Deductibles and Salvage: The Insurers Win in Alberta

Insurers are entitled to apply a deductible when they pay actual cash value for a total loss and take title to the salvage, according to Justice Rooke of Alberta's Court of Queen's Bench. The Reasons in Pauli et al. v. ACE INA Insurance et al. were released February 7, 2002.

Justice Rooke's Reasons would appear to be differ from those of the Ontario Court of Appeal in McNaughton Automotive Ltd., but Justice Rooke carefully reviews the importance of the "subject to" clause in the Alberta Insurance Act, a clause that was not in the Ontario legislation. British Columbia's Insurance Act, which applies to private insurers in the Province, but not ICBC, has language identical to that of the Alberta Insurance Act.

In Mr. Pauli's case his vehicle was deemed to be beyond economic repair, ING paid the actual cash value of the vehicle less the deductible of $1000 and took title to the salvage. Insurers will recognize that this is standard procedure whenever a vehicle is a total loss. Relying on McNaughton and a 1974 Alberta District Court case, Mueller v. Western Union Insurance Co., Mr. Pauli, as a representative Plaintiff in the Alberta class action, argued that ING should have paid the salvage without applying the deductible. In other words, he and all other insureds who had incurred a total loss, were entitled to damages.

Section 614 of the Alberta Insurance Act states that "subject to" certain other provisions of the Act, including section 638(2), "no variation or omission of or addition to a statutory condition is binding on the insured". Section 614 then sets out the Statutory Conditions, including Statutory Condition 4(7) which states that "if the insurer exercises the option to replace the automobile or pays the actual cash value of the automobile, the salvage, if any, shall vest in the insurer." Section 638(2) specifically allows for deductibles. 

Justice Rooke reviewed McNaughton, and Mueller, as well as statements made in certain insurance texts. He noted that the Ontario legislation at issue in McNaughton did not include a "subject to" clause. There were various concerns with the reasoning in Mueller, including the fact that it focused only on the Statutory Condition, ignoring the "subject to" clause. Justice Rooke concluded:

"In respect of a motor vehicle damaged beyond economic repair, the governing provisions of the current Alberta Act do permit the insurer taking title to the salvage to pay the actual cash value of the motor vehicle less the policy deductible. I agree with the Defendants that the interpretation is not dictated by, but is in accord with, sound public policy and commercial sense and efficacy." 

Justice Rooke's decision may very well be appealed. Nevertheless, it will have an impact on similar class actions proceeding in British Columbia and Ontario. The reasoning is certainly persuasive in the British Columbia case, particularly when the legislation is so similar.

A copy of Justice Rooke's Reasons will soon be available on the Alberta Court of Queen's Bench website in a few days. A pdf version of this decision is available via the following link:

http://www.cwilson.com/insurance/reviews/pauli.pdf

Readers with any questions regarding the decision, deductible issues or the difference in coverages afforded by ICBC and private auto insurers in British Columbia, are welcome to contact Nigel Kent at (604) 643-3135 or Larry Munn at (604) 643-3160.