The issuer of a motor vehicle policy (“Royal”) was successful in appealing a trial decision that it was obligated to provide coverage for a third party claim in excess of the $200,000 minimum statutory limit where the policy holder made fraudulent representations in the policy application

Schoff v. Royal Insurance Co. of Canada, [2004] A.J. No. 592, Alberta Court of Appeal

In May 1989, the Schoffs were injured in a motor vehicle accident caused by the negligence of Charles Goyan, Mrs. Goyan’s son. The vehicle he was driving was registered in Mrs. Goyan’s name and insured under a standard automobile policy with Royal. In June 1999, the Schoffs obtained separate consent judgments against Charles Goyan which totalled $496,486.18. In completing the application form for the automobile policy, Mrs. Goyan represented that she was going to be the only driver of the vehicle, that she was the only licensed driver in her household, and that she was the owner of the vehicle and only had two other vehicles. A number of misrepresentations were made on the application form. Mrs. Goyan had five vehicles registered in her name. Four of Mrs. Goyan’s sons, including Charles, were living with her, three of whom had valid driver’s licences. At trial, the Schoffs claimed that Royal was obligated to satisfy their judgments under Mrs. Goyan’s insurance policy. The trial judge found that Charles Goyan was driving with the consent of Mrs. Goyan and was insured under the Royal policy. The trial judge also found that Royal was not entitled to deny coverage, even for the amount in excess of the $200,000.00 minimum statutory limit, notwithstanding the misrepresentations of Mrs. Goyan. Royal appealed the trial decision.

On appeal, the court found that there was no reversible error in the finding of the trial judge that Mrs. Goyan had participated in a fraudulent scheme designed to arrange cheaper insurance for vehicles which were to be driven by her sons. The Court of Appeal also found no reversible error in the finding that Charles Goyan drove with Mrs. Goyan’s consent and was an unnamed insured under Mrs. Goyan’s insurance policy. Therefore, the court held that Royal could not avoid its obligation towards the Schoffs for at least the minimum statutory limit of $200,000.00 as required by section 621(1) of the Insurance Act, R.S.A. 2000, c. I-3.

At trial, the trial judge had held that Royal could not rely on the misrepresentations to deny coverage since Royal had notice of inconsistencies in the application because prior to the accident it had learned Mrs. Goyan misrepresented her driving record. The court reviewed the statutory scheme for automobile insurance and noted that a legislative bright line had been drawn delineating the parameters of public protection in cases of a denial of coverage. The regime applicable in this case provided that, regardless of any misrepresentation, fraud or violation of conditions of the policy, the insurer was liable to third parties to a minimum limit of $200,000.00. Beyond that, the court held that the bases upon which an insurer could deny coverage to a third party judgment creditor were the same as for a denial to the insured. In this case, the court held that if Mrs. Goyan had made a claim to Royal under her own insurance policy, she would not have succeeded by arguing that Royal could not raise her own misrepresentations as a defence. Therefore, Royal was entitled to raise this same defence against the third party judgment creditors. In the result, the Court of Appeal allowed that portion of Royal’s appeal concerning the application of the defence of misrepresentation and the judgment against Royal was reduced to $200,000.00 plus pre-judgment and post-judgment interest.

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