Section 20 of the Insurance (Motor Vehicle) Act enables a person insured by the Insurance Corporation of British Columbia (“ICBC”), injured in a motor vehicle accident in British Columbia, to seek compensation directly from ICBC once judgment has been obtained for damages. S. 20 also provides ICBC with a right to be compensated by the person responsible for the accident for funds paid to the insured pursuant to s. 20. If ICBC does not comply strictly with the requirements imposed on it by s. 20, ICBC is not entitled to seek compensation from the responsible party.

Insurance Corp. of British Columbia v. Hosseini, [2006] B.C.J. No. 6, British Columbia Court of Appeal

Mr. Hosseini injured Mr. Chan while operating a stolen motorbike. Mr. Chan obtained a judgment of $1,200,000 against Mr. Hosseini. Mr. Chan obtained payment of the judgment from the Insurance Corporation of British Columbia pursuant to section 20 of the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231 (“s. 20”). ICBC commenced an action against Mr. Hosseini for repayment of the funds paid to Mr. Chan pursuant to s. 20.

At the initial hearing, Mr. Hosseini argued that ICBC was estopped from claiming compensation for the Chan settlement under s. 20 because ICBC had failed to make an election with respect to whether Mr. Hosseini was insured or uninsured. Mr. Justice Groberman determined that ICBC did not have to make such an election. His lordship noted that Mr. Hosseini suffered no prejudice whatsoever as a result of the manner in which ICBC proceeded. If ICBC is uncertain as to whether the operator of the vehicle was uninsured or an insured in breach of a term of the policy, then prudence would dictate that ICBC treat Mr. Hoessini as both an insured and uninsured person pursuant to s. 20. In considering the issue of damages, Mr. Justice Groberman deducted certain monies already paid by ICBC pursuant to Part VII of the (Motor Vehicle) Act and determined that Mr. Hosseini was required to pay ICBC $1,080,000 pursuant to s. 20 of the Act.

The Judgment was appealed to the British Columbia Court of Appeal. Smith J.A., and Newbury J.A. allowed the appeal on the basis that ICBC did not comply strictly with s. 20. S. 20 sets out a comprehensive statutory scheme with remedies that do not exist at common law. In order for ICBC to be entitled to recover compensation pursuant to that section, they must comply with the requirements of the scheme. S. 20 required ICBC to send a statutory notice to Mr. Hosseini when it received Mr. Chan’s application on March 2, 1993. ICBC did not provide Mr. Hosseini with notice until November 9, 1998, nearly 5 years later. This was an egregious breach of s. 20. Since s. 20 provides a statutory right of compensation as opposed to a common law right, the fact that no prejudice resulted from the breach is irrelevant. ICBC failed to comply with the requirements of s. 20, and is therefore not entitled to recover reimbursement for the Chan Judgement pursuant to s. 20.

Thackray J.A. allowed the appeal for separate reasons. His lordship noted that the basis for the appeal was that ICBC had breached its obligations of good faith owed to Mr. Hosseini by not advising him that he was uninsured, as opposed to in breach of a policy of automobile insurance. Regardless of whether Mr. Hosseini was an insured, ICBC initially accepted him as an insured, and treated him as an insured. As such, an insured-insurer relationship existed for the purposes of good faith conduct. Thackray J.A. noted that it was not until six years after the accident that ICBC advised Mr. Hosseini that he was being treated as an uninsured. Despite the fact that Mr. Hosseini promptly responded, noting that five years had elapsed since the accident and requested an explanation for the long delay, as well as particulars of the alleged breach, no response was provided by ICBC. Eight years after the accident, ICBC pleaded in a Statement of Claim that Mr. Hosseini was either an insured or an uninsured. It was not until February 11, 2002, nine and half years after the accident, that ICBC amended its Statement of Claim to allege its claim for indemnity was solely based on the fact that Mr. Hosseini was an uninsured motorist.

Thackray J.A. cited with approval the obligations of an insured in Allan D. Windt, Insurance Claims and Disputes (New York: McGraw-Hill Inc., 1982), and the obligations of insureds summarized by the Courts in Whiten v. Pilot Insurance Co., [2002} 1 S.C.R. 595, Asselstine v. Manufactuers Life Insurance Co. 2005 BCCA 292 and Shea v. Manitoba Public Insurance Corporation (1991) 55 B.C.L.R. (2d) 15 (BCSC). Thackray J.A. concluded that ICBC failed to meet its duty of good faith to Mr. Hosseini by not promptly advising him of his insured status.

The next issue considered by Thackray J.A. was whether the breach of good faith prejudiced Mr. Hosseini. His lordship noted that Mr. Hosseini acquiesced ICBC’s request to conduct the defence of the Chan action as a statutory Third Party. Since that status was acquired on the basis that Mr. Hosseini was an insured, there was no need for Mr. Hosseini to conduct any investigations into his potential defences. Thackray J.A. noted that there was a denial by Mr. Hosseini to the group that met before going to the dance that the motorcycle was stolen. This suggests that there was an issue as to whether Mr. Hosseini had consent to operate the motorcycle. There is no suggestion that ICBC followed up on that information. Since ICBC was treating Mr. Hosseini as an insured, there was no need for Mr. Hosseini to follow-up on that information. Therefore, Thackray J.A. concluded that in his opinion, prejudice was caused to Mr. Hosseini by the conduct of ICBC.

In determining an appropriate remedy, Thackray J.A. stated that the prejudice must be considered in the context of its effect on ICBC’s right to claim indemnity from Mr. Hosseini. Since upon determining that Mr. Hosseini was not insured, ICBC had an obligation to inform Mr. Hosseini of his uninsured status, and then promptly proceed under s. 20, the pronounced delay in doing so masked by its representation to Mr. Hosseini that he was insured, estopped ICBC from claiming that he was now uninsured and asserting a right of subrogation. Thackray J.A. relied upon 1126389 Ontario Ltd. (c.o.b. Drew Auto Centre) v. Dalton (2000) 106 O.T.C. 333, as authority for the proposition that estoppel can arise in the bad faith context.

All three judges concurred in result, the judgment was quashed and the appeal was allowed.

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