A novice driver’s third party liability insurance will be reduced to $200,000 if they drink and drive. An insurer will waive their right to breach their insured if they file a statement of defence.

Under a Graduated Driver’s Licencing scheme in Ontario, a novice driver must have zero blood alcohol concentration while driving, or third party limits are reduced from $1,000.000.00 to the minimum statutory limits of $200,000.00.  The deceased, Ms. Logel, was not authorized to drive at the time of the accident as a result of her consumption of alcohol, which reduced her policy limits to the minimum.

The second issue was whether the Insurer, Wawanesa, waived the breach of that statutory condition, by filing a statement of defence with knowledge of the breach.

The Ontario District Court held Wawanesa waived the breach.

Logel (Litigation Administrator of) v. Wawanesa Mutual Insurance Co., [2008] O.J. No. 3717, Ontario Superior Court of Justice, M.L. Black

Prior to 1973, one of the statutory conditions of motor vehicle insurance policies was that one could not drive while under the influence of liquor or drugs.  Insurers could limit coverage to a statutory minimum.  In 1973, the Insurance Act was amended to delete the statutory conditions against impaired driving.  Its purpose was to give greater protection to third party victims of impaired drivers who would then be able to look to the insurer for payments up to the limits.  The Insurance Act allows an insurer to avail itself of any defence with respect to excess coverage over the statutory minimum of $200,000.00.

Ontario has a graduated licencing scheme whereby drivers under the G2 Novice Drivers Licence designation have conditions imposed on their driving privileges.  One of these conditions is that they must not drink any alcohol if they are going to drive, and must have a blood alcohol content of zero.

Ms. Logel was a driver in an accident where she was killed and her passenger, Brian Gill, was severely injured.  The value of Mr. Gill’s claim for injuries will exceed $200,000.00.  Ms. Logel died intestate. Her estate has no assets, and she had alcohol in her blood at the time of the accident.

While the Judge acknowledged the result seems unfair to an innocent third party in a no-fault insurance regime, the Judge nonetheless felt bound by an earlier decision and found that as a result of her consumption of alcohol, Logel was not authorized to drive at the time of the accident.  This breach reduced her policy limits to the statutory minimum for the purposes of liability to a third party.

The second issue was whether the insurer waived the breach or was seen to have made an election precluding a position that the breach limited the liability on the policy to the statutory minimum. Immediately following the accident adjusters hired by Wawanesa obtained all the information required to make a determination regarding the breach of the statutory condition. Wawanesa took the position that its legal counsel never directed their minds to the issue of a possible policy breach until the summer of 2005.  The Estate’s position is that Wawanesa elected not to rely on the breach, or alternatively waived the policy breach and now is estopped from relying on that breach.  The Judge found that there was no doubt that Wawanesa and its represenatives had full knowledge of their rights under Logel’s policy.

Filing a Statement of Defence on behalf of the Estate was the equivalent of saying “We elect to defend”.  If the facts give rise to the conclusion that there is no coverage, the insurer must inform the insured of having nothing further to do with the claim if it wishes to maintain an off-coverage position. If the coverage is questionable, the insurer should advise the insured immediately and either enter into a non-waiver, or reservations of rights agreement.  An insurer defends a claim at its own risk otherwise.

The Judge found the failure of Wawanesa to take an off-coverage position, and its defence of the claim in 2002, as well as its continuing position until 2005, was a continuing election that amounted to a waiver by conduct of Logel’s breach.  Wawanesa waived the breach of the statutory conditions and is thus precluded from taking the position that limits its liability on the policy to the statutory minimum.

This case was originally summarized by Neil J. MacDonald and originally edited by David W. Pilley.

To stay current with the new case law and emerging legal issues in this area, subscribe here.