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Case Summary: Gharbi v. Summit Acceptance Corp.
Defence + Indemnity

The Alberta Court of Queen’s Bench enumerated the factors to consider in determining whether the provision a dealership’s loaner vehicle to a customer qualifies as a leased/rented vehicle or a mere courtesy loan for the purposes of determining which insurer (as between the customer’s or the dealership’s) is the priority loss insurer, under the Miscellaneous Provisions Regulation, Alta.Reg. 120/2001, s. 7.1(2).

Gharbi v. Summit Acceptance Corp., 2018 ABQB 228,
per McCarthy, J. [4274]

Gharbi was in a motor vehicle collision while driving a Chevrolet Cruze that had been provided to him by an auto dealership, CMP Automotive, while CMP repaired his vehicle. The issue was as to which of the two potential insurers involved (Gharbi’s Auto Insurer or Aviva, as the insurer of the Cruze) was first priority insurer which, in turn, boiled down to whether or not Gharbi’s use of the vehicle was a lease or a rental arrangement (governed by the Insurance Act, R.S.A. 200, c. I-3, s. 596 and Miscellaneous Insurance Provisions Regulation, AltaReg 120/2001, section 7.1(2), as opposed to a courtesy loan.
The Cruze was actually owned by Summit Acceptance Corp. CMP Automotive sold vehicles and also did servicing and repair on them. CMP was the General Partner of CMP Automotive Limited Partnership. Summit Acceptance Corp. rented and leased vehicles. It was the General Partner of Summit Acceptance Limited Partnership. CMP, CMP Automotive Limited Partnership, Summit Acceptance Corp. and Summit Acceptance Limited Partnership were all subsidiaries of Kaizen Automotive. These entities operated out of the CMP dealership. Aviva provided auto coverage to both CMP and Summit Acceptance Corp. through a single policy.
To obtain the Cruze, Gharbi signed an “Open Agreement” provided to him by CMP. It identified “Summit Trucks” (a trade name registered to CMP) as the owner of the Cruze, however, CMP did not own the Cruze; Summit Acceptance Corp. did. Under the Open Agreement, Gharbi was responsible for fuel and any physical damage to the vehicle, and his use of the Cruze was limited to a maximum of 200 km per day, only within Alberta on certain types of roads, and only to be driven by Gharbi. Gharbi was responsible for parking and speeding violations. He did not pay anything per se for the use of the Cruze, but left his own vehicle with CMP Automotive for repair. There was no specific return date for the vehicle, although Gharbi eventually had it for 35 days. The Agreement provided that Gharbi would be charged $40 per day but CMP Automotive did not request or collect any payment from him.
CMP was not in the business of providing rental vehicles and did not advertise that it was. CMP paid a daily usage fee for the Cruze to Summit Acceptance which did lease and rent vehicles.
The Agreement identified Gharbi as the “Renter” and the “Nature of Vehicle Usage” as “Daily Rental”. Gharbi was not charged for insurance coverage under the Agreement. After using the Cruze for 35 days, CMP issued Gharbi an invoice for the damage to the vehicle from the collision, instructing that he should make his cheque payable to Summit Acceptance. Gharbi paid the invoice.
The Aviva policy issued to CMP and Summit Acceptance provided as follows:

Section VII – Defence and Settlement
The INSURER has a duty and right to defend any CLAIM made against the INSUREDS for which coverage is provided under this policy, except that:

  1. where such CLAIM is for an ODL WRONGFUL ACT; or
  2. where such CLAIM is first brought outside of Canada or the United States;

it shall be the duty of the INSURED, and not the INSURER, to defend the CLAIM.
Where it is the duty of the INSURED to defend, the INSUREDS shall not select defence counsel without the INSURER’S written consent, which shall not be unreasonably withheld. The INSURER shall have the right and shall be given the opportunity to effectively associate with the INSUREDS in the investigation, defence and settlement of any CLAIM for which coverage is provided under this policy. DEFENCE COSTS shall be paid, excess of any applicable deductible, on a current basis.
In no event shall the INSURED incur any DEFENCE COSTS, settle or offer to settle any CLAIM, assume any contractual obligation or admit any liability without the INSURER’S written consent, which shall not be unreasonably withheld. The INSURER shall not settle any CLAIM without written consent of the INSUREDS involving the CLAIM.
The INSURER’S obligation to defend or continue to defend any CLAIM ends once the available limit of liability is exhausted.
Section VIII – General Conditions
. . .
B. Co-operation
The INSUREDS shall give the INSURER such information and co-operation as it may reasonably require and as shall be in the power of the INSUREDS to provide for the purpose of the investigation, defence and/or settlement of any CLAIM for which coverage is provided under this policy.
The failure of any INSURED PERSON to provide such information and co-operation shall not impair the rights of any other INSURED PERSON under this policy.

HELD: Motion dismissed, Intact refused intervener status. 

The Court held that if the Cruze was determined to have been rented or leased to Gharbi, his own policy would be first loss insurer, with CMP’s Summit Acceptances insurer as excess insurer per the Miscellaneous Insurance Provisions Regulation, s. 7.1(2). The Court held that the provision applies where the vehicle in question is a leased or rented vehicle as defined in the Traffic Safety Act and section 187 of the Traffic Safety Act applies:

[11] In a non-rental or non-lease situation, the vehicle owner’s policy is the first loss insurer for any liability arising from the ownership, use, or operation of that vehicle: Insurance Act, RSA 2000, c I-3, s 596(1).
[12] Where the vehicle is rented or leased, the driver’s policy is the first loss insurer, and the owner’s insurance is excess: Miscellaneous Insurance Provisions Regulation, AR 120/2001, s 7.1(2). This is commonly referred to as a “priority flip”. Section 7.1(2) is engaged when:

  1. a leased or rented automobile is a motor vehicle as defined in section 1(1)(x) of the Traffic Safety Act; and 
  2. section 187 of the Traffic Safety Act applies.

The Court held that section 187 of the Traffic Safety Act applies in that it deemed G to be the agent of the vehicle’s owner because he was driving it with the owner’s consent at the time. Also, the vehicle met the definition of an automobile.

The Regulation was held not to define “lease” or “rent” but does define the terms “lessee” and “rentee” by their relationship to a “lessor” or “renter”. For a period of more than 30 days, the situation is considered to be a lease and, for periods less than that, it is considered to be a rental.

The Court noted the criteria spelled out in section 187 of the Traffic Safety Act to define the term “lessor”:

[18] To qualify as a “lessor” pursuant to section 187 of the Traffic Safety Act, CMP must have:

  1. by agreement,
  2. in the ordinary course of its business,
  3. leased or granted exclusive use of a motor vehicle to another person for a term of more than 30 days or otherwise granted exclusive use of a motor vehicle to another person for a period of more than 30 days,
  4. and must not have been in possession of the motor vehicle.

[19] A person can also be a “lessor” if he or she has assigned the agreement to another person. There is no evidence of an assignment in this case. 

The Court held that the owner of the Cruze did not qualify as a “lessor” and that the Agreement was not a lease.

  • The first requirement of a lease was met because a written agreement existed between CMP Automotive and Gharbi. 
  • The second requirement, that the vehicle was provided “in the ordinary course of [the owner’s] business” was held not to have been met. The owner of the vehicle, Summit Acceptance, was in the business of leasing or renting vehicle but was not a signatory to the agreement. CMP Automotive, which was, was not in the business of renting or leasing vehicles. The Court noted that since CMP Automotive paid a daily usage fee to Summit Acceptance Corporation on Gharbi’s behalf, this might suggest that CMP understood itself “to have been facilitating an agreement between Summit Acceptance Corp. and Gharbi, to which CMP itself was not a party”. Summit Acceptance appeared to be operating under the same understanding, since CMP did not rent or lease vehicles in the ordinary course of its business, the second requirement was not met.
  • The third requirement was held to have been met because Gharbi had the exclusive use of the vehicle for more than 30 days. And the fourth requirement was held to have been met because the owner (Summit Acceptance) was not in possession of the motor vehicle during those 35 days.

The Court held that in the circumstances, Gharbi had been provided the vehicle by way of a courtesy arrangement, as opposed to a lease or rental, and relied on the factors set out in three Ontario cases: ING Halifax v. Guardian Insurance Co. of Canada, 2002CarswellOnt 3805 (Ont.S.C.); Coachman Insurance Company v. Lumbar General Insurance Company, 2011 ONSC 1655; and Baird v. Abouibrahin, 2012 ONSC 859.

  • The Court held that a number of factors tended to suggest that the Open Agreement was a lease: it was in writing; Gharbi was responsible for fuel, physical damage to the vehicle and parking/speeding violations; Gharbi was restricted to how many kilometres he could put on the vehicle per day and where he could drive it; he was held to have provided valuable consideration to obtain possession of  the vehicle (by leaving his own for repair with CMP Automotive); he was described in the agreement as a “renter” and the nature of the vehicle usage was specified as “Daily Rental”; and Gharbi was not charged for insurance.
  • However, there were other factors which suggested that the open agreement was a mere courtesy arrangement and not a lease: it specified that Gharbi was to pay $40 a day but this is never requested or collected, CMP Automotive had not reviewed the Agreement with him; and CMP was not in the business of renting vehicles.
  • Court concluded that CMP Automotive could not qualify as a “lessor" since it did not own the vehicle and was not in the business of leasing vehicles. While Summit Acceptance Corp. might have qualified as a lessor, it was held that CMP Automotive had not acted for Summit Acceptance as an agent for an undisclosed principal:

[41] CMP meets three of the four requirements to qualify as a “lessor”. Since one of the requirements is not met, CMP was not a lessor in this situation.

[42] The only alternative is that Summit Acceptance Corp. was the lessor. The first requirement is that Summit Acceptance Corp. must have had an agreement with Gharbi. Counsel presented no evidence of such an agreement.
[43] The only other possibility is that CMP acted as agent for Summit Acceptance Corp. in its agreement with Gharbi, where Summit Acceptance Corp. was an undisclosed principal. Again, counsel presented no arguments with respect to this possibility. Based on counsels’ submissions, the agreement was strictly between CMP and Gharbi. Even if the other three requirements under section 187 are met, which the evidence suggests is the case, Summit Acceptance Corp. does not meet the definition of “lessor”.
[44] Based on the foregoing, neither CMP nor Summit Acceptance Corp. meets the definition of renter or lessor in section 187 of the Traffic Safety Act. It follows that Gharbi was not a rentee or a lessee, and the Cruze was not rented or leased. Section 7.1(2) of the Regulation is therefore not engaged to reverse the priority of insurance providers. Section 596(1) of the Insurance Act applies, and the vehicle owner’s policy is the first loss provider. In this case, the vehicle owner is Summit Acceptance Corp., and the first loss insurer is Aviva.
[45] To be clear, had the Open Agreement been between Summit Acceptance Corp. and Gharbi, then this would have been a lease arrangement, and section 7.1(2) would operate to reverse the priority of insurance.

With respect, the Court's conclusion that where a vehicle is leased or rented, that the first loss insurer is the drivers auto insurer is correct but expressed simplistically. Section 7.1(2) of the Miscellaneous Insurance Provisions Regulation sets out six different levels of insurer priority based on two variables (who the lessor/renter of the vehicle is and what kind of an insured the driver is under the various policies that are potentially involved). In this case, there were only two policies involved so this rather simplistic expression of priorities under the Regulation is correct. However, where other insurers may be involved, such as a non-owned auto insurer covering the driver as an employee, etc., the provisions of section 7.1(2) of the Regulation must be consulted.