Last week, the Court of Appeal for British Columbia released reasons in the case of Stroszyn v. Mitsui Sumitomo Insurance Company Limited, 2014 BCCA431.

The case involved a plaintiff, Edward Stroszyn, who had suffered injuries as a result of a 2008 motor vehicle accident, where he was struck by a vehicle that had been leased by Honda Canada Finance Inc. (“Honda”).  Honda is insured pursuant to a policy of excess insurance, to a limit of $9,000,000, issued by Mitsui Sumitomo Insurance Company Ltd. (“Mitsui”). The parties had reached a settlement agreement, whereby Mr. Stroszyn would receive the sum of $1,600,000 for his damages suffered. ICBC paid out the $1,000,000 policy limit of the negligent driver, Jason Chen, and his mother, the vehicle lessee, Mary Chen. Two questions regarding the remaining $600,000 sum were then put to the BC Supreme Court, by way of a Reference Agreement between the parties, resulting in a petition pursuant to Supreme Court CivilRule 2-1(2)(c).

1)  The first question sought to determine whether the lessor, Honda, was liable to pay any amount in excess of the $1,000,000 paid by ICBC.

2)  The second question sought to determine whether the defendants, Mr. Chen and Ms. Chen, were insured under Mitsui’s $9,000,000 policy, thus obliging Mitsui to pay the balance of the agreed damages.

In Chambers, Mr. Justice Bowden found that Honda’s liability to pay a “Lessor Damages Cap” of up to $1,000,000, under s82.1(2) of the Insurance (Vehicle) Act (“I(V)A”), which governs the limits of a lessor’s vicarious liability, was not reduced by payments made by ICBC, and found that Mr. Chen was not an insured under Honda’s policy coverage through Mitsui.

Both orders were appealed.

On appeal, the petitioner, Mr. Stroszyn, took the position that the “Lessor Damages Cap” is in excess of payments made by or on behalf of the lessee or the driver, while Mitsui’s position was that the payment of a portion of a judgment by any party that is jointly and severally liable with another has the effect of discharging the liability of all, and that being the case, the payment of $1,000,000 to the petitioner discharges all parties jointly liable to the full extent of the payment.

The Court found, with regard to these positions:

[22]        The sole question before us, as I see it, is whether the payment by ICBC wholly discharged Honda from its vicarious liability, or whether there is any basis upon which the Court can, and should, attribute only a portion of the payment to Honda and regard that payment as partially discharging Honda’s statutory liability. [23]        The petitioner submits that, in the unusual circumstances of this case, where the liability of one of several parties jointly and severally liable for the damages is limited by statute, the Court should allocate the payments made in settlement of the claim to each of the liable parties. The petitioner submits that, there being no basis for doing so otherwise than equally, the Court should consider one‑third of the payment made to the petitioner by ICBC to have been made on behalf of Honda, reducing Honda’s liability to the petitioner by $333,333. After giving Honda credit for that portion of the ICBC payment, its residual liability under the statutory cap ($1.0 million less the $333,333 credit) would be sufficient to require it to pay the entire balance of the petitioner’s claim: $600,000. [24]        I see no basis in law for considering only a portion of the ICBC payment to have been made on behalf of Honda. In my view, each of the insureds in this case can regard the whole of the payment made by ICBC to have been made on his, her or its behalf and to have reduced its liability to the petitioner to the full extent of the payment. In the absence of a statutory provision limiting the lessor’s liability, all three would remain jointly and severally liable for the balance of the petitioner’s damages. However, the I(V)A having limited the lessor’s liability to $1 million, it is my view that the payment of $1 million to the petitioner on behalf of all insureds, including the lessor, completely discharges the lessor’s liability and leaves the other defendants jointly and severally liable for the balance of the damages. [25]        This must certainly be the case where the liability of Ms. Chen and Honda is entirely vicarious. Vicarious liability is discharged to the extent of any payment made in satisfaction of a plaintiff’s claim for damages. This is not a case where liability can be apportioned by degrees of blameworthiness, or severed. The Court pointed to the decision of Yeung (Guardian ad litem of) v. Au, 2006 BCCA 217, which discusses the statutory liability limits of lessors, under s86 of the Motor Vehicle Act, at [35]:
[35]      … The purpose of s. 86, then, is to extend liability as well to the owner in two situations – where the driver or operator is living with and as a member of the family of the owner, or where the driver or operator acquired possession of the vehicle with the owner’s express or implied consent. Where these conditions are met, s-s. (1) deems the driver or operator to be the agent or servant of the owner, and to be driving or operating the vehicle in the course of his or her employment. Effectively, this makes the owner liable on common law principles of agency. Sub-section (2) clarifies that s-s. (1) does not relieve the driver or operator from liability, leaving open the possibility of recovery by an injured plaintiff from both the owner and the driver.Mr. Justice Willcock ultimately found that Honda’s liability was reduced by payments made by ICBC, stating:
[28]        In the circumstances of this case, because the lessor is an insured under the ICBC policy, we need not determine whether the lessor’s liability is reduced by payments expressly made by or on behalf of lessees or drivers alone. The liability of the lessor is certainly reduced by payments made on its behalf by its insurer and I cannot see in the legislation an evident intention to treat payments made under the primary insurance policy as payments made on behalf of the tortfeasor alone and not payments equally made by the parties vicariously liable for his negligence and insured under the payer’s policy, as they would be at common law.…[34]        The statute is clear in limiting the liability of lessors. There is no ambiguity in the provisions in question that would justify reading into the legislation a provision that would have the effect sought by the petitioner.In allowing the cross-appeal concerning Mr. Chen’s coverage status under the Mitsui policy, and declaring Mr. Chen to be an insured under that policy, the Court stated:
[38]        The provisions of the I(V)A require Mitsui to afford coverage to Ms. Chen and Jason Chen on the same terms and conditions as those in the ICBC certificate, unless Mitsui expressly limits the coverage it affords in conformity with the I(V)A. [39]        The I(V)A permits an insurer providing optional insurance coverage to prohibit a specified person or class of persons from using or operating the vehicle and to exclude such persons from coverage. The petitioner acknowledges Mitsui might properly prohibit Jason Chen from obtaining coverage under its policy. He argues Mitsui did not do so in accordance with s. 61 of the I(V)A. [40]        The petitioner says s. 61(2) prescribes how an insurer can exclude individuals or risks from the insurance provided under an optional insurance contract, or limit its exposure. In order to exclude anyone from the coverage afforded under its policy, Mitsui is required to print on the policy, in conspicuous lettering in a prominent place, the words that appear in s. 61(2): “This policy contains prohibitions relating to persons or classes of persons, exclusions of risks or limits of coverage that are not in the insurance it extends”. It did not do so. [41]        The chambers judge held that Mitsui could exclude Jason Chen from coverage notwithstanding the failure to include the words mandated by the I(V)A. The judgment is founded upon the view that the words of the policy would not have come to the attention of Jason Chen because it was “meant to protect insureds from exclusions or limits to coverage of which they may not be aware”. The omission of the mandated words was therefore considered to be immaterial. [42]        In my view, the failure to meet the statutory requirement precludes the insurer from reducing or altering the underlying coverage by writing limiting terms into the excess policy. The statute provides a means by which an insured may easily determine whether the coverage afforded under the lessor’s excess coverage differs from the underlying coverage. The wording required by the I(V)A is a measure of protection for all insureds. The exclusion of lessees and their agents from coverage is only effective if the mandated words appear on the policy; the exclusion is ineffective if the mandated words do not appear. That is so, whether or not the wording is brought to the attention of the insured. [43]        In Temple Sholom v. I.C.B.C. (1986), 1986 CanLII 810 (BC CA), 8 B.C.L.R. (2d) 130, 33 D.L.R. (4th) 231 (C.A.), this Court upheld the decision of Wood J. reflex, (1986), 70 B.C.L.R. 69 (S.C.), precluding an insurer from relying on provisions in an insurance policy where it had not printed words mandated by the Insurance Act (“This policy contains a clause which may limit the amount payable”) on the face of the policy. The insurer argued it had complied with the statute by printing the caution at a location reasonably proximate to the clause in question, so as to alert the insured to the existence of the clause when it would be most likely to be noticed. That argument was rejected as inconsistent with the deliberate choice of language by the legislature. An analysis of the effective notice to the insured was unnecessary. [44]        In response to the cross appeal, Mitsui says ss. 61(1.2) and (2) must be read together and that the wording described in subsection (2) is only necessary where the insurer seeks to rely upon a prohibition, exclusion or limit of a very narrow class. That class is said to be defined, in some manner, by subsection (1.2). In my view, that cannot be so. Subsection (1.2) prohibits an insurer from excluding certain persons from coverage or providing them with coverage to different limits or on different terms from those in the certificate or underlying policy. The obligatory wording set out in s. 61(2) is not necessary and would be ineffective to exclude any of the persons or risks described in subsection (1.2). The wording described in s. 61(2) is necessary with respect to all other permissible prohibitions, exclusions or variations in limits.The Court, concluding, stated:
[45]        For those reasons, I would allow the appeal, set aside the order made in relation to the “lessor damages” issue, and substitute in its place the declaration sought by the appellant: that the payments made to the petitioner by ICBC have the effect of reducing the liability of Honda to the full extent of the payments made.[46]        I would also allow the cross appeal, set aside the order made in relation to the “excess coverage” issue, and substitute in its place the declaration sought by the cross appellant: that Jason Chen is an insured under the Mitsui policy, subject to the same terms and conditions as contained in the underlying certificate.