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What do you do at work that is considered ‘under the direction’ of your employer?
The answers to this question are endless. A more interesting question: what do you have to be doing at work not to be ‘acting under the direction’ of your employer? That question is at the heart of the decision in Oliveira v. Aviva, a Court of Appeal decision released this week. The applicant sought coverage and a defence for claims brought against her by a hospital patient for damages as a result of applicant’s alleged accessing the hospital records of a patient who was not under her care. The crux of the case turned on whether the applicant (defendant in the lawsuit) was an insured under the policy issued by Aviva. The policy would provide coverage if the allegations in the underlying Statement of Claim alleged conduct took place while the applicant was acting under the direction of the named insured but only with respect to liability arising from the operations of the named insured.
Because the policy provided coverage for ‘invasion or violation of privacy’, also referred to as the tort of intrusion upon seclusion (which would include accessing records in an unauthorized manner) the court held that the policy was by definition intended to cover offensive conduct that would presumably not be authorized by the insurer. In that case, how can coverage be denied for conduct that on the face of it would appear to be covered?
Acting under the direction of the employer relates not to control how the work is done or actual oversight at the moment of the incident (in this case when records were improperly accessed) but rather flows from the relationship generally and ‘control’ over incidental features of the of the employment such as directing when and where to work and having the right to terminate the employment.
Whether the alleged misconduct arose out of the operations of the named insured was also in issue. The insurer argued that hospitals operations are to provide care and because the employee was not within the patient’s circle of care, her conduct did not fall within the operations of the hospital. The court rejected this argument, noting that the ‘operations’ of the hospital included creating, collecting and maintaining medical records. The underlying claim against the applicant (defendant) for which coverage was sought related to allegations about the unauthorized access to those medical records.
Ultimately however, in reading the decision, the irresistible inference is that the court accepted that because the policy covered ‘intrusion upon seclusion’, it could only be read to cover the alleged misconduct. As a result to deny coverage for the very conduct that the policy was intended to cover would be perverse. It is also consistent with the underlying interpretive imperative of insurance policies – coverage should be interpreted broadly and exclusions should be interpreted narrowly.
Neil is a Partner of Samis+Company. Neil focuses exclusively on insurance-related litigation. He has handled a broad range of matters before the Ontario Superior Court of Justice and the Financial Services Commission of Ontario, as well as advocating on behalf of his clients in private arbitrations.
The Court of Appeal for Ontario has held that a Minnesota tortfeasor with only $500,000 liability limits is an “inadequately insured motorist” under the Family Protection Endorsement (OPCF 44R) in Ontario, where the 44R limits are $1 million.
In Hartley v. Security National, the plaintiffs were injured in a motor vehicle accident while touring on a motorcycle in Minnesota. The accident occurred when the plaintiffs’ motorcycle was struck by a self-insured State of Minnesota-owned truck, operated by a state employee. The plaintiffs retained Minnesota counsel and sued the State of Minnesota for damages.
Even though Mr. Hartley’s injuries warranted damages in excess of US$500,000 dollars, he settled the action for only US$500,000, which was the maximum payable by Minnesota to a tort claimant in the circumstances. The settlement was inclusive of legal fees, including a 22 per cent contingency fee, and disbursements. After legal costs were accounted for, Mr. Hartley was left with approximately CAD$386,500.
He then claimed the difference from Security National under his Ontario policy and, more specifically, under his OPCF 44R, which provided underinsured coverage of up to $1 million. The insurer denied the claim on two grounds: Firstly, the insurer claimed that Minnesota was not an “inadequately insured motorist” within the meaning of OPCF 44R. Secondly, the insurer claimed that U.S. legal fees were not recoverable under the OPCF 44R.
The motion judge found for the plaintiffs on both issues.
The Court of Appeal agreed with the motion judge that Minnesota was an “inadequately insured motorist” but disagreed that the legal fees were recoverable.
“Inadequately insured motorist”
The evidence was that the Tort Claims Act inMinnesota provides that the State will pay compensation for property loss and personal injury caused by a state employee acting in the course of his or her employment. However, the Act contains a $500,000 cap on the amount that can be claimed by an individual and a $1,500,000 cap on the total that is payable “for any number of claims arising out of a single occurrence”. Mr. Hartley’s settlement agreement with Minnesota contained the following provision:
The parties to this Settlement Agreement agree and acknowledge that the amount paid to Plaintiff Glen Hartley and his counsel, (i.e., [US]$500,000.00) is the maximum amount Glen Hartley can recover against State Defendants pursuant to Minnesota law, including Minn. Stat. §3.736.
Security National raised three arguments for refusing Mr. Hartley’s claim for the shortfall left after his settlement agreement:
Minnesota was not underinsured, but self-insured, and therefore underinsured coverage does not apply.
The shortfall in recovery was not the result of underinsurance, but the result of a statutory immunity.
Even if a self-insured state enjoying statutory immunity can be an “inadequately insured motorist”, it is not accurate to say that Minnesota is underinsured because Minnesota offers single occurrence coverage up to US$1,500,000 that exceeds the CAD$1,000,000 coverage ceiling payable under OPCF 44R. Security National claimed that its maximum liability is zero under the terms of OPCF 44R.
The Court of Appeal rejected all three arguments.
First, the language in the OPCF 44R was clear:
“inadequately insured motorist” means
(a) the identified owner or identified driver of an automobile for which the total motor vehicle liability insurance 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 family protection coverage … [Emphasis added.]
The Court held that the phrase “other financial guarantees as required by law in lieu of insurance” would include a legislated obligation by an uninsured state to indemnify its employees by paying compensation for tortious damage caused by those employees.
Second, the Court of Appeal held that the Tort Claims Act does not remove Minnesota’s liability: It limits the damages that can be collected from Minnesota:
Instead of assisting Security National, the cap on damages produces a shortfall between what Mr. Hartley is “legally entitled to recover” in damages, and what he is entitled to receive, thereby triggering a right of indemnity under OPCF 44R.
Finally, The Court of Appeal dismissed the insurer’s argument that the $1.5 million cap represents the “total of all limits” available to the claimant for the purpose of section 4 of the OPCF 44R:
When the words “the total of all limits of motor vehicle liability insurance, or bonds, or cash deposits, or other financial guarantee as required by law in lieu of insurance, of the inadequately insured motorist” in s. 4 are given their ordinary meaning in context, it is clear that they refer to the funds available to the claimant bringing the claim.
As Mr. Hartley’s claims were limited to $500,000, there was a shortfall within the meaning of section 4 of the OPCF 44R.
Section 3 of the OPCF 44R requires the insurer to indemnify the insured for the shortfall in “compensatory damages in respect of bodily injury to or death of an insured person arising directly or indirectly from the use or operation of an automobile” [emphasis added].
The motion judge found that the legal fees were not “compensatory damages”, but held that the fees could be recovered from the insurer as special damages. The Court of Appeal disagreed:
To use the vehicle of special damages to provide compensation for costs incurred in securing compensatory damages undermines the contractual agreement of the parties.
The Superior Court of Justice recently released an important decision finding full indemnity costs payable in a coverage case.
In the underlying action, a young boy was severely injured by a car after his father dropped him off in a parking lot. The boy (via his litigation guardian) and the boy’s mother (via the Family Law Act) sued the father for damages. The father’s insurer found a duty to defend and the insurer’s counsel represented him at trial. At trial, over $900,000.00 in damages were awarded. Following the trial, the father’s insurer denied coverage.
The mother and boy brought a claim against the father’s insurer under section 258(1) of the Insurance Act, which allows parties to bring a claim to enforce judgment against insurers. At the summary judgment motion, the court found that there was coverage.
The significance of Hoang v. The Personal Insurance Company is the court’s determination on costs. The court found costs payable to the mother and boy on a full indemnity scale, rather than the usual partial indemnity scale.
The court rationalized the full indemnity on the basis that the insurance premium is presumed to reflect the insurance company’s risk. It would be unfair and burdensome to make customers pay a premium plus legal fees in order to obtain the coverage they purchased. If the insurer chooses to attempt to reduce its risk by engaging in coverage litigation, it should be made to fully compensate the successful party if it losses. Ultimately, the court ordered the insurer to pay full indemnity costs at $72,000.00.
This decision marks a possibly new exception to the general policy of awarding partial indemnity costs to successful parties. It is something that both coverage counsel for insurers and policy holders need to keep in mind moving forward, as denying coverage under a policy now can apparently be very costly.