Tuffnail v. Meekes 2020 ONCA 340

Full Decision

This recent Court of Appeal decision addresses issues related to underinsured automobile coverage, joint liability and subrogation under the OPCF 44R (Ontario Policy Change Form 44R — Family Protection Coverage endorsement).

Tuffnail was a passenger who was seriously injured in a motor vehicle accident after a wedding reception. Tuffnail and the driver, Meekes, had been served alcohol at the reception. The groom, Bolton, had hosted the reception. Coulthard was the bartender. Tuffnail commenced an action against Meekes, Bolton and State Farm, Tuffnail’s automobile insurer, but not Coulthard. In the case of State Farm, Tuffnail sought a declaration that they were entitled to coverage under the OPCF 44R, the optional underinsured motorist coverage Tuffnail had purchased from State Farm, as Meekes was an “inadequately insured motorist” within the meaning of the endorsement. State Farm Defended the action and brought a third party claim against Coulthard for contribution and indemnity for amounts it was required to pay under the OPCF 44R. Bolton also brought a third party claim against Coulthard. The jury apportioned liability amongst all of the parties. There were five issues on appeal. This summary deals only with the two main issues.

1. Did the trial judge err in her interpretation of s.7 of the OPCF 44R, leading to an erroneous calculation of the amount State Farm was required to pay Tuffnail?

One of the issues before the trial judge was whether Coulthard’s insurance coverage was “available” to Tuffnail since Tuffnail did not actually sue Colthard, and Coulthard was a third party only. The trial judge determined that the proceeds of the policy were not available within the meaning of s.7 of the OPCF 44R. Therefore, State Farm could not also deduct the limits of Coulthard’s insurance coverage, and was required to pay the entire amount available under the OPCF 44R. The Court of Appeal disagreed.

The Court of Appeal notes that pursuant to s. 7 of the OPCF 44R, the amount payable by an insurer (State Farm) to an eligible claimant (Tuffnail) is excess to “an amount received by the eligible claimant from any source, and is excess to amounts that were available to the eligible claimant from” nine enumerated sources. This case was concerned with amounts available from the source enumerated in s. 7(b): “the insurers of a person jointly liable with the inadequately insured motorist”. The Court of Appeal reviewed State Farm’s rights of subrogation pursuant to the Insurance Act and the OPCF 44R, and noted that State Farm’s third party claim made an allegation of negligence against Coulthard in relation to Tuffnail. While State Farm framed its claim against Coulthard as a claim for contribution and indemnity, it had actually made a subrogated claim on behalf of Tuffnail. The right of subrogation is derivative in nature and in exercising the right of subrogation the insurer assumes the insured’s right of recovery against the tortfeasor. Therefore the consequence of State Farm’s claim was that Coulthard’s liability to Tuffnail was put in issue. Coulthard was found to be “jointly liable” to Tuffnail within the meaning of s. 7(b), therefore his insurance was “available” to Tuffnail within the meaning of s. 7(b), and State Farm was entitled to deduct the limits of Coulthard’s insurance coverage in calculating the amount it was required to pay to Tuffnail.

2. Did the trial judge err in ordering that State Farm share any amounts it recovers by way of subrogation with Tuffnail only until Tuffnail receives “full indemnification pursuant to the terms of the OPCF 44R endorsement”?

The net amount payable to Tuffnail exceeded the aggregate insurance coverage available. Tuffnail and State Farm disagreed on who should bear the shortfall and sought a ruling from the trial judge. The trial judge concluded that State Farm was entitled to pursue recovery of its subrogated interest against Bolton and Coulthard, and that State Farm would share with Tuffnail, on a pro rata basis, any amounts it recovered by way of subrogation until Tuffnail received full indemnification pursuant to the terms of the OPCF 44R.

Tuffnail argued that the trial judge erred in providing for pro rata sharing only until Tuffnail received full indemnification pursuant to the terms of the OPCF 44R endorsement, rather than until Tuffnail received full indemnification under the judgment. State Farm argued that in this context, the “loss or damage suffered” in s. 278(2) meant the limit of coverage under the OPCF 44R, which it described as Tuffnail’s underinsured loss. Accordingly, once Tuffnail received the $800,000 limit of coverage under OPCF 44R, he has received the maximum indemnity that he is contractually entitled to and State Farm is not required to share anything recovered in the subrogated action.

The Court of Appeal considered s.278(1) of the Insurance Act, which permits an insurer to subrogate before the insured is fully indemnified, and s.278(2), which specifies that, where the net amount recovered is insufficient to provide complete indemnity, the insurer and insured recover pro rata. State Farm’s right of subrogation was also modified by s. 20 of the OPCF 44R, which permitted State Farm to subrogate even sooner than s. 278(1) when a claim is made under the OPCF 44R, as opposed to when the insurer makes any payment or assumes liability, as s. 278(1) provides. However, the Court of Appeal noted that the OPCF 44R is silent on what happens where the net recovery is insufficient to provide complete indemnity.

The Court of Appeal concluded that the trial judge’s decision contained a possible unintentional error, as it made no sense to require the pro rata sharing of those amounts that State Farm would receive by way of subrogation only until Tuffnail received full indemnification pursuant to the terms of the OPCF 44R. Had the trial judge intended to give effect to State Farm’s position, there would have been no need to provide both for State Farm’s payment of $800,000 under the OPCF 44R and pro rata sharing with Tuffnail out of State Farm’s subrogation recoveries. An insurer pays under an insurance contract before it can seek to recover, by way of subrogation, the amounts that it has paid its insured. State Farm was entitled to pursue recovery of its subrogated interest against Bolton and Coulthard, and share with Tuffnail on a pro rata basis, any amounts it recovers by way of subrogation until Tuffnail received full indemnification under the judgment.

The Court of Appeal went on to address the proportion of Bolton’s liability, the trial judge’s exercise of discretion to award prejudgment interest at a higher rate than the bank rate, and whether the trial judge erred in not allowing Coulthard to amend his pleading to plead a limitation defence after the jury returned their verdict.

Written by

Irina Rosca received her law degree from the University of Windsor – Faculty of Law. After articling at a full service, national firm on Bay Street, she joined Greg Monforton and Partners as an Associate in 2018, where she practices exclusively in the field of personal injury. Irina is passionate and committed to protecting the rights of her clients and fighting to secure the compensation they deserve. In her spare time, Irina enjoys giving back and volunteering within her community.