"Insurance litigation specialists since 1945"
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bell Temple LLP
393 University Avenue
Suite 1300
Toronto, ON
M5G 1E6

T | 1-416-581-8200
F | 1-416-596-0952

lawyers@belltemple.com

The Cam Godden Amendment

The Budget Measures Act, 2005 (No. 2)

In response to the Browne case, the Ontario legislature has passed the Budget Measures Act, 2005 (No. 2.). Amendments have been made to the Compulsory Automobile Insurance Act, the Highway Traffic Act and the Insurance Act. Such amendments address among other things vicarious liability of leasing and rental companies and the capping of their exposure. Of import are the Priority Rules which impact upon the insurers of personal vehicles of those renting a motor vehicle.


Compulsory Automobile Insurance Act

Under the Schedule 4 Amendments to the Compulsory Automobile Insurance Act, the definition of lessee under Section (1) has been repealed and the following substituted:

"'lessee' means, in respect of a motor vehicle, a person who is leasing or renting the motor vehicle for a period of 30 days or more;"

Under the previous definition, 30 day plus lessees were obliged to insure their 30 plus day leased vehicle. Now 30 plus day renters are also obliged to do so under the Act.

 

Highway Traffic Act

The Budget Measures Act Schedule 10 Amendments to the Highway Traffic Act create vicarious liability upon a lessee by reason of negligence in the operation of the motor vehicle similar to the vicarious liability now owed by an owner. Lessee is defined as

"a person who leases or rents a motor vehicle or street car for any period of time".

The amended Section 192 (3) stipulates:

"192.
(3)A lessee of a motor vehicle or street car is liable for loss or damage sustained by any person by reason of negligence in the operation of the motor vehicle or street car on a highway, unless the motor vehicle or street car was without the lessee's consent in the possession of some person other than the lessee or the lessee's chauffeur."

The amended Section 192 (6) stipulates that:

"192.
Joint and several liability
(6) The driver, owner, lessee and operator that are liable under this section are jointly and severally liable."

What are some of the practical consequences of the HTA amendments? Previously in circumstances in which a driver was someone other than lessee, a Plaintiff would sue the driver, the lessee and the lessor. There was no liability upon the lessee as he / she / it were not vicariously liable under the previous HTA wording. Under the amended Section 192, driver, lessee and lessor are jointly and severally vicariously liable. In policy limits cases, subject to our comments below as to Priority Rules and capping of a lessor's exposure, this fact situation creates new exposure upon a lessee. If a wife drives a car leased by the husband, the lessee's policy responds for driver, lessee and lessor. Assuming the lessor's limits are capped, a Plaintiff then looks to recover personally against the wife driver and, now, the lessee husband as if he was owner of the vehicle.  If an employee drives a car leased by his employer Corporation, the corporation is vicariously liable whether the employee was acting in the course of his employment or not.

 

Insurance Act

The Schedule 12 amendments to the Insurance Act address the inclusion of a lessee as defined in Section 192 of the Highway Traffic Act as "owner".

 

Priority Rules

The Insurance Act amendments address the order in which policies are to respond. The added Section 277 (1.1) of the Insurance Act stipulates:

"Order in which policies are to respond
(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:

1. 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.

2. 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.

3. 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."

Section 277 (1) is that referred to "despite subsection (1)". Section 277 (1) stipulates that the "owners policy" is a first loss insurance. Such is no longer the case.   Section 277 of the Act is also amended by adding the following subsection:

"Lessee defined
(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."


Accordingly, as in the past, when the lessee arranges coverage and the lessor is named as an Additional Insured, such coverage is primary. If the lessee was not the driver, there may be available Section 2.2.3 Other Automobile Coverage which would be next in priority. The next coverage to respond would be the lessor's coverage.

However, the newly added Section 277 applies to an automobile rented for any period of time. Before the amendment, in such circumstances, Section 277 (1) would apply. The renter's coverage would be considered first loss insurance. The new 277 (1.1) stipulates that we first must look to the policy under which the person who is renting the automobile is entitled to indemnity as an insured named in the contract.

Pre-Budget Measures Act, if an insured rented a Temporary Substitute Automobile, the rental company's policy would have priority over the Section 2.2.2 Temporary Substitute Automobile provisions of the OAP 1. The case of Perduk v. Hyslop [1991] O.J. No. 1542 stands for the proposition that in such circumstances the renter / owner's policy was primary. That no longer is the case. This same interpretation would apply in considering primary coverage under the Other Automobile Provisions of the OAP 1. The Other Automobile coverage would be considered insurance available under a contract evidenced by a motor vehicle liability policy under which the person renting the automobile is entitled to indemnity as an insured named in the contract.

Accordingly, the OAP 1 of an insured's policy would be considered first loss insurance in the order of priority should coverage apply under the Section 2.2.3 Other Automobile and/or Section 2.2.2. Temporary Substitute Automobile provisions. In these rental circumstances the next policy in priority would be the owner / renter of the automobile. If the person renting the automobile has no personal coverage, the renter's / owner's policy would respond.

* That is why in the FSCO Bulletin No A-05/06 under the title Overall Effect of Vicarious Liability Changes it states:

"With a rental vehicle, if the person who rents the vehicle has an Ontario motor vehicle liability policy for his or her own personal vehicles, this policy may be required to respond first for any liability claims arising from the use of the rental vehicle. The rental company's policy would respond where liability claims exceed the liability limit on the renter's own policy or in situations where the renter is not entitled to coverage under a motor vehicle liability policy."

 

Limit / Capping

We then look to the liability of lessors / renter capping provisions of the amendments and the adding of Section 267.12 under the Insurance Act. Subsection 3 limits the lessors / renters exposure as follows:

"(3) The maximum amount for the purposes of subsection (1) is the greatest of,
(a) $1,000,000.00;
(b) the amount of third party liability insurance required by law to be carried in respect of the motor vehicle; and
(c) the amount determined in the manner prescribed by the regulations, if regulations are made prescribing the manner for determining an amount for the purposes of this clause."

The cap is reduced in accordance with Section 267.12(1). It states:

"267.12 (1) Despite any other provision in the Part, except subsections (4) and (5), in an action in Ontario for loss or damage from bodily injury or death arising directly or indirectly from the us or operation of a motor vehicle that is leased, the maximum amount for which the lessor or lessors of the motor vehicle are liable in respect of the same incident in their capacity as lessors of the motor vehicle is the amount determined under subsection (3) less any amounts,
(a) that are recovered for loss or damage from bodily injury or death under the third party liability provisions of contracts evidenced by motor vehicle liability policies issued to persons other than a lessor;
(b) that are in respect of the use or operation of the motor vehicle; and
(c) that are in respect of the same incident."

Accordingly in the typical circumstances when a lessee arranges One Million Dollar coverage, the lessor's liability exposure as owner is nil. Subsection 4 notes exceptions. If, for example the rental company is liable for renting a defective vehicle, which would be outside the ambit of any liability imposed under the Highway Traffic Act, the cap would not apply. The cap would also not apply in respect of a motor vehicle used as a taxicab, livery vehicle or limousine for hire.