The Alberta Court of King’s Bench has delivered a decision that could significantly influence the interpretation of SEF 44 endorsements, which provide policyholders with tort-like compensation for injuries caused by underinsured or unidentified drivers. In Welyk v. Intact Insurance Company, 2024 ABKB 663, the Court addressed the question of whether strict policy terms should yield to fairness under evolving legislative frameworks.

SEF 44 endorsements are designed to protect insured individuals when the at-fault driver is underinsured or unidentified, extending coverage under the insured’s own policy. This endorsement can be vital in scenarios where damages exceed the limits of other compensation sources, such as the Motor Vehicle Accident Claims fund.

The Plaintiff, Mari-Lynn Welyk was driving her motorcycle with friends in a group ride. She was seriously injured in a chain collision when an unidentified black truck struck her friend, causing a chain reaction that led to Welyk’s motorcycle being struck by the friend’s motorcycle. The driver of the truck fled the scene, and the Plaintiff's damages exceeded the limits of the Motor Vehicle Accident Claims fund. Consequently, she sought additional coverage under the SEF 44 endorsement of her insurance policy, which provides coverage for injuries caused by underinsured or unidentified drivers. 

Intact Insurance Company, Welyk’s SEF 44 insurer, sought summary dismissal of her claim, arguing that the endorsement required “physical contact” between the unidentified vehicle and Welyk’s motorcycle. The insurer relied on Funk v. Wawanesa Mutual Insurance Company, where the Alberta Court of Appeal upheld the strict interpretation of the physical contact requirement.

In Funk, the unidentified driver caused the Plaintiff to swerve their vehicle to avoid a collision but suffered significant injuries as a result of the evasive maneuver. The Court of Appeal ruled that the absence of physical contact precluded coverage under the SEF 44 endorsement. The decision emphasized that courts cannot override the explicit terms of a policy based on perceived unfairness unless legislative authority permits such intervention.

Subsequent to the facts in Funk, but prior to the decision in Funk, s. 545(1) of the Insurance Act, RSA 2000, c 1-3, came into force and allowed Courts to hold the policy term to not be binding on the insured if it is held to be unjust or unreasonable. While this provision was not retrospective and therefore did not apply to Funk, it introduced a new dimension to insurance disputes post-enactment.

In Welyk, the chambers judge dismissed the application for summary dismissal, stating that the matter should be left to the trial court, which is better positioned to evaluate whether the policy terms are reasonable under section 545(1) of the Insurance Act.

Implications for Insurers and Policyholders

The decision underscores the evolving landscape of insurance law in Alberta:

1. For Insurers: This case serves as a cautionary tale about the rigid reliance on policy wording without considering the broader legislative framework. Insurers may need to anticipate increased judicial scrutiny of standard-form policies under section 545(1) of the Insurance Act.
2. For Policyholders: The judgment empowers insured individuals to challenge seemingly restrictive policy terms, particularly where fairness and reasonableness are at stake.