Spring 1999

SUPREME COURT: COMPLIANCE WITH A STATUTE IS NOT ENOUGH!

The Supreme Court of Canada set aside a "special rule" that exculpated railway companies from liability, except in exceptional circumstances if they complied with all of applicable statutory standards. The court ruled that compliance with a statute did not, as a matter of law, abrogate their requirement to comply with the common law standard of care.

The case involved an action brought by a motor cyclist injured when a tire of the motorcycle was caught in a gap beside a railway track. The width of the gap was within the discretionary range allowed to be utilized by the railway. However, the Supreme Court of Canada found that the defendant railway had failed to take reasonable precautions within the allowable range so as to meet its independent common law duty to protect against foreseeable injury to person's crossing the railway track The court found that there was a sufficiently close relationship between the parties that it was in the reasonable contemplation of the railway that carelessness on its part might cause damage to a person crossing the railway. The court found that there were reasonable measures available at the time that the railway could have taken to eliminate or at least limit the possibility of the type of accident that occurred from actually happening. There were at the time of construction of the railway crossing "flange-fillers" which could be inserted into the flange way to create an even surface for road traffic but which compressed under the weight of the train wheels.

Although in many cases compliance with a statute has been held to meet the standard of reasonable conduct the court ruled that it is possible that compliance with the statutory standard may be found insufficient to meet the common law duty. The statutory and common law standards are concurrent and each carries its own penalty for breach. If the common law standard is not met by compliance with the statutory requirements the railway can be held liable for failing to meet the common law standards. The court indicated that the statutory standard will have more relevance in cases where the conduct is clearly within the intended scope of the statute and the legislative standard is specific as opposed to general. When there is an allowance for discretion within the statutory standard the party must take precautions within the range of the authority granted to minimize the risks that may result from their actions.

The trial judge and the court of appeal pointed out that there are practical differences between a railway line which cuts across traffic at a right angle and one, such as the one in this case, that runs down the center of the street. The fact that this was an unusual case and that the railway had not developed any particular standards applicable to this type of track but simply treated it as a crossing suggested a failure on their part to exercise the statutory discretion reasonably. The railway should have taken particular steps to minimize the risks to two wheeled vehicles by building the flange ways at the minimum allowable width or by installing flange fillers. The Supreme Court held that the failure to do so was negligent and that the trial court's decision should be upheld.

Ryan v. City of Victoria et al (1999), 168 D.L.R. (4th), 513 (S.C.C.)

MISREPRESENTATION VOIDS POLICY!

The issue of misrepresentation on an insurance application was recently revisited by the Alberta Queen's Bench in 35445 Alberta Ltd. v. Transamerica Life Insurance Co. of Canada. There, the applicant indicated that he had not flown in the past two years, and did not intend to fly, other than as a passenger, in the future. The defendant insurer issued a life policy. The insured had actually piloted an ultra-light plane in the last two years, and had in fact crashed once. The insured's doctor issued a medical report to the insurer prior to the issuance of the policy, and this report made reference to the earlier crash.

The underwriter had noted this point, but had decided it did not warrant further inquiry. Further, the application had been completed in the insured's office, where there was a clearly evident picture of the insured standing beside an ultra-light plane.

When the insured was killed in a crash where he was the pilot of an ultra-light plane, the insurer denied coverage. The Court agreed. It held that the information provided in the application was clearly false, and the misrepresentation was not inadvertent. The Court held that the insured had deliberately given false answers. The evidence further indicated that the insurer would not have issued the policy had it known the truth. Further, the attending physician had been the insured's family doctor, and was not an agent of the insurer, therefore his knowledge of the prior accident could not be attributed to the insurer. The doctor's report should have raised an issue to the underwriter, but it was not necessary for the underwriter to make inquiries beyond checking the information as set out on the application form. The photo in the insured's office did also not clearly depict the insured as the pilot of the plane without close inspection. Taken together, the insured's action met the criteria for fraud. It was not necessary for the insurer to prove an intention to deceive, just that there was an intention to induce reliance. The Court inferred that the insured knew the insurer would rely on the answers in the application to determine whether or not to insure him. The judge was of the opinion that the insured had made an intentional lie. The policy was therefore void.

35445 Alberta Ltd. v. Transamerica Life Insurance Co. of Canada (1996), 5 C.C.L.I. (3d) 160 (Alta. Q.B.); aff'd [1998] 10 W.W.R. 704 (C.A.).

PUNITIVE DAMAGES AWARD FOR INSURER'S BAD FAITH DENIAL OF CLAIM REDUCED BY ONTARIO COURT OF APPEAL

The Ontario Court of Appeal has reduced a punitive damage claim awarded by an Ontario jury against Pilot Insurance Company from $1,000,000.00 to $100,000.00 on the grounds that the million dollar award was simply too high.

The plaintiff insureds had lost their home and all their belongings in a fire. The fire chief and the firefighters investigating the accident determined the fire to be accidental. The insurer hired various independent adjusters and engineers to investigate the fire, all of whom came to the initial conclusion that the fire was accidental.

The insureds had co-operated fully with the insurer throughout and had offered to take a polygraph test. The jury awarded the plaintiffs their full claim for the structure, its contents and for their living expenses following the fire. The insured also recovered interest and costs on a solicitor and client basis. The jury went on to award punitive damages of $1,000,000.00.

On appeal Laskin J. in dissent concluded that there was an independent actionable wrong in the insurer's conduct that allowed a punitive damage claim to be made. He also concluded that the conduct of the insurer was sufficiently reprehensible to justify a punitive damage award. With respect to the quantum of punitive damages awarded, Laskin J. was of the opinion that although it was high it was not irrational or unreasonable and served the intended purpose of such awards to punish the insurer and to act as a deterrent to future similar conduct.

The majority decision of Justice Katsman and Finlayson agreed with Laskin J. that this was an appropriate case for punitive damages. However, they were of the opinion that the punitive damage award was simply too high. Traditional bad faith awards against insurers were in the range of $7,500.00 to $15,000.00. There was no evidence to suggest a corporate strategy on the part of the insurer to deny claims or to discourage making of claims. The insurer did not profit from the denial and the evidence suggested that it was the insurer's counsel that was primarily responsible for the insurer taking the denial position.

Finlayson J. and Katsman J. indicated that an appellate court had more discretion on appeal with respect to altering an award for punitive damages than it did with respect to damage awards in general and that in the circumstances the purposes of a punitive damage award could be met with a lower award of $100,000.00.

Whiten v. Pilot Insurance Co. et. al. (1999), 170 D.L.R. (4th), 280 (Ont. C.A.)

LICENSED AIRCRAFT MAINTENANCE ENGINEERS HELD LIABLE

In Janzen v. Kovachik Aircraft Services Ltd., an aircraft gliding club hired a survey company to inspect a plane that it owned. Seven months after the report which indicated that the plane was in good condition was issued, it crashed, killing one man. The Transportation Safety Board investigation revealed that the cause of the accident was a broken elevator cable, due to contact between the cable and a battery lead. The wife of the deceased sued the club and the survey company.

At trial, the judge held the surveyors 60% liable, based on the finding that an "automotive" battery lead had been installed, rather than an "aircraft" lead. The error was made prior to inspection, and the judge held that the surveyor was therefore negligent. The deceased was held to be contributorily negligent for not having noticed the problem during his routine inspections of the plane. On appeal, the Court affirmed the ruling against the surveyors, and overturned the finding of contributory negligence. It was held that the husband did not have a duty to inspect the lead and was entitled to rely upon the expertise of the licensed aircraft maintenance engineers who performed the inspection. The Ontario Court of Appeal also affirmed the trial judge's ruling that the flying club was not vicariously liable for the negligence of the inspectors it hired. The full liability for the loss was therefore on the inspection company.

Janzen v. Kovachik Aircraft Services Ltd. (1999), 86 A.C.W.S. (3d) 248 (Ont. C.A.).

ORDEN V. GRAIL: S.C.C. CLARIFIES CANADIAN MARTIME LAW

This case concerns four separate actions commenced in the Ontario Court General Division. The actions involved two boating accidents which resulted in fatalities and in serious personal injury. The actions gave rise to similar legal issues. The issues were:

1. Do the superior courts of the provinces, such as the Ontario Court General Division, have jurisdiction over maritime fatal accident claims or are such claims within the exclusive jurisdiction of the Federal Court?;

2. When can provincial statutes of general application apply to maritime negligence claims? Specifically:

a) Do the provisions of the Ontario Family Law Act allowing claims for loss of care, guidance and companionship by dependents (including common law spouses and siblings) apply to vessel accidents?

b) Do the provisions of the Ontario Trustee Act allowing the estate of a deceased person to bring an action for damages apply to vessel accidents?

c) Do the provisions of the Ontario Negligence Act apply to vessel accidents? Is contributory negligence a complete bar to a plaintiff's claim? Does the principle of joint and several liability exist in marine law?

3. Is the limitation period for fatal boating accidents one or two years?

The Supreme Court of Canada held as follows:

1. Provincial superior courts have an inherent general jurisdiction over maritime matters that can only be taken away by clear and explicit statutory language. The provisions of the Canada Shipping Act granting jurisdiction over fatal accident claims to the "Admiralty Court" (which is defined as the Federal Court) do not expressly exclude provincial superior court jurisdiction. Therefore the Ontario Court General Division has concurrent jurisdiction with the Federal Court over maritime fatality claims.

2. A provincial statute can be applicable to a maritime negligence action where through a four part test that court is satisfied that the provided the provincial laws do not go to the core of the federal jurisdiction. If they do, they will be read down. The four part test is:

a) First, it must be determined whether the matter at issue is within the exclusive federal legislative competence over navigation and shipping, i.e. is the subject matter under consideration so integrally connected to maritime matters so as to be legitimate Canadian Maritime Law;

b) If the answer to the above is yes, the second step is to determine whether Canadian Maritime Law provides a counterpart to the statutory provision. If it does, Canadian Maritime Law applies;

c) If there is no counterpart provided by Canadian Maritime Law, the third step is to consider whether the non-statutory Canadian Maritime Law should be altered in accordance with the principles of judicial reform established by the court, i.e. to reflect the changing social, moral and economic fabric of the country. Such changes should only be incremental. Changes with complex or uncertain ramifications should be left for the legislature. Additionally, in making changes to Canadian Maritime Law the courts should consider the fabric of the broader international community of maritime states and the desirability of maintaining uniformity in maritime law;

d) Finally, and only if the matter cannot be resolved through the application of steps 1 through 3, the court must determine whether the provincial statute is constitutionally applicable to a maritime claim. The Supreme Court noted that matters within exclusive federal jurisdiction are subject to provincial statutes of general application provided the provincial laws do not go to the core of the federal jurisdiction. If they do, they will be read down.

The Supreme Court of Canada held that:

a) It was unnecessary to determine if the provincial Ontario Negligence Act applied to the actions since the issue was decided by the Court in Bow Valley Husky where the Court changed the old common law rule of contributory negligence being a complete bar to a claim. Maritime common law was reformed to allow for the apportionment of liability and for joint and several liability and a right of contribution between defendants.

b) With respect specifically to the application of the Ontario Family Law Act to boating accidents, the Supreme Court chose to reform maritime common law to allow claims by dependents for loss of guidance, care and companionship in respect of both personal injury accidents and fatal accidents. The Court held that "dependents" should include common law spouses but not siblings. Siblings were excluded because they are not included as a class of dependents in the fatality provisions of the Canada Shipping Act.

c) With respect to the application of the Ontario Trustee Act, the chose to reform maritime common law to allow a claim by an executor of a deceased.

3. The final issue considered in the case was whether a fatal accident claim is subject to a one or two year limitation period. Section 649 of the Canada Shipping Act provides that the limitation period for a fatal accident is one year. Section 572(1), which deals with collisions, provides for a two year limitation period. The Court held that the plaintiff's claims prima facie came within section 572(1) and any ambiguity created by the two sections must be resolved in favour of allowing the plaintiff to rely on the longer period.

Ordon v. Grail (1998), 166 D.L.R. (4th) 193 (S.C.C.)

This newsletter is published to keep our clients and friends informed of new and important legal developments. The articles are not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.