No Insurance on Vessel Operated Illegally

Facts

On July 11, 2010, Paul Heffernan crashed his motorboat into a dock, tragically killing himself and injuring his passenger. The coroner’s report indicated a blood/alcohol level of .277 more than three times over the legal limit. The injured passenger sued the estate. The operator’s insurer refused to defend the estate or to indemnify the estate for the injuries to the passenger.

The court was asked by the estate to determine if the insurer had a duty to defend the claim brought by the passenger and whether the insurer was required to indemnify the estate against any liability that might be imposed with respect to the boating accident. (*1)

Duty to Defend

The particular policy had no clause requiring the insurer to defend. The Court held that “There is no duty to defend because no such contractual obligation is set out in this particular policy. The insurer’s duty to defend is a creation of contract and must be specified in the insuring agreement.”

The Court made this finding on the duty to defend despite the fact that there was a clause in the policy in the “Protection and Indemnity” section that referred to a “duty to settle or defend.” That section provided:

Limit of Liability. We will pay up to our limit of liability for any one occurrence. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. Our duty to settle or defend ends when the limit of liability is exhausted.

The Court was of the view that this provision did not oblige the insurer to defend every action. The language was clear that the insurer would only defend a claim or suit where in its determination it was appropriate to do so. The judge took comfort in his finding by stating that even if he was wrong on this interpretation, he would still conclude that there was no duty to defend because, on the facts of the case, there was no duty to indemnify.

Duty to Indemnify

The policy had a provision that provided that the insurer would not be liable if the vessel was operated illegally or used for any illicit or prohibited trade or transportation. The court noted that under the Criminal Code it is a criminal offence under s. 253(1)(b) to operate a vessel having a blood alcohol level of more than .08. The insurer denied coverage because the deceased operator had a blood/alcohol level of .277 while operating the motor boat and the insured vessel was thus being “operated illegally.”

The Court looked at the broad language of the policy exclusion and gave its views that not all breaches of a statute would result in an exclusion. The Court stated (*3):

One can imagine a boating accident situation where the owner of the vessel is found to be in breach of a boating regulation that is unrelated to the actual operation of the boat. For example, a breach of a regulation requiring the lettering on the hull to be a specific size or colour. No reasonable insured would think that the boat was being “operated illegally” at the time of the accident just because there was a technical breach of the lettering regulation and no reasonable judge would deny coverage in those circumstances.

The Court found that this was not the case in the current situation. The motorboat was actually being operated by a driver whose blood/alcohol level was well over .08. “No insured would reasonably believe that insurance coverage would be available in a case of drunk driving and there is no public policy reason to suggest otherwise.” (*4)

The Court found that the insurer did not have any duty to indemnify the estate.

Endnotes

(*1) Heffernan v. Lloyd’s Canada 2015 ONSC 853.

(*2) R.S.C. 1985 c. C-46.

(*3) Heffernan at paragraph 9.

(*4) Heffernan at paragraph 11.