COURT FILE NO.: 18-CV-591785
DATE: 20181001
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
AVIVA INSURANCE COMPANY
Applicant
– and –
WAWANESA MUTUAL INSURANCE COMPANY
Respondent
COUNSEL:
Dennis Ong and Christopher Scotchmer, for the Applicant
Steven Carlstrom, for the Respondent
– and –
HY KIET LIU
Intervener
Robert Curtis, for the Intervener
HEARD: July 18, 2018
JUSTICE S. NAKATSURU
[1] On October 29, 2010, the plaintiff, Mr. Hy Kiet Liu, was in a car accident when he was rear-ended by the defendant, Mr. Maroof Mahamood. The day of the accident, Mr. Mahamood had been asked by his employer, Fine Furnishings, to do some furniture deliveries. Mr. Mahamood had rented a truck from New Horizons Car Truck Rentals/Discount Rent-a-Car (“New Horizons”) in Hamilton, Ontario. It is alleged that Mr. Liu suffered injuries as a result of the accident. Mr. Liu has sued Mr. Mahamood, Fine Furnishings, and New Horizons in an automobile negligence claim. He has claimed damages in the amount of $3,000,000. This action is outstanding. Unfortunately, Mr. Mahamood was an uninsured driver. The applicant, Aviva Insurance Company (“Aviva”), is the insurance company for New Horizons. The respondent, Wawanesa Mutual Insurance Company (“Wawanesa”) is the insurance company for Fine Furnishings. This application is about which insurance company is the first loss insurer for any damages arising out of the accident. In other words, it is a dispute between insurance companies about who is first in line to pay if Mr. Liu is successful in his action.
[2] The answer to this question depends upon the determination of who is the “lessee” within the meaning of that term in s. 277(1.1) of the Insurance Act, R.S.O. 1990, c. I.8, of the truck driven by Mr. Mahamood: Mr. Mahamood or Fine Furnishings. Aviva submits that it is Wawanesa who should pay first because Fine Furnishings leased the car. Wawanesa submits that it is Aviva because Mr. Mahamood leased the car.
A. SUMMARY OF THE FACTS
[3] Mr. Mahamood is a college student who immigrated to Canada in 2000. He has a work permit. He became an employee of Fine Furnishings in 2009. Fine Furnishings sells furniture and is owned by Rajiv Mehta. Mr. Mahamood, who worked in the store, was looking to increase his income, so he sought to do furniture deliveries for his employer. Mr. Mehta had a system for such deliveries. He had Mr. Mahamood sign what was referred to as a “subcontract agreement” to deliver the furniture. Mr. Mahamood believed after signing the agreement that he was both an employee and an independent contractor of Fine Furnishings. He testified that he did not really understand these terms, nor did he understand the portions of the subcontract agreement dealing with his obligation to make insurance arrangements for any rental vehicles.
[4] Mr. Mahamood gave evidence about his work delivering furniture for Fine Furnishings. He did not work for any other employer, did not pay for any truck rentals with his own funds, and he did not own a credit card. Mr. Mahamood had a right to refuse to do furniture deliveries for Fine Furnishings but when he did do a delivery, he was practicably limited to renting a truck from New Horizons where Fine Furnishings had an account. He never attempted to rent a truck anyplace else. During his deliveries, he had to deliver the furniture in a specific time window that was given to him. He was able to hire unskilled helpers for cash on his own. He was paid $30 to $50 per delivery. He could not use the rental truck for any other purposes than to do deliveries for Fine Furnishings.
[5] Mr. Mehta swore an affidavit. It was his evidence that Mr. Mahamood was responsible for the truck rental charges and he had to reimburse Mr. Mehta. Mr. Mehta would use his own personal credit card to pay for the rentals. He did so because Mr. Mahamood did not have a credit card although it was understood that delivery persons would normally have to use their own personal credit cards to rent vehicles. Mr. Mehta set up what he characterized to be a sub-contracting agreement as he did not want these delivery people to be considered employees. Aside from general instructions from Fine Furnishings about furniture delivery, Mr. Mahamood was responsible for managing his own time and schedule. Mr. Mahamood was not required by Fine Furnishings to rent a vehicle from New Horizons specifically. Fine Furnishings never contacted New Horizons to reserve or rent the vehicle involved in the accident. It was Mr. Mahamood who rented the vehicle.
[6] On October 29, 2010, Mr. Mahamood rented a 2010 Ford CTV truck from New Horizons in Hamilton. He signed a rental agreement between himself and New Horizons. While driving this truck doing deliveries for Fine Furnishings, he rear-ended Mr. Liu.
[7] Mr. Mahamood did not provide any credit card for this booking. New Horizons had within their computer system an account assigned to Fine Furnishings. There is a Visa card associated with this account. This is Mr. Mehta’s credit card. The booking made by Mr. Mahamood on October 29 was to be charged to this card. In evidence were computer screen printouts of New Horizon’s system about Mr. Mahamood’s rental. In those printouts, Fine Furnishings is listed as the Referral Agency.
[8] The rental agreement signed by Mr. Mahamood did not list Fine Furnishings on the agreement but only Mr. Mahamood’s name and his signature. He is identified as the renter and there are no other listed drivers. The address provided on the rental agreement is Mr. Mahamood’s home address. Mr. Mahamood provided the business telephone number of Fine Furnishings as his contact number. A representative of New Horizons explained that they could not list Fine Furnishings on the rental agreement due to a limitation in the computer system given the lack of a line space. However, there is a remarks space and space for additional notes. These spaces were not filled out on the rental agreement signed by Mr. Mahamood.
[9] A representative of New Horizons swore an affidavit averring it believed it was contracting with Fine Furnishings during the course of the rental by Mr. Mahamood. On the Incident Reporting Form prepared by New Horizons after the accident, it notes the renter to be Fine Furnishings.
B. ANALYSIS
[10] In 2006, amendments were made to the Insurance Act “to make renters liable for damages sustained by reason of negligence in the operation of a rented vehicle and to relieve the insurer of the owner of a rented vehicle from being the first-loss insurer where other insurance is available to the renter or driver of the rented vehicle”: Enterprise Rent-a-Car Canada Ltd. v. Meloche Monnex Financial Services Inc., 2010 ONCA 277 at para. 4. Previous to the amendments, the lessor’s policy was the first loss insurance. This change amongst others was made to reduce the lessor’s cost of doing business. Such costs were normally passed on to the consumer: Xu v. Mitsui Sumitomo Insurance Co., 2014 ONSC 167 at paras. 10, 29. The relevant provisions state:
277 (1) Subject to section 255, 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.
(1.1) Despite subsection (1), if an automobile is leased, the following rules apply to determine the order in which the third party liability provisions of any available motor vehicle liability policies shall respond in respect of liability arising from or occurring in connection with the ownership or, directly or indirectly, with the use or operation of the automobile on or after the day this subsection comes into force:
Firstly, insurance available under a contract evidenced by a motor vehicle liability policy under which the lessee of the automobile is entitled to indemnity as an insured named in the contract.
Secondly, insurance available under a contract evidenced by a motor vehicle liability policy under which the driver of the automobile is entitled to indemnity, either as an insured named in the contract, as the spouse of an insured named in the contract who resides with that insured or as a driver named in the contract, is excess to the insurance referred to in paragraph 1.
Thirdly, insurance available under a contract evidenced by a motor vehicle liability policy under which the owner of the automobile is entitled to indemnity as an insured named in the contract is excess to the insurance referred to in paragraphs 1 and 2.
(4) In this section,
“lessee” means, in respect of an automobile, a person who is leasing or renting the automobile for any period of time, and “leased” has a corresponding meaning.
[11] At its most basic, this case turns on statutory interpretation. But it is not a complicated matter. “Lessee” is defined and the definition is straightforward. A person who leases or rents a vehicle is the lessee within the meaning of s. 277(1.1).
[12] There are two reported cases relied upon by the parties where this issue arose in a similar context. They are Intact Insurance Company of Canada v. American Home Assurance Company of Canada, 2013 ONSC 2372 and The Insurance Corporation of British Columbia v. Lloyds Underwriter, 2017 ONSC 670. These cases address the issue of how to determine who is responsible for responding to a personal injury claim arising from a motor vehicle accident where the vehicle was rented and driven by an employee while travelling for work.
[13] Intact Insurance Company of Canada v. American Home Assurance Company of Canada involved a Mr. Ashrafi, who was employed by Colt Engineering in Calgary. He traveled to Toronto for work and rented a 2008 Jeep from Budget Car Rental during his stay. He signed the rental agreement for this car in his name, and paid for it using a personal American Express credit card that had been purchased for him by Colt Engineering. He was entitled to use this card for business and personal expenses, however, Colt Engineering's policy was clear that when travelling on business this was the card employees were required to use for the purposes of reimbursement. Notably, this policy envisioned accidents and included a summary of the coverage provided on rental vehicles - associated directly with this card - and the process to follow in cases of accidents. Mr. Ashrafi was driving for work when he was involved in an accident with another vehicle. The passenger of that vehicle sued him and Colt Engineering.
[14] Mr. Ashrafi’s insurer argued that he was not the genuine lessee, but rather that Colt Engineering was the true lessee as Mr. Ashrafi was travelling on business and would be reimbursed by his employer for the cost of the rental.
[15] Colt Engineering’s insurer argued that it was clear that Mr. Ashrafi was the lessee: he signed the contract and paid for the rental. There was no reason to introduce complicating factors into the interpretation of this legislation by looking further than that.
[16] Justice Perell was convinced by the latter argument, finding that the simple principles of contract law were sufficient to decide this case. Mr. Ashrafi's name was on the rental agreement, therefore in the contract with Budget Car Rental, he was the lessee. His entitlement to reimbursement from Colt Engineering was a separate contractual issue between them.
[17] In The Insurance Corporation of British Columbia v. Lloyds Underwriter, there were both similarities and differences to the facts of Intact Insurance Company of Canada v. American Home Assurance Company of Canada. Sharon Brindley was employed by Connect Hearing in Victoria. She travelled to Toronto for work and rented a car which had been reserved for her at Hertz Rental - the company from which Connect employees were required to rent when travelling for business. While Connect had a corporate account with Hertz, Brindley signed the rental agreement in her name. Connect's name appeared beside "Address" in the contract and the postal code given was for the Connect office in Victoria; however, the contract was not registered in Connect's name or to their account. Brindley paid for this rental using her American Express corporate credit card, which could only be used for business-related expenses. Brindley got into an accident on her way to a business meeting for which she was sued.
[18] Both parties in this case - Brindley and Connect's insurers respectively - relied on Justice Perell's decision in Intact Insurance Company of Canada v. American Home Assurance Company of Canada to argue that they were not the lessee. Ultimately, Justice Penny agreed with Justice Perell's approach. He asked the question: “Who can the lessor sue to enforce the car rental contract?” and found that based on the following facts that Connect was the lessee:
(i) Brindley had to rent a car to fulfil her employment obligations to Connect;
(ii) Connect had an account with Hertz;
(iii) Brindley was required by company policy to rent from Hertz;
(iv) the car was hired from Hertz on the Connect account;
(iv) the rental was paid for with the Connect corporate credit card;
(vi) Brindley was not permitted to use the corporate credit card for personal expenditures (and clearly, in this case, did not);
(vii) the credit card bill with the Hertz rental charge went to Connect and was paid by Connect (in other words, it was not paid by Brindley and later reimbursed by Connect); and
(viii) Hertz was entitled to collect, and did collect, from Connect reimbursement for the cost of repairing accident damage to the rented car.
[19] After careful consideration of both authorities, I see no conflict between them. Like Justice Penny, I too wholeheartedly agree with Justice Perell’s comments at paras. 17-18 of Intact Insurance Company of Canada v. American Home Assurance Company of Canada:
I see no unfairness in a straightforward interpretation of the section, and I see no reason to give s. 277 a reading that would introduce the concept of “de facto lessee” and encourage factual and legal disputes between insurers about how employment law, agency law, corporate law, partnership law and the law of contract might apply to cast doubt on who is a lessee under s. 277 of the Insurance Act.
Who is the lessee can be tested and determined by asking the following question: Who can the lessor (Budget Car Rental) sue to enforce the car rental contract?
[20] In my opinion, I need not go further than the rental agreement in this case. Mr. Mahamood signed it. He rented the truck. He is the person New Horizons must sue to enforce the car rental contract. He is therefore the lessee. It does not matter why he was renting it or what he was going to use the truck for. It does not matter how the rental would be paid for and by whom. The focus of the inquiry should be on the contractual arrangement made to rent or lease the vehicle. Defining a “lessee” with reference to the act of renting or leasing in s. 277(4) means that what is captured by the provision is the contractual arrangement to obtain a vehicle for some consideration. This is to be compared to a scenario where vehicles are lent to others without consideration such as between family members or friends. Hence, the primacy of the contractual arrangement in determining the identity of the lessee.
[21] On the rental agreement before me, there is no indication of any involvement of Fine Furnishings aside from their telephone number which Mr. Mahamood gave as his contact number. The contract is between Mr. Mahamood and New Horizons. While much evidence was lead on this application, a significant portion of it conflicting, none of it affects this incontrovertible and fundamental fact.
[22] Aviva relies upon the internal documents of New Horizons that indicates that Fine Furnishings holds the business account by which the rental vehicle would be paid. However, these are internal documents and computer systems. They are used by New Horizons for tracking and securing payment for the rental vehicle. It is not a contract by which the lessee rents or leases the vehicle. There is no evidence of any separate contract between New Horizons and Fine Furnishings to supply rental vehicles for their use. Finally, the belief of a representative of New Horizons as to who the renter was in this case does not amount to a valid contractual arrangement.
[23] Aviva focuses its argument on this pre-existing and standing account between New Horizons and Fine Furnishings in arguing that Mr. Mahamood did not lease the truck. Aviva submits that a critical fact is that the rental was paid for by a credit card associated with Fine Furnishings. This is a credit card of the owner, Mr. Mehta. They argue by analogy to Justice Penny’s reference to a similar arrangement in The Insurance Corporation of British Columbia v. Lloyds Underwriter. In my view, each case must be determined on its own facts. In an appropriate case, I do not deny this may be a consideration in answering the question of between which parties the contractual arrangement lies. This is so especially if there is some ambiguity in the contract. However, who actually pays for the rental vehicle is far from determinative of this issue. In the instant case, leaving aside for the moment that it was Mr. Mehta’s personal credit card rather than Fine Furnishing’s business credit card that was used to pay for the rental truck, who pays for the rental is of little significance. Indeed, it is of little significance in most cases. For example, if a car is rented by a husband and he signs the rental arrangement, the fact that his spouse pays for it using her credit card does not make the spouse the lessee. It is the individual who contracts for the rental vehicle who is the lessee and not the person or entity that supplies the funds. Or to take another example as posited by Wawanesa in a different context: if a student rents an apartment and signs a lease, but their parents supply the rental monies, the landlord must still sue the student for any non-payment of rent since the contract is with the student. Applying the test set out by Justice Perell, individuals who do no more than pay for the rental vehicle will not be legally liable for the contract. In other words, they are not lessees within the meaning of s. 277.
[24] Another example of why the simple approach should be preferred is Aviva’s argument on whether Mr. Mahamood was an independent contractor or an employee of Fine Furnishings when he was out delivering the furniture. There are competing positions on this issue. Aviva submits that Mr. Mahamood was engaged as an employee of Fine Furnishings when he was involved in the accident. Mr. Mehta says Mr. Mahamood was an independent contractor delivering furniture outside of his normal duties as an employee of Fine Furnishings. He points to the fact that Mr. Mahamood signed a subcontract acknowledging that he was an independent contractor. On the other hand, Aviva argues that Mr. Mahamood was doing a job for his employer, Fine Furnishings, and the rental was solely for this purpose. Mr. Mahamood further testifies that he did not truly know what he was signing when he signed the subcontract agreement, particularly the provisions which state he was to arrange for his own insurance. It is further submitted that the subcontract is illegal or unconscionable, especially given Mr. Mahamood’s vulnerability as a worker and an immigrant.
[25] The definitions of “employee” and “independent contractors” from other contexts were argued as applicable at this hearing: 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59. These issues are not simple to resolve. If I had to resolve them, I would be called upon to make specific findings of fact based on conflicting evidence; findings which raise credibility assessments. Also, there are significant legal and practical consequences to Mr. Liu’s litigation of any determination of whether Mr. Mahamood was acting as an employee or an independent contractor; consequences important enough that Mr. Liu has intervened in this dispute between insurance companies. In my view, all of this may be germane to some issue at trial, but for the purpose of determining the priority of insurance policies, they are immaterial. The simple question that needs to be answered is: who was the lessee for the purpose of s. 277(1.1)? The answer should not require in-depth inquiries into large factual records or analysis of unrelated complex areas of the law.
[26] The legislature intended to implement a simple and straightforward mechanism to determine priority amongst insurers. Disputes about it should be rare. Where there is a disagreement, resolution should be expeditious and unproblematic. Such a resolution is best brought about by the test put forth by Justice Perell. That test is in keeping with the definition found in s. 277(4) and the intent of the legislation.
[27] In coming to this decision, I fully appreciate that corporations can contract to rent automobiles. I also appreciate corporations can only act through an authorized representative to sign a contract. Thus, there may be instances like in The Insurance Corporation of British Columbia v. Lloyds Underwriter where the lessee is someone other than the person who signs the rental agreement. On the facts of that case, Justice Penny found that the driver who rented the vehicle did so as an authorized representative of her corporate employer. That was the critical finding in that case. I find that Mr. Mahamood’s case is not similar. Rather, the mere fact that the person who signs the agreement and rents a vehicle is doing business for an employer or is renting the vehicle for the benefit of someone else, does not mean they are no longer the lessee for the purposes of s. 277(1.1). To hold otherwise would defeat the legislative purpose of the section and would only encourage frequent and protracted inquiries into the identity of some “true” or de facto lessee. In my opinion, it should only be the exceptional case where it will be necessary to look beyond the four corners of the rental agreement.
[28] Finally, I note that if rental car agencies like New Horizons wish to avoid circumstances such as that which occurred here, it can put into place other contractual arrangements or make provisions in the standard form agreements that they use that will make it clear when it is some other person or entity than the signatory to the rental agreement that is entering into the contract to rent a vehicle. This should not be difficult.
[29] A number of other issues were raised by Aviva. I agree with the position of Mr. Liu, the intervener (and plaintiff in the main action), that the other issues raised by the applicant are unnecessary for the resolution of the main issue on the application and any determination of them could potentially prejudice Mr. Liu at his trial. As a result, I will decline to address them.
[30] Thus, I make a declaration that Aviva Insurance Company is the first loss insurer under s. 277 of the Insurance Act for the personal injury claim of the plaintiff, Hy Kiet Liu, arising from a motor vehicle accident on October 29, 2010.
[31] If the issues of costs cannot be resolved between the parties, I will entertain written submissions, each one limited to two pages excluding any attachments (any Bill of Costs, Costs Outline, and authorities). Wawanesa shall file within 20 days of the release of these reasons. Aviva and Mr. Liu shall file within 15 days thereafter. There will be no reply submissions without leave of the court.
JUSTICE S. NAKATSURU
Released: October 1, 2018
COURT FILE NO.: 18-CV-591785
1DATE: 20181003
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
AVIVA INSURANCE COMPANY
Applicant
– and –
WAWANESA MUTUAL INSURANCE COMPANY
Respondent
– and –
HY KIET LIU
Intervener
REASONS FOR JUDGMENT
NAKATSURU J.
Released: October 1, 2018