On the Road Again

Judgement day is upon us – in a landmark ruling for the insurance industry; the Court of Appeal has upheld Justice Pitt’s verdict regarding Avis Rent A Car vs. Certas. Moreover, the Court of Appeal definitively stated the onus of excess policy is the obligation of the owner’s policy.

At the time of the accident – where the renter known as ‘Vig’ caused an accident while in operation of an Avis rental vehicle but had waved the purchase of excess liability insurance – Avis claimed three separate liability policies.

The first, issued by the Continental Casualty Insurance Company (CNA), was a standard Ontario automobile insurance policy with third party liability limits of $200,000. The description used in the Schedule of Automobiles was “all vehicles.” The second liability policy, also issued by CNA, had liability limits of $800,000, in excess of the $200,000 underlying insurance. The third liability policy, that in question, was a commercial umbrella policy issued by Illinois that boasted liability limits of US$25 million.

The Illinois commercial umbrella policy insured Avis alone as the named insured to a limit of US$25 million per occurrence. It provided coverage in excess of Avis’s underlying insurance, providing insurance against liability imposed by law on the insured because of bodily injury or property damage caused by an incident occurring anywhere in the world. Through endorsement, this part of the policy insures against loss caused by Avis’s automobiles. However, endorsement is intended to limit coverage to the named insured, except for persons acting within the scope of their employment with Avis.

Avis argued that the Illinois policy could not be an owner’s policy because it did not describe the automobiles as being insured by the contract. In particular, the van involved in the accident behind Avis vs. Certas was not described in the policy.

Although it is not a Canadian insurance company, the Court noted that Illinois had filed an Undertaking with the Superintendent of Insurance pursuant to section 226(1) of the Act, which states:

“An insurer that ensures motor vehicle liability policies and another province or territory of Canada, the United States of America… may file an undertaking with the Superintendent, in the form provided by the Superintendent, providing that the insurer’s motor vehicle liability policies will provide at least the coverage described in sections 251, 265 and 268 when the insured automobiles operated in Ontario.”

The Court of Appeal found that by filing an undertaking with the Superintendent of Insurance, the excess carrier participated in the “exchange of rights” upon which the Ontario motor vehicle accident compensation scheme was premised. Therefore, it had implicitly agreed to provide the required statutory coverage and in exchange, its insured would be considered a “protected defendant” under section 267.5 of the Act.

Upon these facts, it was deemed that the Illinois policy must comply with the requirements of a motor vehicle liability policy set out in Part VI of the Act. The court also ruled that the Illinois policy must respond as an Owner’s policy.

Avis further argued the point that a rental van owner is vicariously liable to an injured plaintiff as a result of the renter’s negligence, stating that the owner is entitled to full indemnity from the renter on the principle that everyone is responsible for his or her own negligence. In response, the Court stated this “could not stand” in light of s. 277(1) of the Act. The Court approved an obiter comment of Justice Montgomery in Guardian Insurance Co. of Canada vs. York Fire and Casualty Insurance Co. stating, “If the owner could recover from the driver, the owner’s insurance policy would no longer be first loss.”

In addition, the Court rejected the argument that Avis was entitled to equitable subrogation against Vig for $800,000 from Certas because of its obligation to indemnify its insured. Avis argued that because Vig purchased only $200,000 worth of insurance from Avis – yet caused an accident that obliged Avis to pay out $1 million – he had been unjustly enriched by $800,000.

The Court of Appeal reasoned that by virtue of s. 244 of the Act, Vig was “deemed to have given consideration” for the contract of insurance. This applies to the two CNA policies as well as the Illinois policy. Having been deemed by law to give consideration for these contracts of insurance, Vig claimed unjust enrichment by Avis. Moreover, as long as Avis’s claim relied on an implied contractual term that claims it deserves reimbursement from Vig, the Certas policy could not be called on to indemnify Vig, as it does not respond to contractual liability.

This decision puts arguments regarding recovery from either the renter or the driver’s personal auto policies pursuant to the terms of the rental or leasing contracts, to rest and it will make a considerable impact on the reinsurance market. The onus is now on legislature to implement an equitable loss transfer system or statutory amendment that will prevent an enormous increase in the cost of renting or leasing vehicles.