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Which insurer has to pay if garage loaner vehicle causes an accident


November 20, 2020   by Greg Meckbach


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When the driver of a loaner vehicle provided by an auto service centre is sued by an accident victim in Alberta, the insurer of the loaner vehicle may be the first payor.

This is what happened when Northwest Acura in Calgary provided a loaner vehicle for one of its customers whose vehicle was being serviced.

In Tokio Marine & Nichido Insurance Company v Security National Insurance Company, released Nov. 16, the Alberta Court of Appeal upheld a 2019 ruling by the Court of Queen’s Bench, which in turn upheld a 2018 ruling by a case management master. The ruling is against Tokio Marine & Nichido, which insured Honda Canada Finance Inc.

Key to the case was what the court found to be the “ordinary course” of Northwest Acura’s business, as well as the exact circumstances under which Harjit Gill was provided with a courtesy vehicle while getting his car serviced.

Honda Canada Finance leased a vehicle to Northwest Acura, which then loans that vehicle to customers who bring their own vehicles in for service.

In 2016, Northwest Acura was servicing Gill’s own vehicle, which was insured by Security National. The courtesy vehicle for Gill was owned by Honda Canada (and leased to the dealership) and insured by Tokio Marine & Nichido.

But Gill did not bring in his own vehicle, nor did he pick up the courtesy vehicle or sign the loaner agreement for the courtesy vehicle. It was Gurpreet Sran who brought in Gill’s vehicle on June 3, 2016. Sran signed the loaner agreement with Northwest Acura for the courtesy vehicle and initially drove that courtesy vehicle. The courtesy vehicle was provided at no charge.

Related: How hitting a skateboarder with a dealership’s courtesy car led to a priority dispute

Sran was not a named insured under Gill’s policy for Gill’s own vehicle, nor was she Gill’s spouse.

While driving the courtesy vehicle June 4, Sran allegedly collided with a skateboarder. The skateboarder filed a lawsuit in 2017 naming Sran, Honda Canada Finance Inc., and 724053 Alberta Ltd. as defendants.

The numbered company owns Northwest Acura.

Security National and Tokio Marine & Nichido disagreed over who is the first insurer. In 2018, Master Lucille R. Birkett of the Court of Queen’s Bench ruled in favour of Security National.

The result of the Nov. 16, 2020 appeal court ruling is that Tokio Marine & Nachido is the first insurer.

Tokio Marine & Nachido had made several arguments to support its case that Security National should be the first insurer while Tokio Marine should only be the excess insurer. One of Tokio Marine’s arguments was that Alberta’s “priority flip” applies in this case. The courts at all levels disagreed.

The “priority flip” is an exception to Alberta’s general rule on vicarious auto liability. There is a general rule in Alberta lawsuits that applies to situations in which a vehicle owner gives someone else permission to drive their vehicle. The general rule is that the owner’s insurance is primary and the driver’s insurance is excess. That rule is stipulated in section 596(1) of the Insurance Act.

The “priority flip” exception applies to the rental and leasing industry. It was brought in to address the cost of tort awards against companies who lease and rent out vehicles.

Essentially, section 7 of the Alberta Miscellaneous Provisions Amendment Regulation says if a driver who pays to rent or lease a vehicle has their own auto insurance on their own vehicle, then the driver’s insurance (not the leasing or rental firm’s insurance) is the first to respond. So the leasing or rental company’s insurer is the excess insurer. This also applies if the driver is the spouse of a person with their own auto liability policy or an adult interdependent partner of (and who lives with) a person with their own auto liability policy.

But Section 187 (0.1) of the Traffic Safety Act says a company is a “renter” or “lessor” of a vehicle only if it rents or leases vehicles “in the ordinary course of business.”

Northwest Acura, which is an auto dealership, does not rent out vehicles in the “ordinary course of business,” the Alberta appeal court noted.

“I do not foreclose the possibility of a car dealership electing to rent or lease vehicles to customers while their cars are being serviced. But to engage the priority flip would require entering into a valid rental or lease agreement,” wrote Justice Thomas Wakeling for himself and Chief Justice of Alberta Catherine Fraser in the ruling. In a separate decision, Justice Michelle Crighton concurred in the result but disagreed with some of Wakeling and Fraser’s findings.

Although the courtesy vehicle that Sran drove was leased, it was not rented or leased to her, nor was it rented or leased or to Gill, Justice George Fraser of the Court of Queen’s Bench ruled in 2019. The courtesy vehicle was leased to Northwest Acura by Honda Canada.

The loaner agreement is not a rental agreement, Justice George Fraser ruled. Further, Justice George Fraser ruled that the Miscellaneous Provisions Amendment Regulation (which stipulates the priority flip) did not apply to the leasing arrangement between Honda Canada and Northwest Acura.

The appeal court agreed. Under the Miscellaneous Provisions Amendment Regulation, a vehicle is not “leased” unless the driver of the vehicle that caused a third-party loss, or the person who gave the driver permission to drive the vehicle, is a lessee in a lessor-lessee relationship, appeal court judge Wakeling wrote.

Tokio Marine also argued that the courtesy vehicle should be considered a temporary substituted vehicle under Gill’s insurance policy. Tokio Marine reasoned that since Gill gave Sran permission to drive his own car to the dealership, that consent transferred to the temporary vehicle provided by the dealership.

But Sran went to the dealer to get the courtesy vehicle, not Gill.

At the lower court level, Justice George Fraser found that although Gill gave Sran consent to operate his own vehicle, that did not result in him providing consent for her to operate the courtesy vehicle.

“He was not the owner or lessor of the courtesy vehicle, and as an uninterested third-party [he] had no ability to give anyone consent to drive the courtesy vehicle,” Justice Fraser wrote.

Feature image via iStock.com/alexsl


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