What is SEF 44 Insurance?

In August 1980, the insurance industry placed a new product on the market. It consisted of additional insurance, then known as a S.E.F. 42 Underinsured Motorist Endorsement, to cover the risk associated with drivers without sufficient insurance. “The purpose of such an endorsement is to compensate the insured for damages caused by another motorist who does not have sufficient insurance to pay the loss”: McManus v. Saskatchewan Mutual Life Insurance Co. (1987), 79 NBR (2d) 274 para 3 (CA). It is called excess insurance and will kick in only when all the other motorist’s insurance coverage is exhausted (para 35; see also Martineau v. New Brunswick (Minister of Transportation) (1988), 94 NBR (2d) 57 para 13 (CA)).

When Is the Family Endorsement Triggered?

As its name suggests, S.E.F. 44 policies deal with underinsured motorists. Thus, it is excess insurance, not replacement insurance. It will cover a claim up to its limit, but only the part over and above the coverage available to the tortfeasor. The standard family endorsement protection formulates its scope as follows:

LIMIT OF COVERAGE UNDER THIS ENDORSEMENT

(a)   The Insurer’s maximum liability under this endorsement, regardless of the number of eligible claimants, or number of insured persons injured or killed, or number of automobiles insured under the policy shall be the amount by which the Limit of Family Protection Coverage exceeds the total of all limits of motor vehicle liability insurance, or bonds, or cash deposits, or other financial guarantees as required by law in lieu of such insurance, of the inadequately insured motorist and of any person jointly liable therewith.

[Underlining added]

In practical terms, the language of the policy means that the family endorsement protection has no effect where it is equal to or below the tortfeasor’s insurance, being then entirely absorbed by the latter.

As excess insurance, it also means that the coverage from other insurers will normally be exhausted first, before engaging the S.E.F. 44. In McManus, supra, the plaintiff was the widow of a pedestrian killed by a motorist at the wheel of a truck owned by his father-in-law. Three insurers were involved: the owner’s, the driver’s and the deceased’s. There was a limit of $100,000 on the first two insurance policies and a policy limit of $500,000 on the third. There was therefore $300,000 available as excess insurance ($500,000 – $100,000 – $100,000). The parties settled for an amount of $245,000 and the issue was whether the deceased’s S.E.F. 42 was engaged. The trial judge ordered the S.E.F. 42 to pay the balance of $145,000 to the widow, accounting for the owner’s insurance limit, but to seek contribution from the driver’s insurer up to his policy limit of $100,000. On appeal, the unanimous bench varied the order. The plaintiff had a statutory cause of action against the driver’s insurer, as per s. 250 of the Insurance Act, RSNB 1973, c. I-12, while the S.E.F. 42 insurer had none. Also, as an excess insurance, it only kicked in after all insurances of the tortfeasors were exhausted. Thus, the appeal was allowed to order the driver’s insurer to pay its limit of $100,000 before the S.E.F. 42 insurer had to cover the outstanding balance of $45,000. It is worth noting that the case was not dealing with the subrogation rights of a S.E.F. 42 insurer against a tortfeasor (see Boisvert v. Corcoran Estate, 1997 CanLII 9615 (NBQB); Wawanesa Mutual Insurance Co. v. Johnston, 2011 NBQB 114; Tuffnail v. Meekes, 2020 ONCA 340).

In Martineau, supra, the issue of priority was again addressed, except that it involved the New Brunswick Unsatisfied Judgment Fund with a limit of $100,000. The tortfeasor was uninsured while the plaintiff had a S.E.F. 44 with a limit of $500,000. The government argued that the S.E.F. 44 limit had to be deducted from the Unsatisfied Judgment Fund instead of the opposite. The unanimous bench disagreed with government’s counsel and ordered the $75,000 ($100,000 limit minus $25,000 in other entitlements) payable by the Unsatisfied Judgment Fund to be deducted from S.E.F. 44 limit.

Who Is an Insured?

Evidently, in order to obtain an indemnity under a S.E.F. 44 policy, the claimant must first be an insured. The usual family endorsement protection speaks of the named insured, his or her spouse, and any dependent relative who is (1) travelling in the insured automobile, (2) occupying another vehicle without owning it or (3) hit by an automobile while not being an occupant. Several cases have addressed the issue from different angles.

In Breau v. General Accident Insurance Co. of Canada (2000), 226 NBR (2d) 160 (QB), the court decided whether an unborn child in the womb at the time of the accident was covered by the family endorsement protection. The mother and unborn child were injured by an uninsured motorist. In a fairly detailed decision, Justice Riordon concluded that the unborn child became an insured after being born alive and was thus entitled to the benefit of the contract. The decision was upheld on appeal by a unanimous bench (2000 NBCA 51) and the court distinguished the case of an unborn child attempting to sue his own mother for injuries sustained in a car accident caused by her negligence (Dobson (Litigation Guardian) v. Dobson, [1999] 2 SCR 753).

An additional issue of who is an insured was addressed in Burke Estate v. Royal and Sun Alliance Insurance Co. of Canada, 2011 NBCA 98. S.E.F. 44 policies typically exclude from coverage the insured who owns the other vehicle involved. In Burke Estate, the plaintiff was a long-haul truck driver. His rig was owned by a numbered company from Ontario, which in turn he wholly owned. The question was whether the plaintiff was in fact the owner of the truck, and thus excluded from the S.E.F. 44 coverage. The trial judge found that he was but the unanimous Court of Appeal disagreed and overturned the decision. The plaintiff’s operations through a corporation were legitimate and the trial judge’s lifting of the corporate veil to get to ownership was unjustified in the circumstances.

Chief Justice Richard, in Dunn v. Lloyd’s of London (1985), 65 NBR (2d) 181 (QB), decided whether a motorcycle was an automobile for the purpose of a S.E.F. 42 policy. The plaintiff, son living with his mother, was hit while driving his off-road motorcycle on the street. The mother had a family endorsement protection on her own vehicle. The policy insured dependent relatives hit by an automobile while not being themselves an occupant of an automobile. The trial judge accepted that a motorcycle is not an automobile and the son was thus covered by the S.E.F. 42.

Those three cases offer an example of each category of insured persons identified above. As for many other insurance contracts, the courts will interpret broadly, in favour of the insured, the terms of the policy conferring rights and entitlements.

How to Calculate the S.E.F. 44 Amount?

Of course, as already stated, the first issue to address when a case involves a S.E.F. 44 is whether it exceeds the limit of liability insurance already available to the tortfeasor. That will set the maximal exposure of the family endorsement insurer, if anything at all.

Once the potential exposure is established, in Lapalme v. Economical Mutual Insurance Co., 2010 NBCA 87 paras 31-34, the unanimous Court of Appeal explained the methodology to be applied to calculate the share payable by a S.E.F. 44 insurer.

[31]  Clause 4 (“Amount Payable Per Eligible Claimant”) speaks to a matter not explicitly and specifically addressed in Clause 2: the quantification of the indemnity provided under the NBEF 44, a process that requires an assessment of damages followed by a deduction of the aggregate of amounts from collateral sources in accordance with Clause 4’s specifications. […] [32]  Clause 4(a) establishes a two-step formula for the ascertainment of the amount payable under the NBEF 44.

[33]  The first step is the determination of the amount of damages the eligible claimant is legally entitled to recover from the inadequately insured motorist. Over the course of the last two decades, the Legislature of this Province has enacted a number of provisions designed to reduce the recovery that an injured party would have otherwise achieved at common law. […] Needless to say, those legislative alterations of the common law have increased the odds that an eligible claimant’s damages will not exceed the limits of insurance available under the at-fault motorist’s insurance policy. The resulting enhanced infrequency of payouts under the NBEF 44 likely goes a long way toward providing an explanation for the relatively modest premiums the endorsement has commanded to date. My point is simply this: the cost of NBEF 44 coverage ought not to produce insurer-friendly resolutions of ambiguities in the deductions-related provisions of Clause 4.

[34]  The second step under Clause 4 involves the deduction of the aggregate of “amounts” from the quantum of damages the eligible claimant is entitled to recover against the inadequately insured motorist. Like standard exclusionary clauses, the deductions-related provisions of Clause 4 are designed to reduce coverage and, as such, ought, as well, to attract a narrow construction. At any rate, any true ambiguity in their wording must be resolved in favour of the insured, not the insurer […].

[Underlined in original]

The formula established in Lapalme, supra, was broken down further in the case of Burke Estate v. Royal and SunAlliance Insurance Co. of Canada, 2020 NBQB 74 para 129. Generalizing the court’s view, the following equation is obtained in the case of an uninsured motorist:

Step 1

A     Calculate the value of the claim under each head of damages (i.e. loss of income/diminished earning capacity, valuable services, costs of future care, etc.);

B     Calculate pre-judgment interest from the date the notice was given to the S.E.F. 44 insurer in accordance with Clause 5(c);

C     Apply (if appropriate) any reduction for the plaintiff’s contributory negligence (statutory or otherwise);

D     Calculate the amount which the plaintiff is legally entitled to recover from the underinsured motorist [(A + B) – C = D];

Step 2

E     Calculate the total of all amounts recovered by the plaintiff from other listed sources (i.e. workers’ comp., Section D, etc.); and

F     Deduct the total amount of E from D to get the final amount of the claim against the S.E.F. 44 insurer [D – E = F].

Evidently, this formula is incomplete to the extent that it does not factor in the maximal exposure of the S.E.F. 44 insurer. “F” is therefore not definitive, as it will depend whether the amount falls within the limit of coverage or not. To be more precise, the formulation should indicate that “E” is deducted from the family endorsement coverage available, with the resulting amount being in fact what is left to the insured if any part of the claim remains outstanding. However, except for ignoring the applicable S.E.F. 44 policy limit, the equation is correct in cases of uninsured motorists.

Collateral Benefits

As seen above, like most other insurance policies, S.E.F. 44 contracts deduct from the amounts payable certain types of benefits received or receivable. That item has been discussed elsewhere (see “Deductibility in Insurance Contracts”). The end product inevitably depends on the terms of the policy. However, courts will not generally allow the deduction of benefits intended for a third party, unless the S.E.F. 44 provides for it expressly (Melanson v. Co-Operators General Insurance Co. (1997), 192 NBR (2d) 273 (CA)) and the exclusion clauses will receive a narrow interpretation (Lapalme, supra).

What is the Limitation Period for S.E.F 44?

The typical S.E.F. 44 policy sets a 1-year limitation period for pursuing a claim, similarly to other types of claims under contracts of insurance (see “Limitation Periods for Section B Benefits”). However, contrary to the other types of provisions, the cut off date is not defined according to the time that the cause of action arises, but from the time that the claimant anticipated a claim exceeding the limit. The clause is formulated as follows:

6. PROCEDURES

[…]

(c)   Every action or proceeding against the Insurer for recovery under this endorsement shall be commenced within 12 months from the date upon which the eligible claimant or his legal representatives knew or ought to have known that the quantum of the claim with respect to an insured person exceeded the minimum limits for motor vehicle liability insurance in the jurisdiction in which the accident occurred. No action which is commenced within 2 years of the date of the accident shall be barred by this provision.

[Underlining added]

The wording distinguishes between the date of the S.E.F. 44 claim and the date of the accident. Thus, in principle, actions can be filed well beyond the occurrence of the collision if the value of the claim exceeding the minimum policy limit could not be ascertained before.

This paper is offered for the purpose of discussion only. It does not constitute legal advice and its distribution does not create a solicitor-client relationship. Please consult a lawyer if you require legal advice.