On October 27, 2011, the BC Court of Appeal released reasons in the case of Moldovan v. Republic Western Insurance Company, the latest chapter in a saga that began in 2005, when the plaintiff was injured while riding as a passenger in an Arizona vehicle owned by U-Haul and insured by Republic Western (“RWIC”).

The rental agreement stated that U-Haul would provide benefits “to the extent required by applicable law”, and U-Haul’s insurer, RWIC, had filed a Power of Attorney and Undertaking (“PAU”) with the Canadian Council of Insurance Regulators. The plaintiff, claiming he was entitled to Part 7 benefits, initially sued ICBC, but ultimately applied to add RWIC as a defendant to his part 7 action, more than two years after the accident had occurred.

RWIC relied on s.103 of Part 7 to the Regulation then in force, which provided for a two year limitation period to commence an action for Part 7 benefits. On November 13, 2009, a Master agreed with RWIC’s submission that auto insurance in BC is governed by a generally applicable legislative scheme and not a contract of insurance, and therefore, they were entitled to rely on the limitation period even though it did not appear in their insurance policy.

On appeal, the BC Supreme Court held that to allow RWIC to rely on the limitation period contained in Part 7 would give the statute “impermissible extra-territorial effect”, and that the PAU was an undertaking to do or refrain from doing certain things, rather than an agreement to incorporate all the terms of the statute into the RWIC policy. The Supreme Court allowed RWIC to be added as a defendant, and RWIC appealed to the BC Court of Appeal.

In the Court of Appeal, RWIC argued that by filing a PAU, it “opted in” to the BC scheme of auto insurance, and therefore assumed all the rights as well as the obligations of a BC auto insurer. The plaintiff argued that the PAU and the wording of the rental agreement did not incorporate the entire statute, but rather required only the minimum protection required to be provided to insureds. The limitation period, the plaintiff argued, was a contractual limitation between ICBC and its insureds, which did not form part of RWIC’s contract.

The Court of Appeal elected to avoid this debate and decided the issue based on the plain wording of the limitation provision, as follows:

By its terms, s. 103 applies to any person who commences an action for Part 7 benefits. It is not framed as an obligation of the insurer, nor as a contractual term that must be incorporated by agreement before it may operate… The fact that the PAU may or may not constitute the wholesale adoption of the British Columbia compulsory insurance scheme, or that a PAU has contractual aspects, is irrelevant to the fact that the plaintiff in this case is making a claim under Part 7 and therefore comes within the plain wording of s. 103 (emphasis added).

The Court of Appeal held simply that:

As a person claiming benefits under Part 7 in a British Columbia action, the plaintiff is subject to the statutory limitation in s. 103 (emphasis added).

Unfortunately, this reasoning conflicts directly with the Court of Appeal’s earlier decision in McIlvenna v. ICBC, 2008 BCCA 289, in which the same Court said the following:

[23]     Section 103 is a contractual provision limiting the ability of the insured to sue the insurer. It is not a limitation provision contained in a statute other than the Limitation Act that expressly applies to all causes of action against a specified category of persons…

[24]     Part 7 of the Regulation is a contract…. Section 103 is a limitation on the right of the insured to enforce his or her contractual right to the benefits by way of action. In my opinion, section 103 must be interpreted in the context of this contractual arrangement, and should not be construed broadly to apply to all causes of actions that the insured may have against ICBC as a result of their dealings.

The Court of Appeal in Moldovan purported to distinguish McIlvenna on the basis that the latter case was a claim not only for Part 7 benefits but for negligent adjusting and bad faith, which were held to be outside the scope of s.103. Conversely, Moldovan was purely about the plaintiff’s entitlement to Part 7 benefits. This distinction, however, does not reconcile the Court’s contradictory findings as to the nature of the Regulation. In McIlvenna, the plaintiff was insured by ICBC, which clearly was governed by the complete Regulation. However, for an out-of-province insurer subject to a PAU, the question of whether s.103 is statutory or contractual is a key step in the coverage analysis. Unfortunately, the Moldovan case makes the answer less clear.

In the result, the decision of the Chambers Judge was reversed in respect of the application of s.103. However, the Court of Appeal went on to allow the addition of RWIC as a defendant anyway, on the basis that it was just and convenient to do so. As a result, the order of the Supreme Court was upheld, but for different reasons.

It is well known that the PAU has the effect of raising an out-of-province auto insurer’s limits to the mandatory BC minimums. However, the scope of the PAU in relation to the balance of the BC auto insurance regime is the subject of much debate and confusion among insurers and counsel alike. Unfortunately, the apparent contradiction between Moldovan and McIlvenna will not clarify the issue. Out-of-province insurers will now have to make their best guess as to whether the PAU entitles them to rely on a certain provision in BC’s auto insurance legislation, knowing that the Court of Appeal will likely have to revisit the issue at least once more before any certainty is achieved.