The BC Supreme Court provides some clarity
When an insurance policy exclusion does not come close to being easily intelligible, an insurer may not be entitled to rely on it to exclude coverage for acts of intentional damage by a lessee. This was the result in CIT Financial Ltd. v. Insurance Corporation of British Columbia, 2017 BCSC 641, a recent decision of the BC Supreme Court in which the lessor’s coverage was upheld after its lessee allegedly set fire to his leased vehicle.
In 2010, CIT Financial Ltd., a predecessor of LBC Capital, leased a truck tractor to Snap Transport Inc. Three years later, Snap Transport obtained a temporary contract of insurance with the Insurance Corporation of British Columbia, with CIT named as an additional insured. The policy provided comprehensive coverage, including coverage for damage caused by fire. Five days after the policy was purchased, the vehicle was set on fire, causing significant but repairable damage.
CIT made a claim against the policy, which ICBC denied on the basis of an exclusion in its Autoplan Optional Policy which states:
(b) The corporation is not liable to indemnify any person under this Division for loss or damage, (i) caused by conversion, theft or concealment of a vehicle by a person in lawful possession of the vehicle under a lease, rental agreement or similar written agreement.
“Conversion” is not defined in the policy. In legal terms, it can generally be described as a wrongful interference with another’s goods in a manner inconsistent with the owner’s right of possession.
As a result of ICBC’s refusal to provide coverage, CIT paid out of pocket for the vehicle to be repaired. CIT then commenced an action against ICBC for its repair costs, arguing in part that conversion requires complete destruction or deprivation, and not mere damage. CIT accepted in an agreed statement of facts that Snap Transport’s principal had intentionally set the fire.
In its analysis, the Court observed that the average insured would have never heard of the tort of conversion or know its meaning. The Court found that the policy exclusion was neither clear nor easily intelligible, and observed that it was open to ICBC to have employed plain language but it had chosen not to do so. The Court held that since the law on conversion was unclear, the exclusion had to be interpreted narrowly and in favour of the insured. Under the circumstances, where the vehicle was damaged but not destroyed, the Court held that the exclusion did not apply.