SUPERIOR COURT OF JUSTICE

Court File No.: 5695-11
Date: 2012/05/30

ONTARIO
SUPERIOR COURT OF JUSTICE

B E T W E E N:

430937 ONTARIO LIMITED c.o.b. as NICHOLSON SERVICE STATION MAINTENANCE

Nawaz Tahir for the Applicant

Applicant

• and -

ZURICH INSURANCE COMPANY

David M. Rogers for the Respondent

Respondent

HEARD: May 18, 2012

REASONS FOR JUDGMENT

A. J. GOODMAN J.

Introduction:

[ 1 ] The issue in this application is whether the respondent is obliged to indemnify the applicant for damages claimed by the plaintiffs, Shane Pickard and Liana Tandy in a related court action. The applicant seeks a declaration and reimbursement for 67% of the amount of $562,852.15 paid out to settle the claims for the plaintiffs who suffered injuries as a result of a motor vehicle accident.

[ 2 ] For the reasons that follow, the application is dismissed.

Background:

[ 3 ] The applicant was served with a statement of claim issued March 17, 2004, which alleged that Shane Pickard sustained a permanent serious impairment as a result of the negligence of John Ladd, for whom it was alleged that the applicant was responsible.

[ 4 ] The applicant was also served with an Amended Statement of Claim which alleged that Liana Tandy sustained a permanent serious impairment as a result of the negligence of John Ladd, for whom it was alleged that the applicant was responsible.

[ 5 ] The applicant had served a statement of defence for each of the aforementioned claims.

[ 6 ] The respondent provided Commercial General Liability insurance (“CGL”) to the applicant at the time of the motor vehicle accident pursuant to a Commercial Business Policy (the “Zurich Policy”). The Zurich Policy excluded indemnity for liability arising out of the ownership, use or operation of a motor vehicle.

[ 7 ] The policy provided, inter alia , for coverage for third party liability in the event of an occurrence in the policy period for which the coverage applies. The policy also contains an additional coverage form – S.P.F. No. 6 – The Standard Non-Owned Automobile Form. This endorsement provides for indemnification for liability imposed by law for damage arising from the use or operation of any automobile not owned by the insured.

The Facts:

[ 8 ] A serious motor vehicle/trailer accident occurred on April 2, 2002. On March 1, 2002, Mr. John Ladd, an employee of the applicant had rented the trailer on behalf of the applicant from Centreline, pursuant to a rental agreement between the two parties.

[ 9 ] On April 2, Mr. Ladd was on his way to pick up an underground fuel tank in order to transport it to another site. In order to accomplish this task, Mr. Ladd picked up the Ford truck owned by the applicant at his employer’s yard, attached the trailer to the back of the truck and had intended to transport the trailer to the location of the underground fuel tank when the accident occurred.

[ 10 ] Shane Pickard was driving a GMC Jimmy with passenger Liana Tandy, northbound on Highbury Road in London, approximately 400 metres south of Kilally Road. Mr. Ladd was southbound on Highbury Road when the rented trailer that he had attached behind the Ford truck became disconnected from the truck, crossed the center line and hit the Pickard vehicle head on.

[ 11 ] There is no agreed-upon basis for the cause for this accident, other than the trailer becoming disconnected. Further, there has neither been a judicial finding as to the cause of the accident, nor any formal admission by any party. In the materials filed, there is some support for the proposition that Mr. Ladd did not attach the trailer properly to the Ford truck.

[ 12 ] At the time of the accident, the applicant had two relevant insurance policies, a motor vehicle insurance policy with Markham General Insurance, (“Markham”) and a CGL policy with the respondent. The Markham insurance was a standard Ontario Automobile Policy that provided for coverage of accidents relating to the “use or operation of a motor vehicle”.

[ 13 ] As Markham went into receivership and did not respond to the claim, the Property and Casualty Insurance Compensation Corporation (“PACICC”), an insurance industry operated and funded compensation plan became involved.

[ 14 ] PACICC only covered the sum of $250,000.00 for any one incident. Accordingly, claims were commenced against AXA Insurance pursuant to the underinsurance provisions of Pickard and Tandy’s automobile insurance. Ultimately, the Claims were settled, with PACICC paying the maximum available under that plan ($250,000.00), and the remaining $312,852.15 paid by Axa under each of the plaintiffs’ underinsured motorist coverage. Pickard’s claim was “settled” for $147,852.15, and Tandy’s claim for $415,000.00, both being all-inclusive, for a total amount of $562,852.15. As part of the agreement, it was arranged that AXA Insurance and PACICC would fund the settlement, subject to the right of a determination of the within issue.

[ 15 ] The respondent was kept abreast of the settlement negotiations with the plaintiffs. Without admitting liability for coverage, the respondent takes no issue with the quantum and agreed to the settlement of the plaintiffs’ damages.

Position of the Parties

[ 16 ] The applicant submits that the alleged incident falls within the coverage provisions of the insurance policy held by the applicant with the respondent insurer; that no exclusion clauses are applicable, and the respondent owes a duty to indemnify the applicant pursuant to the terms of a valid CGL policy.

[ 17 ] The applicant submits that this case is one where there were two concurrent causes for the incident; one that is related to the use or operation of a motor vehicle, and one that is not. For the latter cause, the applicant argues that the CGL policy with the respondent is triggered.

[ 18 ] Alternatively, in the event that the court finds that there are no concurrent causes, the applicant submits that the insured paid an additional premium for S.P.F. No. 6 – a Standard Non-owned Automobile Form and the respondent has a duty to indemnify pursuant to the terms of the policy.

[ 19 ] The respondent disputes the applicant’s claim of concurrent causation and argues that that the potential liability pursuant to which the applicant seeks indemnity arises out of the ownership, use or operation of an automobile and is therefore excluded under the Zurich Policy. The respondent also disputes coverage under the SPF No. 6 and under the supplementary endorsement policies.

[ 20 ] The respondent submits that the plaintiffs have been fully compensated for their injuries and the applicant now seeks to recover from the respondent the amounts they paid out. In the pleadings, the respondent argues that the only allegation of liability against the applicant is based on their ownership of the Ford truck and it is their vicarious liability for Mr. Ladd’s negligent use or operation of the Ford truck that they owned. In other words, the respondent argues that there is no possibility that indemnity could be owed as the applicant suggests, as such liability was never alleged against the applicant in the claims pursuant to which they now seek indemnity.

The Policy

[ 21 ] The Zurich Policy is a standard form CGL policy and provides coverage to the applicant, generally speaking, for sums that they may be legally obligated to pay because of bodily injury to which the insurance applies.

1. The coverage grant of the Zurich Policy provides as follows:

Section I – Coverage

Coverage A. Bodily Injury and Property Damage Liability

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of “bodily injury” or “property damage” to which this insurance applies…

2. Exclusions

This insurance does not apply to:

(e) 1) “Bodily injury” or “property damage” arising out of the ownership, use or operation by or on behalf of any insured of:

a. Any “automobile”;

[ 22 ] The insurance does not apply when the obligation result from bodily injury that arises from the ownership, use or operation of any automobile. This is generally referred to as the “auto exclusion” term and is found in most commercial insurance policies.

[ 23 ] The Zurich Policy defines “automobile” as follows:

Section V– Definitions

2. “Automobile” means any self-propelled land motor vehicle, trailer or semi-trailer (including machinery, apparatus, or equipment attached thereto) which is principally designed and is being used for transportation of persons or property on public roads.

[ 24 ] The Insurance Act R.S.O. 1990 c. I8 defines the term “automobile” as including “a trolley bus and a self-propelled vehicle, and the trailers, accessories and equipment of automobiles, but does not include railway rolling stock that runs on rails, watercraft or aircraft”.

[ 25 ] The policy wording under “Section 2 – What Automobiles Are Covered” of the applicant’s auto policy includes the following:

2.2.4 Trailers – Any trailer used in connection with the automobile is insured for the following coverages:

• Liability,
• Accident Benefits, and
• Uninsured Automobile

[ 26 ] The Policy also included a number of standard Endorsements. The S.P.F. No. 6 – Standard Non-owned Automobile Form (the “Non-owned Auto Endorsement”) provided additional coverage to the applicant for liability imposed by law on them for loss or damage arising from the use or operation of any automobile not owned in whole or in part by the applicant.

Section A– Third Party Liability

The insurer agrees to indemnify the Insured against liability imposed by law upon the Insured for loss or damage arising from the use of operation of any automobile not owned in whole or in party or licensed in the name of the Insured, and resulting from bodily injury to or the death of any person or damage to property of others not in the care, custody or control of the insured:

General Provisions and Definitions

5. Two or More Automobiles

When two or more automobiles are insured hereunder the terms of this Form shall apply separately to each, but a motor vehicle and a trailer or trailers attached thereto shall be held to be one automobile as respects limits of liability under Section A.

[ 27 ] The S.E.F. No. 99 – Excluding Long Term Leased Vehicle Form is attached to the Non-owned Auto Endorsement, and supplements that the extension of coverage provided by the Non-owned Auto Endorsement and applies only to vehicles rented or leased for less than 30 days.

Analysis:

[ 28 ] The applicant brings this application seeking indemnity for amounts paid out by Axa to settle the underinsured portions of the Claims. This is distinct from a claim related to a duty to defend the claims, which forms the basis of most of the caselaw in this area.

The nature of a duty to defend application was recently explained by the Supreme Court in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada 2010 SCC 33 , 2010 CarswellBC 2501 .

An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim. It is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend.

The distinction between duty to defend and duty to indemnify applications is that finding a duty to defend requires only a chance of indemnity, whereas an indemnity application requires a finding of liability that is to be indemnified. It is noteworthy that there are few cases on point with respect to the duty to indemnify.

a) The Duty to Indemnify

[ 29 ] Under Section 1 of Coverage A of the CGL, Zurich contracted to:

…pay those sums that the insured becomes legally obligated to pay as compensatory damages because of “bodily injury” or “property damage” to which this insurance applies.

[ 30 ] The obligation to indemnify typically arises after a finding against the insured, after which an examination of the language of the policy, and the factual findings in the case enable a determination to be made on the obligation to indemnify. [^1]

[ 31 ] While the duty to defend is usually governed by largely or wholly by the pleaded case against the policy holder, it is the findings of fact at trial which govern the policyholder’s liability to others. This liability to others is what triggers the insurer’s duty to indemnify. [^2]

[ 32 ] It is settled law that the insured must simply show that the loss was the result of a fortuitous event, not an inevitable event. Once the insured establishes that the policy is engaged, the onus of proving the exclusion then shifts to the insurer. In this application, the onus falls on the respondent to satisfy me that the event causing the loss or damage is clearly within the language of the exclusion relied upon.

b) Contract Interpretation

[ 33 ] Before considering the indemnification issue, I need to briefly address the principles of contract interpretation. Insurance policies are at their root contacts. However, there are a few well know rules that have developed by Canadian courts in interpreting these insurance contacts. Returning to the case of Progressive Homes, the Supreme Court held: [^3]

The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole.

Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction. For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties, so long as such an interpretation can be supported by the text of the policy. Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded. Courts should also strive to ensure that similar insurance policies are construed consistently. These rules of construction are applied to resolve ambiguity. They do not operate to create ambiguity where there is none in the first place.

When these rules of construction fail to resolve the ambiguity, courts will apply the contra proferentem rule against the insurer. One corollary of the contra proferentem rule is that coverage provisions are interpreted broadly, and exclusion clauses narrowly.

[ 34 ] Where ambiguity is found to exist in the terminology employed in the contract, such terminology shall be construed against the insurance carrier or the authoring party in control of the contents of the contract. In particular, any exclusion is to be interpreted narrowly and generally in favour of the insured ( contra proferentum). In insurance matters, if the underwriters wish to limit by some qualification a risk which, prima facie, they are undertaking in plain terms, they should make it perfectly clear what that qualification is.

[ 35 ] The auto exclusion has been a standard exclusion within commercial liability policies since at least the 1940’s. The purpose of the auto exclusion within the CGL policy is to remove from coverage the risks commonly covered under personal use auto policies, commercial fleet and garage policies. [^4]

[ 36 ] The language used in the CGL auto exclusion is very similar to the language used in a standard automobile insurance policy, and such policies appear to be designed to be complementary. [^5]

[ 37 ] I have considered the principles in Chandra v. Canadian Northern Shield Insurance Co., [^6] wherein Chamberlist J. articulated the factors relevant to the determination of the effect of an exclusion clause in the case of a loss with concurrent causation, including but not limited to the principle that coverage provisions should be construed broadly and exclusion clauses narrowly. I also agree that all risk coverage provides, prima facie coverage against any possible risk of loss unless the insurer can show that the risk is expressly excluded.

[ 38 ] In my view, the language in the Zurich policy and the various endorsements are clear and unambiguous, and there is no need to rely o n the general rules of contract construction. I give effect to clear language of the policy terms, reading the contract as a whole.

c) Concurrent Causation

[ 39 ] The applicant accepts that at least some of the applicant’s liability arises out of the ownership, use or operation of the Ford truck. However, the applicant submits that there are other concurrent causes for this liability which do not arise from the ownership, use or operation of a motor vehicle.

[ 40 ] To this end, the applicant relies heavily and almost exclusively on the Supreme Court of Canada’s decision in Derksen v. 539938 Ontario Ltd. (“ Derksen ”) for the argument that there are two concurrent causes of action that form the basis of the indemnity claim. By extension the argument is that one of those causes is non-automobile related and ought to be covered under the Zurich policy.

[ 41 ] The applicant’s argument is that the exclusion clause under the main contract does not apply because there were two independent and concurrent causes for this incident and associated loss: namely, the negligent attachment of the trailer to the vehicle by Mr. Ladd (and the associated negligence of the applicant in failing to supervise or train him), and the actual use and/or operation of the motor vehicle as it travelled along Highbury Avenue on April 2, 2002.

[ 42 ] In Derksen, the Supreme Court of Canada considered whether a CGL policy provided coverage in circumstances where an employee, during in the course of his employment, negligently placed a steel base plate unsecured on the back of a supply truck. While the employee was driving on the highway, the base plate few off the truck and through the windshield of a school bus, resulting in serious and fatal injuries.

[ 43 ] In Derksen , the appellants attempted to argue that the act of driving the vehicle was an independent intervening proximate cause that interrupted the chain of causation and rendered the automobile exclusion applicable. However, the utility of the “proximate cause” analysis with respect to insurance policies is questionable. Section 267.1 of the Insurance Act recognizes that there may be concurrent causes. In such circumstances, it is undesirable to attempt to decide which of two concurrent causes was the “proximate” cause. [^7]

[ 44 ] The Supreme Court has held that the extent to which the motor vehicle policy is in effect must be determined within the context of the Insurance Act and in accordance with the principles that exclusion clauses (if any are applicable) are to be given a narrow interpretation. [^8] More than one insurer may be liable to defend and to indemnify an insured, because of concurrent actions. To be “concurrent”, each cause of action must be “non-derivative” of the other. Each cause of action must be independent of the other although the injuries arise from concurrent acts. [^9]

[ 45 ] The Insurance Act allows plaintiffs to exercise an unfettered right to sue defendant owners, drivers and persons present at the scene of an accident for negligence other than that excluded by s. 267.1 . Therefore, where both auto-related negligence and non-auto-related negligence of the same person contribute to the same bodily injury, there must be a percentage apportionment of fault to each type of negligence, just as there would be an apportionment if the injury were caused by two different people. [^10]

[ 46 ] In Derksen , the Supreme Court found that there were two independent and concurrent causes of the accident; namely, the use or operation of the vehicle as well as the worksite negligence. Specifically, the Supreme Court found that the accident would not have happened had there been no negligence during the clean-up of the work site, during which time the base plate was placed on the supply truck.

d) Effect of an Exclusion Clause

[ 47 ] I note that the impugned exclusion clause in Derksen is similar to the language found in the exclusion clause in the application before me Notwithstanding the burden of proof upon the respondent to demonstrate that an exclusion clause applies to the within situation, where there are two concurrent causes, a CGL policy can provide coverage despite the fact that one of the causes is specifically excluded from the policy’s coverage.

[ 48 ] The applicant seeks indemnity under the rubrique of a concurrent cause, although there has been no finding of fault pursuant to which the indemnity is sought. As noted above, there is no allegation of such liability against the applicant and the specific claim against the applicant was solely their vicarious liability as owner for Mr. Ladd’s negligent use or operation of the Ford truck

[ 49 ] Indeed, I am mindful that although there was no trial, and thus no factual findings per se , the parties did attend at an examination for discovery and provided evidence under oath. While there are no judicial findings of fact before me, most of the underlying facts are not at issue, save for the fundamental issue regarding the cause of the trailer becoming unhitched. It should be noted that the respondent was consulted and agreed to the settlement of the actions.

[ 50 ] I am satisfied in my reading of Derksen that the Supreme Court had specifically declined to accept the presumption that where there are concurrent causes, all coverage is ousted if one of the concurrent causes is an excluded peril, and only the portion of the loss that is attributable to the auto-related negligence is excluded by any relevant exclusion clause.

e) Derksen Considered

[ 51 ] As mentioned, in Derksen , a contracting company obtained insurance under a motor vehicle liability policy and a CGL policy, as well as an umbrella liability policy. The issue was whether the CGL insurer had a duty to defend allegations of a failure to safely clean up the work site. It had been alleged in the statement of claim that the contractors’ employee’s failure to properly clean up the worksite resulted in the plaintiff’s injuries, and the contractor was liable for this negligence as employer.

[ 52 ] The CGL insurer took the position that there was no duty to defend, and there was no possibility of indemnity because the claims were excluded under the auto exclusion. The CGL insurer argued that the employee was negligent in loading the automobile and this was use or operation of that automobile and therefore excluded.

[ 53 ] In Derksen , Major J. found that there was no loading of the automobile and relied on the motion judge’s finding that:

‘The motions judge properly concluded that the accident was the result of two concurrent sources of causation. The cause of the accident was not solely the “use or operation” of the automobile. The work site negligence cannot be characterized as begin part of the loading of the automobile.

...Mr. Zub had placed the base plate on the tongue of the compressor’s frame as part of the clean-up process at the site and with no intention of leaving it there during transport; in effect he forgot to load it. [^11]

[ 54 ] The fact that one individual was the both the loader and the driver did not alter the coverage consequences. My interpretation of the case suggests that it was not that Mr. Zub loaded the base plate negligently. Instead, the focus of the liability arose from the worksite negligence; the cleaning of the worksite with no loading of (nor any intention to load) the vehicle. The alleged negligence and any subsequent liability had nothing to do with the transport of the steel base plate. Although the remaining allegations would be excluded under the auto exclusion as arising from the ownership, use or operation of the automobile, the above facts created a distinct and independent, but concurrent, allegation of liability for the bodily injury. Therefore, Major J. found that there was at least a chance that this specific allegation could provide for indemnity under the CGL policy, and there was a corresponding duty to defend the claim.

[ 55 ] Since Derksen was released by the Supreme Court, there has been a long line of cases from the Ontario Court of Appeal interpreting Derksen and clarifying the law related to coverage for concurrent causation.

[ 56 ] In CUMIS General Insurance Co. v. 1319273 Ontario Ltd (cob Done Right Roofing) (“ CUMIS ”) 2008 ONCA 249 , the Court of Appeal looked at a fact scenario similar to Derksen . Done Right Roofing was a repair company and had obtained CGL insurance from the defendant CUMIS General Insurance Company. The plaintiff in the underlying action claimed he was injured when struck by a ladder that flew off a Done Right Roofing truck being driven along a county road. The ladder had been loaded at the Done Right Roofing worksite by a Done Right Roofing employee. The plaintiff brought an action against Done Right Roofing, alleging that in cleaning up the worksite, Done Right Roofing’s employee negligently loaded and stored the ladder on the truck.

[ 57 ] CUMIS refused to defend Done Right Roofing in the action and took the position that the plaintiff sustained an auto related injury and the CUMIS CGL policy excluded coverage for such auto related risks. The relevant policy terms at issue in CUMIS are the same as the policy terms at issue in this application.

[ 58 ] Justice Laskin for the Court of Appeal, noted that section 239 of the Insurance Act required that Done Right Roofing insure its trucks “against liability…arising from the ownership or directly or indirectly from the use or operation of any such automobile”. The auto clause excluded coverage for liability for bodily injuries arising from the negligent loading and storage of the ladder on the Done Right Roofing truck.

[ 59 ] Justice Laskin went on to find that the auto exclusion was unambiguous. The court found that loading a ladder onto the truck came within the scope of use or operation of the truck, as it is one of the “ordinary and well-known activities” to which trucks are put. [^12]

The intent of the automobile exclusion is that automobile-related risks are to be insured against under an automobile insurance policy, which is required by the Insurance Act . Well-established automobile insurance law recognizes that the use or operation of an automobile includes the loading or unloading of that automobile. Express reference in the automobile exclusion to loading or unloading is therefore unnecessary.

[ 60 ] The Court then turned to a review of Derksen and agreed with the underlying application judge’s analysis, conclusion and distinguishing of Derksen and held that:

The application judge, therefore, concluded that the underlying action “does not plead a concurrent cause of action regarding the negligent clean-up of the work site.” The ‘substance and true nature’ of the claim involves the allegation of negligently loading and storing of the ladder on the truck. I agree with the application judge’s analysis of the issue and with his conclusion. I therefore would not give effect to this ground of appeal. [^13]

[ 61 ] According to the trial judge in CUMIS, there was no concurrent cause of action, rather, the true nature of the claim involved the negligent loading and storing of the ladder on the truck. It was determined to be negligence in the use or operation of the truck, which was defined as an “automobile” and therefore the claim was excluded as there was no indemnity available.

[ 62 ] The Ontario Court of Appeal had a further opportunity to review the reasoning from Derkson in Unger (Litigation guardian of) v. Unger (“ Unger v. Unger ”) 2003 CarswellOnt 4751 . In that case, the plaintiffs were injured in a motor vehicle accident and claims were brought against the driver of a vehicle and its owner who was also the driver’s employer. Both were covered under an automobile policy with Pilot Insurance and a CGL policy issued by the Co-operators. The issue before the Court was whether there was a duty to defend some of the allegations under the CGL policy.

[ 63 ] Co-operators took the position that there was no duty to defend, as there was no possibility of indemnity being owed because of the auto exclusion. The trial judge disagreed, relying on the Supreme Court’s decision in Derksen and found that there were concurrent causes of action pled, including various allegations of negligent business conduct on behalf of the company, which were not caught by the auto exclusion .

[ 64 ] The Court of Appeal rejected this interpretation of Derksen , confirming that the allegations would be covered under the auto policy if the accident in question resulted from the ordinary and well known activities to which automobiles are put, and there was a nexus between injuries and the use of the automobile.

[ 65 ] In Aviva Insurance Co. of Canada v. Pizza Pizza Ltd. (“ Pizza Pizza ”) [2008] ONCA 535 it was alleged that the defendant employer and owner of the vehicle (Pizza Pizza) was liable to an injured party who suffered injuries when a Pizza Pizza employee was delivering pizzas. The plaintiffs made allegations of direct negligence against Pizza Pizza, including improper business practices of encouraging driver’s to speed, failure to have safe policies in place and failure to test or investigate their employees for a propensity to speed.

[ 66 ] The Court of Appeal found that the precipitating and most important cause of the plaintiff’s injuries was the negligence of the delivery driver, not the negligence of Pizza Pizza in its business practices. The Court looked to Unger and found that the non-automobile claims were derived from, not independent of the automobile claims and were excluded with no indemnity.

f) The Use or Operation of the Ford Truck

[ 67 ] The applicant has suggested that although not alleged by the plaintiffs, some liability may arise against the applicant that does not stem from the ownership, use or operation of the Ford truck.

[ 68 ] The respondent submits that the claims against the applicant in both the Tandy and Pickard claims were in their capacity as owner of the Ford truck. As owner, the applicant would be vicariously liable for Mr. Ladd’s negligent operation of the Ford truck pursuant to the Highway Traffic Act , assuming he was operating the Ford truck with the applicant’s consent.

[ 69 ] The applicant and Mr. Ladd, in their statement of defence, admit the application of the Highway Traffic Act and allege that the accident was the fault of Centreline as owner of the trailer, and claim various protections under the Insurance Act available to certain protected defendants when the plaintiffs’ injuries arise out of the use or operation of an automobile.

[ 70 ] The Highway Traffic Act holds the owner of a motor vehicle vicariously liable for the negligence of a driver in the use or operation of that motor vehicle. In other words, liability for the ownership of the motor vehicle.

[ 71 ] The term “use or operation of an automobile” has a long history of judicial interpretation. This interpretation has been based on the Supreme Court of Canada decision in Amos v. Insurance Corp of British Columbia, 1995 66 (SCC) , [1995] 3 S.C.R. 405 . [^14] In Amos , the Court set out a two step test to determine whether injuries arose out of the use or operation of a motor vehicle. The test requires that the accident result from the ordinary and well known activities to which automobiles are put and there must be some nexus or causal relationship between the injuries and the use or operation of his motor vehicle.

[ 72 ] In Gramak Ltd. v. State Farm Mutual Automobile insurance Co. ( 1975 427 (ON SC) , 1975 CarswellOnt 512 ; aff’d (1976) CarswellOnt 1015 (ONCA) , an insured was trying to hook up a trailer to a towing vehicle, and in trying to do so caused a drill to penetrate the automobile’s fuel tank which in turn caused fire damage. The issue was whether the fire damage was damage arising out of the use or operation of the vehicle.

[ 73 ] Although decided prior to Amos , the Court looked to a similar test requiring a determination of whether the incident resulted from the ordinary and well-known activities to which automobiles are put. Justice Donohue held:

Extracting the phrase below from the above – the ordinary and well-known activities to which automobiles are put , would, in my opinion, include doing what Messrs. O’Connor and Leitao were doing here, namely, drilling a hole in the car trunk to connect wiring from the car to a trailer. The basic function of a motor-car is to carry people and personal property from place to place. And certainly the hauling of trailers as a means of carrying on this function is a common use of motor-cars and in order to use trailers for this purpose it is necessary to make mechanical adjustments for the hook-up of wiring from car to trailer. [^15]

[ 74 ] The Court of Appeal used much the same reasoning in Axa Insurance v. Dominion of Canada General Insurance Company et al 2004 34995 (ON CA) , 73 O.R. (3d) 391 , where an insured was using a bungee cord to secure a boat to his trailer in order to transport the boat from the lake to his cottage. While doing so, the cord became detached, striking his friend in the eye. His friend brought an action against the insured, and the insured sought coverage under a number of different insurance policies . The Court looked to Amos , noting that coverage required a determination of whether the actions of the insured were “ordinary and well known” activates for automobiles in Ontario. The Court found:

An ‘ordinary and well-know’ activity for automobiles in Ontario is to transport boats secured to trailers from waterways to homes and cottages. Moreover, the injury to Dr. Simms occurred, indirectly at least … from the ownership, use and operation of Dr. Isen’s automobile and attached trailer. Dr. Isen was using the bungee cord to secure the automobile’s cargo (the boat) to the trailer, with a view to making it safe for transport, when the accident occurred.…

Similarly, the securing of a cushion to a boat on a trailer attached to an automobile as a safety precaution necessary to prepare the boat for proper transport on a highway is an activity related to the ownership, use and operation of the automobile and trailer. Since the injury arose from the attempt to secure the cushion to the boat on the trailer, the causal link articulated in the second branch of the Amos test is established. [^16]

[ 75 ] The Court found there was liability arising out of the use or operation of the motor vehicle, and therefore there was coverage under the auto policy and not under the homeowner’s policy.

[ 76 ] The Supreme Court held that there must be an unbroken chain of causation linking the conduct of the motorist as a motorist to the injuries in respect of which the claim is made . It seems logical to consider that if towing a trailer is the ordinary and well known activity to which automobiles are put, and there is a nexus or causal relationship between the plaintiffs’ injuries and that use or operation of the automobile, then there would be no coverage under an exclusion in the Zurich Policy regardless of what was alleged in the claims.

[ 77 ] The allegations of vicarious liability against the owner (and employer) were not allegations of a separate cause of action distinct from the allegation of negligent use or operation of the automobile. The same can be said for allegations of negligent repair and maintenance of the vehicle, negligent hiring, training and supervision of the driver and employee. These allegations were all excluded under the CGL’s auto exclusion as auto related liability.

[ 78 ] As in this application, the alleged negligent act relied on by the applicant is the improper securing of the trailer to be towed. There was no other purpose for securing the trailer other than to tow it. I am satisfied on the facts here that both the securing and the towing, are the ordinary and well known activities to which automobiles are put. I find that Derksen is distinguishable on its facts and I am persuaded by the line of authorities from the Ontario Court of Appeal. I find that there is no concurrent liability in this case.

[ 79 ] As I have found that there is no concurrent liability, that determination effectively ends this matter. However, for the sake of completeness, I will make several brief comments with respect to the other heads of relief sought in the application.

[ 80 ] The applicant submits that the non-owned automobile endorsement coverage provision applies to the case, unless the respondent is able to meet the burden of proof that an exclusion clause applies. The applicant takes the position that the applicant may be liable for the negligent use or operation of the trailer, as distinct from the negligent use or operation of the Ford truck, and therefore they seek indemnity.

[ 81 ] The respondent’s position is that there was never such an allegation made against the applicant in the original claims as it was alleged that they were liable to the plaintiffs, solely as owner of the Ford truck. As the trailer was not owned by the applicant at the time of the alleged incident, and no exclusion clause applies, the applicant submits that the respondent has a duty to defend and indemnify the applicant with respect to the losses arising from the incident.

[ 82 ] The Non-owned Auto Endorsement is a common endorsement attached to CGL policies and provides coverage for vehicles not owned by the applicant in certain circumstances. Based on the language of the endorsement coverage extends to the applicant’s employees when using vehicles not owned by the applicant and rented for less than 30 days. Generally, the purpose of the Non-owned Auto Endorsement when the accident occurred, was to act as excess coverage to the company where they may be found liability in some capacity other than owner of a vehicle.

[ 83 ] In my opinion, the CGL policy and the Insurance Act define the term “automobile” to include the trailer in question. In this case, one cannot apportion liability distinctly between the trailer and the towing vehicle. The wording used to define automobile purposely and specifically includes the trailer. Liability and insurance coverage flows to the towing vehicle and trailer which are inclusively defined. [^17]

[ 84 ] In this application, I am satisfied that the definition of an “automobile” includes the trailer in question. Therefore, I find that liability cannot be said to flow from the use or operation of the trailer as distinct from the use or operation of the Ford truck.

[ 85 ] Finally, the Compulsory Automobile Insurance Act R.S.O. 1990 c.C.25 requires that every trailer, or other motor vehicle, be insured under a contract of automobile insurance.

[ 86 ] The trailer involved in the accident was at all material times owned by Centreline. Centreline was added to the underlying action by the applicant by way of a third party claim. I am advised that Centreline defended that action and they admitted ownership of the trailer in their statement of defence under a motor vehicle liability policy within the definition of an owner’s policy under the Insurance Act .

[ 87 ] Therefore, even if possible to apportion liability directly to the trailer (even though “automobile” includes both towing vehicle and trailer), the owner’s policy insuring Centreline, in respect of the ownership, use or operation of that trailer, is first loss insurance and required to respond to any such negligence. The insurance attaching under any other valid motor vehicle liability policy would be excess to Centreline’s insurance only.

[ 88 ] Coverage under the Non-owned Auto Endorsement extends to certain “automobiles” not owned in whole or in part by the applicant. This coverage had been extended to include employees as insured’s, when in the course of their employment, when the non-owned automobile is leased in the applicant’s name. This coverage, however, was further defined by the Excluding Long Term Leased Vehicle Form, which was to be attached to the Non-owned Auto Endorsement. The Excluding Long Term Leased Vehicle Form did just that: it excluded from coverage under the Non-owned Auto Endorsement vehicles leased for greater than 30 days.

[ 89 ] In this case, the trailer was leased by the applicant on March 1, 2002. It remained on this lease up to and including the day of the accident, which was April 2, 2002. This is a lease term greater than 30 days. Therefore, even if I accepted the applicant’s arguments in this respect, the trailer would nonetheless be considered a long term leased vehicle and coverage would be excluded.

Conclusion:

[ 90 ] In this case, the applicant has alleged that Mr. Ladd was negligent in failing to attach the trailer properly to the Ford truck. The purpose of attaching the trailer to the Ford truck was to tow it to another location where it could be used to transport a fuel tank. While being used for this purpose, the trailer became detached from the Ford truck and caused the injuries to the plaintiffs .

[ 91 ] Based on the submissions of counsel, the relevant authorities, and my findings from the materials filed, I conclude that the use of the truck and trailer in this case and the consequential liability that flowed from the negligent actions of Mr. Ladd in attaching the trailer to the Ford truck, resulted from the ordinary use and operation of the automobile as defined in the jurisprudence. I am satisfied that this negligent conduct or activity is distinguishable from the facts as found in Derksen.

[ 92 ] I find that there is no concurrent causation in this case and the respondent has satisfied me that the exemptions under the CGL are fully engaged and applicable. I am also satisfied that the umbrella policy does not afford indemnification coverage in this case.

[ 93 ] Therefore, the application is dismissed.

[ 94 ] If the parties cannot agree on the issue of costs, I will consider brief written submissions. These cost memoranda shall not exceed three pages in length, (not including any bill of costs or offers to settle). The respondent shall file its costs submissions within 10 days of the date of this judgment. The applicant may file its costs submissions within 10 days of the receipt of the respondent’s materials. The respondent may file a reply within five days thereafter.

[ 95 ] I wish to express my gratitude to counsel for their insightful and helpful submissions as well as their comprehensive legal arguments expressed through their respective written materials.

“Justice A. J. Goodman”
Justice A. J. Goodman
Date: May 30, 2012

[^1]: See Neary v. Wawanesa Mutual Insurance Co., 2003, CarswellINS, 210 (C.A.)
[^2]: This principle is reflected in Mark Litchy and Marcus Snowden, Annotated Commercial Liability Policy (Toronto: Thomson Reuters Canada Limited, 2012) at 17:20.1
[^3]: Progressive Homes , at paras . 23, 23 & 24
[^4]: Heather Sanderson, Robert Emblem, J. Lyle Woodley, Commercial General Liability Insurance (Toronto: Butterworths Canada Lid. 2000) page 184
[^5]: Law Union & Rock Insurance Co. v. Moore’s taxi Ltd. (1959), 1959 81 (SCC) ; Aviva insurance Company of Canada v. Pizza Pizza Ltd. (2008), 2008 ONCA 535 ; and Gordon Hilliker : Liability Insurance in Canada 4 th ed . (Markham: LexisNexis Canada Inc. 2006) at page 251.
[^6]: 2006 CarswellBC 1111 (S.C.) .
[^7]: Derksen at para. 36.
[^8]: Derksen at para. 60.
[^9]: McLean, (Litigation Guardian of) v. Jorgenson, 2005 CarswellOnt 7013 (C.A.) at para. 7
[^10]: Derksen) at para. 61
[^11]: Derksen at paras. 37 & 28.
[^12]: CUMIS, at para. 30.
[^13]: CUMIS, at para. 36.
[^14]: The Supreme Court of Canada also considered this interpretation in Citadel General Insurance Co. v. Vytlingam , 2007 SCC 46 ; & Lumbermens Mutual Casualty Co. v. Herbison , 2007 SCC 47 .
[^15]: Gramak, at para. 17
[^16]: Axa at paras. 18, 20.
[^17]: The Alberta Court of Appeal in overturning the trial judge’s decision, distinguishin g the case o f Highway Victims Indemnity Fund 1979 221 (SCC) , [1979] 2 S.C.R. 289, on the differing definitions of “automobile” under each policy. In Superior Equipment, they were not defined separately, but rather the definition of “automobile” included the towing vehicle and trailer in question. See Superior Equipment Haulers (1996) Ltd. et al v. Zurich insurance Company [1988] I. L.R. I-2320.