorsement had the effect of excluding Sinclair’s “motor bike” from passenger hazard coverage, it would follow that the insured would also be excluded from the third party liability coverage afforded by s. 5(d) of the policy itself, in relation to automobiles “other than the described automobile while personally driven by the Insured.” This section of the policy reads as follows:

5. In this Policy except where stated to the contrary the words “the automobile” mean:

(a) The Described Automobile—an automobile, trailer or semi-trailer specifically described in the Policy or within the description of insured automobiles set forth therein.

…

(d) Any Automobile of the Private Passenger or Station Wagon type, other than the described automobile, while personally driven by the Insured, or by his or her spouse if residing in the same dwelling premises as the Insured, provided that

(i) The described automobile is of the private passenger or station wagon type.

In my view the words “private passenger… type” must be given the same meaning wherever they occur in the policy and it is to be remembered that the insurer agreed that “except as otherwise provided in this endorsement, all… provisions… of the policy shall have full force and effect”. It would not, in my view, be consistent with this undertaking to treat the terms of the “passenger hazard” endorsement as eliminating the coverage provided in s. 5(d) of the policy in relation to third party liability when the insured was not driving the “automobile” insured, but another automobile of the same kind. I regard this as a further indication of the fact that the “motor bike” here in question was an automobile of the “private

[Page 105]

passenger… type” within the meaning of the policy as a whole and therefore of the endorsement which formed a part of it.

For all these reasons I would dismiss this appeal with costs.

The judgment of Judson and Pigeon JJ. was delivered by

PIGEON J. (dissenting)—The facts of this case are stated in the reasons of Ritchie J. which I have had the advantage of reading.

In my view, the question in this case is whether the insured motorcycle, being provided with a seat for a passenger, can be said to be an automobile of “the private passenger, station wagon or bus type” within the meaning of the Passenger Hazard Excluded Endorsement. It is clear that the motor cycle is an “automobile” within the meaning of the policy and also that this particular “automobile” was adapted to carry a passenger. It was also undoubtedly a private, not a commercial type of vehicle. However, the endorsement does not relate to any private passenger carrying automobile, but to a “private passenger, station wagon or bus type”. In this context, can a motor cycle with a passenger seat reasonably be understood to be included in this description? It is obviously not a station wagon or a bus which are both closed body vehicles. Then, can a motor cycle be brought within the description of “a private passenger type” of automobile? In my view, this expression does not carry such a meaning. No one, I think, would so understand it. We must not be misled by the extended meaning of “automobile” in the policy. The expression used in the endorsement is “private passenger type”.

It is of some importance that the word “type” is found in the description of the insured automobile on the first page of the policy. This

[Page 106]

is under item 3, “Particulars of the Described Automobile”. After “Model Year, Trade name, Serial No., No. of Cyl.”, the heading is “Type of Body” and under this there was written in “MOTOR BIKE”. In my view, the type contemplated in the endorsement is the type of body in the description. If the insured automobile was a station wagon or bus, one of those expressions would undoubtedly be there, and if it was a passenger vehicle, as this is commonly understood, there would be such a description or some word such as Coupe, Sedan, Hardtop, Convertible. In view of the wording of the description of the automobile and of the endorsement which certainly must be taken together, the question must be: Can a “motor bike” be understood as describing a private passenger type? I do not think so.

In my view, one must also consider that, to construe the endorsement as not excluding the passenger coverage in respect of the insured motorcycle will completely nullify it. The suggestion that some possibilities of application would remain if the named insured was driving a truck and was covered by some provision applicable to exceptional circumstances appears to me far-fetched and completely unrealistic. This would clearly not justify the reduction in premium that was allowed in consideration of the endorsement ($62 instead of $103). In Indemnity Ins. Co. of North America v. Excel Cleaning Service[3], at pp. 177‑178, Estey J. said:

The respondent described its business as an “on location cleaning service.” The cleaning equipment is taken to the home or premises of the customer and the work of cleaning completed on his premises. If the above-quoted evidence to the effect that the respondent took complete charge of the front room and did the furniture and rug therein is construed as the appellant contends it should be, then in its submission the respondent had in this case “care, custody or control” of everything in the room and,

[Page 107]

therefore, so far as this and, one would gather, the great majority of its cleaning jobs are concerned the respondent would have no coverage, notwithstanding the comprehensive character of the language used in Coverage B, and particularly the phrase “arising out of the work of the insured.” Such a construction would largely, if not completely, nullify the purpose for which the insurance was sold—a circumstance to be avoided, so far as the language used will permit. Cornish v. The Accident Insurance Co., (1889), 23 Q.B.D. 453, where at p. 456 Lindley L.J. stated:

The object of the contract is to insure against accidental death and injuries, and the contract must not be construed so as to defeat that object, nor so as to render it practically illusory.

In the present case, I would similarly say that the obvious purpose of the Passenger Hazard Exclusion Endorsement could not be other than to relieve the insurer from responsibility for damages to be suffered by a passenger on the motor cycle being insured. This could not fail to be understood by the insured. He certainly could not believe that the endorsement would lessen the premium and leave the coverage intact for the passenger on the one vehicle that was being insured.

Although the parties in stipulating for automobile insurance coverage were restricted by the obligation to use only approved forms and no other passenger hazard exclusion endorsement form was available, the situation is not the same as if one had to construe a statute or regulation. Here, we are dealing with a contract and, in the circumstances of this case, the claimant has no higher rights than the insured himself would have. Between the parties to a contract, the dominant principle is that the Court must seek to give effect to their intention. The purpose of construction is to ascertain what the bargain was and to give effect to this bargain. Here, it appears perfectly clear to me that the bargain was that in consideration of the substantially reduced premium, the policy would not cover the passenger hazard on the deceased’s motor cycle.

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I would allow the appeal. With respect to the order to be made and the disposition of costs, it should be noted that, after the filing of the statement of defence denying the coverage, the Administrator of The Motor Vehicle Accident Claims Act was joined as a party to the action as a defendant, by order of Milvain C.J., dated March 30, 1972, on the following basis:

UPON it appearing that if there were no such coverage and if the alleged policy of insurance did not provide indemnity to the said George William Sinclair, that then, the Administrator of the Motor Vehicle Accident Claims Act, pursuant to the provisions of that Act would be liable to indemnify the Plaintiff.

The Administrator thereafter took an active part in the case being in fact the real claimant against the insurer. He was the respondent represented by counsel in this Court having filed a factum as respondent.

I would therefore allow the appeal, set aside the judgments of the Appellate Division and of the Supreme Court of Alberta, declare that the insurance policy did not cover the loss sustained by the respondent Daniel Twa, and order that the latter’s costs in all Courts as well as those of Co-operative Fire and Casualty Company in all Courts be paid by the Administrator of The Motor Vehicle Accident Claims Act.

Appeal dismissed with costs, JUDSON and PIGEON JJ. dissenting.

Solicitor for the defendant, appellant: R.E. Hyde, Edmonton.

Solicitor for the plaintiff, respondent: D.A. MacDonald, Lacombe.

Solicitor for the respondent, the Administrator of The Motor Vehicle Accident Claims Act: R. Cipin, Edmonton.