An Early Holiday Gift for ICBC: BC Court of Appeal Rules Alberta's Underinsured Cover is Primary

On December 17, 2004, the BC Court of Appeal placed a lump of coal in the stocking of an out-of-province auto insurer which had provided Underinsured Motorist Protection ("UMP") to its insured under an SEF 44 endorsement. In Park v. ICBC, the Plaintiff, a resident of Alberta, was injured in a motor vehicle accident in B.C. Although she had an auto policy with Royal & Sun Alliance in her home jurisdiction, the car in which she was riding as a passenger belonged to a BC resident and was insured by ICBC. She had a substantial claim and the third party driver was significantly underinsured.

The ICBC policy provided (as per BC's statutory insurance regime) that if an injured party had access to UMP coverage in another jurisdiction, that other coverage would be primary and ICBC would provide excess UMP coverage only. The Royal policy, by contrast, contained a provision stating that the insurance on the vehicle in which the insured was an occupant would provide primary coverage, with the Royal policy only applying to amounts in excess of the limits of that coverage. So the question was "which UMP coverage must respond first?"

Royal had a B.C. "Business Authorization" (a licence), under which it was allowed to offer automobile insurance in B.C. (over and above the mandatory minimum coverages that must be purchased from ICBC). By Regulation under the Financial Institutions Act, this Authorization, among other things, precluded Royal from raising any defence to an action in B.C. which could not have been raised had the policy been issued in BC. ICBC argued that this provision prevented Royal from relying on its priority clause, because it was a clause that was not part of standard B.C. auto coverage.

Royal argued the Regulation was confined to the limits and coverages required in British Columbia, and not to the priority clauses. They argued the purpose of the Regulation was to ensure that the mandatory minimum amount of insurance would be available to people injured in British Columbia, and because the priority provisions affected only which insurer would pay first rather than the coverage available, the priority clause in the Royal policy should govern.

The BC Court of Appeal disagreed, and held that Royal's priority clause was inconsistent with a policy of automobile insurance issued in British Columbia. The B.C. regulation prevailed and Royal's UMP coverage was therefore primary.

The Park decision will obviously govern cases involving out-of-province auto insurers who have a licence to underwrite auto insurance in British Columbia. However, its effect is more far reaching than that. Auto insurers in every province in Canada are subject to "matching" legislation in their governing statutes, which contains similar conditions to those found in the BC Business Authorization. As a result, where a non-BC resident insured is involved a motor vehicle accident with an underinsured driver while riding in a BC insured vehicle, a Canadian out-of-province policy will be primary for the purpose of UMP, regardless of the policy wordings.

Many American insurers will be affected by the Park decision as well. Most US insurers (though not all) have filed a Power of Attorney and Undertaking ("PAU") with the Canadian Council of Insurance Regulators. The most recent form, which has been in effect since the 1980's, contains a similar provision to the Business Authorization, which provides that the out-of- province insurer will not set up any defence that would not be available had the policy been issued in British Columbia in respect of "any kind or class of coverage" required by law to be provided. This wording would cover UMP, which is mandatory in British Columbia to a minimum limit of $1 Million. Therefore, under the new form, a US insurer would be subject to the same result Royal faced in the Park case regardless of the US policy wording.

The older form of PAU, however, is not as broad in its wording. In early 2004, BC Court of Appeal held that the old form applies only to third party liability coverage, and not to first party coverages, such as UMP (see Batchelder v. Filewich). Therefore, a US insurer which has filed the old form of PAU (or no PAU at all) will be entitled to rely on any defences available under its policy wording, including "other insurance" clauses making their coverage excess only.

As a result, American insurers whose insureds are involved in accidents while riding in BC insured vehicles must be aware of whether they have a Business Authorization or have filed a PAU (and if so, in what form), in order to determine whether their UMP coverage should respond as primary or excess coverage. Note, however, that a denial on the basis that the policy provides only excess coverage might result in equitable contribution and overlapping coverage issues in some cases, on the theory that the conflicting priority provisions between the ICBC and out-of-province policies are mutually repugnant and should cancel each other out.

To assist insurers in dealing with these and other issues, Clark Wilson LLP's Insurance Practice group has created a comprehensive manual for out-of province claims examiners, which deals with the many issues faced by out-of-province auto insurers when their insureds are involved in accidents in British Columbia. The manual can be accessed on the firm's website at:
http://www.cwilson.com/pubs/insurance/npk6/

The Park decision can be accessed on the BC Courts website, at:
http://www.courts.gov.bc.ca/Jdb-txt/CA/04/06/2004BCCA0650.htm

and the Batchelder case can be accessed at:
http://www.courts.gov.bc.ca/jdb-txt/ca/04/00/2004bcca0050.htm

Readers with any questions about the Park or Batchelder cases, or about out-of-province auto insurance or overlapping coverage issues generally, are invited to contact Jonathan Hodes at jlh@cwilson.com (e-mail) or 604-643-3168 (direct dial) or Nigel Kent at npk@cwilson.com (e-mail) or 604-643-3135 (direct dial).