Can an Ontario insurer treat an automobile policy as being void ab initio and deny a claim in its entirety as a result? The Court of Appeal for Ontario says “no”.
Merino v. Intact involved a pedestrian who was catastrophically injured when she was struck by a car insured with Intact. Intact’s insureds (husband and wife) applied for automobile insurance coverage over three months before the accident and Intact had issued a one-year policy to them. However, because of misrepresentations in the application regarding the wife’s driving record, Intact purported to rescind the policy shortly after issuing it, a couple of months before the accident.
Of note, Intact did not terminate the contract pursuant to the Statutory Conditions. It did not give 15 days notice of termination. There was no return of premiums (because no premiums had been paid).
After receiving judgment against Intact’s insureds, the pedestrian and her family brought an action against Intact under section 258(1) of the Insurance Act. On summary judgment, the motion judge was required to determine whether the insurer was entitled to rescind the insurance contract with the tortfeasors, and if so, whether the purported rescission had the effect of precluding the injured pedestrian, as an innocent third party, from making a claim against Intact under s. 258(1) of the Insurance Act.
The motion judge dismissed the pedestrian’s action on summary judgment. He found that the respondent insurer was entitled to rescind the insurance contract based on material misrepresentation, making it void ab initio; that it had done so effectively; and that, as a result, section 258(1) was not available to the appellants, as there was no contract with Intact that provided indemnity to the at-fault driver or owner at the time of the accident.
The Court of Appeal disagreed with the motions judge on all issues.
The most interesting issue (in an insurance coverage sort of way) was the motion judge’s finding that an automobile insurer could treat a policy as void ab initio. The Court of Appeal held that the highly regulated auto insurance scheme in Ontario prevents an insurer from treating a policy as void ab initio. The Court found that the purpose of these requirements under the Insurance Act and Compulsory Automobile Insurance Act is:
to ensure that a person who drives a car always knows whether they are insured, so that they can take steps to bridge any gap in their coverage, both for their own benefit and for the benefit of other drivers. If they are not able to secure alternate coverage, they must not drive the vehicle or allow it to be driven.
With respect to section 233 of the Insurance Act (Misrepresentation or violation of conditions renders claim invalid), the Court cautioned that the section does not render a contract void:
While a number of cases still express the effect of s. 233 as rendering the contract “void” as between the insurer and the insured, it is clear that that language is intended to do no more than reflect the express consequences of s. 233, which makes claims by the insured for personal loss or indemnity invalid and unrecoverable.
In short, the Court of Appeal has confirmed that the statutory scheme mandating auto insurance in Ontario has supplanted an insurer’s common law rights to treat a policy as void ab initio.
This means that if an insurer wants to get off risk because of a misrepresentation or other approved ground, it must terminate the contract in accordance with Statutory Condition 11. It cannot treat the contract as being void ab initio. It will still be (limitedly) liable for a loss that occurs during the policy period, pursuant to section 258 of the Insurance Act and the SABS, subject to any available exclusions under section 31 of the SABS.
See Merino v. ING Insurance Company of Canada, 2019 ONCA 326