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 COVERAGE

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.

Footnotes

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, https://www.blaney.com/files/20156_SMoore_‐_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

To view the full report please click here.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions