Avis Rent A Car System, Inc. et al. v. Certas Direct Insurance Company [Indexed as: Avis Rent A Car System, Inc. v. Certas Direct Insurance Co.]
75 O.R. (3d) 421
[2005] O.J. No. 1951
Docket: C41904
Court of Appeal for Ontario,
Goudge, Lang and Juriansz JJ.A.
May 17, 2005
- Application for leave to appeal to the Supreme Court of Canada was dismissed with costs December 15, 2005 (Bastarache, LeBel and Deschamps).
Insurance -- Automobile insurance -- First loss insurance -- Owner of rental car which was involved in accident in Ontario insured under commercial umbrella policy issued in United States -- Insurer having filed undertaking under s. 226.1 of Insurance Act -- Policy a "contract" for purposes of Part VI of Insurance Act -- Policy a "contract of automobile insurance" and "motor vehicle liability policy" because it provided insurance against liability arising out of bodily injury or property damage caused by automobile -- Policy an "owner's policy" -- Policy meeting all definitional requirements for "first loss" insurance under s. 277(1) of Insurance Act -- Insurance Act, R.S.O. 1990, c. I.8, ss. 226.1, 277(1).
V, an Ontario resident, rented a van from A Inc. in Detroit to drive to Toronto. He had an accident in Ontario in which one of his passengers was seriously injured. A Inc. held three relevant liability policies: two policies issued by CNA and a commercial umbrella policy issued by I Co. While not licensed to undertake automobile insurance in Ontario, I Co. was a signatory to the Power of Attorney and Undertaking for motor vehicle liability insurance filed pursuant to s. 266.1 of the Insurance Act. The I Co. policy provided insurance against liability arising out of bodily injury or property damage caused by an automobile. V had his own Ontario automobile policy issued by C Co. As part of the settlement of the litigation brought by V's passenger, A Inc. paid $1 million to him and I Co. paid an additional $2 million, subject to their agreement with C Co. to state a case to the Ontario court regarding C Co.'s obligation to contribute to the settlement. It was also agreed that if the court found that C Co. was required to contribute, A Inc. would be granted judgment against V in the amount of $1 million, to be collected not from him but only from the proceeds of the C Co. policy. The special case stated three questions for the opinion of the court: (1) Was C Co. required to contribute to the settlement as an excess insurer within the meaning of s. 277(1) of the Insurance Act? (2) Was C Co. required to indemnify V for the judgment against him by A Inc.? (3) Was C Co. required to indemnify V for the $800,000 paid by A Inc. under the second CNA policy? The application judge answered all three questions in the negative. A Inc. and I Co. appealed.
Held, the appeal should be dismissed.
Under s. 277(1) of the Insurance Act, where the negligent use of an automobile causes harm, the owner's insurer pays first if it is provided by an "owner's policy". Only after that insurance is exhausted can there be resort to insurance attaching under any other motor vehicle liability policy. The I Co. policy was a valid "owner's policy", and was, therefore, first loss insurance. The policy met all the definitional requirements for "first loss" insurance under s. 277(1). It was a "contract of automobile insurance" because it provided insurance against liability arising out of bodily injury or property damage caused by an [page422] automobile. It was a "contract" for the purposes of Part VI of the Act covering automobile insurance because it was a contract of automobile insurance issued in the United States by an insurer that had filed an undertaking under s. 226.1 of the Act. It was a "motor vehicle liability policy" because it was a contract insuring the owner against liability arising out of bodily injury or property damage caused by an automobile. It was an "owner's policy" because it insured A Inc. in respect of automobiles it owned that came within the description or definition thereof in the policy. As an owner's policy, the policy was a contract to which s. 239 of the Act applied. As a consequence, it insured A Inc. as the named insured and every other person who drove an automobile owned by A Inc., including V. In addition, s. 244 of the Act provides that V, as a person insured but not named in the policy, may recover indemnity as if he was named therein, and he was deemed to be a party to the insurance contract and to have given consideration for it. As a result, the I Co. policy did not exclude coverage of V under Endorsement No. 1. Paragraph 1 of Endorsement No. 1 excepted coverage for anyone other than the named insured unless acting within the scope of employment with, or as agent of, the named insured, but para. 2 provided that para. 1 did not apply in any case where the named insured had agreed by contract to provide coverage within the limit of liability afforded by the policy for the lessee or renter of any automobile owned by the insured. Sections 239 and 244 together required that when V drove the van with A Inc.'s consent he was insured to the same extent as A Inc. and was deemed to be a party to the contract between A Inc. and I Co. I Co. was therefore deemed to have agreed to provide him with coverage as the renter of the van. Thus, because of the exception provided in the second paragraph, the limitation in the first paragraph of Endorsement No. 1 did not apply.
The appellants' argument that where the owner of a rental van is vicariously liable to an injured plaintiff as a result of the renter's negligence, the owner is entitled to full indemnity from the renter on the principle that everyone is responsible for his or her own negligence, could not stand in light of s. 277(1) of the Act, which makes the owner's policy first loss insurance. If the owner could recover from the driver, the owner's insurance policy would no longer be first loss.
A Inc. was not entitled to equitable subrogation against V for $800,000 on the basis that, because V purchased only $200,000 worth of insurance from A Inc. but caused an accident that obliged A Inc. to pay out $1 million, he was unjustly enriched by $800,000. By virtue of s. 244 of the Act, V was deemed to have given consideration for the contract of insurance. This applied to the two CNA policies as well as the I Co. policy. Having been deemed by law to have given consideration for those contracts of insurance, V could not be said to have been unjustly enriched by A Inc.
APPEAL from the order of Pitt J., reported at (2004), 2004 26927 (ON SC), 71 O.R. (3d) 313, [2004] O.J. No. 2275, responding to a stated case. [page423]
Heuvelman (Litigation Guardian of) v. White, 2004 34619 (ON CA), [2004] O.J. No. 4342, [2005] I.L.R. para. I-4347, 16 C.C.L.I. (4th) 1, 9 M.V.R. (5th) 186 (C.A.); Keelty v. Bernique (2002), 2002 22040 (ON CA), 57 O.R. (3d) 803, [2002] O.J. No. 83, 209 D.L.R. (4th) 648, [2002] I.L.R. para. I-4074, 23 M.V.R. (4th) 1 (C.A.), distd Other cases referred to Guardian Insurance Co. of Canada v. York Fire & Casualty Insurance Co., [1992] O.J. No. 3199 (C.A.), affg (1990), 1989 10419 (ON SC), I.L.R. para. 1-2553, 44 C.C.L.I. 94 (H.C.J.) Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, ss. 1, 224 [as am.], 226.1 [as am.], 239, 244, 251, 265, 267.5 [as am.], 268 [as am.], 277
Vernol I. Rogers and Thomas J. Donnelly, for appellants. George B. Kilpatrick, for respondent.
The judgment of the court was delivered by
[1] GOUDGE J.A.: -- On March 7, 1998, Gurpreet Singh Vig and five passengers were travelling by van from Detroit, Michigan to Toronto. Mr. Vig had rented the van in Detroit from the appellant, Avis Rent a Car Systems Inc. Near London, Mr. Vig lost control of the van, causing it to roll over. Tragically, one of the passengers, Nirav Parikh, became a quadriplegic as a result of the accident.
[2] Avis and the appellant PV Holding Corp. (together referred to as "Avis") owned the van. The third appellant, Illinois National Insurance Company ("Illinois") provided commercial umbrella insurance to Avis in excess of its two automobile liability insurance policies.
[3] Mr. Vig had his own Ontario automobile policy with a liability insurance limit of $1 million issued by the respondent Certas Direct Insurance Company ("Certas"). The vehicle described in that policy was his personal family car. It was not involved in this accident.
[4] As part of the settlement of the litigation brought by Mr. Parikh, Avis paid US$1 million to him and Illinois paid an additional US$2 million, subject to their agreement with Certas to state this case to the Ontario court.
[5] The fundamental question put to the court was whether Certas was obliged to contribute its policy limit of $1 million toward the Parikh settlement, thereby reducing the obligation of Illinois.
[6] Pitt J. concluded that Certas was not required to do so. For the reasons that follow, I agree, and would therefore dismiss the appeal.
[7] The facts were put to the court below by way of a special case stated for the court's opinion. Only the following additional facts need be added to those set out above.
[8] Mr. Vig was an Ontario resident who was in Michigan to attend a corporate training program. On March 6, 1998, he rented a van in his own name in order to attend a work-related conference in Toronto. His employer knew of the rental, approved it, and reimbursed him for the cost.
[9] The rental contract Mr. Vig signed obliged Avis to provide him with the minimum liability limits required by the applicable law. Since the accident occurred in Ontario, that minimum limit was $200,000. In the rental contract, Mr. Vig expressly declined [page424] to purchase additional liability insurance, which would have raised that limit to $1 million.
[10] Avis held three separate liability policies relevant to this matter. The first, issued by the Continental Casualty Insurance Company ("CNA"), was a standard Ontario automobile insurance policy with the liability limit of $200,000. The description used in the Schedule of Automobiles was "all vehicles".
[11] The second liability policy, also issued by CNA, had a liability limit of $800,000, in excess of the $200,000 underlying insurance.
[12] Avis's third liability policy, and the one in issue here, was a commercial umbrella policy issued by Illinois. It had a liability insurance limit of US$25 million.
[13] The parties agree that, having regard to the terms of the two CNA policies and to s. 277 of the Insurance Act, R.S.O. 1990, c. I.8 (the "Act"), the CNA policies are "first loss" insurance and are required to respond to the settlement. In addition, CNA had an indemnity agreement with Avis by which Avis agreed to indemnify CNA for any amounts payable under the two policies. Presumably this is why Avis, not CNA, contributed $1 million to the settlement.
[14] There is also no dispute that while Illinois is not licensed to undertake automobile insurance in Ontario, it is a signatory to the Power of Attorney and Undertaking ("PAU") for motor vehicle liability insurance filed pursuant to s. 226.1 of the Act. That is relevant for s. 224(1), which defines "contract" for the purposes of Part VI of the Act (dealing with automobile insurance) in these terms:
224(1) In this Part"contract" means a contract of automobile insurance that,
(a) is undertaken by an insurer that is licensed to undertake automobile insurance in Ontario, or
(b) is evidenced by a policy issued in another province or territory of Canada, the United States of America or a jurisdiction designated in the Statutory Accident Benefits Schedule by an insurer that has filed an undertaking under section 226.1.
[15] The agreement between Avis and Certas was made to facilitate judicial determination of whether Certas was obliged to pay out under its insurance contract with Mr. Vig to contribute to the Parikh settlement. In the meantime, Avis and its insurers were to pay the $3 million necessary to fund the settlement. It was further agreed that if the court found that Certas was [page425] required to contribute, Avis would be granted judgment against Mr. Vig in the amount of $1 million but to be collected not from him but only from the proceeds of the Certas policy.
[16] The special case stated three questions for the opinion of the court. In the order they were addressed in this court they are:
(1) Is Certas required to contribute to the settlement as an excess insurer within the meaning of s. 277(1) of the Act?
(2) Is Certas required to indemnify Mr. Vig for the judgment against him by Avis?
(3) Is Certas required to indemnify Mr. Vig for the $800,000 paid by Avis under the second CNA policy?
[17] Avis and Illinois appeal from Pitt J.'s negative answers to all three questions. I will address each question in turn.
First Question
[18] Section 277(1) of the Act reads as follows:
277(1) Subject to section 255 [which relates to nuclear energy hazards and is not relevant here], insurance under a contract evidenced by a valid owner's policy of the kind mentioned in the definition of "owner's policy" in section 1 is, in respect of liability arising from or occurring in connection with the ownership, or directly or indirectly with the use or operation of an automobile owned by the insured named in the contract and within the description or definition thereof in the policy, a first loss insurance, and insurance attaching under any other valid motor vehicle liability policy is excess insurance only.
[19] The significance of this section is that where the negligent use of an automobile causes harm, the owner's insurer pays first if it is provided by an "owner's policy". Only after that insurance is exhausted can there be resort to insurance attaching under any other motor vehicle liability policy. For example, if the driver is not the owner of the car involved in the accident, the driver's own automobile insurance policy would not apply until the insurance under the owner's policy has been exhausted.
[20] The consequence of s. 277(1) for this case is that if the Illinois policy is a valid "owner's policy" in these circumstances, it is first loss insurance. Together with the two CNA policies, these three policies are more than sufficient to fund the $3 million required by the settlement. Therefore even if the Certas policy is valid excess insurance, it would not be required to contribute to the settlement.
[21] Section 277(1) necessitates that if the Illinois policy is to qualify as first loss insurance, it must be a "contract" evidenced by [page426] a policy of the kind mentioned in the definition of "owner's policy". It must therefore meet the definition of "contract" in s. 224(1) of the Act and the definitions of "owner's policy" and "motor vehicle liability policy" in s. 1. I have already set out the definitions of the first term. The definitions of the other two terms are as follows:
"motor vehicle liability policy" means a policy or part of a policy evidencing a contract insuring,
(a) the owner or driver of an automobile, or
(b) a person who is not the owner or driver thereof where the automobile is being used or operated by that person's employee or agent or any other person on that person's behalf,
against liability arising out of bodily injury to or the death of a person or loss or damage to property caused by an automobile or the use or operation thereof;
"owner's policy" means a motor vehicle liability policy insuring a person in respect of the ownership, use or operation of an automobile owned by that person and within the description or definition thereof in the policy and, if the contract so provides, in respect of the use or operation of any other automobile ...
[22] The Illinois policy was issued as a commercial umbrella policy. It insures Avis as the named insured to a limit of US$25 million for each occurrence. It provides coverage in excess of Avis's underlying insurance (which, for this purpose, is agreed to be that provided by the two CNA policies). It insures against liability imposed by law on the insured as a result of inter alia, bodily injury or property damage caused by an occurrence happening anywhere in the world. As evidenced by Endorsement No. 1, part of the policy insures against loss caused by automobiles owned by Avis, although that Endorsement limits coverage to the named insured except for persons acting within the scope of their employment with Avis (subject to an exception I will discuss later). Finally"auto" is defined in the policy as a land vehicle, trailer or semi-trailer designed for travel on public roads.
[23] In my view, the Illinois policy meets all the definitional requirements for "first loss" insurance under s. 277(1).
[24] It is a "contract of automobile insurance" because it provides insurance against liability arising out of bodily injury or property damage caused by an automobile.
[25] It is a "contract" for the purposes of Part VI of the Act covering automobile insurance because it is a contract of automobile insurance issued in the United States of America by an insurer that has filed an undertaking under s. 226.1 of the Act. [page427]
[26] It is a "motor vehicle liability policy" because it is a contract insuring the owner against liability arising out of bodily injury or property damage caused by an automobile.
[27] It is an "owner's policy" because it insures Avis in respect of automobiles it owns that come within the description or definition thereof in the policy.
[28] The appellant argues that the Illinois policy cannot be an owner's policy because it does not describe the automobiles to be insured by the contract. In particular, the van in this case is not described in the policy. The appellant concedes, however, that the first CNA policy is an owner's policy even though there are no automobiles described in the contract, including the van in this case. The first CNA policy simply refers to "all vehicles" owned by Avis. The Illinois policy has the same effect. More importantly, the van in this case comes within the definition of "auto" in the Illinois policy. Section 277(1) requires only that the automobile insured be "within the description thereof in the policy". In the language of the definition of "owner's policy" in the Act, the Illinois policy insures Avis in respect of the ownership, use, or operation of an automobile (i.e., the van) that is within the definition of automobile in the policy. I therefore reject the appellant's argument on this point , and find that the Illinois policy is an "owner's policy" in the circumstances of this case.
[29] Since the Illinois policy is a valid owner's policy as defined in s. 1 of the Act, under s. 277(1) the policy provides first loss insurance. This is because it provides insurance in respect of liability arising from the operation of an automobile owned by the named insured and within the definition of automobile in the policy.
[30] Moreover, as an owner's policy, the Illinois policy is a contract to which s. 239 of the Act applies. As a consequence it insures Avis as the named insured and every other person who drives an automobile owned by Avis. That included Mr. Vig when he drove the van. Section 239(1) reads:
239(1) Subject to section 240 [which deals with excluded drivers], every contract evidenced by an owner's policy insures the person named therein, and every other person who with the named person's consent drives, or is an occupant of, an automobile owned by the insured named in the contract and within the description or definition thereof in the contract, against liability imposed by law upon the insured named in the contract or that other person for loss or damage,
(a) arising from the ownership or directly or indirectly from the use or operation of such automobile; and
(b) resulting from bodily injury to or the death of any person and damage to property.
(Emphasis added) [page428]
[31] In addition, s. 244 of the Act provides that Mr. Vig, as a person insured but not named in the policy, may recover indemnity as if he was named therein, and he is deemed to be a party to the insurance contract and to have given consideration for it. Section 244 reads:
- Any person insured by but not named in a contract to which section 239 or 241 applies may recover indemnity in the same manner and to the same extent as if named therein as the insured, and for that purpose shall be deemed to be a party to the contract and to have given consideration therefore.
(Emphasis added)
[32] As a result, Endorsement No. 1 contained in the Illinois policy does not exclude coverage of Mr. Vig as the appellants suggest. That Endorsement reads:
In consideration of the premium charged, it is agreed that no person or organization other than the Named Insured shall be an insured under this policy unless acting within the scope of employment with, or as agent of, the Named insured regardless of the fact that the automobile is operated with the permission of the Named Insured unless that person or organization is added as an insured or additional insured by specific endorsement to the policy.
However, it is further agreed that the previous paragraph shall not apply in any case where the Named Insured has agreed by contract to provide coverage within the limit of liability afforded by this policy for lessee or renter of any automobile owned by the insureds, or other person or organization legally responsible for the use of the automobile, but in no event shall the limits of coverage furnished to such person or organization exceed the contractual obligation of the Named Insured to provide such insurance.
[33] Sections 239 and 244 together require that when Mr. Vig drove the van with Avis's consent he was insured to the same extent as Avis and was deemed to be a party to the contract between Avis and Illinois. Illinois is therefore deemed to have agreed to provide him coverage as a renter of the van. Thus, because of the exception provided in the second paragraph, the limitation in the first paragraph of Endorsement No. 1 does not apply.
[34] In addition to the foregoing arguments, the appellants submit that because of this court's decision in Keelty v. Bernique (2002), 2002 22040 (ON CA), 57 O.R. (3d) 803, [2002] O.J. No. 83 (C.A.), the Illinois policy as an umbrella policy cannot be a "motor vehicle liability policy" and therefore cannot be an "owner's policy" under s. 277(1) of the Act.
[35] Second, Rosenberg J.A., writing for the court, reasoned that while an option in the umbrella policy provided uninsured/ underinsured automobile insurance coverage, it was not part of a "motor vehicle liability policy as that term was used in the first [page429] policy". He observed that motor vehicle insurance in Ontario is highly regulated under Part VI of the Insurance Act, and that the umbrella policy and its option, though providing insurance from automobile accidents, were not part of that scheme. He pointed out that they did not comply with the requirements of a motor vehicle liability policy set out in s. 239 and the sections following it under the heading "Motor Vehicle Liability Policies". Rosenberg J.A. noted specifically that the policy and its option did not provide the minimum liability coverage required by s. 251 nor the benefits set out in the No Fault Benefits Schedule.
[36] What is different in this case is that Illinois filed an undertaking pursuant to s. 226.1 of the Act which provides:
226.1 An insurer that issues motor vehicle liability policies in another province or territory of Canada, the United States of America ..., may file an undertaking with the Superintendent, in the form provided by the Superintendent, providing that the insurer's motor vehicle liability policies will provide at least the coverage described in sections 251, 265 and 268 when the insured automobiles operated in Ontario.
[37] The filing of the undertaking makes the Illinois policy part of the regulated insurance scheme of Ontario.
[38] By filing the undertaking, Illinois has agreed that it will provide the following three coverages when the insured automobiles are operated in Ontario:
(i) the minimum liability limits under a motor vehicle liability policy (s. 251);
(ii) uninsured automobile coverage (s. 265); and
(iii) statutory accident benefits (s. 268).
[39] In addition, by filing an undertaking under s. 226.1, Illinois derives the substantial protections provided to an owner of an automobile within Ontario's regulated scheme. Section 267.5(6) of the Act provides:
267.5(6) Subsections (1), (3) and (5) do not protect a person from liability if the person is defended in the action by an insurer that is not licensed to undertake automobile insurance in Ontario unless the insurer has filed an undertaking under section 226.1.
[40] Thus, by filing the undertaking, Illinois participates in the "exchange of rights" upon which the system [of] motor vehicle accident compensation in this province is premised: it has agreed to provide the statutory coverages set out above, and in exchange its insured is a "protected defendant" as that term is used in s. 267.5 of the Act. The Illinois policy therefore is deemed to comply with [page430] the requirements of a motor vehicle liability policy set out in Part VI of the Act.
[41] Thus, in my view, Keelty is distinguishable from this case. The same is true of the recent case of Heuvelman (Litigation Guardian of) v. White, 2004 34619 (ON CA), [2004] O.J. No. 4342, 9 M.V.R. (5th) 186 (C.A.), which turned not on statutory interpretation but on whether a personal liability umbrella policy provided "motor vehicle liability insurance" as that term was defined in the policy in that case.
[42] In this case, s. 277(1) of the Act and the statutory definitions applicable to it, together with ss. 239 and 244 of the Act, require the conclusion that the Illinois policy was first loss insurance and that it provided coverage to Mr. Vig.
[43] Having reached this conclusion, there is no need to go further in answering the first question. Since the three policies of first loss insurance are more than enough to fund the $3 million required for the settlement, and since the appellant concedes that the Certas policy can be no more than excess insurance, it is unnecessary to decide whether the Certas policy precludes coverage from Mr. Vig in light of the terms of the rental of the Avis van. I would therefore simply answer no to the first question as the trial judge did.
Second Question
[44] The appellants argue that where the owner of a rental van is vicariously liable to an injured plaintiff as a result of the renter's negligence, the owner is entitled to full indemnity from the renter on the principle that everyone is responsible for his or her own negligence.
[45] This argument cannot stand in light of s. 277(1) of the Act. As Montgomery J. said in Guardian Insurance Co. of Canada v. York Fire & Casualty Insurance Co., 1989 10419 (ON SC), [1990] I.L.R. para. 1-2553, 44 C.C.L.I. 94 (Ont. H.C.J.), affd [1992] O.J. No. 3199 (C.A.), s. 277(1) makes the owner's policy first loss insurance, which makes the appellant's argument unsustainable. If the owner could recover from the driver, the owner's insurance policy would no longer be first loss.
[46] I therefore agree with the trial judge that the answer to this question is no.
Third Question
[47] Finally, the appellants argue that Avis is entitled to equitable subrogation against Mr. Vig for $800,000, which Certas must pay because of its obligation to indemnify its insured. Avis argues [page431] that since Mr. Vig purchased only $200,000 worth of insurance from Avis but caused an accident that obliged Avis to pay out $1 million, Avis in effect unjustly enriched him by $800,000.
[48] This argument can be answered simply. By virtue of s. 244 of the Act, Mr. Vig is deemed to have given consideration for the contract of insurance. This applies to the two CNA policies as well as the Illinois policy. Having been deemed by law to have given consideration for these contracts of insurance, Mr. Vig cannot be said to have been unjustly enriched by Avis. Moreover, so far as Avis's claim relies on an implied contractual term that it be reimbursed by Mr. Vig, the Certas policy cannot be called on to indemnify Mr. Vig since it does not respond to contractual liability.
[49] Thus I would also answer this question in the negative as the motion judge did.
[50] In summary, I conclude that all three questions were properly answered, and that the appeal must be dismissed. Costs to the respondent fixed at $10,000 inclusive of disbursements and GST.
Appeal dismissed.