Canada: Priority Among Insurers In An Alberta Rental/Leased Vehicle Claim: Six Circles Of Hell

Last Updated: June 11 2018
Article by Brian Vail, QC

It is not uncommon for the driver of a rented or leased vehicle to become involved in an accident and liable to claims with respect thereto. Other potential defendants include the rental/leasing company or the driver's employer if the driver was in the course of his employer's business at the time of the accident. It is possible that the rental/leasing company and the driver's employer can be directly liable, e.g. if they had instructed the driver to drive in a negligent fashion or where the rental/leasing company had not maintained the vehicle in a reasonable state of repair. However, in most cases the exposure of the rental/leasing company and the driver's employer will be in vicarious liability.

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. Thus, such accidents give rise to an issue as to how the various insurance policies must respond. What is the priority ranking of these insurers?

Until 2011, determining the priority of insurers in Alberta was relatively simple. The rental/leasing company's owner's policy was the first loss insurer, responsible to indemnify up to the policy limits and thereafter any other insurers provided excess coverage to be shared ratably1.

All of that changed in 2011 when the Alberta Legislature promulgated legislation to specify a different regime of priorities regarding rental/leased vehicles2. Other provinces also enacted legislation to change the priorities among insurers in rental/leased vehicle situations3. Unfortunately, Alberta's legislation is fairly detailed and specific. Unlike that of other provinces, Alberta has chosen to enact a priority scheme that is of Byzantine complexity. Determining the priority of the various exposed insurers in a rental/leased vehicle case is no easy task. One must first identify all of the policies of all of the players that provide coverage to the rental/leasing company, the driver and other coverage such as NOA coverage carried by the driver's employer or principal. Then one must consider which of six possible layers of coverage any of these insurers falls into, based primarily upon who, as a question of law was the rentee/lessee (the driver or his/her employer or principal) and what kind of "insured" the driver is within the meaning of the legislation under any of these policies.

One can readily see how there can now be much room for disagreement and debate as to the respective priorities of the various exposed insurers in any given situation. An insurer who is ultimately found not to have lived up to its priority ranking will be liable to those insurers who did.

The purpose of this paper is to review and describe the process by which insurer priority is to be determined in any given rental/leased vehicle situation. First, I will review NOA coverage in Alberta, as that is not as straightforward as coverage under auto owner's policies. Then I will review the overall scheme of the Alberta legislation. Finally, I will outline how that legislation operates to determine where the exposed insurers ends up in terms of a priority ranking.


Non‐owned auto policies ("NOA policies") are addressed in Alberta insurance legislation. Section 560 of the Insurance Act4 recognizes the concept of the NOA policy as being designed to provide coverage to claims against parties who may be vicariously or directly liable with respect to the actions of individual drivers under their control (such as employees, directors, officers and partners). A Named Insured may be vicariously liable for the vehicular negligence of such a driver who is acting in the course of the Named Insured's business5. Additionally, a Named Insured may have some direct liability 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 entrustment6.

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. The general coverage clause of the SPF No. 6 falls within the concept of non‐owned auto coverage within the meaning of the Insurance Act, s. 560. 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 Insured7, as opposed to all parties insured under the policy.

However, it is important to note that General Provision 1 of the SPF No. 6 extends coverage under the policy 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 [emphasis added].

The extension of coverage to "Additional Insureds" per General Provision applies in two situations8:

  1. 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.
  2. 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. A driver need not be acting in the course of the Named Insured's business with respect to situation 2.

For both situations, if the "partner, officer or employee" lends the vehicle to someone else who is not a "partner, officer or employee" of the Named Insured, the extension of coverage to "Additional Insureds" does not apply to that third party9.

The SPF No. 6 contains an exclusion with respect to 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" [emphasis added]. Again, the reference to "the Insured" in Exclusion (a) is a reference only to the Named Insured10, as opposed to all parties insured under the policy. This Exclusion does not purport to exclude coverage to Additional insureds.

The SPF No. 6 does not purport to throw the individual driver who is a named Insured "under the bus" in rental/ leased vehicle situations, for a couple of reasons:

  1. Those individuals would likely have coverage for the accident elsewhere (such as under the rental/leasing company owners policy or their own owners policies), whereas the Named Insured which is a business organization may not have any other coverage.
  2. In addition, Exclusion (a) can be deleted by Endorsement 97.

Coverage under the SPF No. 6 is also excluded:

  1. Where liability is assumed under contract (Exclusion (c)). For example, 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 claims11.
    1. This does not exclude liability that exists apart from the rental/lease agreement that is assumed under contract (e.g. personal claims by a third party)12.
    2. Exclusion (c) can be wholly or partly deleted by Endorsement SEF 96.
  2. With respect to damage to property carried in or on the vehicle and property owned, rented or in the care/custody/control of any person insured under the SPF No. 6 (Exclusion (d)).

The SPF No. 6 can be modified by various government‐approved endorsements:

  1. SEF 90: Limitation to Operation of Automobile by Partners, Officers and Employees Endorsement. This restricts the SPF No. 6 coverage for partners, officers or employees so as to apply only to a vehicle which is personally driven by classes of specified employees set out in the Application for insurance.
  2. SEF 91: Limitation to Operation of Automobiles by Named Persons Endorsement. This restricts SPF No.6 coverage for partners, officers or employees to apply only to vehicles personally driven by specified employees set out in the Endorsement.
  3. SEF 92: Limitation to Hired Automobiles and Automobiles Operated Under Contract Endorsement. This restricts SPF No. 6 coverage to the use or operation of "hired automobiles" (defined under General Provision No. 3) and "automobiles operated under Contract" (defined under General Provision 4).
  4. SEF 93: Limitation to Automobile Owned by Named Insured Endorsement. This restricts SPF No. 6 coverage to automobiles owned by or licensed in the name of a specific person, firm or Corporation listed in the Endorsement.
  5. SEF 94: Legal Liability for Damage to Hired Automobiles Endorsement. This provides coverage for all perils, collision or upset, comprehensive and specified perils for hired automobiles only.
  6. SEF 95: Limitation to Business Conducted at Specified Locations Endorsement. This restricts SPF No. 6 coverage for use or operation of vehicle s arising from the business of the Named Insured conducted at locations listed in the Endorsement.
  7. SEF 96: Contractual Liability Endorsement. This limits the Application of Exclusion (c) of the SPF No. 6 (which excludes coverage for liability assumed under Contract) so as not to apply to exceptions listed in the Endorsement.
  8. SEF 97: Operation by Individual Named Insured Endorsement. This deletes Exclusion (a) (relating to liability arising from vehicles personally operated by the Insured) only with respect to the use of the vehicle in the Insured's business listed in the application for insurance. It can also delete Exclusion 1 of any applicable SEF 94 Endorsement (which excludes coverage for liability from vehicles personally driven by the insured) only with respect of vehicles listed in the business of the Named Insured as listed in the application for insurance.
  9. SEF 98: Excluding Automobiles Personally Driven by Named Insured Person (s) Endorsement. This restricts SPF No. 6 coverage with respect to persons listed in the Endorsement while personally driving the vehicle.
  10. SEF99: Excluding Long term Leased Vehicle Endorsement. This changes the definition of "Hired Automobiles" in General Condition 3 with respect to some long term Lease Agreements.


1 What is now s. 596(1) – (3) of the Insurance Act, R.S.A. 2000, c. I‐3.

2 Insurance Act, R.S.A. 2000, c. I‐3, s. 596(4) and The Miscellaneous Insurance Provisions Regulation, Alta. Reg 120/2011, s. 7.1

3 e.g., Ontario Insurance Act, R.S.O. 1990, c. I.8, s. 277

4 R.S.A. 2000, c. I‐3

5 S. R. Moore, The Standard Non‐Owned Automobile Policy‐ SPF NO. 6, 19 April 2016, Blaney McMurtry LLP,‐_SPF_6_Paper.pdf , ("Moore"), at page 2.

6 Moore, page 3

7 Moore page 9

8 Moore, page 6

9 Moore, page

10 Moore page 9

11 Moore, page 9

12 Moore, page 9

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