No "physical contact" required, for SEF 44 coverage in AlbertaFunk v Wawanesa Mutual Insurance Company, 2017 ABQB 308 (CanLII)
When purchasing automobile insurance in Alberta, individuals may choose to purchase an Family Protection Endorsement (SEF 44), which provides additional coverage in the event that they (or their family) are injured or killed as a result of an inadequately insured or uninsured motorist. The definition of "inadequately insured motorist" includes a driver or owner of an unidentified automobile.
The SEF 44 policy purports to limit coverage for injury caused by an "unidentified automobile" to situations where there has been "physical contact" between the "unidentified automobile" and the vehicle carrying the injured person. This distinction in coverage leads to some concerning results as it provides insurance coverage to an individual who is unable to avoid a collision, but does not provide coverage to an individual who is able to avoid the collision and is nevertheless injured.
In Funk v Wawanesa Mutual Insurance Company, 2017 ABQB 308 the Court considered the implications of enforcing the "physical contact" requirement in the insurance policy, including potential of discouraging defensive driving, encouraging tortious conduct, and penalizing the desirable behavior of avoiding collisions. The Court concluded that the "physical contact" requirement, would lead to an unreasonable result and was contrary to public policy. The Court exercised its equitable jurisdiction to grant the Plaintiff relief from the forfeiture of his insurance coverage.
On May 20, 2008, Mr. Funk, suffered significant injuries when he swerved to the right, to avoid an oncoming vehicle that had entered into his lane, and rolled his vehicle in the ditch. The oncoming vehicle did not stop at the accident scene, and Mr. Funk had no way of identifying the owner or driver of the vehicle. Mr. Funk therefore brought a claim naming the Administrator of the Motor Vehicle Accident Claims Act, RSA 2000, c M-22, as a nominal defendant. In this claim Mr. Funk claimed over $1,000,000.00 in damages for injuries suffered as a result of the Accident. He brought a second claim against his SEF 44 insurer, Wawanesa, for damages that were in excess of the Motor Vehicle Accident Claims Fund’s (the "Fund") $200,000.00 statutory limits.
Mr. Funk settled his claim with the Fund for the statutory limit of $200,000.00, plus costs. It is of note that there is no "physical contact" requirement for recovery under the Motor Vehicle Accident Claims Act, this was likely was not an issue in that settlement.
After settling with the Administrator, Mr. Funk pursued Wawanesa for the remainder of his claim. Wawanesa denied coverage and applied for summary dismissal of Mr. Funk’s claim. In this application Wawanesa argued that the unknown vehicle did not meet the definition of "unidentified automobile" under the SEF 44 policy because there was no physical contact between Mr. Funk’s vehicle and the unknown vehicle.
The Court in Funk accepted that the SEF 44 policy was unambiguous and required a physical touching between the plaintiff’s vehicle and the unknown vehicle. However, the Court did not end its analysis here and undertook a detailed analysis of the reasonableness and impact on public policy of the "physical contact" requirement.
The Court held that application of the "physical contact" requirement would lead to an unreasonable result, stating at para 56:
"The effect of applying the "physical contact" portion of the definition in Mr. Funk’s insurance policy generates an unreasonable outcome, where the insured who avoids physical contact in order to prevent an accident would have no coverage under the Endorsement, but the insured who takes no evasive action and physically contacts the unidentified vehicle has coverage."
The Court opined that had section 545(1) of the Insurance Act, which permits a court to relieve an individual from a term in an insurance policy if the Court finds the term unreasonable, been in force that the court could have declared the "physical contact" requirement unenforceable on this basis. However, the accident in the Funk case occurred in 2008 and section 545(1) of the Insurance Act, only came into force on July 1, 2012.
Finding section 545(1) of the Insurance Act, inapplicable the Court considered whether the application of the "physical contact" requirement was contrary to public policy and whether it was an appropriate case to exercise the Court’s equitable jurisdiction pursuant to the Judicature Act, RSA 2000, c J-3.
The Court found that the "physical contact" requirement penalized drivers taking evasive action and potentially encouraged tortious physical contact. In reaching its conclusion that the "physical contact" requirement was contrary to public policy the Court reinforced the societal benefit of defensive driving, stating at para 76:
"On balance, the desirability of enforcing the contractual term and the requirement of "physical contact" in the Endorsement is outweighed by the need to encourage or facilitate conduct that is not contrary to public policy. That is, the promotion of defensive driving on the part of the insured in a manner that avoids collision is more beneficial to the society than encouraging the insured to collide with another automobile in order to benefit from insurance coverage."
The Court granted a declaratory order that Mr. Funk had coverage under the SEF 44 policy, holding that this was an appropriate case to exercise its equitable jurisdiction to grant relief to Mr. Funk from the breach of his policy for failure to make physical contact with the oncoming vehicle.
The Funk case thus demonstrates the ability of a court to refuse to apply an unambiguous term in a contract where the application of the term would produce an inequitable result. Additionally, this case also provides an example of some potential recovery sources (the Motor Vehicle Accidents Claims Fund, and SEF 44 endorsements) for individuals who are injured in motor vehicle accident in Alberta, through no fault of their own.
In addition to setting the precedent that the "physical contact" requirement in the SEF 44 policy is unreasonable and contrary to public policy, this decision likely paves the way for other unreasonable provisions in the SEF 44 to be held unenforceable.
The decision in Funk also potentially may be used to extend protection for injury by unknown vehicles, to pedestrians. The definition of "unidentified automobile" in the policy only applies to injury or death arising out of "physical contact of such automobile with the automobile of which the insured person is an occupant at the time of the accident". A plain reading of this section suggests that the injured individual needs to be in an automobile, that had physical contact with the unknown vehicle. This definition could potentially be interpreted as denying coverage to pedestrians (or cyclists) who would otherwise be covered under an SEF 44 policy. However, it is arguable that by removing the physical contact requirement between vehicles, the Funk decision could be interpreted as removing the need for the injured party to be in an automobile. In any event, any distinction in SEF 44 coverage for pedestrians based on whether the tortious vehicle is uninsured and unknown is likely unreasonable and contrary to public policy, and for similar reasons as were discussed in Funk, would likely not be enforced by a court .
If you have been injured in a motor vehicle accident involving an unknown vehicle you should consider speaking with a lawyer regarding whether you may have a claim against the Motor Vehicle Accidents Claims Fund or may be entitled to insurance coverage under a SEF 44 endorsement.