Feb 25, 2015

AREAS OF LAW: Personal injury law; Insurance law; Lessor and lessee

Stroszyn v. Mitsui Sumitomo Insurance Company Limited, 2014 BCCA 431 (CanLII)

Where a statutory provision limits a lessor’s liability, the payment of damages reaching that limit will have the effect of completely discharging the liability.~

BACKGROUND: The Respondent, Mr. Stroszyn, was injured in a motor vehicle accident when he was struck by a vehicle driven by Jason Chen, leased by Mary Chen from Honda Canada Finance Inc. The Respondent brought a tort action against the Chens and Honda, and the parties settled the damages at $1.6 million. The question arose as to whether Honda was liable to pay to the Respondent any amount in excess of the $1 million paid by the Insurance Corporation of British Columbia (“ICBC”). A second question arose with respect to whether or not Mr. Chen was an insured under the policy the Appellant, Mitsui Sumitomo Insurance Company Limited, had issued to Honda. If he was an insured, the Appellant would be obliged to pay to the Respondent the balance of the agreed damages on Mr. Chen’s behalf. Honda pleaded in its statement of defence that the maximum amount for which it was liable, as the lessor of the vehicle driven by Mr. Chen, was the amount prescribed under s. 82.1(2) of the Insurance (Vehicle) Act, being $1 million. The Respondent argued that the cap applied in excess of the limits of the ICBC policy, with the effect that potential liability was capped at $2 million. The parties brought a petition in the BC Supreme Court, asking a) if s. 82.1 operates to limit Honda’s exposure to $1 million less any amounts recovered for loss or damage from bodily injury under the third party liability provisions issued by ICBC to Ms. Chen and Honda, and b) whether Mr. or Ms. Chen is an unnamed insured under Honda’s policy from the Appellant. The chambers judge found for the Respondent on the issue of the cap on damages, holding that Honda’s liability in the tort action was not reduced by payments made by ICBC. However, the judge went on to find that Mr. Chen was not an unnamed insured under the Appellant’s policy. Both of these findings were appealed.

APPELLATE DECISION: The appeal and cross appeal were both allowed. The Court of Appeal began its analysis by reviewing the applicable statutory provisions. Section 86 of the Motor Vehicle Act makes owners, lessees and lessors of automobiles vicariously liable for members of their households and those who drive vehicles with their consent. This section limits the statutory liability of the lessor, which limit is set out in s. 82.1 of the Insurance (Vehicle) Act. The Court noted that the lease agreement between Honda and Ms. Chen stipulated that she would obtain third party liability insurance to a limit of at least $1 million, and that such insurance would cover Honda. She did so. Honda was also insured to a limit of $9 million by the Appellant. The Appellant’s policy, on its face, insured only Honda and expressly provided that it did not insure lessees or drivers of leased vehicles. However, the Court held that the Appellant is precluded under the BC statutory motor vehicle insurance regime from raising a defence to a claim made against its policy that could not be raised if the policy had been issued in BC. The Appellant argued that the chambers judge erred in law by characterizing the $1 million payment by ICBC as a payment made solely on behalf of the lessee. It submitted that the payment of a portion of the judgment by any party jointly or severally liable with another discharges all those jointly liable to the full extent of the payment. The Court considered the question on appeal to be whether the payment by ICBC wholly discharged Honda from its vicarious liability, or whether it should attribute only a portion of the payment as partially discharging Honda’s statutory liability. The Court found that each of the insureds can regard the whole of the payment made by ICBC to have been made on their behalf, reducing liability to the Respondent to the full extent of the payment. In the absence of a statutory provision limiting the lessor’s liability, it would have remained jointly and severally liable with the other insureds for the balance of the Respondent’s damages. However, Honda’s liability was limited to $1 million, and the payment of that amount discharged its liability. In coming to this conclusion, the Court considered the statutory regime clear in limiting the liability of lessors. With respect to the cross appeal, the Court of Appeal noted that s. 61 of the Insurance (Vehicle) Act requires optional insurance contracts like the one issued by the Appellant to cover every insured on the same terms and conditions as those described in the underlying certificate or policy. In this case, the policy issued to Ms. Chen also insured Mr. Chen by virtue of s. 63(b) of the Insurance (Vehicle) Regulation. It was open to the Appellant to exclude Mr. Chen from coverage, but to do so it would have had to print on the policy, in conspicuous lettering in a prominent place, the limiting language found in s. 61(2) of the Insurance (Vehicle) Act, and it did not do so. The Court of Appeal found that this failure to meet the statutory requirement precluded the insurer from reducing or altering the underlying coverage by writing limiting terms into the excess policy. This is so whether or not the wording is brought to the attention of the insured.