A recent Ontario Court of Appeal decision has addressed the extent to which a lessee is covered by a lessor’s auto insurance policy for property damage that the lessee incurred to its cargo in an accident.

In Siena-Foods Ltd. v. Old Republic Insurance Company (2012 ONCA 583), Sienna-Foods was appealing the decision of the Superior Court motions judge, which declared that a lessor’s auto policy did not provide coverage for a lessee’s property damage incurred in an auto accident.The motion was for a determination of an issue of law before trial.

Siena had rented a truck from Ryder Canada to transport Siena’s machine designed to vacuum seal food products.The rental agreement between Siena and Ryder included a liability protection plan, however this plan included a clause, which stated that the plan would not apply to loss or damage to property contained in the vehicle.Siena also indicated to Ryder that the truck would be used to transport “produce”, rather than equipment.

Ryder held a policy of auto insurance with Old Republic in respect of the truck. The truck was transporting the machine when it was involved in a head on collision with a third party automobile, which had crossed the centre line of the road.Old Republic acknowledged that the accident was not the fault of the Siena driver.As a result of the accident, the machine was badly damaged.

The Court of Appeal addressed the same questions as the motions judge:

  1. is Old Republic the “insurer” of Siena-Foods for the purposes of s. 263(2) of the Insurance Act?;
  2. if Old Republicis Siena-Foods’ insurer for the purposes of s. 263(2), do the terms and conditions in the rental agreement between Siena-Foods and Ryder Canada limit Siena-Foods’ recovery?;
  3. if Siena-Foods misrepresented to Ryder the type of cargo it was carrying, does this impact its recovery from OldRepublic under s. 263(2) of the Insurance Act?

In its decision, written by Justice Laskin, the Court of Appeal allowed the appeal, and answered “yes”, “no” and “no” to each question, respectively.

S. 247 of the Insurance Act (Third-Party Liability Coverage), s. 3.5.1 of the policy (Property Not Covered), and endorsement OPCF 5C all state that the insurer will not be liable for damage to property damage incurred in an accident.However, the Court of Appeal noted that these sections were only applicable in the context of third-party“Liability Coverage” (i.e. where the insured is sued by a third party for damaging the third-party’s property), and were not relevant in Siena’s claim – a first party claim.

Rather, in order to answer question 1, the Court of Appeal applied s. 263 of the Insurance Act.This section was designed to replace the common law tort regime for property damage, by allowing insured’s to apply to their own insurer to indemnify them for property damage, proportionate to the extent to which the insured was not at fault for the accident.

The Court determined that Siena was considered an “insured” under the Ryder/Old Republic policy, because the policy contained an endorsement (OPCF-5) which extended coverage to lessees. Since Siena was an “insured” under that policy, it could be indemnified for the damaged machine.

In addressing question 2, the Court held that the terms and conditions of the agreement between Siena and Ryder had no impact on Siena’s ability to recover on the Old Republic Policy, as Old Republic was not a party to this rental agreement.In answering question 3, the Court held that even if the misrepresentation was a breach of Ryder’s insurance policy, Siena’s right to recover under s. 263/s. 6.1 would be unaffected, as Siena is to be treated as a third party.Further, Siena’s conduct alone could not automatically terminate coverage.

The Court of Appeal overturned the motion judge’s decision, and determined that Siena was entitled to recover for damage to the machine from Old Republic.This case provides a good analysis of the property damage coverage regime for a lessee in respect of lessor’s auto insurance policy.