The exclusion applying to the theft of an insured automobile by persons residing with the insured has become watered-down through judicial interpretation. If a resident intends to cease being a resident with the insured upon stealing the insured auto, the exclusion likely does not apply.
The legislation
Section C of the Alberta Standard Automobile Policy Form #1 (SPF1) provides insureds with coverage against direct and accidental loss of, or damage to, the insured automobile. Loss of, or damage to, the insured automobile caused by theft may be purchased by an insured under subsection 1 – all perils, subsection 3 – comprehensive, or subsection 4 – specified perils. However, if an insured purchases theft coverage under comprehensive or specified perils, a special exclusion applies.
The SPF1 excludes coverage for loss or damage caused by theft by any person or persons residing in the same dwelling premises as the insured (the Exclusion), provided one obtains theft coverage as part of comprehensive or specified perils coverage. The standard form Section C coverage offered in most other provinces across Canada contains a substantially similar exclusion.
The rationale
There is a valid rationale behind the Exclusion. Its purpose is to carve out a heightened risk exposure to theft by a person having an enhanced opportunity to steal the insured auto by virtue of living in the same dwelling as the insured. Perhaps the insured keeps the car keys on a hook by the door, for example. There is also an increased risk of fraud in this situation. A dwelling mate can make for a perfect co-conspirator if the insured concocts a scheme to profit from an automobile insurance policy.
The lesson for an insured is simple: do not live with someone who may steal your vehicle, as insurance may not respond to such a situation.
The typical situation
For insurers who may be in a position to deny indemnification via the Exclusion, its application may not be as straightforward as it first appears. Consider the typical situation. Someone who lives with the insured steals the insured auto. For theft coverage to apply, it is not a scenario where the thief returns the vehicle to the custody of the insured. More common is the scenario in which the thief does not return the vehicle, and does not return to reside in the same dwelling as the insured. After all, it would be difficult to live with someone who stole your vehicle and never returned it.
The issue in such a scenario becomes the point in time when the thief ceases to be a person that lives in the same dwelling as the insured. Does the thief still reside in the insured’s dwelling when they decide to steal the insured auto and leave the residence for good, or does it happen sometime after they drive the vehicle off the property? The courts have generally tended to apply an interpretation of the Exclusion that is not supported by the purpose and rationale behind the Exclusion, which is unfortunate for insurers.
The case law
The existing case law indicates that when the thief intends to stop residing in the same dwelling as the insured and leaves for good by stealing the insured auto, the Exclusion does not apply.
While the Exclusion has been part of standard form Section C coverage in a number of provinces for many years, there is relatively little case law considering whether a person who leaves a dwelling and does not return may be considered to be living in the dwelling at the time of the person’s departure.
The Ontario Court of Appeal decision in Calverley v. Gore District Mutual Fire Insurance Co. [Calverley] is likely most instructive.[1] In Calverley, the plaintiff insured resided with an individual who suddenly collected his belongings in the middle of the night, left on foot but returned that same night to steal the plaintiff’s car, and then did not return thereafter. The Court held that when the thief first left on foot, he ceased to be a member of the plaintiff’s household. Thus, the Exclusion did not apply. The fact that the thief first collected his belongings, indicating that he did not intend to continue residing in the residence, was likely a key consideration.
The most recent applicable case is that of Harris (Litigation Guardian of) v. Pilot Insurance Co. [Harris], also from the Ontario Court of Appeal.[2] In Harris, the Court relied on a previous Ontario decision, which held that “the intention of the parties is important in determining the question of whether a person “is residing in the same premises” as the insured.”[3] In considering whether the plaintiff “resided” in his mother’s residence during the time for which he was seeking coverage, the Court found that he had no intention to return to his mother’s residence based on his preceding pattern of habitation. Without an intention to return, he could not be said to be residing in the premises.
An older Alberta case considered whether an employee had ceased being an employee at the time of stealing his employer’s truck, in Hall v. British Canadian Insurance Co. [Hall].[4] This case is instructive since the second part of the Exclusion goes on to exclude coverage for theft by any employee of the insured engaged in the operation, maintenance or repair of the insured automobile, whether the theft occurs during the hours of such service or employment or not. In Hall, the Court found that the insured’s employee, a farm hand, had abandoned his duties before making off with the truck while his employer was away on vacation. Around the same time that the employee was thought to have disappeared with the insured vehicle, witnesses observed that the farm was in a state of neglect – cattle had not been fed, and the eggs were all over the barn. Thus, the Court did not consider the thief to retain his status as an employee at the time of the theft, meaning that the exclusion did not apply. The thief’s intention to permanently abandon his employment, as evidenced through the neglect of his duties for a number of days prior to the theft, proved to be determinative.
In the above cases, the insurer faced a higher risk exposure from the individuals who ultimately stole the insured autos. Although the Exclusion is intended to mitigate that exposure, if the thief does not intend to continue residing with the insured, then the purpose behind the Exclusion is frustrated.
If you have any questions about Section C, please feel free to reach out to Robert Gilroy, or any member of Dentons Canada’s Insurance group.
[1] 1959 CanLII 180 (ONCA).
[2] 1997 CanLII 4436 (ONCA).
[3] Harris at para 6 citing Peterbaugh v. Marsbergen (1984), 7 CCLI 97, 1984 CarswellOnt 1421 (ON H.C.).
[4] 1962 CanLII 720, 41 WWR 366 (AB Sup. Ct.).
