Once and for all: a definition for a term that appears in an insurance policy applies to the same term appearing in an excess endorsement unless the endorsement explicitly modifies the definition

Insurance law – Automobile insurance – Homeowner’s insurance – Accident – Definition – Ownership, use or operation of motor vehicle – Use of vehicle – Uninsured or underinsured motorist – Interpretation of policy

Smith v. Taylor, [2022] O.J. No. 5436, 2022 ONSC 6889, Ontario Superior Court of Justice, December 8, 2022, M.J. Valente J.

The insurer was successful on an application to dismiss an action on the basis that a homeowner’s policy issued to its deceased insured, the plaintiff’s spouse, did not provide coverage to the spouse in respect of the motor vehicle accident that led to the insured’s death.

The insured was killed in a collision while on his motorcycle.  The insured had an automobile policy issued by Aviva which was a standard Ontario Automobile Policy and included optional Family Protection Coverage with policy limits of $1 million (the “Aviva Policy”).  The Family Protection Coverage provided the insured’s spouse with indemnity if an insured was injured by an “inadequately insured motorist.”  The Aviva Policy defined an “inadequately insured motorist” as:

The identified owner or driver of an automobile for which the total motor vehicle liability or bonds, cash deposits or other financial guarantees as required by law in lieu of insurance, obtained by the owner or driver is less than the limit of [the Family Protection Coverage].

The insured’s spouse and Aviva agreed that the other driver was not an “inadequately insured motorist” under the Family Protection Coverage, such that no amount was payable by Aviva to the insured’s spouse under that coverage.

In this action, the insured’s spouse claimed coverage under a Personal Excess Liability Policy Endorsement (the “Excess Endorsement”) included in the Aviva policy.  The Excess Endorsement provided for a limit of $1 million in excess insurance to the Family Protection Coverage.  The Excess Endorsement stated in part:

Subject to the terms and conditions of this policy coverage provided by this policy is extended to pay the amounts which “You” are legally entitled to recover as “Compensatory Damage” for “Bodily Injury” or for damage to property from an inadequately insured motorist.

The Excess Endorsement did not define “inadequately insured motorist.”  Aviva submitted that in order to recover under the Excess Endorsement, the insured’s spouse must prove that she was injured by an “inadequately insured motorist” as defined under the Family Protection Coverage and that the limits of the Family Protection Coverage had been triggered and exhausted.

The insured’s spouse argued that the definition of “inadequately insured motorist” that came from the Family Protection Coverage should not be applied in determining her entitlement to coverage under the Excess Endorsement.  She also argued that the Family Protection Coverage limits did not need to be exhausted before she could recover under the Excess Endorsement.

The Court held that endorsements to automobile insurance policies are not to be interpreted independently from the underlying policy and may modify terms of the underlying policy only where explicitly stated.  The Court noted that an endorsement is of the same force and effect as if it were the standard policy, subject to the limits and coverage found in the certificate of insurance.  Where a term is not defined in an endorsement, definitions from the underlying policy will be adopted.  As there was no explicit language in the Excess Endorsement that modified the meaning of “inadequately insured motorist,” the Court held it had the same meaning as stipulated in the Family Protection Coverage.

This case was digested by Mollie A. Clark, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter.  If you would like to discuss this case further, please contact Mollie A. Clark at [email protected].

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