On March 1, 2006 the amendments to the Insurance Act (“IA”), the Highway Traffic Act (“HTA”) and the Compulsory Automobile Insurance Act (“CAIA”), which reformed the rules for vicarious liability with respect to leased and rented automobiles, came into force. Unfortunately, this caught the insurance industry a little off-guard. For these amendments to have their desired effects a number of automobile policy and endorsement wordings required amendment and some new endorsements needed to be issued. None of this was in place on March 1, 2006. In fact, it took two sets of changes which were announced in the Falls of 2006 and 2007 to complete the reforms. In fact, it was not until January 1, 2009 that the new scheme was operating as intended.[i] There are still a number of outstanding actions which deal with accidents that occurred between March 1, 2006 and December 31, 2008. However, to simplify the issues presented in this paper it is assumed that all accidents occurred on or after January 1, 2009.
To provide some context, the next section of this paper will outline the vicarious liability regime that was in place prior to March 1, 2006. I will then outline the changes that Bill 18 made to the vicarious liability regime. I will then discuss how vicarious liability risks were and are now insured. Finally, I will make some comments regarding practice issues.
Vicarious Liability Before March 1, 2006
At common law the owner of an automobile was not liable for the negligent operation of an automobile by someone the owner had entrusted the vehicle to.[ii] Decades ago this rule was legislatively changed through an amendment to the HTA. That rule was carried forward in what is now section 192 of the HTA. That provision made both the driver and the owner liable to any person who suffered loss or damage due to the driver’s negligent operation of the vehicle.[iii] The owner’s liability did not depend on any negligence of the owner. The liability was simply imposed on the owner by statute. This liability is commonly referred to the “vicarious” liability of the owner.
Section 192 also provided that if a lessee consented to the operation or possession of the motor vehicle by some other person, then that other person would be deemed to be in possession of the vehicle with the consent of the owner.[iv]
Up until March 1, 2006, no vicarious liability was imposed on either the lessee or renter of a motor vehicle. If an individual lent a leased vehicle to their spouse, the lessee was not vicariously liable for the negligent operation of the leased vehicle. The spouse would be liable both at common law and under section 192 of the HTA and the leasing company would be vicariously liable for the spouse’s negligence under section 192 of the HTA. To succeed against the lessee, however, the plaintiff would need to demonstrate negligence; for example, by proving that the lessee lent the car to the spouse when he or she knew that the spouse was intoxicated.
As the lessee or renter of a vehicle had no vicarious liability the standard motor vehicle accident report in this province did not have, and still does not have, any place to gather information regarding who rented or leased a vehicle involved in a collision. This now presents problems for both the plaintiff and defence bars given that vicarious liability is now imposed on lessees.
Prior to March 1, 2006 both the plaintiff and defence bars rarely had any reason to care who rented or leased a vehicle involved in a collision. Generally, one sued persons who were known or suspected to have been negligent such as the drivers of the involved vehicles, a road authority or a drinking establishment. Additionally, one sued those who were known to be vicariously liable for the actions of the negligent entities. In most cases, this was limited to the owners of the involved motor vehicles and employers of the driver.
The New Regime
On a warm summer night in 1997 a woman in her early twenties and her friend accepted a ride from two young men they had been drinking with in a bar. Unfortunately, the young man who drove was drunk. He lost control of his leased car while attempting to negotiate a curve on a dark country road. His car careened off the road and rolled over as it passed through the ditch beside the road. The young woman, who was probably not wearing a seatbelt, was ejected from the car and sustained devastating injuries.
The young woman sued the young man driving the car and the leasing company. The young man carried $1 million of third party liability coverage, as required by his lease. His insurer paid out that $1 million early on in the litigation. Our firm was retained to represent the leasing company shortly before trial and we settled the claim in the Fall of 2004 for just under $10 million plus costs.[v] This settlement received significant exposure in the press. It was reported that it was the largest motor vehicle settlement ever paid in Canada.
Shortly after this settlement was announced meetings were arranged between representatives of the leasing and car rental industries and the Ontario Government. The purpose of those meetings was to convince the government to change the vicarious liability rules for leasing and car rental companies.
What the industry hoped would happen was that vicarious liability for leasing and rental companies would be abolished. This result had been achieved in the U.S. through the intervention of the federal government. The leasing industry argued that a lease was simply one of a number of methods of financing the acquisition of a vehicle. It contended that leasing companies should not be exposed to unlimited liability simply because a vehicle continues to be owned by the leasing company under this form of financing.
The government listened and on March 1, 2006 the rules for vicarious liability for leasing and rental companies changed significantly. However, as mentioned previously, for this new regime to take full effect the Financial Services Commission of Ontario (“FSCO”) would need to make significant revisions to a number of motor vehicle liability policies and endorsements. In this paper I am going to skip any discussion of the transition problems from March 1, 2006 until December 31, 2008. By January 1st, 2009 all of the forms necessary to give full effect to the legislative intent underlying Bill were in place.
As we will see shortly, for the legislation to work as intended certain forms of policies and endorsements must be utilized by insurers of leasing and car rental companies. Do not assume that all insurers are using the proper forms even now. Some insurers have not revised their underwriting practises and continue to provide excess coverage to leasing and car rental companies pursuant to manuscript endorsements and old forms of policies and endorsements. You need to make sure all the policies and endorsements are actually produced and reviewed.
The Legislative Changes
This section is intended to give an overview of how the Bill 18 changes were intended to work. As we will see, the legislation may not always work as advertised. I will address each of the problems with the legislation and forms that I have identified in the succeeding sections.
One would have thought that the government would have made a choice between two alternative models to address the industry’s concerns. It could have made the lessee solely liable for the negligence of those who operated the leased vehicle and relieve the lessor of any liability. Alternatively, it could make both the lessor and lessee liable but cap the lessor’s exposure. The Ontario government, however, chose a much more complex approach. The first thing it did was to impose vicarious liability on those who rented or leased vehicles. This liability was joint and several. This change applies to both bodily injury[vi] and property damage claims.
The balance of the reforms applies to bodily injury claims only. The first reform involved capping the lessor’s liability at $1 million in most cases. If the renter and/or driver have their own insurance, this capped amount can be reduced down to zero. Incidentally, the lessor’s liability had been capped in a number of U.S. jurisdictions before the federal legislation abolishing vicarious liability for car rental and leasing companies was passed in 2005. In addition, the Ontario reforms altered the priority of insurance policies making the leasing or rental company’s policy excess to any insurance available to the lessee or driver. Again, this reform only applies to bodily injury claims.[vii] In respect of property damage claims the lessor’s policy continues to provide the primary coverage.[viii]
The Ontario government chose to make this new regime applicable to both long term leases and short term rentals. The U.S. reforms also apply to both short and long term rentals. Given that these reforms apply to both situations, for ease of reference, I will refer to both leasing and rental companies as lessors and to persons who lease or rent cars as lessees, unless the context requires otherwise.[ix]
As previously mentioned, this scheme is contained in a series of amendments to the CAIA, the HTA and the IA all of which were contained in Bill 18.[x]
The basic scheme of the new regime is fairly easy to understand.
The definition of “lessee”, in section 192 of the Highway Traffic Act, has been amended. A lessee is now defined as “a person who leases or rents a motor vehicle or street car for any period of time” (emphasis added).[xi] Another amendment makes a lessee liable, in the same manner as an owner of such vehicles, for any loss or damage caused by the negligent operation of the vehicle. This lessee liability is new in Ontario. The liability of the owner, operator and lessee is explicitly stated to be joint and several. It appears that they are jointly and severally liable to plaintiffs but it is unclear whether contractual terms can alter the liability inter se. The above referred to provisions apply to all types of damages (i.e., bodily injury and property) that might be caused by the operator of a leased or rented automobile.
The details of the limited liability scheme are set forth in the amendments to the IA.[xii] The provisions which limit the liability of lessors apply only to bodily injury claims. Lessors are still fully liable for property damage claims. The liability of lessors is essentially limited to $1 million less any insurance that the lessee or operator of the vehicle has available to respond to the claim. If such other policies exist, then the lessee’s policy responds first, the operator’s policy responds second and the lessor’s policy responds third.[xiii] [xiv] This scheme does not apply to motor vehicles that are used as taxicabs, livery vehicles[xv] or limousines for hire. The $1 million maximum liability of the lessor can be modified by regulation (there are currently no such regulations) or by a provision in another act or regulation obliging that vehicle to carry higher minimum limits of liability (for example, the liability of the lessor of a public bus which carries 13 or more passengers would be $8 million as required by the Public Vehicles Act). These amendments only apply to the vicarious liability of the lessor under the HTA. If the lessor was itself negligent, then these provisions do not reduce the lessor’s liability for such negligence.[xvi]
I would remind you that if you are dealing with a property damage claim these provisions are inapplicable.[xvii] Accordingly, if a rental vehicle takes out a bridge, the rental company’s insurer is obliged to respond to such a claim as the primary insurer. Any insurance that the renter or driver has would be excess.[xviii]
After March 1, 2006 the following would be a typical situation involving the negligent operation of a leased vehicle. The leased vehicle is owned by Leaseco, leased by John Lessee and operated at the time of the accident by Tom Driver. John Lessee has insurance of $1 million which names Leaseco as the lessor of the vehicle. Tom also has insurance on his own vehicle with limits of $1 million. If the plaintiff’s damages are assessed at $2.5 million, then $1 million will be paid out under the John Lessee policy. That payment will reduce Leaseco’s exposure to zero. Tom Driver’s policy will then pay the next $1 million of the judgment. That will leave a shortfall of $500,000.00 for which John Lessee and Tom Driver are jointly and severally liable to the plaintiff. It is unclear whether John Lessee would have any right to indemnity from Tom Driver in respect of this personal liability.[xix]
This is how the legislation is supposed to work. However, as will be seen below, the insurers of Leaseco may discover that the regime does not work as advertised unless their policies are properly endorsed.
Finally, amendments to the CAIArequire persons renting or leasing vehicles for periods in excess of 30 days to be able to demonstrate that the leased or rented vehicles are insured under automobile insurance policies.
What Vehicles are Subject to the Legislation
The amendments to the HTA change the definition of lessee as outlined above. These changes apply to any vehicle that falls within the definition of “motor vehicle” in the HTAand to street cars. “Motor vehicle” under the HTAis defined as follows:
includes an automobile, motorcycle, motor assisted bicycle unless otherwise indicated in this Act, and any other vehicle propelled or driven otherwise than by muscular power, but does not include a street car, or other motor vehicles running only upon rails, or a motorized snow vehicle, traction engine, farm tractor, self-propelled implement of husbandry or road-building machine within the meaning of this Act.
The CAIA applies to motor vehicles as that term is defined under the HTA together with trailers, accessories and equipment of a motor vehicle and deems streetcars to be motor vehicles. Accordingly, the amendments under both acts apply to essentially the same vehicles.
The same does not appear to be true for the amendments to the IA. The provisions that deal with the liability of the lessor specifically adopt the HTAdefinition of “motor vehicle” and the provisions that deal with insurance priorities specifically limit their application to motor vehicles as that term is defined in the HTA. Therefore, neither of these provisions appears to apply to streetcars. The result is that the liability of lessors of streetcars (if there are any) is not capped and, in most cases, their policies will be primary.
It is also clear that these provisions do not apply to any vehicle that does not fall within the definition of “motor vehicle” in the HTA. This would include leased snowmobiles, leased farm tractors, road-building machinery etc.
As previously indicated the liability caps and re-ordering of insurance policy priorities for bodily injury claims do not apply to taxicabs, livery vehicles or limousines for hire. The term livery vehicle has been defined in the regulations.[xx]
The Insurance Issues
Although this paper focusses on accidents which occurred on or after January 1, 2009, this does not imply that it will always work as anticipated by defendants and their insurers. These issues are discussed below. Additionally, I will comment on the repercussions for defendants and, in particular, their insurers if a policy is not properly endorsed.
Coverage for the Lessee’s Liability
The standard auto policies did not provide coverage to for a lessee’s vicarious liability.[xxi] Previously, it had been unnecessary to do so as “lessees” had no vicarious liability.
On October 16, 2006 FSCO issued a revised O.A.P. 1 (Standard Ontario Automobile Policy). The coverage grant (see section 3.3 of the O.A.P. 1) now makes specific reference to leasing and renting. Section 3.3.5 of the O.A.P. 1 purports to set out the priority of those policies which must respond to claims involving rented or leased automobiles. The order is that specified in section 277(1.1) of the Insurance Act. Of course, the re-ordering of the priority of policies under that subsection is only supposed to apply to bodily injury claims. Section 3.3 appears to mandate this re-ordering for all claims. While it is possible for the Superintendent to approve policies that do not comply with Part VI of the Insurance Act, the Courts have demanded clear evidence of that intention.[xxii] In my view, no such clear intention is evident from the Bulletin approving the new O.A.P. 1. Therefore, I believe that the priorities established in subsection 277(1) rather than subsection 277(1.1) of the Insurance Act would apply to property damage claims. Unfortunately, it will likely take one or more court cases to confirm this.
The new O.A.P. 1 specifically covers the named insured and his or her spouse for their vicarious liability arising out of the rental of certain vehicles for periods of not more than 30 days.[xxiii] However, no such coverage is extended to other insureds such as a child who rents a vehicle and lends it to someone else. Additionally, several commentators have suggested that the person who was actually driving obtains no coverage under the revised O.A.P. 1. If this suggestion is correct, for example if a named insured rents a vehicle and lends it to their child, then the named insured only would have coverage for their liability as the lessee of the vehicle. However, the child would not have any coverage under his parents’ policy. This would mean that the child would have to pay for her or her own defence of the claim. Additionally, there would be a question whether the parent’s insurer could subrogate against the child or the child’s insurer, if any. Whether this suggestion is correct is a complex question.[xxiv]
It should be noted that the maximum weight of a vehicle covered by this change is 4500 kg. Accordingly, this change alone is not sufficient to deal with situations where a commercial insured intends to rent heavy vehicles and wants coverage for its vicarious liability as the renter. It appears that the new O.P.C.F. 27 can be modified to provide coverage for heavy vehicles.[xxv] It is important for a company renting heavy commercial vehicles to ensure that it has both appropriate primary coverage which is properly scheduled to its excess auto coverage (S.P.F. 7) to ensure that it is fully insured for its vicarious liability as the renter.
For vehicles weighing more than 4500 kg , it is also possible to provide coverage for the liability as lessee using an S.P.F. 6. However, this approach has potential problems. There is no vehicle weight limit but the vehicle cannot be licensed in the insured’s name nor can the insured have assumed liability voluntarily under a contract or agreement.
On September 29, 2007, FSCO issued a new Bulletin[xxvi] which contains a new O.A.P 4 (Ontario Garage Policy) and two revised Fleet Reporting Endorsements (O.P.C.F. 21A and 12B).
The O.A.P. 4 now provides third party liability coverage to the insured in respect of its liability as a lessee for vehicles rented for periods not exceeding 30 days which are rented for the business conducted by the insured. It does not appear that there are any weight limitations under the O.A.P. 4 on such vehicles.
On the other hand the revised O.E.F. 82 (Liability for Damage to Non-Owned Automobiles and Drive, Rent or Lease Other Automobiles-Named Persons Endorsement), which is for use with the O.A.P. 4, does have weight restrictions. This amended endorsement now includes vicarious liability coverage for certain rented or leased vehicles. This endorsement is usually used to add vehicles not owned by the insured but which are owned by someone who is related to the insured. Therefore, this endorsement has the same restrictions that are contained in the O.A.P. 1.
The new O.P.C.F.s 21A and 21B (Monthly Reporting Basis Fleet and Blanket Fleet Coverage for Ontario Licensed Automobiles) provide lessee coverage. Both endorsements provide coverage for vehicles leased for more than 30 days from specified lessors and for periods not exceeding 30 days from any lessor. It would appear that the endorsement provides coverage for long term leased vehicles regardless of weight. However, short term leased vehicles cannot exceed 4500 kg in weight.
Coverage for Drivers of Leased and Rented Vehicles
Before discussing the O.P.C.F. 5 and O.E.F. 98B, 110 and 120 endorsements, I would like to spend a moment discussing how car leasing and rental companies handled their insurance prior to March 1, 2006.
I will start with leasing companies. The standard long term automobile lease obliges the lessee to obtain insurance on the vehicle which shows the lessor as an insured. The policy must be endorsed with an O.P.C.F. 5 (Permission to Lease Endorsement). This latter endorsement permits the leasing of the vehicle, which the standard O.A.P 1 prohibits. Most leases require the lessee to obtain $1 million or more of third party liability coverage. Insurers of leasing programs have been aware for years that there was a risk that if they simply scheduled all of the policies of the various lessees on the leasing company’s S.P.F. 7 (Standard Excess Automobile Policy) that it would not only provide insurance coverage to the leasing company but also to the driver. To avoid this result, many leasing programs provided the excess coverage pursuant to a manuscript leasing endorsement attached to the leasing company’s C.G.L. or umbrella policies. This routinely provided that the endorsement afforded no coverage to anyone but the lessor.[xxvii]
Prior to Bill 18 concerns had been expressed about this approach to writing excess coverage for leasing companies. The concern was that this was really automobile insurance and, as such, should have been underwritten using a form of policy or endorsement approved by the Superintendent of Insurance.[xxviii] This concern was based on the assumption that any policy which actually provides coverage for automobile liability must be underwritten on an approved form. If a manuscript leasing endorsement does violate this requirement of the IA, then there is a real risk that the courts will conclude that the coverage should have been written on an S.P.F. 7 which would provide coverage to the driver.[xxix]
The Court of Appeal more than hinted that this concern had merit. In the Avis v. Certas[xxx] decision the Court of Appeal strongly suggested that these manuscript endorsements may be considered to be automobile insurance policies and coverage for drivers will be read into them.[xxxi]
There is one other underwriting issue I would like to mention at this juncture. Leasing companies also purchase S.P.F. 8 (Standard Lessor’s Contingent Automobile Policy) coverage. This coverage is designed to provide coverage to the lessor if the lessee either fails to obtain any or all of the coverage required by the lease. Most leasing companies specifically schedule this coverage on their S.P.F. 7 policy. As we will see shortly, this may create double insurance where a vehicle is insured for an inadequate (but for some) amount by the lessee.
I next want to outline how a drafting problem with the legislation has apparently been “fixed” in several of the new endorsements.
The actual method utilized by the legislation to cap the lessor’s liability at $1 million or less is to reduce the lessor’s prima facie liability of $1 million by subtracting from that amount any amounts available under any other policy that insures the vehicle other than policies issued to the lessor (emphasis added).[xxxii] Of course, in the typical lease situation the policy is issued to the lessee and the lessor. Since the lessee’s policy is also issued to the lessor, the limits under that policy probably cannot be subtracted from the lessor’s $1 million exposure under section 267.12.[xxxiii] When this was pointed out to the IBC a provision was incorporated into the several of the new and revised policies and endorsements, including the revised O.P.C.F. 5 and 5C and the new O.E.F. 110 and 120 endorsements, which provides that any policies that such endorsements are attached to are deemed not to be issued to the lessor for the purposes of section 267.12 of the Insurance Act. Hopefully, this change will permit the policy limits under such policies to be subtracted from the lessor’s limited exposure under section 267.12 of the Insurance Act. The result will be that for leased vehicles, the existence of $1 million of coverage contracted for by the lessee will be sufficient to discharge all of the lessor’s vicarious liability under the legislation.
Car Rental Companies
It is now contemplated that car rental companies (i.e., those renting vehicles for not more than 30 days) will likely have in place an O.A.P. 1 with limits of $1 million endorsed with an O.P.C.F. 5C. Their excess coverage will be provided by an S.P.F. 7 endorsed with an O.E.F. 110 endorsement.[xxxiv]
I will start by discussing the O.P.C.F. 5C.
The O.P.C.F. 5C or “Permission to Lease Endorsement” applies to short term (30 days or less) rentals. It purports to provide coverage for the lessee and the driver which coverage is reduced by the amount of insurance available to the driver and lessee from their own policies. It is awkwardly worded and difficult to interpret. It accomplishes its goals, in part, by creating sub-limits of coverage. Although this was not intended, some will conclude that this implies that the policy has multiple independent limits of coverage available to each of the lessor, lessee and the driver. I have little doubt that some ingenious lawyer will attempt to convince the court to “stack” those limits as was done with the old S.E.F. 42.
There is also an argument that by reducing limits to the driver and the lessee, this endorsement contravenes the minimum liability provisions set forth in section 252 of the IA. I do not think that such an argument is correct, but if it is applied by the courts it could increase the coverage under a rental company’s policy modestly.
The O.P.C.F. 5C also purports to re-order the priority of insurance policies, not just for bodily injury claims but also for property damage claims. It is unclear whether this was intended or not. As was discussed with respect to the O.A.P. 1, it is unclear whether the priorities established by the policy wording or those established by section 277(1) of the IA will take precedence.[xxxv] For the reasons previously expressed in respect of the O.A.P. 1, it is my view that for property damage claims the lessor’s insurance is primary notwithstanding the provisions of the O.P.C.F. 5C. In any event, this discrepancy will almost certainly lead to litigation.
Before discussing the O.E.F. 110, I want to recap where we are with car rental companies. If they obtain their primary coverage through an O.A.P. 1 with limits of $1 million endorsed with an O.P.C.F. 5C, then that policy alone should be sufficient to discharge their vicarious liability obligations under section 267.12 of the Insurance Act. It may not be sufficient to discharge their obligations for property damage claims or if the car rental company itself has been negligent. If the driver or renter has their own insurance, then the rental company’s vicarious liability exposure will be reduced from $1 million to whatever sum, if any, is left after subtracting the total amount of insurance available to the driver and renter.
That takes us to the new O.E.F. 110 endorsement which became available on or after January 1, 2008. The O.E.F. 110 is available for endorsement on the Standard Excess Automobile Policy (S.P.F. 7). It provides that the maximum amount of insurance available under the excess policy is capped at $1 million (or any other larger figure that the insurer might specify) less any insurance available to the lessee/renter or the driver. Once that figure is reached any remaining limits under the S.P.F. 7 are only available to the named insured (the leasing or rental company). It should be noted that the O.E.F. 110 is specifically limited to bodily injury claims. It does not apply if the claim is a property damage claim. This suggests that the insurer of the lessor continues to insure the operator and probably the lessee for excess property damage claims.
I was pleasantly surprised by FSCO’s decision as it ensures that those who rent or lease vehicles are entitled to access to at least $1 million of insurance either from their own insurers or the car rental or leasing company’s insurers. If the car rental company’s primary insurance is less than $1 million, then the lessee/renter or driver is entitled to look to the car rental company’s insurers for any shortfall between their policy limits and $1 million.
This endorsement, in the context of short term car rentals, appears to have fixed the problem that the S.P.F. 7 insures drivers and lessees. If a car rental company is insured pursuant to an O.A.P. 1 with limits of $1 million endorsed with an O.P.C.F. 5C and an S.P.F. 7 endorsed with an O.E.F. 110, then the car rental company’s insurers will be able to take full advantage of the cap on the rental company’s vicarious liability for bodily injury claims. In other words, the maximum amount that these insurers will be obliged to indemnify the renters or drivers for is $1 million. [xxxvi]
However, unless this endorsement is added to the S.P.F. 7, the insurer of the car rental company may be obliged to cover the liability of the car rental company, the driver and possibly the renter to the full limits of the S.P.F. 7. This effectively means that the benefits of Bill 18 will not be fully available to the insurers of car rental companies unless they endorse their S.P.F. 7 policies with the O.E.F. 110 endorsement.
Where does that leave us for bodily injury claims involving short term car rentals? It is clear that the driver and renter must have available to them through some insurance policy $1 million in total coverage for all claims involving such vehicles.[xxxvii] It would not appear that the renter and driver are entitled to avail themselves of the limits that are available to the car rental company in excess of $1 million.
I would like to point out one curious feature of the O.E.F. 110. Its application is strictly limited to claims in Ontario. Accordingly, if the an action is commenced in another province or the United States[xxxviii] the endorsement does not apply and the S.P.F. 7 presumably provides coverage to the renter and driver.
The remaining question is whether the car rental company and its insurers are entitled to indemnity from or to subrogate against the renter and driver for any amounts they are obliged to pay to a third party in excess of $1 million.
If the claim is a bodily injury claim and the only liability of the car rental company is vicarious, then the car rental company’s exposure and that of its insurer is only $1 million. In such a case, the question of subrogation would not arise.
For bodily injury claims, where the car rental company is itself negligent, the situation is somewhat different. Since the car rental company will still be vicariously liable for the driver’s negligence as will the renter, the insurers of the renter and the driver will be obliged to respond to that liability in priority to the insurers of the car rental company. The renter and driver policies will likely be tapped out before the car rental company’s policies are obliged to respond. Once those policies are exhausted the liability of the car rental company, the driver and the renter is joint and several to the plaintiff. The indemnities in the rental agreement could give the car rental company a right to indemnity to the extent that it has paid more than its proportionate share based on its own negligence. However, if those amounts are paid by the car rental company’s excess insurer, then the indemnity may be lost. This is more likely were the O.A.P. 1 and S.P.F. 7 are issued by the same insurer. The O.A.P. 1 endorsed with an O.P.C.F. 5C has the potential to insure the driver and renter although it will not actually do so if they have their own insurance with limits of $1 million. A court may still conclude that the driver and the renter are insureds under the O.A.P. 1 and therefore that insurer cannot subrogate. Even though the S.P.F. 7 does not insure them, if the excess insurer and the primary insurer for the rental company are the same, then that insurer may not be permitted to subrogate against its own insureds. This argument is less compelling if there are different primary and excess insurers. In that case the excess insurer can legitimately contend that the driver and renter are not and never were insured by the excess insurer. There are arguments to the contrary, but it is probably safer to assume that the insurer of the car rental company cannot subrogate against the driver and, possibly, the renter in such circumstances.[xxxix]
Finally, I need to address property damage claims. We need to address claims under both the primary and excess policies. The legislation indicates that in respect of property damage claims, the rental company’s policy of insurance is primary. The O.P.C.F. 5C, which applies to the car rental company’s primary O.A.P. 1 coverage, provides for the opposite result but it is my belief that the legislated priority will prevail. This means that the car rental company’s O.A.P. 1 insures both the driver and the renter. In light of the Avis[xl] case it would appear that the primary insurer of the car rental company will not be permitted to subrogate against the renter, the driver or their insurers.
That takes us to the excess coverage. Since the O.E.F. 110 only applies to bodily injury claims, the Avis case would seem to indicate that the operator and possibly the renter is insured under the S.P.F. 7. This probably strips the excess insurer of any rights of subrogation against the driver or renter for any excess property damage claim.
Car Leasing Companies
It is now contemplated that car leasing companies will ensure that all policies obtained by lessees will be endorsed with the new O.P.C.F. 5 (Permission to Lease) endorsement. They will obtain their excess coverage on the leased vehicles pursuant to an S.P.F. 7 endorsed with an O.E.F. 110 endorsement. They will also have, in place, an S.P.F. 8 endorsed with the new O.E.F. 120. It is somewhat unclear how the excess coverage on the S.P.F. 8 should be provided.
We have not discussed the S.P.F. 8 (Standard Lessors’ Contingent Automobile Policy) in any detail. This policy is intended to provide coverage to a leasing company in the event that the lessee fails to obtain any coverage or coverage with inadequate limits. In other words, it is the policy that protects the leasing company in the event that the lessee fails to abide by the insurance undertaking in the lease. Such a policy and any policy excess to it should not logically insure the lessee or, I would argue, the driver. There has been a debate for the last few years regarding whether this policy insures the driver of a vehicle or not. The new O.E.F. 120 endorsement is premised on the assumption that it does.[xli] The purpose of this endorsement is to ensure that any S.P.F. 8 it is endorsed upon only provides coverage to the leasing company.[xlii]
Unfortunately, the various policies that insure leased vehicles do not mesh as well as one would have hoped.
It would appear that FSCO contemplated that leasing companies would generically schedule the primary policies arranged for by their lessees on an S.P.F. 7 endorsed with an O.E.F. 110. Normally, this would work well and the leasing company’s S.P.F. 7 would never be obliged to provide coverage for the driver or the lessee. However, if the lessee arranged insurance with inadequate limits (for example, $500,000 rather than the $1 million required by most leases) the O.E.F. 110 endorsed S.P.F. 7 would insure the lessee and owner for an additional $500,000. The fact that the lessee or driver is insured under this policy could defeat that insurer’s right to subrogate against the lessee or driver. However, where the lessee arranged no insurance, the S.P.F. 7 would likely not be engaged and the S.P.F 8 insurer may be entitled to subrogate.[xliii]
There is also a problem deciding how to provide excess coverage over the S.P.F. 8. The S.P.F. 8 endorsed with an O.E.F. 120 provides no coverage to the lessee or the driver. However, there may be a problem if one simply schedules an O.E.F. 120 endorsed S.P.F. 8 on an O.E.F. 110 endorsed S.P.F. 7. The S.P.F. 8 with O.E.F. 120 endorsement only provides coverage to the leasing company. However, the S.P.F. 7 endorsed with an O.E.F. 110 specifically provides a minimum of $1,000,000 of coverage to the lessee and the driver. It may also provide excess coverage for property damage claims. Frankly, the two endorsements are inconsistent. The O.E.F. 110 may well strip the leasing company’s insurer of any rights of subrogation it might have expected to have under the O.E.F. 120 endorsed S.P.F. 8.
One possible way around this is to schedule the S.P.F. 8 on a separate S.P.F. 7 policy which is not endorsed with the O.E.F. 110. However, it might still be argued that the S.P.F. 7, pursuant to section 239 of the Insurance Act, insures the driver. However, given that the underlying insurance (the S.P.F. 8 with an O.E.F. 120 endorsement) does not, there is a reasonable chance of convincing the courts that, in these circumstances, the S.P.F. 8 insurer retains its rights of subrogation.
However, there is a drawback to this approach. If a lessee is insured, but for an inadequate amount, both S.P.F. 7s may be triggered (i.e., the one containing the O.E.F. 110 sitting above the lessee’s policy and the one without the O.E.F. 110 sitting over the S.P.F. 8).
In light of these problems I would recommend scheduling all of the leasing company’s policies on the one S.P.F. 7 endorsed with an O.E.F. 110. There is a distinct possibility, if not a likelihood, that the leasing company’s insurer will lose its rights of subrogation against the lessee. However, this approach significantly reduces the risk that the leasing company’s insurer might be obliged to provide coverage to the lessee or the driver for amounts in excess of $1 million for bodily injury claims. It may still provide excess coverage to the lessee and/or driver for property damage claims.
To summarize, where the claim is a bodily injury one and the leasing company’s liability is vicarious only, the leasing company’s liability is capped at $1 million as likely is its insurers. Where the lessee has inadequate or no insurance, the method I have suggested for providing coverage may strip the insurer of any rights of subrogation it may have against the lessee or driver.
Where the claim is a bodily injury one and the leasing company is also negligent or the claim is for property damage, the comments made under the heading “Car Rental Company” apply.
Before leaving this topic, I want to point out a little wrinkle that Sloan Mandel brought to my attention. Suppose we are dealing with a rental car that is leased by the car rental company. In such a situation the car rental company is both a lessor and a lessee of the same vehicle. There is a good argument that if the company leasing the cars to the car rental company is sued as the owner, the car rental company is sued as both a lessor and lessee and the renter of the car is sued as a lessee, that the car rental company will not be able to take advantage of section 267.12 of the IA. Its liability as the person which rented out the car would be capped at $1 million but in its capacity as the lessee of the leased rental car, it would be exposed to unlimited liability. The lesson is probably that car rental companies should not lease their rental fleets.
Non-Owned Automobile Insurance
That brings us to the S.P.F. 6. This is the standard non-owned automobile policy. This coverage will now be much more important than it has been in the past. Non-owned coverage was almost always excess coverage as the policy of the owner of the automobile was obliged to respond as the primary insurer. These endorsements were routinely placed on C.G.L. policies without any real concern about the exposure they may create for the insurer. Now, where an automobile is rented in the name of the company, these policies will probably provide the primary coverage. Accordingly, the exposure that this policy creates needs to be re-evaluated by insurers. Prudent insurers are now asking commercial insureds to provide full particulars of how often employees, partners etc are renting automobiles as well has how often they drive their own cars on company business. This information can then be used to properly rate the risk attaching to the S.F.P. 6.
As part of the September 29th, 2007 package of new and revised endorsements FSCO advised the industry of two new endorsements that are relevant to S.P.F. 6 coverage.
The new O.E.F. 98A (Excluded Driver Endorsement) permits insureds to have excluded drivers for S.P.F. 6 policies just as they currently do for O.A.P. 1s.
The new O.E.F. 98B (Reduction of Coverage for Lessees or Drivers of Leased Vehicles Endorsement) arguably extends the coverage previously available under the S.P.F 6 in some situations where partners, officers or employees rent vehicles for company business. It is possible that under this endorsement there is coverage where the rental vehicle is rented for company business even if it is not actually being used for company business at the time of the collision. For example, if I rented a car to go to discoveries in London but became involved in an accident driving from hotel to a restaurant for dinner, there is an argument that an S.P.F. 6 endorsed with an O.E.F. 98B would respond to this claim on my behalf even though my partners may not be vicariously liable for the collision I am involved in on the way back from dinner. [xliv]
Of more importance, however, is the provision in the endorsement that provides that this coverage is excess to any coverage the named insured or renter has available to respond to the claim.[xlv] This endorsement essentially makes the S.P.F. 6 excess coverage only where a partner, officer or employee rents a vehicle for company business. I would anticipate that most brokers would recommend placing this endorsement on any S.P.F. 6 coverage they write.[xlvi]
One broker has raised a concern regarding the restriction contained in this endorsement (the O.E.F. 98B) limiting its application for additional insureds to short term rentals (30 days or less) only. The following question and example outline the concern. If an employee was doing company work using a long term leased vehicle would there be coverage? In such a situation, I do not believe that this endorsement would extend any coverage to the employee. However, I believe that the named insured would continue to be insured for any liability attaching to the employee’s conduct under the under the S.P.F. 6 endorsement. This endorsement only extends coverage in certain situations to employees, partners and officers of the named insured. It does not appear to affect the coverage available to the named insured itself under the S.P.F. 6.
I should also mention that there may be situations where an both an employer’s O.A.P. 1 and S.P.F. 6 endorsed with an O.E.F. 98B may be obliged to respond to the same loss. For example, if the employee had a company car and rented a vehicle while out of town for a couple of days, the O.A.P. 1 is probably going to be obliged to respond as the rental vehicle is an “Other Automobile” under the O.A.P. 1. However, the employee and the company will also have coverage under the O.E.F. 98B endorsed S.P.F. 6. In most cases, I would anticipate that the O.A.P. 1 would be obliged to respond in priority to the S.P.F. 6 endorsed with O.E.F. 98B.[xlvii]
Where Do You Look for Insurance?
This section is intended to provide some practical advice regarding finding insurance to respond to bodily injury claims. Until recently, those involved in personal injury litigation tended to limit their enquiries to the question of who was legally responsible for the plaintiff’s damages. Plaintiff’s counsel, in particular, often failed to appreciate that it is critical to not only identify who caused the accident but who insured the entities who caused the accident.
Often, it is not obvious who those insurers are. Sometimes the liable parties are insured under policies owned by persons who may not even be responsible for the collision. It is often difficult to obtain information about or from these entities.
The defence bar is usually familiar with the types of insurance available to the various defendants to a personal injury lawsuit and defence lawyers have an innate understanding of who usually insures what. If you follow this primer you should, at least, ask the correct questions which should lead you to all of the potential sources of insurance. When you are trying to figure out who to sue you have only done half the job. Once you identify the potential defendants, you then need to identify the various insurance policies which might insure them.
In this section I will briefly set out the likely sources of insurance for the owners, lessees and drivers of motor vehicles. When you are dealing with a serious claim you need to carefully explore all potential sources of insurance. You will need to use your imagination to track down all of the potential sources of insurance coverage.
Let’s start with a simple example involving an accident where a car owned by A is lent to B. If a plaintiff simply sued A and B, in most cases A’s insurer would defend the action. If the amount claimed exceeded A’s primary limits, then A’s insurer should be asking both A and B if they have any other insurance which can respond to the claim. By the time the matter proceeds to discoveries all of the potential insurance should have been identified. This is how it is supposed to work but, in my experience, all of the potential insurance is rarely identified before discoveries. The plaintiff may not recover his or her full proven damages unless all of the insurance is found. Therefore, it is imperative that plaintiff’s counsel identity all of the policies which may insure those who are responsible for the plaintiff’s injuries. If the claim exceeds a defendant’s limits, then it is important for defence counsel do identify all of the insurance which may indemnify his or her client and any co-defendants.
Let us start with the owner A. Hopefully, the car is insured and the insurer is the one identified on the police report. A may have taken out excess insurance. If A is an individual this was probably accomplished using an umbrella policy which sits on top of the individual’s auto and homeowner’s policies. A may not even remember that he had an umbrella at the time of the collision. I would suggest asking who the broker or agent is at discovery. Defence counsel should be asked to make specific written enquiries of the broker regarding insurance and, in particular, umbrella coverages. Although rare, I have seen situations where a vehicle is insured under two different primary policies. Always ask if A or A’s spouse own other vehicles and request that the relevant policies be produced.
If A is a corporation it may also have excess coverage. This coverage may be found in some unusual places. For example, if A is part of a conglomerate of companies, one of the related or parent companies may have excess or umbrella coverage that insures the entire group of companies. If A is doing work for another company, it is possible that A is insured under the other company’s policy. It is important to review all contracts between A and the other company to determine if they obliged the other company to provide insurance for A. Specific enquiries regarding potential insurance coverages should be directed to the company’s insurance broker and risk manager.
That takes us to B. If B or B’s spouse owns a car, then there is a very good chance that B is insured under the policy on that car while operating A’s car. There may be excess or umbrella coverage available as well. If B was in the course of his or her employment, then the employer’s S.P.F. 6 coverage (standard non-owned automobile policy) may be obliged to respond to the claim.
Let us assume that B does not own a car but has been provided with a company car by his or her employer. It is quite possible that B has insurance coverage under his employer’s insurance on the company car while driving A’s car.
Enquiries must be made at discoveries, or sooner, regarding how the vehicle was being used at the time of the collision. If the vehicle was being used for any work or business related purpose, then it is possible that the employer of A or B may be insured for its vicarious liability at common law under an S.P.F. 6 (Non-owned Automobile Policy). That policy may also insure the operator of the involved vehicle.
One thing I should point out about S.P.F. 6 policies is that they often provide broader coverage to the named insured than they do to the person who owned and operated the involved vehicle. For example, let’s assume that Company C employed A. A owns the car involved in the collision. At the time of the collision A was making a sales call. The S.P.F. 6 would provide no coverage to A, but would provide coverage to Company C. To access Company C’s policy it would be necessary to sue Company C alleging that it was vicariously liable for A’s negligence. Simply suing A would not provide access to Company C’s S.P.F. 6. Just to demonstrate how counter-intuitive this area is, if A had rented a car to make the sales call, then it A would probably be insured under the S.P.F. 6 and you would not actually need to sue Company C to access its S.P.F. 6 coverage. However, it would be wise to do so.
Let us assume for the moment that A is driving a car which he or she rented or leased. It is possible that the leasing or rental company’s insurance will be obliged to respond to claims against A. The insurer of the rental or leasing company may also insure the driver for an amount in excess of the rental or leasing company’s liability. If that insurer insures A, then depending what endorsements are on its policies, it may provide coverage to A considerably in excess of the exposure of its named insured, the car rental or leasing company.[xlviii]
Hopefully, this small section will impress on those who handle large personal injury claims that they need to understand automobile insurance intimately if they hope to be able to find all of the insurance policies that may be obliged to respond to a claim. You should never forget that the insurance possessed by an entity with limited exposure may provide significant coverage to another entity with unlimited exposure.
In closing this section, I should point out that the foregoing are just examples of potential sources of insurance. It is by no means an exhaustive list.
In the previous section I spent some time discussing how to find everyone’s insurer. I now want to spend just a couple of minutes discussing how to find the proper defendants and comment on a few other practice issues.
Now that lessees have their own liability, it is critical that they be sued. They represent another source of funds for a seriously injured plaintiff. This funding may be provided by their insurer or through their personal assets.
The critical question then is how do you figure out if a car is leased or rented? The standard motor vehicle accident report traditionally has no information on this issue. It is critical that you conduct both ownership and plate searches on all vehicles involved in the collision. Those searches will often provide you with insight into whether a vehicle was leased or not. Sometimes the searches will actually indicate that the plate is attached to a leased vehicle. If the plate is owned by one entity and the vehicle by another, then there is a good chance the vehicle is leased. Sometimes the name of the owner will provide you with a clue. If the owner’s name has the word “lease” in it, then there is a good chance the vehicle is leased.
It can be more difficult to find out if a vehicle was rented. Often the name of the owner provides some insight. However, the name may not disclose whether the vehicle was rented.
Now that the special circumstances rule for extending limitation periods has been abolished, it is important for plaintiff’s counsel to demonstrate that they have taken steps to identify the potentially liable parties within the applicable limitation period. If you ask the proper questions of the identifiable parties within the limitation period but get answers after it has prima facie expired, then you may be able to rely on the discoverability rules to prevent the limitation period from expiring.
I would suggest that it is now incumbent on all plaintiffs’ counsel to pen letters to the drivers and owners of all involved vehicles and to their known insurers asking appropriate questions. The letters to the owners and operators should specifically ask if the vehicle was leased or rented, to whom it was leased or rented and for production of a copy of the lease or rental contract. Enquiries should also be made of the drivers regarding whether they were or were not in the course of their employment at the time of the accident and what the name and address of their employer is.
If these letters are ignored, then you will be able to argue that you could not discover the identity of some of these parties until discovery. However, I feel that the prudent course of conduct is to ensure, wherever possible, that the owner and driver are discovered before the limitation period has expired. This permits appropriate amendments to pleadings to be made without any fear of missing a limitation period.
Frankly, defence counsel should not be assuming that plaintiff’s counsel have made the appropriate enquiries. They should be obtaining plate and ownership searches and making appropriate enquiries before the two year limitation period for advancing contribution claims has expired.
From the defence perspective there are a couple of additional issues I wish to address. If you are defending an action where your insured’s vehicle was leased or rented, you need to carefully consider how the action is to be defended and whether there is a conflict of interest in defending both the lessee and owner. This is more of a problem where the vehicle is rented.
Let us assume that you act for D Rental Cars and that your renter does not have any insurance that would be obliged to respond to the claim. Assuming that D Rental Cars has the appropriate O.A.P 1 policy in place with an O.P.C.F. 5C endorsement and an S.P.F. 7 with an O.E.F. 110 endorsement, then D Rental Cars maximum exposure for its vicarious liability is $1 million. However, there are two potential problems. The first is that that plaintiff may well allege that D Rental Cars did something negligent such as fail to properly service the brakes. It is also possible that the renter could make similar allegations. Second, regardless of a claim in negligence against D Rental Cars, if the plaintiff has sued for more than $1 million there is a conflict of interest between the position of D Rental Cars and the renter. If negligence is alleged against D Rental Cars, this conflict is exacerbated. You will need to carefully consider how you can practically deal with such conflicts in a cost effective manner.
The other situation I am seeing quite regularly involves the insurers of renters refusing to defend the rental company. Technically, the rental company is not insured under the renter’s policy and is not owed a defence under that policy.[xlix] However, most rental agreements have indemnity provisions in them. It strikes me that if the renter’s insurer does not defend the car rental company, then it may be liable to indemnify the car rental company for its cost of defending the action. There may well be arguments that the car rental company cannot look to the renter for indemnity as the car rental company’s policy potentially provided coverage to the renter and seeking indemnity is inappropriate. However, unless there is a clear conflict of interest in defending both, then I would, as the lawyer for the renter’s insurer, recommend that we defend the car rental company.
If allegations of negligence are made against the car rental company, then a conflict of interest may preclude defending both the car rental company and the renter. This is particularly true if the amount claimed exceeds $1 million.
If you are acting for the car rental company, you need to be a little careful in accepting an offer to be defended by the insurer of the renter. Again, if there are allegations that the car rental company was negligent and the amounts claimed exceed $1 million, then it may make sense for the insurer of the car rental company to defend it separately.
Additionally, if the plaintiff or one of the defendants is alleging that the renter is entitled to access to the car rental company’s excess insurance, then it may well make sense for the car rental company’s insurer to defend the action separately.
We are now recommending to the insurers we represent that they initially not instruct us to defend leasing and rental claims where the insurer insures the owner. Rather, we recommend that the matter be referred to us for our assessment. This allows us to review the situation and canvass all of the potential coverage issues and conflicts. We can then make recommendations regarding how the matter can be properly handled. This may involve having us defend everyone or only the car rental or leasing company. It may involve our carrying out additional investigations to find potential insurers for the driver and/or the renter or lessee which may rank in priority to the owner’s policy. Bill 18 claims almost always have complexities that a claims examiner may not appreciate. Obtaining advice on how to handle the claim before instructing anyone to defend the potential insureds can avoid problems. If an examiner initially instructs us to defend the owner and renter, this may well preclude our commenting on a variety of potential coverage issues. Our suggested approach to the defence of Bill 18 claims can avoid potentially embarrassing problems for the claims examiner and defence counsel.
Unfortunately, the Bill 18 amendments have melded together liability and coverage issues. Any one defending a car rental or leasing company is now obliged to be familiar with the coverages available to the owner, driver and the lessee or renter to assess exposures under section 267.12 of the IA. This melding of issues presents real challenges to defence counsel who have traditionally understood that they are not to involve themselves in coverage issues. This melding of issues significantly increases the risk that defence counsel will either fail to give appropriate advice to their respective clients or provide advice on issues that they should not be commenting on. Unfortunately, there is no hard and fast rule that can be applied to these situations and each case must be carefully evaluated at the outset. It must also be re-evaluated as new information becomes available.
The final problem I want to comment upon is the issue of the missing “renter” as a defendant. It is not uncommon for the plaintiff to sue only the owner and the driver of a rental car and fail to sue the actual renter. If all 3 are sued it is clear that the primary coverage would be provided by the renter’s own policy. However, the Court of Appeal has concluded that the renter’s policy is only obliged to respond as the primary insurance if it is “available” to quote the relevant word in the legislation. It has also concluded that if the renter is not sued, then the renter’s policy is not available. Therefore, if the renter is not sued by the plaintiff it is unclear whether the owner can compel the insurer of the renter to respond in priority to the owner’s policy. The Court of Appeal was not asked to comment on the question of whether the issuing of a third party claim by the owner against the renter for contribution and indemnity would be sufficient to make the renter’s policy available. It strikes me that this should be sufficient to engage subsection 277(1.1) of the IA.
In my view, it would have been preferable if these reforms had been handled differently.
I believe that FSCO has failed to understand that there are real distinctions between the interests of leasing and car rental companies. These are not adequately recognized in the policies and endorsements that have been issued. Part of the problem, in my opinion, stems from the fact that the changes were made at two different times and the new policies and endorsements do not mesh well.
For example, if FSCO felt that car rental companies should provide renters and drivers with a minimum of $1 million of coverage, then this should have been mandated in the O.P.C.F. 5C. This approach would have allowed FSCO to issue an endorsement to the S.P.F. 7 that unambiguously denied coverage under the excess policy to the lessee and driver. This would have preserved the ability of excess insurers to subrogate against lessees and drivers in appropriate circumstances. The current O.E.F. 110 may be appropriate for car rental companies but not for car leasing companies. There should be no circumstance where a lessee in default of its lease insurance obligations can obtain coverage under the car leasing company’s insurance.