Accidents involving rental/leased vehicles give rise to overlapping insurance coverage situations. The rental/leasing company will have an owner’s policy covering it and anyone driving with its consent. The driver may have an owner’s policy of his/her own relating to his/her own vehicles that may provide the driver with coverage in some cases. The driver’s employer may have non-owned auto (“NOA”) coverage providing coverage to it and possibly the driver. What is the priority ranking of these insurers?
In 2011 the Alberta Legislature promulgated legislation specifying a new priority regime regarding rental/leased vehicles1. Other provinces also enacted legislation to change the priorities among insurers in rental/leased vehicle situations2. Unlike that of other provinces, Alberta enacted a priority scheme that is of Byzantine complexity. Determining the priority of the various exposed insurers in a rental/leased vehicle case may not be an easy task. An insurer who is ultimately found not to have lived up to its priority ranking will be liable to those insurers who did.
NON-OWNED AUTO COVERAGE
The Insurance Act3 recognizes the concept of the NOA policy as being designed to provide coverage to claims against parties who may be liable for the actions of individual drivers under their control (employees, directors, officers, etc.). A Named Insured may be vicariously liable for the vehicular negligence of a driver who is acting in the course of the Named Insured’s business4. Additionally, a Named Insured may be directly liable such as he/she/it instructs or encourages the driver to do something vehicularly negligent or fails to protect the vehicle from theft and negligent entrustment.5
The SPF No. 6 – Alberta Standard Non-Owned Automobile Policy
The SPF No. 6 is the Standard Non-Owned Automobile Policy which has been approved for general use by the Alberta Superintendent of Insurance. It provides coverage for “liability imposed by law upon the Insured for loss or damage arising from the use or operation or any automobile not owned in whole or in part by 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”. The reference to “the Insured” is a reference only to the Named Insured6, as opposed to all parties insured under the policy.
However, General Provision 1 of the SPF No. 6 extends coverage to “Additional Insureds” which are defined to include “in the same manner and to the same extent as if named herein as the Insured, every partner, officer or employee of the Insured who, with the consent of the owner thereof, personally drives” the non-owned automobile. This extension of coverage to “Additional Insureds” applies in two situations7:
- Situation 1 (the classic) is where the driver is a “partner, officer or employee” of the Named Insured and is operating the vehicle in the course of the Named Insured’s business.
- Situation 2 is where the driver is a “partner, officer or employee” of the Named Insured and the vehicle is rented or leased in the name of the Named Insured. The driver need not be acting in the course of the Named Insured’s business.
If the Additional Insured lends the vehicle to someone else who is not a “partner, officer or employee” of the Named Insured, the “Additional Insured” coverage extension does not apply to that third party8.
The SPF No. 6 excludes coverage for some individual drivers. Under Exclusion (a), coverage is excluded “for any liability which arises from the use or operation of any automobile while personally driven by the Insured if the Insured is an individual”. This “Insured” refers only to the Named Insured9 and does not purport to exclude coverage to Additional Insureds. The SPF No. 6 does not throw the Named Insured individual drivers “under the bus”. They will have coverage elsewhere (e.g. the rental/leasing company owner policy or their own owner policies.)
SPF No. 6 coverage is also excluded where liability is assumed under contract (Exclusion (c)) (e.g. where liability is assumed under the indemnity provisions under the rental/lease agreement with respect to damage to the vehicle or expenses in defending third party claims). Exclusion (c) can be deleted by Endorsement SEF 96. Coverage is also excluded for damage to property carried in or on the vehicle and property owned, rented or in the care/custody/control of any insured under the SPF No. 6 (Exclusion (d)).
The SPF No. 6 can be modified by various other endorsements.
THE CURRENT PRIORITIES REGIME
Where a vehicle is not rented/leased, the priority of insurers involved in a non-owned automobile accident remains unchanged from the pre- 2011 regime. The owner’s policy issued to the rental/leasing company was first loss insurance. Other policies providing coverage shared ratably after that10.
Effective March 1, 2011 what is now s. 596(4) was added to s. 596, permitting the government to change the default priority rules by regulation. The government promulgated The Miscellaneous Insurance Provisions Regulation11 (the Regulation”) which changed insurer priorities for leased/rented vehicles. The “default” rule remains that the owner’s policy issued with respect to the rented/leased vehicle remains first loss insurance12 unless:
- there is insurance available under a motor vehicle policy where the rentee/lessee of the vehicle is covered as a Named Insured; or
- there is coverage available under an auto policy covering the driver of the rented/leased vehicle as an “additional insured”; an “additional insured”; the spouse/adult interdependent partner of, and residing with “an insured named in the contract”; or an “unnamed insured”.
In most rental/leased vehicle situations, one or both of these exceptions will apply and the Regulation specifies the priority of the various insurers involved in complicated detail in s. 7(2)(c). The Regulation is much more complicated than the legislation for rented or leased vehicles in some other provinces13.
The application of the byzantine wording of the Alberta Regulation cannot be summarized concisely. Each situation will be unique to its own facts. The only way to analyze each situation is to consider it in terms of six layers of insurer priority.
Layers of Insurer Priority in a Rental/Leased Vehicle Situation
The insurer priority scheme in the Regulation determines the respective priorities of policies where there is coverage to the driver or the lessee/rentee. There are six potential layers of insurance established by the Regulation, s. 7(2)(c).
A threshold issue is as to whether or not an agreement by which someone who acquires temporary use of a vehicle from its owner qualifies as a lease or rental agreement. If such an agreement does not qualify as a “rental” or “lease” the priorities set out in the Regulation do not apply and the default rule governs.
The terms “lease” and “rental agreement” are not defined, but their meanings can be gleaned from the definitions for “lessor” and “renter” in the Traffic Safety Act14. To qualify as a “lessor” or a “renter”, there must:
- be an agreement;
- in the ordinary course of the owner’s business;
- granting exclusive use of the vehicle to a lessee (for more than 30 days) or a rentee (for up to 30 days); and
- the owner must not be in possession of the vehicle.
In Gharbi v. v. Summit Acceptance Corp15., an auto dealership’s loan of a courtesy vehicle to a customer was held not to qualify because the dealership did not own the vehicle (a related company did) and it was not in the dealership’s ordinary course of business to lease or rent vehicles.
The priority of insurers involved in a rented/leased vehicle claim depends on two variables:
- Who is the “rentee”/”lessee” of the vehicle?; and
- What type of “insured” is the driver (within the meaning of the Regulation, s. 7(2)(b)(ii)) under policies which cover the driver?
In any given rental/leased vehicle situation, either the individual driver or his/her employer or business may be the “rentee” or “lessee”. Since insurance issued to the “rentee”/”lessee” is the second layer of insurance (as detailed below) it becomes necessary in these situations to determine who the “rentee”/”lessee” is. The name appearing in the rental/lease contract (be it the driver or the organization) is not determinative. The Court will not necessarily conclude that the party named in the rental/leasing contract is the “rentee”/”lessee” but will look into the circumstances to determine who the rental/leasing company was legally entitled to look to for collection of the rental charges. Where the driver (or his/her credit card) is billed but can seek reimbursement afterwards from his/her employer that driver will be the “lessee”/”rentee”16. Where the driver’s employer (or its credit card) is to be billed, that employer will be the “lessee”/”rentee”17.
Where the insurer which has priority over other insurers does not respond to the claim, it can be liable to indemnify those other insurers which did respond for any liability, costs and expenses incurred by them18.
First Priority: The Policy Covering the Driver as an “Additional Insured”
Where there is a policy covering the driver of the leased/rented vehicle in his/her capacity as an “additional insured” that policy is the first loss policy19.
The Regulation defines, for the purposes of insurer priorities under s. 596 of the Insurance Act, only the term “additional insured” in section 7.1(1)(a), which provides as follows:
7.1(1) In this section and for the purposes of section 596 of the Act,
(a) “additional insured” means a partner, officer or employee of an insured named in a SPF No. 6 — Standard Non Owned Automobile Policy;
The SPF No. 6 defines “Additional Insured” for the purposes of that coverage under General Provision No. 1 to be “every partner, officer, or employee of the [Named] Insured in the two situations, as set out above.
Second Priority: The Policy Covering the Lessee/Rentee of the Vehicle as a Named Insured
The second priority policy is one where the “rentee” or lessee” of the vehicle is covered as a named insured20.
Where the lessee/rentee is an organization, only policies that cover the organization for auto liability as “an insured named in the contract” would be exposed as possible second priority insurers, i.e. the Named insured. The term “insured” simpliciter in includes both “named” and “unnamed” insureds21 ; the term “named insured” is a subset of the term “insured”22. The “named insured” is “determined solely by looking at the people named in the Certificate of Insurance” ( the policyholder(s), usually the owner(s))23 and “the use of the phrase ‘named insured’ in its various iteration suggests but one interpretation” which is “the person given that title on the certificate”24.
In some cases, the named insured expressly names a specific person (usually a family member) to be a “principal” or “occasional” driver of the vehicle who is entitled to coverage under the policy documents and pays an additional premium for that. The “principal” or “occasional” driver does not qualify as a “named insured”25.
Where the “rentee”/”lessee” is the “named insured”) the insurer would not usually be a second priority insurer under the SPF No. 6. He/she is not covered by virtue of Exclusion (a) unless that Exclusion has been deleted or altered by Endorsement.
Third Priority: The Policy Covering the Driver as an “Insured Named in the Contract”
The third priority insurer under the Regulation is one which has issued a policy where the driver is covered in his/her capacity as an “insured named in the contract26. Again, that would be where the driver is the named insured under the policy and could include an auto policy issued to the driver as the named insured with respect to his/her own automobile.
The third priority insurer would not usually be the SPF No. 6 because if the driver is the named insured he/she is excluded by Exclusion (a) unless that is waived by Endorsement.
Fourth Priority: The Policy Covering the Driver as the Spouse/Interdependent Partner of, and Residing With, an “Insured Named in the Contract”
The fourth priority insurer is one whose auto policy insures the driver in his/her capacity as the spouse or interdependent partner of, and residing with the “insured named in the contract”27.
The SPF No. 1 Alberta Standard Automobile Policy provides coverage to insureds that is extended to cover insureds while driving non-owned automobiles in some situations. Section A provides Public Liability & Property Damage coverage to the insured or any person driving with the insured’s consent with respect to the “automobile”. Section C provides coverage for loss of or damage to an insured “automobile”. The term “automobile” is defined under General Provision 5 to include the automobile described in the policy and a “Newly Acquired Automobile”. The SPF No. 1 also extends Section A and C coverage to two other types of “automobile” that are not owned by the insured by including them in the definition of “automobile” for those coverages:
- “Temporary Substitute Automobile” per General Provision 5(c) which is a vehicle not owned by the insured or a person living with the insured as a substitute for the vehicle described in the policy while that vehicle is unavailable because of breakdown, repair, servicing, loss, destruction or sale.
- A Private Passenger or Station Wagon type vehicle other than the vehicle described in the policy , “while personally driven by the Insured, or by his or her spouse if residing in the same dwelling premises as the Insured”, per General Provision 5(d) under certain conditions, including
- that the Insured is an individual or are husband and wife,
- neither the Insured or his/her spouse is driving it in connection with the business of selling, repairing, maintaining, servicing, storing or parking automobiles
- the automobile is not owned or regularly or frequently used by the insured or others living in the same dwelling
- the automobile “is not owned, hired or leased by an employer of the Insured or by an employer of any person or persons residing in the same dwelling premises as the Insured” and
- the automobile is not used for carrying passengers for compensation or for commercial delivery.
The Private Passenger or Station Wagon type situation under GP 5(d) is a situation where the spouse of the Named Insured would be covered with respect to a non-owned automobile. It would appear that in such a case where the driver of the leased/rented vehicle is the spouse of the Named Insured under a personal SPF No. 1 auto policy, that insurer would be a fourth priority insurer.
An SPF No. 6 insurer cannot be a fourth priority insurer as that policy form does not purport to provide coverage to anyone in his/her capacity as a spouse or interdependent partner.
Fifth Priority: The Policy Covering The Driver as an “Unnamed Insured”
The fifth priority insurer is one whose auto policy insures the driver in his/her capacity as an “unnamed insured” under that policy28.
An “unnamed insured” would be any person who is insured under the policy but is not “named”. There can be people covered as insureds under an auto policy who are not “named” in the policy but who are entitled to indemnity to the same extent as the Named Insured29. “Unnamed insureds” under the SPF No. 1 auto policy include a person operating or possessing the vehicle with the consent of the named insured under Section A30, especially “primary” or “occasional” drivers, since they are expressly covered by the policy but are not “named insureds” there under31.
One might think that the insurer of the policy issued to the rental/leasing company could be a fifth priority insurer as the driver would be operating the vehicle with the owner’s consent and would be an unnamed insured under that policy. However, that cannot be the case because that insurer is expressly considered a sixth (and last) priority insurer by the more specific provision of s. 7.1(2)(c)(vi) of the Regulation.
Sixth Priority: The Leasing/Rental Company’s Owner’s Policy
The sixth and last priority for insurers in a leased/rental vehicle situation is the one which issued the owner’s auto policy to the lease/rental company32.
Accordingly, when faced with such a case, one must identify all of the insurance policies issued to each of the rental/leasing company, the driver and that driver’s related organization as a first step. Gathering of that information can be time consuming, especially if any one or more of the various parties involved are resistant to disclosing that information. Next one must determine which entity (the driver or his/her organization) is the “rentee”/”lessee” of the vehicle, keeping in mind that the name on the rental/leasing contract is not determinative. Finally, all the levels of priority for the various insurers must be considered, as set out above. It will not necessarily be a quick and easy process in any given case.
1Insurance Act, R.S.A. 2000, c. I-3, s. 596(4) and The Miscellaneous Insurance Provisions Regulation, Alta. Reg 120/2011, s. 7.1
2 e.g., Ontario Insurance Act, R.S.O. 1990, c. I.8, s. 277
3 R.S.A. 2000, c. I-3, s. 560
4 S. R. Moore, The Standard Non-Owned Automobile Policy- SPF NO. 6, 19 April 2016, Blaney McMurtry LLP, https://www.blaney.com/files/20156_SMoore_-_SPF_6_Paper.pdf, (“Moore”), at page 2.
5 Moore, page 3
6 Moore page 9
7 Moore, page 6
8 Moore, page 7
9 Moore page 9
10 Section 596 (2)-(3)
11Alta. Reg 120/2011
12 Regulation, section 7.1 (2)(a) – (b)
13 The Ontario Insurance Act, R.S.O. 1990, c. I.8, s. 277 sets out three relatively straightforward rules
14 R.S.A. 2000, c. T-6, s. 1(b) and (c.1); Gharbi v. v. Summit Acceptance Corp., 2018 ABQB 228, at para. 18
15 2018 ABQB 228
16 Insurance Corp. of British Columbia v. Lloyd’s Underwriters, 2017 ONSC 670
17 Intact Insurance Co. of Canada v. American Home Assurance Co. of Canada, 2013 ONSC 2372
18 Regulation, s. 7.1(2)(d) and (e)
19 Regulation, s. 7.1(2)(c)(i) of the
20 Regulation section 7.1(2)(c)(ii)
21 Brown v. Northern Assurance Co., 1956 CarswellOnt 76 (SCC); aff,g 1955 CarswellOnt 57 (OntCA)
22 Conradi v Economical Mutual Insurance Company, 2015 ABQB 308, at 28, 33 – 34
23 Francis v. Williams, 2015 ONSC 7606, at 6; Traffic Safety Act
24 Conradi v Economical Mutual Insurance Company, 2015 ABQB 308, at 26. See also: C. Brown, Insurance Law in Canada (Carswell, 2017); Young v. The Canadian Union Insurance Company, 2010 NLTD 84, at 17.
25 Phinney v. Economical Mutual Insurance Company, (1986), 76 N.B.R. (2d) 1 (N.B.Q.B.) at 4; Commercial Union Assurance Company of Canada v. Judgment Recovery (N.S.) Ltd., 1996 CanLII 5251 (N.S.C.A), at p. 10 (CanLII); Young v. The Canadian Union Insurance Company, 2010 NLTD 84, at 21; Conradi v Economical Mutual Insurance Company, 2015 ABQB 308, at 26 – 30; Enterprise Rent-A-Car Canada Limited v. Intact Insurance Co., 2017 ONSC 7515, at para. 6. A case to the contrary is Blair. v. Royal Exchange Assurance but it is against the weight of authority, especially the Alberta case of Conradi and was expressly disagreed with by the Ontario Court of Appeal in Collins v. Wright, 1989 CarswellOnt 4957 (Ont.C.A.), at 2
26 Regulation, s. 7.1(2)(c)(iii)
27 Regulation, s. 7.1(2)(c)(iv)
28 Regulation, s. 7.1(2)(c)(v)
29 See the Insurance Act, R.S.A. 2000, c. I-3, ss.549(e) and 563; Brown v. Northern Assurance Co., 1956 CarswellOnt 76 (SCC); aff,g 1955 CarswellOnt 57 (OntCA); Conradi v Economical Mutual Insurance Company, 2015 ABQB 308
30 Dow v. Richards, 1999 NSCA 130, at 23
31 Phinney v. Economical Mutual Insurance Company, (1986), 76 N.B.R. (2d) 1 (N.B.Q.B.) at 4; Young v. The Canadian Union Insurance Company, 2010 NLTD 84, at 21; Conradi v Economical Mutual Insurance Company, 2015 ABQB 308, at 26 – 30
32 Regulation, s. 7.1(2)(c)(vi)