January 21, 2013 by Canadian Underwriter
The British Columbia Supreme Court recently dismissed an application by Canadian Direct Insurance Inc. (CDI) to order Lombard General Insurance Company of Canada to reimburse CDI for costs to defend a driver involved in an accident. The central issue in that case was whether a person leasing a vehicle with an option to buy is considered an “owner” under provincial law.
In a decision released Jan. 11, Judge Peter Leask ruled that Norman Dunn, as a lessee with the option to purchase a Ford F150, “was an owner of that vehicle under the Motor Vehicle Act because he was in possession of a motor vehicle under a contract by which he may become its owner on full compliance with the contract.”
Judge Leask ruled on the definition of a vehicle owner and referred to a 2006 Supreme Court of Canada judgment involving a dispute over a liability policy between an insurance firm and a religious order facing lawsuits over abuse at residential schools for native Canadians.
In August, 2003, Norman Dunn’s son, Nathan Dunn, was driving a truck and collided with another vehicle. According to court records, Dunn was driving the truck with his father’s permission for the purpose of his employment with the Sto:Lo Nation.
Court records also indicate that Insurance Corporation of British Columbia (ICBC) insured the vehicle to the statutory minimum policy limit of $200,000 plus defence costs, and CDI insured the vehicle to $1.8 million over and above the ICBC policy, plus defence costs.
“Lombard insured the Sto:Lo Nation and its employees in certain circumstances at the time of the accident,” Judge Leask noted in the background to his ruling, adding that CDI sought a declaration that Lombard “is a co-primary insurer of the defendant, Nathan Dunn, by operation of a 2003 insurance policy between CDI and Mr. Dunn’s then employer, the Sto:Lo Nation.”
In addition, CDI had asked the court to order Lombard to “reimburse CDI for any and all past amounts it has incurred to defend Nathan Dunn and that it fund the future costs of defending him in place of CDI to its policy limit before CDI is required to pay as an excess insurer.”
But Judge Leask ruled against CDI, noting that under Section 1 of the provincial Motor Vehicle Act, an owner can be a person “in possession of a motor vehicle under a contract by which he or she may become its owner on full compliance with the contract.”
Quoting from Lombard’s policy with the Sto:Lo Nation, Judge Leask said the accident would not be insured if the vehicle was owned in whole or in part by Norman Dunn.
In his decision, Judge Leask cited two court decisions from 2006: The Supreme Court of Canada decision in Jesuit Fathers of Upper Canada v Guardian Insurance Co. of Canada, and the B.C. Court of Appeal decision of Jennifer Yeung, vs Henry Ming Hang Au, Transportation Lease Systems Inc. and Anthony Tak Kai Au.
In the Yeung v. Au case, Yeung suffered severe traumatic brain injury as a result of a collision. She was a passenger in a car driven by Henry Ming Hang Au, which was leased to his father, Anthony Tak Kai Au, by Transportation Lease Systems.
In 2004, B.C. Superior Court Judge David Tyseo ruled against Anthony Tak Kai Au, concluding he was an owner and that Transportation Lease Systems was not “vicariously liable.” But two years later, the B.C. Court of Appeal ruled that Transportation Lease was vicariously liable.
Before the Yeung case, Judge Leask noted, courts had “interpreted lessors in lease agreements in which a lessee has an option to purchase the vehicle to be precluded from liability for the actions of drivers” due to section 86 of the B.C. Motor Vehicle Act.
“A unanimous five-member Court of Appeal eliminated that exemption from liability in Yeung,” Judge Leask wrote, noting the provincial appeal court stated that a lessee with an option to buy is an owner, and that Section 86 of the Motor Vehicle Act is intended “to expand the availability of compensation to injured plaintiffs beyond drivers who may be under-insured or judgment-proof, and to encourage employers and other owners to take care in entrusting their vehicles to others.”
Judge Leask added that in order to encourage owners to “take care in entrusting their vehicles to others,” the owners must be in a position to exercise that care.
“If only the lessor is an owner, then they can only take care in selecting the lessee,” he wrote. “They will have no power to determine who the lessee allows to drive. However, if the lessee is an owner, (section 86 of the B.C. Motor Vehicle Act) tells them to be cautious in loaning their vehicle to unsafe drivers. Clearly, the latter scenario is more consistent with the purposes of s. 86.”
He also quoted from the Jesuit Fathers case, which related not to auto insurance but to an insurer’s duty to defend professional liability clients against lawsuits, and when a claim is “first made.” The Jesuit Fathers operated a residential school for native Canadian children from 1913 until 1958 in the community of Spanish, about 100 kilometres west of Sudbury. The Jesuit Fathers were sued in the 1990s by several former students alleging abuse. Guardian only agreed to defend one lawsuit, arguing subsequent claims were “first made” after the expiry of the policy in 1994.
In 2006, the Supreme Court of Canada, ruling in favour of Guardian, concluded that although there is “unequal bargaining power at work in the negotiation of an insurance contract,” and principles of contract law require “that ambiguities be construed against the drafter,” it is not necessary to resort to these principles “if there is no ambiguity” in the policy.
This ruling was a factor in Judge Leask’s Jan. 11 decision.
“In light of the provisions and purposes of the Motor Vehicle Act and the relevant contract terms, I find that there is no ambiguity as to the meaning of the term “owned in whole or in part”,” Judge Leask wrote.