Vlanich v. Typhair 2016 ONCA 517

The Plaintiffs were injured in a motor vehicle accident involving a taxi which was not insured in accordance with the municipal by-laws.  The by-laws required that taxis have a minimum of $1 million in insurance.  The Plaintiffs sued the taxi driver, their insurer State Farm and the city for negligently failing to enforce the by-law.  State Farm brought a third party claim against the township on the same basis.  At trial the Court found that although the township did owe the Plaintiffs a duty of care, their actions did not fall below the standard expected in enforcing the by-law.   

On Appeal the Court found that the trial judge erred in finding that there was a private law duty of care owed to the Plaintiffs.  The correct test to determine if there is a private law duty of care is the Anns/Cooper test.  The Anns/Cooper test has two stages:

1. Was the harm that occurred the reasonably foreseeable consequence of the defendant’s act? and
2. Are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here?

If the foreseeability and proximity requirements are met in the first part of the test then there is a prima facie duty of care.  This can then only be negated if there are residual policy considerations which would find it improper to establish such a duty.

The court applied this test and found that there was not sufficient proximity to establish a duty of care between the parties. The test for proximity is based on established categories or analogous ones, and State Farm in this case conceded that the facts did not fall into an established category for proximity. They attempted to argue that there was sufficient proximity as the by-law was intended to protect the very class of individual which the Plaintiffs are, namely residents sharing the roads with taxis.  However, the Coopers test requires an immediate and direct nexus between the parties.  The court determined that licensing a third party does not create a “close and direct” relationship between the public authority and the Plaintiffs.

The Court stated that although there may be sufficient proximity between a township and a member of the public in cases where the municipality assumed the responsibility to ensure compliance with standards intended to reduce physical harm or damages, this case was not synonymous with those circumstances.  In this case enforcement of the by-law would not have prevented the harm to the Plaintiffs and State Farm was advancing a claim based on pure economic loss.  This case did not meet the required standard for proximity and therefore there was no prima facie duty of care.  Thus, there was no need to consider the second step of the analysis.

However, the Court decided to engage in the second step of the analysis in order to provide guidance with regards to the residual policy considerations.  The Court found that it would not be sound policy to allow an insurance company to recoup money it had agreed to cover as part of its policy.  Additionally, the burden on small municipalities would be too onerous.  As such, the second part of the Anns/Cooper test is not met to establish a duty of care.

Finally, the Court completed an analysis of whether the actions of the township fell below the required standard.   The Court stated that although the actions of the city were not ideal, their failure to ensure new proof of insurance was provided was not unreasonable or in bad faith.  In summary, although the Court found there was no duty of care, if there had been, their actions still did not fall below the required standard.

Appeal dismissed.

What the insurer should know

Municipalities will not be liable for failing to enforce their by-laws unless it is an exceptional case in which failing to do so was a proximate cause of the injury or it is reasonably foreseeable.  Even if the injuries were foreseeable or proximate the court found that enforcing the by-laws would be too onerous for small municipalities and therefore would not be considered unreasonable.

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Mitch Kitagawa

Chantel Helwer, Articling Student