Kozel v. The Personal Insurance Company

Kozel v. The Personal Insurance Company

2014 ONCA 130
Court of Appeal for Ontario — LaForme J.A. (Rosenberg and MacPherson JJ.A. concurring) | February 19, 2014

Background

Barbara Kozel, a 77-year-old Ontario driver, received a renewal notice from the Ministry of Transportation in August 2011 but put it in her china cabinet without opening it. Her driver's license expired on her birthday, October 7, 2011. Four months later, in February 2012, while driving in St. Petersburg, Florida, she severely injured a motorcyclist named Arthur Grimes in a collision. Florida charged her with driving with an expired license, though the charge was later dismissed under Florida's six-month grace period.

The Personal Insurance Company advised Kozel they might deny coverage because she violated statutory condition 4(1) of her policy — the requirement that drivers be "authorized by law" to operate a vehicle. Grimes sued her in Florida, and Kozel faced potential personal liability of over $1 million. She applied to Ontario Superior Court seeking a declaration that her insurer owed her both a duty to defend and indemnify.

Issues

1. Was Kozel entitled to a "due diligence" defence for driving with an expired license?
2. Could she obtain relief from forfeiture under section 98 of the Courts of Justice Act?

The Due Diligence Defence Fails

The application judge found that Kozel could use a due diligence defence because driving without a valid license is an offence of "strict liability," not "absolute liability." Under Lévis v. Tétrault, this defence succeeds if someone "reasonably believed in a mistaken set of facts" or "took all reasonable steps to avoid the particular event."

But the Court of Appeal disagreed. Justice LaForme found that Kozel, despite 60 years of driving experience, did absolutely nothing to inquire about her license renewal. She received the envelope, placed it unopened in her cabinet, and even when she later opened it while buying a car, she only paid attention to the plate sticker renewal. The court distinguished this from cases where drivers actually took some reasonable steps — this was "passive ignorance," which isn't a valid defence.

Relief From Forfeiture Saves the Day

The real legal breakthrough came on the second issue. The Court of Appeal ruled that section 98 of the Courts of Justice Act — which allows courts to "grant relief against penalties and forfeitures" — applies to insurance contracts, even though section 129 of the Insurance Act provides more limited relief.

The court applied the three-part test from Saskatchewan River Bungalows: (1) Was the applicant's conduct reasonable overall? (2) How grave was the breach? (3) Is there a disparity between what's forfeited and the actual damage? All three factors favored Kozel. Her overall conduct was reasonable — she'd always renewed on time before and fixed the problem immediately when discovered. The breach wasn't grave — it had no impact on her driving ability or the insurer's rights. And the disparity was "enormous" — losing $1 million in coverage when the breach caused the insurer zero prejudice.

Key Takeaway

Even when you can't prove due diligence, relief from forfeiture under section 98 of the Courts of Justice Act can save your insurance coverage if the penalty is completely disproportionate to any actual harm.

This decision significantly expands when courts will intervene to prevent insurance companies from denying coverage based on technical breaches that cause no real prejudice to the insurer.