Canada: Employees Who Rent Vehicles For Work: Liability Insurance Implications When Accidents Occur

Last Updated: April 20 2016
Article by Patricia J. Forte

The frequency with which employees rent vehicles for employment purposes is a common occurrence. Amendments to certain legislation in Ontario introduced a priority scheme for liability coverage, and corresponding changes to the standard Ontario Automobile Policy reconfigured personal coverage to apply to rental vehicles. These changes have given rise to the adjudication of an interesting legal issue whenever an employee rents a vehicle for work: Who is the "renter"...the employee or the employer?

Ontario's Legislative Scheme

The issue of "who is the renter1" of a vehicle is really a determination of which insurer must respond first to a plaintiff's claim.

Introduced in 2006, amendments to the Insurance Act and the Highway Traffic Act were enacted to make renters liable for damages sustained by reason of negligence in the operation of a rented (or leased) 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.

Subsection 277(1.1) of the Insurance Act establishes the priority in which automobile insurance policies must respond to losses involving rented (or leased) automobiles. That subsection provides:

  • ... if an automobile is [rented], 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 ...:

    1. Firstly, insurance available under a contract evidenced by a motor vehicle liability policy under which the lessee [renter] 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.

In other words, pursuant to subsection 277(1.1) of the Insurance Act, the order in which a payor is to respond to losses involving rented automobiles is: the renter, then the driver, and then the owner of the rented vehicle.

Subsection 277(4) defines a "lessee" as a "person who is leasing or renting the automobile for any period of time". The Insurance Act does not provide any definition of the words "rent", "renter" or "renting".

A Bulletin issued by the Financial Services Commission of Ontario dated February 17, 20062 confirms to the public that:

  1. The Insurance Act has been amended respecting the order in which motor vehicle liability policies respond to liability claims...where a leased or rented vehicle is at fault in an accident. The new order requires that the liability section of a motor vehicle policy of a lessee or renter who is a named insured in the contract (lessee's policy) pays first...; and
  2. 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.

Corresponding amendments were made to the vicarious liability provisions of the Highway Traffic Act. Subsection 192(3) of the Highway Traffic Act makes a "lessee", (defined in section 191.9 as including persons who rent vehicles for any period of time) liable in the following terms:

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

The Standard Ontario Automobile Policy (OAP1) was also revised to reflect these amendments.

By reason of the foregoing, the following inferences can be made. First, the "renter" of a vehicle and the "driver" of the rented vehicle may be the same person or two different persons. Second, the insurance available to the renter can be determinative of who is the "renter".

Intact v. American Home4

Intact Insurance Company of Canada v. American Home Assurance Company of Canada ("Intact"), is a 2013 decision of the Ontario Superior Court of Justice that considered the issue of who was the "renter" of a vehicle when an employee rented a vehicle for work purposes.

S.A. came to Ontario for work and rented a car. The rental agreement was signed by S.A. He used a personal credit card purchased for him by his employer. S.A. was entitled to use the credit card for business and personal expenses. Under his employer's policy S.A. was responsible for his credit card charges, but he was entitled to be reimbursed for his business expenses.

S.A. was involved in an accident while in the course of his employment and he and his employer were sued. A priority dispute arose between S.A.'s personal automobile insurer, Intact, and his employer's insurer, American Home. As such, they brought an application to determine the issue of which policy should respond to the plaintiff's claims.5

Justice Perell held that S.A. was the "renter" of the vehicle for the purpose of subsection 277(1.1) of the Insurance Act such that his personal automobile insurer (Intact) had to respond to the plaintiff's claim. He found that the definition of "lessee" [renter] in s. 277(1.1) is clear and specific. There is no reason to delve into an analysis of who is the de facto renter or to assess the issue by reference to inquiries about the purpose of the rental, the manner of payment or reimbursement for the rental expense. Justice Perell specifically declined to delve into assessments about how employment law, agency law, corporate law, partnership law, and the law of contract might apply to cast doubt on who is a renter. An assessment of the issue using any of those constructs is a red herring and immaterial to the determination of who rented the vehicle. There is no reason to depart from the ordinary meaning of the term "lessee", which includes the person who enters into a car rental agreement with a car rental company.6

Justice Perell's determination was guided by asking the following question: Who can the lessor sue to enforce the car rental contract? Since the privity of contract in that case was between the car rental company and S.A. (as S.A.'s employer did not sign the rental agreement), the Court held that S.A. was the "renter" of the vehicle.7

Justice Perell's findings are consistent with the overall legislative scheme. The protection provided to car rental companies and their insurers does not depend on the reason why the car was rented. The fact that a vehicle is rented for employment purposes is inconsequential to the determination of who is the renter.

Sherzai v. Dutka et al.8

The approach to the determination of "who is the renter?" in the Intact case directed the Court's findings in the subsequent case of Sherzai v. Dutka et al.

The Sherzai action arose from a 2008 auto accident involving a rental vehicle used to transport students on an overnight field trip. Teacher chaperones rented vans to transport students for a canoe trip to Northern Ontario. During the trip home, one of the rental vehicles was involved in an accident. The students and teacher were not injured, but occupants of the other vehicle involved in the accident alleged that they were, and started a lawsuit. The teacher who drove the van ("L.D."), the teacher who organized the trip ("N.O."), and the School Board ("the Board") were sued by occupants in the third party vehicle.

Three vans were rented for the trip from Aviscar Inc. ("Avis"). Each of the vans was driven by a teacher chaperone, including L.D. and N.O. The field trip was approved by the Board. The organization of the trip proceeded in compliance with the Board's policies and protocols. Each of the teacher chaperones was required to personally attend Avis to sign documents and pick up the rental vehicles. The teachers provided their personal information, including their driver's licences, to Avis and completed the paperwork necessary to rent the vans.

The teachers did not use personal credit cards to pay for the rental. Avis invoiced the school at which the teacher's taught. The rental paperwork references N.O. and the name of the school at which he taught as the "customer". The rental invoices are addressed to N.O. in care of the school. N.O. did not sign any documents in relation to the rental of the van involved in the accident.

L.D. signed the rental paperwork for the rental van in question, including in an area making her responsible for certain rental charges. L.D. was identified as an "additional driver".

The Board was not referenced on any of the rental paperwork.

At the time of the accident, the Board required volunteer drivers, including teachers, to provide proof of adequate automobile liability insurance coverage before being permitted to drive students. Each of the teacher chaperones completed "Volunteer Driver Forms". These forms explicitly stated "the Board's excess liability insurance comes into effect only after the 'Trip Drivers' insurance has been exhausted" and that "volunteer drivers must have a minimum of $l,000,000 liability insurance." The teachers each signed forms declaring that they had liability insurance coverage for their personal automobiles with limits of at least $1,000,000.

A dispute arose between who was the "renter" of the van involved in the accident. A determination of the issue proceeded by way of a summary judgment motion.

Justice Morissette followed the principles enunciated in the Intact case. She confirmed that a court will not look to principles of employment law, agency law, corporate law, partnership law, or the law of contract to determine who may be the "de facto lessee" for the purposes of liability. Determining who the actual renter is, as opposed to the de facto renter, is a legal question of privity of contract. She assessed that as a matter of first impression, who could Avis sue to enforce the rental agreement?9

At first impression, one could infer that Avis would have looked to L.D. as she was the signatory to the rental agreement. No one else signed the rental agreement as an "additional driver". Avis had required each teacher to attend personally to provide personal details and driver's licences. Each signed the rental agreement. Each had provided a declaration to the Board that they each had personal automobile insurance with limits of at least $1,000,000.

Justice Morissette found that the evidence established that the renter for the van involved in the accident was the teacher who operated it – L.D. Her personal insurance was determined to be first for the purpose of the legislative scheme, and the Board's insurance coverage was excess coverage, if required. Accordingly, the court declared that N.O. was not the renter of the van involved in the accident. The action was dismissed against him.


In claims involving rental vehicles, there may be more than meets the eye in determining priority for liability coverage. Adjusters should carefully investigate all circumstances of the vehicle rental. To the extent that the vehicle was rented in the course of employment, it does not necessarily follow that the employer's auto liability policy responds to a personal injury claim in priority to the personal policy of the employee. In fact, the outcomes of the Intact and Sherzai cases indicate otherwise.

Click here to open the full case.


[1] This analysis applies equally to accidents involving leased vehicles. The question can also be "who is the leasor?"

[2] Financial Services Commission of Ontario, Bulletin No. A-05/06, "Changes Respecting Vicarious Liability, and Elimination of Designated Assessment Centres under Bill 164 Statutory Accident Benefits Schedule".

[3] Highway Traffic Act, R.S.O. 1990, c. H.3, as amended, s. 192(3)

[4] 2013 ONSC 2371 (CanLII) ("Intact")

[5] Intact, at paras. 1, 5, 6 and 8

[6] See also: Nguyet v. King and Hertz Canada, 2010 ONSC 5506 (CanLII) para. 30

[7] Intact, at para. 18

[8] 2014 ONSC 4792, Court File No.: 2392/10, August 20, 2014 (unreported) ("Sherzai"). The author was counsel of record for the Board.

[9] Sherzai, para 34.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Patricia J. Forte
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