In what we believe to be the first reported decision on the Direct Compensation for Property Damage Regime, the Alberta Court of Justice has taken steps to follow the Legislature’s goal of simplifying the insurance claims process.

In Hupper v Howatt, the Alberta Court of Justice was tasked with considering a claim involving damage to a motor vehicle that arose from an automobile collision with another driver. Both vehicles were insured in accordance with the Direct Compensation for Property Damage Regime, as is more fully set out in s. 585.1 of the Insurance Act and section A.1 of the Standard Policy Form No. 1 in force since January 1, 2022 (the “Auto Policy”).

S. 585.1states as follows:

Direct compensation for property damage

585.1(1) This section applies if

(a)  an automobile or its contents, or both, suffers damage arising directly or indirectly from the use or operation in Alberta of one or more other automobiles,

(b)  the automobile that suffers the damage or in respect of which the contents suffer damage is insured under a contract evidenced by a motor vehicle liability policy issued by an insurer who is licensed to undertake automobile insurance in Alberta or who has filed with the Superintendent, in the form provided by the Superintendent, an undertaking to be bound by this section, and

(c)  at least one other automobile involved in the accident is insured under a contract evidenced by a motor vehicle liability policy issued by an insurer who is licensed to undertake automobile insurance in Alberta or who has filed with the Superintendent, in the form provided by the Superintendent, an undertaking to be bound by this section.

        …

(7) Where this section applies,

(a)  an insured has no right of action against any person involved in the accident other than the insured’s insurer for damages to the insured’s automobile or its contents or for loss of use of the insured’s automobile and its contents

As it relates to the claim against the other driver, this action involved a claim by the Plaintiff for the diminished value of his vehicle. Diminished value is a theory of damages that supposes that even after a vehicle has been repaired, it is of less value in the marketplace. Diminished value claims have a litigious history in the Alberta Court of Justice over the last 11 years.

The Court concluded that the claim against the other driver was barred for three reasons:

1. S. 585.1 demonstrates a clear intention to simplify and streamline vehicle damage claims under motor vehicle liability policies in Alberta;
2. S. 585.1(7)(a) contains an absolute prohibition in stating that an insured has no right of action… for damages to the insured’s automobile; and
3. Case law from Ontario that reaches the same conclusion as above is persuasive in Alberta.

It was argued that diminished value should fall outside of s. 585.1, with the Court concluding that such an interpretation would “overwhelm the statute’s plain language” and that such and interpretation should be avoided. The Court commented that interpreting the statute this way would increase the complexity and potential litigation arising from automobile accidents, and that this would not be consistent with the overall intention of the legislative scheme.

Based on this decision, it would appear that third party claims for diminished value on automobiles will not be permitted by the Alberta Court of Justice where s. 585.1 applies.

Takeaways

More claims seeking to interpret the Direct Compensation Regime are presently before the Courts. As more decisions are issued, the interpretation of s. 585.1 and section A.1 of the Auto Policy will come into greater focus.

This decision reinforces that claims for property damage that are governed by s. 585.1 should be enforced in accordance with s. 585.1 and section A.1 of the Auto Policy. While the decision of Justice Argento is not binding on other Justices, the decision is a strong indication as to what other Justices in Alberta will do when faced with claims by one insured driver against another insured driver for property damage.

We are now more than two years from the January 1, 2022 Auto Policy coming in to force. Insurers should be on the lookout for claims of property damage, or loss of use, against their insureds by other insured drivers arising from collisions after January 1, 2022.

There are still some interpretive hurdles for the Court to undertake on Section A.1 and s. 585.1, so, this is unlikely to be the end of the road in discussing the Direct Compensation Regime.

Navigating the complexities of Alberta's Direct Compensation for Property Damage Regime can be challenging. For advice, please contact John Gilbert in Calgary, Christine Pratt in Edmonton, or any member of Field Law’s Insurance Group. 

Link to decision: Hupper v Howatt, 2024 ABCJ 141