Budd et al. v. Paterson, also known as Patterson Budd et al. v. The Personal Insurance Company of Canada
[Indexed as: Budd v. Paterson]
62 O.R. (3d) 715
 O.J. No. 4883
Docket Nos. C38038 and C38039
Court of Appeal for Ontario,
Weiler, Rosenberg and Armstrong JJ.A.
December 19, 2002
Insurance — Arbitration — Abuse of process — Plaintiff injured in motor vehicle accident — In arbitration respecting accident benefits arbitrator finding that plaintiff was not insured at time of accident — Plaintiff bringing action against tortfeasor — Motions judge erring in dismissing action on basis of abuse of process because of arbitrator’s finding that plaintiff not insured at time of accident — Question of whether tortfeasor breached his duty of care to plaintiff separate and not derived from contractual relationship alleged by plaintiff against insurer.
Insurance — Arbitration — Issue estoppel — In arbitration respecting accident benefits arbitrator finding that plaintiff was not insured at time of accident — Plaintiff bringing action against insurer for breach of contract and negligence — Motions judge erring in dismissing action on basis of issue estoppel — Same issue not raised in arbitration proceedings and civil action.
B and his wife, R, owned two family vehicles, both of which were registered in R’s name. When they separated, R transferred the ownership of one of the vehicles to B and told a customer service representative of the insurer to cancel the policy on that vehicle. The representative did so but did not inform B. Five days after the vehicle was deleted from the insurance policy, B was injured in a collision with P. The insurer refused to pay accident benefits and B commenced arbitration proceedings. The arbitrator found that B’s vehicle was uninsured at the time of the accident and that he knew or ought reasonably to have known that he was operating an uninsured vehicle. Section 267.6(1) of the Insurance Act, R.S.O. 1990, c. I.8 precludes an uninsured driver from recovering loss or damage from bodily injury arising directly or indirectly from the use or operation of an automobile. B brought an action against P for damages for negligence and a separate action against the insurer for damages for breach of contract and negligence. The defendants in both actions moved for summary judgment dismissing the actions. The motions judge held that it would be contrary to public policy to permit the issue of whether B was insured at the time of the accident to be relitigated in the P action. That action was dismissed on the basis of abuse of process. The action against the insurer was dismissed on the basis of issue estoppel. B appealed.
Held, the appeal should be allowed.
The question of whether P breached his duty of care to B, thereby committing a tort, was separate from and not derived from the contractual relationship alleged by B against the insurer. The motions judge erred in applying the doctrine of abuse of process.
The motions judge erred in concluding that the same issue was raised in the arbitration proceedings and the action against the insurer, so that (the other [page716] elements of issue estoppel being present), B was estopped from suing the insurer. The issue was not the same because the arbitrator’s findings did not preclude a finding that the insurer was at least partly responsible for the alleged contributory negligence of its agent. The arbitration proceeding was not intended to provide an effective redress for the insurer’s alleged breach of duty and did not deal with that question. Moreover, the determination of whether the same issue is raised must be decided bearing in mind the purpose of the legislation. The broad purpose of the Automobile Insurance Rate Stability Act, 1996, S.O. 1996, c. 21, which introduced s. 267.6 as an amendment to the Insurance Act, was to stabilize insurance costs. One of the purposes of s. 267.6 is to limit the class that can recover from the automobile insurance pool to those who have paid premiums into that pool, thus advancing the goal of matching claims against premiums. The arbitration between B and the insurer concerning accident benefits was consistent with those goals. To permit an action for recovery of damages for the insurer’s negligence to B would not upset those goals as the damages in the action would not come out of the pool of insurance premiums paid to automobile insurers. Canam Enterprises Inc. v. Coles, 2002 SCC 63,  S.C.J. No. 64 (Quicklaw), 24 C.P.C. (5th) 1, revg (2000), 51 O.R. (3d) 481, 194 D.L.R. (4th) 648, 5 C.P.C. (5th) 218 (C.A.), affg (2000), 47 O.R. (3d) 446 (S.C.J.), apld
Other cases referred to
Danyluk v. Ainsworth Technologies Inc.,  2 S.C.R. 460, 54 O.R. (3d) 214n, 201 D.L.R. (4th) 193, 272 N.R. 1, 2001 C.L.L.C. 210-033, 2001 SCC 44, 10 C.C.E.L. (3d) 1, 7 C.P.C. (5th) 199; Hernandez v. 1206625 Ontario Inc.,  O.J. No. 3667 (C.A.); Machin v. Tomlinson (2000), 51 O.R. (3d) 566, 194 D.L.R. (4th) 326, 2 C.P.C. (5th) 210 (C.A.), revg (1999), 46 O.R. (3d) 550, 42 C.P.C. (4th) 58, 3 M.V.R. (4th) 18 (S.C.J.); Minott v. O’Shanter Development Co. (1999), 42 O.R. (3d) 321, 168 D.L.R. (4th) 270, 40 C.C.E.L. (2d) 1, 99 C.L.L.C. 210-013 (C.A.), affg (1997), 30 C.C.E.L. (2d) 123 (Ont. Gen. Div.)
Statutes referred to
Automobile Insurance Rate Stability Act, 1996, S.O. 1996, c. 21 Compulsory Automobile Insurance Act, R.S.O. 1990, c. C.25, s. 2(1)
Insurance Act, R.S.O. 1990, c. I.8, s. 267.6
APPEAL from summary judgments of Nordheimer J. (2002), 58 O.R. (3d) 611, 25 M.V.R. (4th) 278 (S.C.J.) dismissing actions.
Richard Worsfold, for appellants. Krista Springstead, for respondents.
The judgment of the court was delivered by WEILER J.A.: —
 Everyone who operates a motor vehicle on a highway is required to have insurance pursuant to s. 2(1) of the Compulsory Automobile Insurance Act, R.S.O. 1990, c. C.25. Where the driver [page717] of a motor vehicle does not have insurance, s. 267.6(1) of the Insurance Act, R.S.O. 1990, c. I.8 precludes the uninsured driver from recovering “loss or damage from bodily injury . . . arising directly or indirectly from the use or operation of an automobile”.
 The principal issue in the first appeal (#C38038) is whether Budd is prevented from suing Paterson in the Superior Court of Justice because, in an arbitration respecting accident benefits that Budd claimed from his alleged insurer, The Personal Insurance Company of Canada (“Personal”), the arbitrator found that Budd did not have insurance. The principal issue in the second appeal (#C38039) is whether Budd is estopped from suing Personal both for breaking its contract of insurance and in tort because the findings the arbitrator made would be relitigated. Nordheimer J. held that Budd could not sue either Paterson or Personal and granted summary judgment dismissing both actions.
 For the reasons that follow, I would allow both appeals, and set aside Nordheimer J.’s order.
 Raymond Budd and Rose Budd were married in 1975. They separated in March 1997. At the time, they owned two family vehicles, a 1991 Honda Civic and a 1990 Ford Tempo, both of which were registered in Rose Budd’s name. In her statements of claim Rose Budd alleges that she was in the process of transferring the ownership of the Honda Civic from her name to that of her husband. On March 13, 1997 she alleges that she told Michael Almas, a customer service representative of Personal, to cancel the existing policy when it expired on April 1, 1997, at which time Raymond Budd would require a new policy. The next day, she faxed a letter to Personal requesting it to “remove 1991 Honda and leave everything else the same”. She attached a copy of the ownership showing the Honda Civic now registered in Raymond Budd’s name to her letter.
 On March 16, 1997, Raymond Budd picked up the Honda Civic from the driveway of Rose Budd’s home. On March 19, 1997, while driving the Honda Civic, Raymond Budd was involved in a motor vehicle accident with the Paterson vehicle and sustained serious injury.
 Michael Almas, who was 23 years old at the time and had been working at Personal for 18 months, cancelled the insurance policy on the Honda Civic effective March 14, [and] an amended certificate of insurance was not issued until March 31. He did not [page718] set up a separate policy in Raymond Budd’s name, even though Budd was responsible for a Bank of Montreal Lien registered against the vehicle and disclosed on the insurance policy. Almas did not notify Raymond Budd that the insurance on the Honda Civic was cancelled.
 On March 26, 1997, Raymond Budd wrote a letter to Personal cancelling the insurance on the Honda Civic. As the vehicle was a write-off, insurance was no longer required.
 Personal paid $5,000 to the Budds. This amount was the value of the Honda Civic under the “collision” coverage in the policy. Personal also approved an application for income replacement and other accident benefits for Raymond Budd and paid those benefits from March 1997 to March 1998.
 On March 24, 1998, Personal took the position that the policy had been cancelled and that Raymond Budd was operating his motor vehicle while it was not insured by a valid motor vehicle policy. Personal refused to pay any further accident benefits. Budd commenced arbitration proceedings.
The arbitration proceedings
 On or about May 25 and 26, 1999, an Arbitration was held at The Financial Services Commission of Ontario before Arbitrator Kay Joachim. The central issue at the Arbitration was the existence of a valid policy of insurance for the 1991 Honda Civic at the time of the accident. In a written decision released on June 21, 1999, Arbitrator Joachim made the following critical findings of fact and/or law:
(a) Rose Budd instructed The Personal to delete the 1991 Honda Civic from her policy effective March 14, 1997;
(b) The vehicle was deleted from the Policy of Insurance effective March 14, 1997;
(c) Rose Budd did not ask anyone at The Personal to issue a policy in Raymond Budd’s name;
(d) Rose Budd knew that the 1991 Honda Civic was not insured after March 14, 1997;
(e) On March 19, 1997, Mr. Budd knew that the 1991 Honda Civic had been deleted from Rose Budd’s policy and therefore knew or ought reasonably to have known that he was operating a vehicle that was not insured; and,
(f) The Personal is not estopped from arguing that Mr. Budd was operating a vehicle without insurance by virtue of the fact that it continued to pay income replacement benefits for a period of time post accident. [page719]
 The Decision of Arbitrator Joachim was appealed to the Directors Delegate at The Financial Services Commission of Ontario. On or about January 18, 2000, Arbitrator Stewart McMahon released written reasons dismissing the appeal and upholding the decision of Arbitrator Joachim. Arbitrator McMahon made the following additional determinations:
(g) He precluded the Appellant, Budd from raising the issue of waiver at the Appeal as it had not been raised at the original Arbitration and could have been raised at that time;
(h) He concluded that an absence of Notice to the Lienholder did not preserve Budd’s rights to receive accident benefits and was actionable only by the Lienholder.
(i) He refused Budd’s request to tender salvage documentation on Appeal.
The decision of the motions judge
 The motions judge began his analysis by observing that the doctrine of res judicata incorporates both cause of action estoppel and issue estoppel. He noted that cause of action estoppel precludes relitigating a claim that was raised or that could have been raised in the earlier proceeding. He then dealt with the three elements for issue estoppel: (i) that the same question has been decided and that it is fundamental to the litigation; (ii) that the decision was final; and (iii) that the parties to the judicial decision or their privies were the same in both proceedings.
 In relation to the Paterson action (#C38038), the motions judge held that although the first two elements of issue estoppel were met, the third requirement had not been satisfied. The Arbitration proceeding was between Budd and Personal, to which Paterson was not a party. Although, through coincidence, Personal had insured both Budd and Paterson, Personal’s interest as insurer of Budd was at odds with its interests as insurer of Paterson. Having regard to Machin v. Tomlinson (2000), 51 O.R. (3d) 566, 194 D.L.R. (4th) 326 (C.A.) at pp. 574-76 O.R., pp. 334-36 D.L.R. and Minott v. O’Shanter Development Co. (1999), 42 O.R. (3d) 321, 168 D.L.R. (4th) 270 (C.A.) at pp. 339-40 O.R., the identity of interest required of a privy was not met.
 The alternative basis for the respondents’ motion was the principle of abuse of process. The motions judge stated that abuse of process could be invoked where the court wished to prevent a collateral attack on the decision of a court of competent jurisdiction and, further, that the elements of issue estoppel did [page720] not have to be met. The motions judge held, however, that relitigation of the issue of whether Budd had a valid policy of insurance on the Honda at the time of the accident was “fundamentally inconsistent with the public policy that is evident from the applicable legislative scheme”. The purpose of this scheme was to limit the right of a victim in a motor vehicle accident to maintain an action against the tortfeasor. Although the motions judge recognized the court had discretion to refuse to apply the doctrines of equitable estoppel and abuse of process when doing so would give rise to an injustice, he was of the opinion that it was not unjust to do so here. He held, instead, that it would be contrary to public policy to permit the issue of whether Budd was insured at the time of the accident to be relitigated and dismissed the action on the basis of abuse of process.
 The motions judge then dealt with the action of Budd against Personal. He acknowledged that the arbitrator did not expressly rule on the alleged negligence of Personal. He held, however, that the arbitrator’s rejection of the Budds’ insurance was fundamental to his conclusion there was no valid policy of insurance. He held that, “the negligence issues which the plaintiffs attempt to raise in the amendments to their statement of claim are directly refuted by the reasons and findings of the arbitrator. The same issue is therefore raised and that question has been decided.” Relying on Danyluk v. Ainsworth Technologies Inc.,  2 S.C.R. 460, 201 D.L.R. (4th) 193, at p. 473 S.C.R., p. 204 D.L.R. to the effect that duplicative litigation, potentially inconsistent results and inconclusive proceedings are to be avoided, he declined to exercise his discretion not to apply the principle of issue estoppel. He dismissed the action against Personal.
 In the first, or Paterson, appeal, Nordheimer J. recognized that, on the basis of Machin, supra, a third party defendant is not a privy to a plaintiff’s dispute with his own insurer because their interests are different. Thus the doctrine of equitable estoppel did not prevent Budd from suing Paterson. As I have indicated, he held, however, that it would be an abuse of process and contrary to the policy of the legislature to relitigate the question of whether Budd had insurance. Nordheimer J.’s conclusion respecting the application of the doctrine of abuse of process appears to be based largely on this court’s decision in Canam Enterprises Inc. v. Coles (2000), 47 O.R. (3d) 446 (S.C.J.). [page721]
 Since then, the Supreme Court has reversed the opinion of the majority in Canam Enterprises Inc. v. Coles, 2002 SCC 63,  S.C.J. No. 64 (Quicklaw). In so doing, the Supreme Court agreed with the dissenting opinion of Goudge J.A. In his dissent, Goudge J.A. held that the question of whether the solicitor breached his duty of care to his principal, the purchaser of a property, was separate from and not derived from the contractual relationship between the purchaser and the vendor. So too, here, the question of whether Paterson breached his duty of care to Budd, thereby committing a tort, is separate from and not derived from the contractual relationship alleged by Budd against Personal. With the benefit of the Supreme Court’s decision in Canam Enterprises, supra, I would conclude that Nordheimer J. erred in applying the doctrine of abuse of process. The action by Budd against Paterson ought not to have been dismissed.
 In the second appeal, the action against Personal, Budd is suing Personal for breach of contract in failing to insure the Honda and in negligence for failing to advise the Budds of the steps necessary to ensure that the Honda was insured at all times.
 The motions judge concluded that the reasons and findings of the arbitrator directly refuted the negligence issues that the Budds were attempting to raise. Thus, he held that the same issue was raised and that the question had been decided. I would respectfully disagree that the Budds should be bound by the arbitrator’s findings for two reasons.
 First, the issue was not the same because the arbitrator’s findings do not preclude a finding that Personal is at least partly responsible for the alleged contributory negligence of its agent. The arbitration proceeding was not intended to provide an effective redress for Personal’s alleged breach of duty and did not deal with this question.
 Second, the determination of whether the same issue is raised must be decided bearing in mind the purpose of the legislation. The broad purpose of the Automobile Insurance Rate Stability Act, 1996, S.O. 1996, c. 21, which introduced s. 267.6 as an amendment to the Insurance Act, R.S.O. 1990, c. I.8, is to stabilize insurance costs. One of the purposes of s. 267.6 is to limit the class that can recover from the automobile insurance pool to those who have paid premiums into that pool thus advancing the goal of matching claims against premiums: Hernandez v. 1206625 Ontario Inc.,  O.J. No. 3667 (Quicklaw) (C.A.) at para. 38. The arbitration between Budd and Personal concerning accident benefits was consistent with these goals. To permit an action for recovery of damages for Personal’s negligence to Budd [page722] would not upset these goals as the damages in the action would not come out of the pool of insurance premiums paid to automobile insurers.
 As the same question was not before the arbitrator, I would allow the second appeal.
 I would allow the appeals against both Paterson and Personal and set aside the order of Nordheimer J. dismissing actions #C38038 and #C38039.
 If the parties cannot agree on the disposition of the costs of the motions here and before the motions judge written submissions may be made. The appellants’ submissions are to be made within ten days of these reasons and the respondent’s submissions within ten days thereafter.