Ont. C.A. expands relief from forfeiture generally by applying s. 98 of CJA to auto ‘authorized to drive’ statutory condition

In a significant decision, the Ontario Court of Appeal in Kozel v. The Personal Insurance Company has held that:

(1) s. 98 of the Courts of Justice Act, which is broader than s. 129 of the Insurance Act, can be applied to grant an insured relief from forfeiture; and

(2) unless an insured’s breach constitutes noncompliance with a condition precedent, which should be found only in rare cases where the breach is substantial and prejudices the insurer, in all other instances, the breach will be deemed imperfect compliance, and relief against forfeiture will be available.

As can be seen, this will greatly enhance and extend the scope of the relief from forfeiture remedy in respect of both automobile and commercial policies.

The Court of Appeal in its 27-page decision, released on February 19th, 2014, upheld the finding of the application judge but for different reasons.

At first instance, the court held that although the insured’s driver’s licence had expired, and she was not authorized to drive at the time of the mva she had in Florida, because the offence of driving without a valid license is one of strict rather than absolute liability, a due diligence defence was available to her, and based on the evidence, she exercised sufficient diligence and was therefore not in breach of automobile statutory condition 4(1).

The Court of Appeal disagreed that this is a case in which the defence of due diligence is available; however, the insured was entitled to relief from forfeiture, not under s. 129 of the Insurance Act, but s. 98 of the Courts of Justice Act.

In so doing, the Court held that the “authorized to drive” condition is not a fundamental term or non-compliance with a condition precedent, and stated that its earlier decision of Stuart v. Hutchins, which indicated that s. 98 did not apply where there was non-compliance with a condition precedent must be applied narrowly.

Then, in obiter, the Court went on to assert that when dealing with statutory conditions, per the S.C.C.’s Marche decision, they should be treated the same as policy conditions, and should not be binding on the insured if a court finds the condition is “unjust or unreasonable”. While acknowledging the Marche decision was dealing with a different statute, the Court said “its broad interpretive approach indicates that courts should give remedial provisions like s. 98 a wide scope to provide relief where the result would be otherwise inequitable or unjust”.

Thus, in light of Marche, “the decision in Stuart should be given a narrow application. A court should find that an insured’s breach constitutes noncompliance with a condition precedent only in rare cases where the breach is substantial and prejudices the insurer. In all other instances, the breach will be deemed imperfect compliance, and relief against forfeiture will be available”.

The Court concluded with the following comments:

[73] In my view, the facts required to make out a due diligence defence are simply not present. At the same time, if this court were to allow the appeal, the insurance company would enjoy a large windfall at the expense of an individual who acted in good faith and whose breach caused no prejudice to the company. This result would be contrary to fundamental notions of equity. Accordingly, I would dismiss the appeal.