Overlapping Auto SEF 44 Family Protection (UMP) Endorsements: BC Supreme Court Rules on Priority and Per-Claimant Limits

In Mazur v. Citadel General Assurance Company, the British Columbia Supreme Court decided another case involving the extent to which auto insurers from outside the Province are compelled to match the minimum insurance coverage required to be carried by all BC insured drivers. In BC, the minimum coverage must, in all cases, be purchased from BC’s provincial auto insurer, the Insurance Corporation of British Columbia (“ICBC”). In the Mazur decision, the Court ruled that the insurers’ own polices (instead of BC law) dictated which policy would provide primary or excess coverage. The court also ruled BC’s Family Compensation Act, which governs fatality claims, contemplates one global claim by the estate for the underinsured motorist protection coverage limit, regardless of the number of beneficiaries.

In Mazur, the judge was asked to decide,

1. which, if any, of three out-of-province auto insurers must provide primary coverage under their overlapping Standard Endorsement Form (“SEF”) 44 Family Protection Endorsements (which provides Alberta’s version of the Underinsured Motorist Coverage offered by US insurers); and

2. whether the limit for the SEF 44 Endorsement was a global amount for all claims arising out of one fatality or was instead available for each claimant.

The case concerned the death of Cameron Lougheed in a single car accident near Fernie, BC in June, 1999. Mr. Lougheed was riding in a vehicle owned and operated by Jos-Leopold Denis Gagnon. Both men were Alberta residents.

Mr. Gagon had an auto insurance policy issued in Alberta by the Co-Operators General Insurance Company with SEF 44 limits of $500,000. Mr. Lougheed had an auto insurance policy issued in Alberta by the Citadel General Insurance Company with SEF 44 limits of $1,000,000. Mr. Lougheed’s common-law wife had an auto insurance policy issued in Alberta by the Liberty Mutual Insurance Company with SEF 44 limits of $1,000,000.

Co-Operators, Citadel and Liberty were all authorized to carry on insurance business in British Columbia under BC’s Insurance Company Motor Vehicle Liability Insurance Regulation. Under that regulation, none of the insurers were permitted to set up any defence to a BC action they could not use if their policies had been issued by ICBC within and pursuant to the laws of British Columbia. In British Columbia, the minimum protections provided by auto liability policies are set out in the Insurance (Motor Vehicle) Act and regulations (the “Regulations”). If any part of Co-Operators, Citadel or Liberty insurance policies provided less protection than a BC policy, the insurers had to meet the BC minimum. Any part of their policies which provided greater protection or did not otherwise conflict with the Act and Regulations would remain in effect.

Each of the three auto policies contained the following SEF 44 Family Protection Endorsement:

[T]he insurer shall indemnify each eligible claimant for the amount that such eligible claimant is legally entitled to recover from an inadequately insured motorist as compensatory damages in respect of bodily injury or death sustained by an insured person by accident arising out of the use or operation of a motor vehicle.

Co-operators exhausted its third party limits settling tort cases commenced by Mr. Lougheed’s wife, his two children from a previous marriage and by another passenger in the vehicle. The wife and children commenced separate actions under the BC Family Compensation Act against Co-operators, Citadel and Liberty, seeking to recover additional money under the insurers’ SEF 44 Endorsements. The insurers conceded that all three policies provided coverage.

Citadel and Liberty argued that the Co-Operators policy was primary and their policies were excess. They said the SEF 44 clearly dictated the result and was not modified by the BC Regulations. Clause 7 of the SEF 44 provided,

7. Multiple Coverages Subject to the provisions hereof, where an eligible claimant is entitled to payment under Family Protection Coverage under more than one policy and the insured person

   (a) is an occupant of an automobile, such insurance
        on the automobile in which the insured person is an
        occupant is first loss insurance and any other
        insurance is excess;

Co-Operators argued Citadel and Liberty were using SEF 44 as a defence that would not be available to them if they issued their policies in BC, and that the SEF 44 endorsement was modified by the BC Regulations such that none of the policies was primary. Consequently, Co-operators said coverage must be apportioned on a pro-rata basis among the three policies, pursuant to Section 148.1(9) of the Regulations, which states,

Where, in the event of a claim, an insured has access to underinsured motorist protection coverage or similar insurance protection under a contract of automobile insurance of another jurisdiction, the benefits of that coverage are primary and any benefits provided under this Division are available only to the extent that the amount of benefits provided by the certificate exceeds the amount of benefits provided by the primary insurance.

By operation of this section, underinsured motorist protection (“UMP”) coverage provided by the Insurance Corporation of British Columbia (“ICBC”) is excess to any policy available to an insured issued in another jurisdiction. However, the judge in the Mazur case concluded section 148.1(9) of the Regulations did not apply because there was no ICBC coverage at issue. He said that Citadel and Liberty, by relying on clause 7 of the SEF 44, were not setting up a defence to claims of the plaintiffs. Rather, they were relying on Clause 7 only to determine the scope of their respective obligations to the plaintiffs. This decision makes sense in the context of the Business Authorizations issued to the Alberta insurers, which prevent defences from being raised, rather than “converting” the policies into BC policies. What Co-Operators was attempting to do was read the statutory provision into its own policy, which is not the effect of the Business Authorization. Therefore, while Citadel and Liberty would not have been allowed to raise their policy wordings as a defence to a s.148.1(9) claim by ICBC, they were correct in stating that s.148.1(9) was not available to Co-Operators. The court therefore correctly ruled that because there are no provisions in the Regulations dealing with multiple SEF 44 carriers, the policies issued by the Alberta carriers governed, making Co-Operators primary. For a related discussion on this issue, readers are invited to read the December 22, 2004 commentary in the Insurable Interest, in which the BC Court of Appeal discussed the applicability of s.148.1(9) in the context of an Alberta resident injured while driving a BC insured vehicle.

Regarding the limits available to the plaintiffs, the insurers conceded the SEF 44 limit under their respective policies was $1 million, matching the BC minimum. They alleged the SEF 44 limit was the global amount available for all claims and not the limit for each claim. They argued there was nothing the BC Regulations conflicting with this. In opposition, the plaintiffs submitted that section 148.1(1)(c) of the BC Regulations and section 13 schedule 3 of the Regulations combined to dictate that each of the plaintiffs was entitled to the $1 million limit. Section 148.1(1)(c) of the Regulations defines an “insured”. It states,

“insured” means

(a) an occupant of a motor vehicle described
     in the owner’s certificate;

…
(c) a person who, in the jurisdiction in which
     the accident occurred, is entitled to
     maintain an action against the under
     insured motorist for damages because of
     the death of a person described in
     paragraph (a) …

and, for the purposes of the payment of compensation under this Division, includes the personal representative of a deceased insured;

Section 13 of Schedule 3 of the Regulations provides,

For the purpose of Division (2) of Part 10, the limit of coverage for underinsured motorist protection is $1 million per insured person.

The Plaintiffs argued that because each of them was entitled to seek compensation for the death of Mr. Loughheed under the Family Compensation Act, each fell within the meaning of “insured” under the Regulations. Therefore, they said, each of them was entitled to UMP coverage in the amount of $1 million, regardless of the wording of the SEF 44 Endorsements.

Examining this argument, the judge turned to the grant of coverage under Section 148.1(2) of the Regulations. It states,

Where death or injury of an insured is caused by an accident that

(a) arises out of the use of operation of a
     vehicle by an underinsured motorist …

the corporation shall, subject to subsections (1), (5) and (6) and section 148..4, compensate the insured, or a person who has a claim in respect of the death of the insured, for any amount he is entitled to recover from the underinsured motorist as damages for the injury or death.

The judge concluded that “he” in the phrase “any amount he is entitled to recover” must refer to the injured or deceased insured. Based on a plain reading of the statute, this reasoning appears to be incorrect, as the phrasing of the section suggests “he” could also refer to “a person who has a claim in respect of the death of the insured”, meaning each insured person (including those entitled to make Family Compensation Act claims) is entitled to the full policy limit.

Notwithstanding the above, the decision in respect of the applicable limit ultimately appears to be correct, as the court next considered whether each of the claimants was entitled to bring an action under the Family Compensation Act. The judge noted the Family Compensation Act specifies in section 3(1) that an action for the benefit of a spouse or child of a deceased must be brought by and in the name of the personal representative of the deceased. Section 3(4) provides if there is no personal representative, the action might be brought by and in the names of any of the persons for whose benefit the action would have been if it had been brought by the personal representative, but section 3(5) limits this by stating that every action brought must be for the benefit of the same person or persons as if it were brought in the name of the personal representative. The judge ruled the upshot of all this was the plaintiffs’ claims must be treated as though they were a single cause of action brought on the plaintiffs’ behalf by Mr. Lougheed’s personal representative. This meant a single shot at the policy limit.

In the result, the plaintiffs were collectively entitled to $1 million of UMP coverage.

While perhaps obvious to many, it should also be noted that where an accident results in more than one fatality, the result will be that the family of each deceased party is entitled to $1 Million in UMP coverage, as each fatally injured occupant of the vehicle will have a separate personal representative, and therefore a separate cause of action. The Mazur case should be of interest to all out-of-province auto insurers, as the Power of Attorney and Undertaking (“PAU”) filed by most US insurers will produce the same result as the business authorizations issued to Citadel, Liberty and Co-operators. (assuming that the PAU is in the newest form).

A link to the judgement can be found here: http://www.courts.gov.bc.ca/jdb-txt/sc/
05/13/2005bcsc1371.htm

A link to the December 22, 2004 Insurable Interest Bulletin can be found at:
http://www.cwilson.com/insurance/
reviews/insrev92.shtml

Readers with questions regarding this case or other insurance topics are invited to contact Glen Boswall (telephone: 604-643-3125 or e-mail: rgb@cwilson.com) or Jonathan Hodes (telephone: 643-3168 or e-mail: jlh@cwilson.com) or any other member of Clark Wilson’s Insurance Practice Group.