In Fernandes v. Araujo the Ontario Court of Appeal overturned one of its own previous decisions, clarifying a half-century old area of confusion in the law on vicarious liability for vehicle owners. The Court’s ruling is a helpful development for automotive manufacturers defending product liability cases.

Background to the Case

The plaintiff was injured while riding as a passenger in an All Terrain Vehicle. The ATV owner gave permission for the driver and plaintiff to take the ATV out for a spin but asserted that he did not give permission to leave the farm property where they were visiting. After driving the ATV off the property, the ATV was involved in a rollover accident resulting in the plaintiff’s injury.

The ATV owner’s insurer denied coverage on the basis that the owner had not consented to the ATV being driven off the property. The insurer brought a motion for summary judgment seeking to dismiss the claim against the owner. The Court dismissed the insurer’s motion and the insurer appealed.

Confusion in the Law: When is an Owner Vicarious Liable?

Ontario’s Highway Traffic Act provides that a vehicle owner will be vicariously liable for the negligent operation of their vehicle unless the driver possessed the vehicle without the owner’s consent. This, however, has been interpreted in different ways by the Court of Appeal.

In Fernandes, the Court of Appeal was tasked with reconciling two conflicting lines of authority from its own cases:

  1. Finlayson v. GMAC Leaseco Ltd., a 2007 case holding that the owner of a vehicle will be vicariously liable if the owner consented to the driver’s possession, regardless of whether the driver operated the vehicle in a way prohibited by the owner; and
  2. Newman and Newman v. Terdik, a 1953 case in which the vehicle owner was not found vicariously liable where the owner only gave permission to drive the vehicle on private property and the accident occurred on the highway.

In examining the two competing cases, the court found that Finlayson was more consistent with the policy objectives of the vicarious liability provisions of the Highway Traffic Act – namely, to protect the public by insisting that vehicle owners exercise caution in permitting others to operate their vehicles. Although generally hesitant to break with its own past decisions, the Court of Appeal found that Newman was “wrongly decided” and should therefore be overruled.

Key Take-Away Principle

After Fernandes, the law in Ontario is clear: where an owner consents to another’s possession of their vehicle, the owner will be vicariously liable for that person’s negligence in operating the vehicle, even if the driver breaches a condition imposed by the owner on the use of the vehicle. This case is good news for vehicle manufactures named as co-defendants in product liability actions, as it removes a potential avenue for a co-defendant vehicle owner to escape liability and shift the full burden of damages onto the manufacturer.