The Court of Appeal for Ontario decision of Aviva Insurance Company v Wawanesa Mutual Insurance Company, 2019 ONCA 704 [Aviva v Wawanesa] was an appeal of an application decision of Justice Shaun Nakatsuru brought by Aviva to determine the priority of obligation to respond in tort in the case of a lessee of a rental truck involved in an accident.
The case arose out of a motor vehicle accident in which a rental truck, owned by rental company New Horizons aka Discount Car and Truck Rental, and insured through Aviva, was driven by one Mr. Mahamood to make furniture deliveries for a company called Fine Furnishings. Fine Furnishings was insured by Wawanesa. In the process of making his deliveries, Mr. Mahamood rear-ended one Mr. Liu. Mr. Liu sued Mr. Mahamood, New Horizons, and Fine Furnishings in a negligence claim.
Section 277(1.1)(1)-(3) of the Insurance Act provides the order in which overlapping liability coverage for rental vehicles involved in collisions will respond, namely:
- Any policy under which the lessee of the vehicle is entitled to indemnity;
- Any policy under which the driver of the vehicle is entitled to indemnity; and
- Any policy in which the owner of the automobile is entitled to indemnity.
To determine the first loss insurer in a rental vehicle collision, the lessee’s identity and entitlement to indemnity under a motor vehicle liability policy must be determined. In this case, Aviva submitted that Fine Furnishings was the lessee, whereas Wawanesa submitted that Mr. Mahamood was the lessee.
Aviva sought to resolve the dispute by bringing an application pursuant to Rules 14.05(3) and 38 of the Rules of Civil Procedure seeking a declaration that:
- Fine Furnishings was the lessee of the rental truck; and
- Mr. Mahamood was an employee of Fine Furnishings at the time of the collision.
The application judge found that Mr. Mahamood was the lessee of the rental truck, but deferred to the trial judge to determine whether Mr. Mahamood was an employee or independent contractor of Fine Furnishings. As Mr. Mahamood had no motor vehicle liability of his own, the application judge declared Aviva the first loss insurer as the owner’s insurer.
The application judge relied on the principle from Intact Insurance Company of Canada v. American Home Assurance Company of Canada, 2013 ONSC 2372 [Intact], wherein an employee was found to be the lessee, that the lessee’s identity can be determined by asking who the lessor can sue to enforce the car rental contract. The application judge determined that he did not need to go further than the two-page rental agreement. As Mr. Mahamood was the person who signed the agreement, he must therefore be the lessee.
The Court of Appeal held that the application judge erred in restricting himself to the face of the rental agreement, and by not considering basic agency principles such as whether Mr. Mahamood was acting as a personal representative or agent of Fine Furnishings in signing the agreement.
The parties cited in argument The Insurance Corporation of British Columbia v. Lloyds Underwriters, 2017 ONSC 670 [Lloyds], wherein an employer was found to be the lessee of a rental agreement signed by an employee, as a conflicting and irreconcilable decision with Intact. Aviva sought to rely on Lloyds, whereas Wawanesa sought to rely on Intact.
The Court of Appeal disagreed with the parties, finding that the decisions were in agreement on principle and distinguishable on their facts.
In Intact, the employee in question signed the rental agreement, and paid with a credit card in his own name that had been provided by the employer to be used for personal and business expenses, and the employer reimbursed the employee for the cost of the rental. The Court found that apart from the policy of reimbursement, there were no facts suggesting the employer had authorized the employee to contract with the particular rental company.
By contrast, in Lloyds the employee was required to rent the vehicle from the particular rental company to fulfill her employment obligations, the vehicle was rented and billed under the employer’s account with the rental company, the rental was paid for under a corporate credit card restricted to business use, and the rental agency was entitled to collect and did collect reimbursement from the employer for damage to the rental vehicle. In considering the identity principle from Intact, the Court held that the true counterparty to the rental agreement was the employer, with the employee acting as a mere authorized representative of same.
Justice Fairburn, writing for the panel also including Justices Feldman and Paciocco, therefore held that determining the identity of the lessee for the purposes of s. 277(1.1) of the Insurance Act may require courts to apply agency principles where the face of the agreement and the surrounding circumstances show that one of the signatories was signing on behalf of another person.
Applying the Intact principle to the facts of the case, the Court of Appeal noted that Fine Furnishings instructed Mr. Mahamood to rent vehicles from New Horizons to make deliveries, did not permit him to use the rental vehicles for other purposes, paid for fuel costs, and paid for the rental through a credit card on file with New Horizons. The Court also noted that Mr. Mahamood told New Horizons that he would be picking up the vehicle on behalf of New Horizons, and that the file number on the face of the agreement corresponded to the corporate account number assigned to Fine Furnishings by New Horizons.
The Court held that all of the above factors pointed toward the fact that Mr. Mahamood entered into the rental agreement as an authorized representative of Fine Furnishings. On this basis, the Court declared that Fine Furnishings was the lessee.
However, the Court declined to declare that Wawanesa was the priority insurer. The Court noted that there was a dispute as to the content of the policy, and that as the Court had not been provided with same, they were not in a position to determine the priority issue while the extent of coverage remained in dispute. Moreover, the application in dispute did not ask for a declaration that Wawanesa was the primary insurer.
Additionally, given the Court’s finding that Fine Furnishings was the lessee, it declined to comment on Mr. Mahamood’s employment status.
This case provides important clarification on the role of agency law in determining priority of coverage for tort in accidents involving rental vehicles. Where there is an agency relationship on the part of the signor, this relationship must be evaluated in determining the identity of the lessee for priority purposes. The Court of Appeal has made it clear that this is a fact-specific inquiry which takes into account the surrounding circumstances of the rental agreement and the relationship between the parties.