Motor vehicle accident claims involve complex contractual and regulatory issues and may generate exposure for multiple insurance policies in certain circumstances. Ontario courts have held that automobile insurance policies form part of an “integral social safety net”[1] designed for consumer protection and guaranteed compensation for victims.[2] However, recent decisions from the Ontario Court of Appeal affirm that coverage will not be created where it does not otherwise exist under the policy.
A. Leased Vehicles: Aviva Insurance Company v. Wawanesa Mutual Insurance Company and Enterprise Rent-A-Car v. Intact Insurance Company
i.Aviva Insurance Company v. Wawanesa Mutual Insurance Company
When a vehicle rented pursuant to a lease agreement is involved in an accident, section 277(1.1) of the Insurance Act sets out the following priority in which overlapping auto liability policies will respond:[3]
i. Any policy under which the lessee of the automobile is entitled to indemnity;
ii. Any policy under which the driver of the automobile is entitled to indemnity;
iii. Any policy under which the owner of the automobile is entitled to indemnity;
The purpose of s. 277(1.1) is to relieve the insurer of the owner of a rented vehicle from being the first loss insurer where other insurance is available to the renter or driver.[4] To determine the first loss insurer under s. 277(1.1), it is first necessary to determine the identity of the lessee and whether that lessee is entitled to indemnity under an auto policy. The Ontario Court of Appeal recently addressed this in Aviva Insurance Company v. Wawanesa Mutual Insurance Company,[5] where it held the lease/rental agreement is not always decisive.
In that case, Mahamood rented a delivery vehicle from New Horizons for his employer Fine Furnishings and subsequently rear-ended another vehicle. Fine Furnishings had a standing rental arrangement with New Horizons. Mahamood had no motor vehicle liability policy of his own but would frequently rent trucks from New Horizons when making deliveries. An application was brought to determine whether Fine Furnishings was the first loss insurer, as it was the lessee of the rental truck and employed Mahamood.
The application judge determined that Mahamood was the lessee in his personal capacity. He held that the lessee inquiry should focus on the rental agreement, rather than the underlying purpose for making the rental. There was nothing on the face of the lease agreement suggesting Fine Furnishing’s involvement, as Mahamood was the sole signatory. As Mahamood had no insurance, the insurer for New Horizons – the owner of the vehicle – was found to be the first loss insurer.
The Ontario Court of Appeal overturned the decision and declared that Fine Furnishings was in fact the lessee. Reconciling inconsistent lower court decisions, Fairburn JA held that the proper analysis involves looking beyond the four corners of the rental agreement to determine the identity of the lessee. Agency principles may be considered in certain circumstances to determine the identities of the actual contracting parties.[6] Accordingly, Fairburn JA held that Mahamood had entered into the rental agreement as an authorized representative of Fine Furnishings based on the following:
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- Fine Furnishings had a longstanding arrangement with New Horizons;
- Fine Furnishings instructed Mahamood to rent trucks from New Horizons for deliveries;
- Fine Furnishings did not allow Mahamood to use the rental vehicle for any purpose other than deliveries;
- Fine Furnishings paid for the cost of fuelling the rental vehicles;
- All rentals from New Horizons were paid with Fine Furnishing’s credit card; and
- Mahamood had told New Horizons he was picking up the rental truck on behalf of Fine Furnishings.
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ii. Enterprise Rent-A-Car v. Intact Insurance Company
The priority scheme under s. 277(1.1) of the Insurance Act only applies where there is in fact coverage under an auto policy. The case of Enterprise Rent-A-Car v. Intact Insurance Company[7] confirms that s. 277(1.1) cannot be construed so as to create coverage.
In that case, AP was the driver of a rental car owned by Enterprise and was named in an action arising from a motor vehicle accident. AP was living with her parents and was a “listed driver” under a standard OAP1 issued to her father by Intact. The Intact Policy covered two vehicles that AP drove regularly; however, she was not a “named insured.” Enterprise agreed to defend AP under a reservation of rights agreement and sought indemnity from Intact upon settlement of the action.
The Court noted that each rung of the priority ladder under s. 277(1.1) is prefaced with “insurance available under a contract.” Accordingly, application of s. 277(1.1) is dependent on s. 2.2.4 of the OAP1, which provides liability coverage for rental vehicles where the named insured or spouse of the named insured rents the vehicle. Section 277(1.1) was thus not applicable to AP, as she was neither the named insured nor the named insured’s spouse. Further, the Court noted that OPCF 27 – an optional endorsement providing coverage for listed drivers who drive, rent, or lease other vehicles – would be redundant if listed drivers were already afforded coverage under s. 277(1.1).[8]
B. Application of Endorsements: Kahlon v. ACE INA Insurance and Coast Capital Equipment Finance Ltd. v. Old Republic
i. Kahlon v. ACE INA Insurance
Just as section 277(1.1) of the Insurance Act does not impose coverage beyond the policy, the case of Kahlon v. ACE INA Insurance[9] affirms that the Court will not create coverage not otherwise found in the policy simply based on the equities of the situation or the remedial nature of the automobile insurance scheme.
Kahlon was the operator of a tractor trailer who was seriously injured in Florida in 2011 after being struck by a motorist with only $20,000 of liability coverage. Kahlon owned the tractor trailer but leased it to Bell City Transport. As an independent contractor for Bell City Transport, Kahlon operated the tractor trailer under fleet insurance provided by ACE INA Insurance (“Fleet Policy”). Kahlon also maintained a personal automobile insurance policy through Allstate (“Personal Policy”) for his personal vehicle. Both insurers for the Fleet Policy and the Personal Policy denied owing underinsured coverage, despite both policies attaching OPCF 44R Family Protection Coverage endorsements.
The Court affirmed that the Fleet Policy did not provide underinsured coverage to Kahlon. Endorsement 11 of the Fleet Policy contained an amendment to the OPCF 44R, which limited underinsured coverage to drivers of private passenger or light commercial vehicles. Coverage was specifically excluded for any automobile or trailer with a Gross Vehicle Weight exceeding 4,500kgs. Kahlon’s truck exceeded this weight.
The Court further rejected submissions that the endorsement in the Fleet Policy ought to be unenforceable by virtue of the fact the Superintendent of Financial Services had not approved the form. Section 126(2) of the Insurance Act states that an insurance contract is not void or voidable against an insured by reason of a failure to comply with the Act.[10] Relying on past case law,[11] the Court held that its role is simply to determine the validity of insurance policies as a matter of contract law, while the remedies for non-compliance with Insurance Act must be determined as set out by the Act and its regulations.[12] In other words, simply failing to comply with the Insurance Act does not void the policy where such relief is not set out in the Act.
However, the Court overturned the reasons of the motion judge to find that Kahlon’s operation of the tractor trailer also excluded underinsured coverage available under the endorsement attached to his Personal Policy. The endorsement provided underinsured coverage to Kahlon while an occupant in any other automobile, subject to section 22 of the endorsement. Section 22 states that the terms of the terms of the Personal Policy shall have full force and effect, unless the endorsement provides otherwise.
Section 2.1 of the Personal Policy expressly provided liability coverage, accident benefits, uninsured automobile coverage, direct compensation property damage coverage, and loss or damage coverage for Kahlon’s “described automobile,” which was his personal vehicle. Section 2.2.3 of the Personal Policy extends liability, accident benefits, uninsured automobile, and direct compensation coverage to “Other Automobiles.” However, section 2.2.3 lists several “Special Conditions” that limit extensions of coverage to “Other Automobiles,” including a condition that the other automobile must not exceed 4,500 kilograms.
The motion judge held that the “Special Conditions” of section 2.2.3 did not preclude coverage under the endorsement. Unlike an insurance policy, an endorsement is “personal” and “portable,” as it attaches to insured person rather than the automobile.[13] While the “Special Conditions” of section 2.2.3 may limit the enumerated coverages where the insured operates an automobile exceeding 4,500 kilograms, section 2.2.3 must be interpreted in conjunction with section 2.1. Section 2.1 did not expressly include underinsured coverage among those types of coverage subject to the section, and therefore the motion judge held that the “Special Conditions” did not intend to limit underinsured coverage.
The Ontario Court of Appeal held that the motion judge made several errors in his analysis. The governing principles of contractual interpretation require the Court to give effect to the terms of the insurance contract read as whole.[14] When reading the Personal Policy and the endorsement together, the Court interpreted the “Special Conditions” as a general exclusion clause against all coverage, rather than restricting only those types of coverages enumerated in sections 2.1 and 2.2.3.[15] It would be illogical for the Personal Policy to list underinsured coverage in section 2.2.3, as underinsured coverage is an optional form of coverage provided only by the endorsement.[16] The endorsement should not be read as a standalone insurance policy independent of the Personal Policy. The Court held that no provision in the Personal Policy could limit coverage under the endorsement according to the motion judge’s interpretation, and the motion judge’s interpretation rendered section 22 of the endorsement essentially redundant.[17]
Overall, the Court’s findings suggest that the definition of a term in the policy prevails where the use of that same term is not qualified in the endorsement. In this case, the section 22 of the endorsement states that the endorsement it is only paramount to the Personal Policy where explicitly stated. Although the endorsement’s definition of “insured person” did not specifically incorporate the definition “Other Automobile” found in s. 2.2.3 of the Personal Policy, this was not reason to render s. 2.2.3 inapplicable to the endorsement.[18]
ii. Coast Capital Equipment Finance Ltd. v. Old Republic
The decision of Coast Capital Equipment Finance Ltd. v. Old Republic[19] suggests that coverage afforded by endorsements listed in the Certificate of Insurance will apply, even if the endorsements is not attached to the policy. In this case, a trucking company (“622”) leased two tractor trailers from a third party. Old Republic provided insurance and issued a Certificate of Insurance in a custom form approved by the Superintendent. The Old Republic Certificate of Insurance referenced an OPCF 5, which extends third party liability insurance to both the lessor and the lessee. Under the lienholder section, the Certificate Section states “AS PER OPCF 5 FORMS” under the section identifying the lessor.
622 leased two additional trucks from Coast Capital. Old Republic issued an OPCF 25 Change Form that described the Coast Capital trucks, listed Coast Capital as lessor, and stated “all other terms and conditions of the policy remain.” Although Coast Capital’s insurance broker informed Old Republic that it wanted third party liability coverage, the OPCF 5 was not listed in the OPCF 25. Three months later, First Insurance, with whom 622 entered into a finance arrangement, contacted Old Republic to cancel the insurance after 622 failed to make a payment; however, one of the Coast Capital trucks was involved in an accident 4 days later.
Old Republic denied liability coverage to Coast Capital on the basis that the OPCF 5 was not attached to the Certificate of Insurance, and therefore did not form part of the policy. The application judge agreed with this reasoning and concluded there was no coverage for Coast Capital.
The Ontario Court of Appeal disagreed and held that the OPCF 5 endorsement is part of the Certificate, and therefore entitles Coast Capital to coverage. A certificate of automobile defines the coverage provided by the policy.[20] Section 232(5.1) of the Insurance Act states that a certificate of insurance is “of the same force and effect as if it were the standard policy, subject to the limits and coverage showed by the insurer on the certificate and any endorsements issued with or subsequently to the certificate.”[21]
Old Republic’s custom Certificate of Insurance initially approved by the Superintendent did not contain the phrase “AS PER OPCF 5 FORMS,” and therefore the phrase was likely added for this particular transaction.[22] The OPCF 25 Change Form did not delete that coverage, but merely added new vehicles.[23] From this, the Court inferred that two possible conclusions, either: (a) the Certificate issued to 622 intended to provide coverage to both the lessor and the lessee; or (b) it was Old Republic’s usual practice to insure both lessors and lessees for liability.[24] Both conclusions supported coverage for Coast Capital. Old Republic’s insertion of the OPCF 5 language into the Certificate reflects the commercial reality of the transaction.[25] At the very least, Old Republic should bear the consequences of ambiguity created by its use of an unapproved altered standard form.[26] Accordingly, the failure to attach the endorsement referred in the Certificate of Insurance did not render it inapplicable to the policy.[27]
C. Concurrent Duties to Defend: Pembridge Insurance Company of Canada v. Chu
The Court may find that multiple policies may owe concurrent duties to an insured. In such cases, it is important to analyze the policy wording along with the specific facts in the case to determine whether coverage is triggered.
In Pembridge Insurance Company of Canada v. Chu,[28] Chu was named in a third party claim pursuant to underlying motor vehicle accident litigation. In the underlying action, the plaintiff claims that the defendant (“OF”) caused her injuries after driving through a red light and causing the accident. In filing his third party claim against the insured, OF claims that Chu drove his vehicle negligently, but also exited his vehicle to threaten OF, causing OF to flee for his life and eventually cause the accident.
Chu’s auto insurer conceded a duty to defend, however his home insurer denied a duty to defend based on an exclusion in the home insurance policy excluding for claims arising from “the ownership, use or operation of any motorized vehicle.”
The motion judge held that the home insurer did not owe a duty to defend. Regardless of the exclusion clause, either the auto insurer or the home insurer would provide coverage and the facts suggested that it was “more appropriate” for the auto insurer to provide coverage.[29] The motion judge relied on section 239(1) of the Insurance Act, which states that automobile insurance policies intend to provide coverage for loss or damage “arising from the ownership or directly or indirectly from the use or operation” of an automobile.[30] Case law generally interprets “arising out of” or “arising from” very broadly, and, on that basis, the motion judge found that Chu’s alleged exiting of the vehicle, yelling, and banging on OF’s car would be considered “arising from” the use or operation of a vehicle.[31] Therefore, the home insurance policy clearly excludes liability coverage.
The Court of Appeal disagreed. The pleadings alleged facts which, if proven, would trigger the home insurance policy. Chu was no longer in his vehicle and was not using the car at the time of the alleged threats and assaults, which enables an argument that the chain of causation between his use of the vehicle and the subsequent accident was broken.[32] It was therefore at least arguable that the automobile exclusion in the home insurance policy would not apply if construed narrowly.[33] Accordingly, the motion judge erred by determining the duty to defend issue based on what policy would more appropriately cover the loss, as opposed to the allegations in the pleadings and the contents of the policies.
Further, the Court held that coverage under the home insurance policy was not vitiated by an intentional acts exclusion. An insurer must show that the insured intended to cause injury when performing the intentional act in order for the intentional act exclusion to apply.[34] Although Chu may have intended to exit his vehicle to threaten and berate OF, the pleadings in the underlying action did not allege that Chu intended to harm any of the parties. Accordingly, there remained a possibility that Chu’s threats and assault would be found insufficient to trigger the intentional acts exclusion.[35]
D. Conclusion
The recent case law showcases the complexity of the automobile coverage regulatory scheme. Determining which insurer must respond to certain losses often involves complex legal questions which pose challenges for Ontario courts. Four of the five cases highlighted involve substantive errors made by lower courts resulting in incorrect findings with respect to coverage. The above cases provide some clarity for insurers, and confirm that the terms of the policy define coverage in every instance.
[1] Abarca v. Vargas, 2015 ONCA 4 at para 37.
[2] Royal & Sun Alliance Insurance Company of Canada v. Intact Insurance Company, 2017 ONCA 381 at para 14.
[3] Insurance Act, R.S.O. 1990, c. I.8, ss 277(1.1)(1)-(3).
[4] Enterprise Rent-a-Car Canada Limited v. Meloche Monnex Financial Services Inc., 2010 ONCA 277 at para 4.
[5] 2019 ONCA 704 [Aviva v Wawanesa].
[6] Aviva v Wawanesa, supra note 5 at paras 25-29.
[7] 2019 ONCA 916 [Enterprise].
[8] Enterprise, supra note 7 at para 13.
[9] 2019 ONCA 774 [Kahlon].
[10] Kahlon, supra note 9 at para 30.
[11] Royal & Sun Alliance Insurance Company of Canada v. Intact Insurance Company, 2017 ONCA 381.
[12] Kahlon, supra note 9 at para 30.
[13] Ibid at para 45.
[14] Kahlon, supra note 9 at para 62.
[15] Ibid at para 59.
[16] Ibid at para 60.
[17] Ibid at para 61.
[18] Ibid at paras 69-72.
[19] 2018 ONCA 540 [Coast Capital]
[20] Coast Capital, supra note 19 at para 20.
[21] Ibid at para 21.
[22] Ibid at para 24.
[23] Ibid at para 27.
[24] Ibid at para 24.
[25] Coast Capital, supra note 19 at para 27.
[26] Ibid at para 24.
[27] Ibid at para 26.
[28] 2019 ONCA 904 [Chu].
[29] 2019 ONSC 1359 at paras 32-33.
[30] Ibid at para 34.
[31] 2019 ONSC 1359 at paras 36.
[32] Chu, supra note 28 at para 11.
[33] Ibid at para 12.
[34] Non-Marine Underwriters Lloyd’s London v. Scalera, 2000 SCC 24 at paras 37 and 92.
[35] Ibid at para 15.
