By Alex Reyes and Karina Dziuba
Since the onset of the COVID-19 pandemic, consumer demand for delivery services has soared. Many businesses – such as restaurants and grocery stores – rely on delivery drivers to use their own personal vehicles to carry out deliveries for compensation. Many drivers, however, may be unaware that there may be no insurance coverage from their personal auto insurers for accidents that occur while making such deliveries.
The recent case of Euler v. Economical Insurance, 2021 ONSC 3018 is instructive. In Euler, the insured was involved in a motor vehicle accident in 2017 while using his personal vehicle to deliver pizzas. At the time of the accident, his personal vehicle was insured with Economical. In the application for insurance, the insured indicated that the vehicle would be used for “pleasure” and not for business. Under the policy, the insured was required to promptly notify the insurer of any changes in the “risk material to the contract” (Statutory Condition 1(1), “Material Change In Risk”) or to “a change in the way the automobile is used” (s. 1.4., “Your Responsibilities”). At no time before the accident did the insured advise Economical that he had been using the vehicle to deliver pizzas. Following the accident, the insured’s vehicle was deemed a total loss. He therefore cancelled the policy effective one day after the accident and was refunded the unearned portion of the premium (i.e., the premium amount for the remainder of the policy period). In 2018, after cancelling the policy, the insured advised Economical that at the time of loss he had been using the vehicle to make a delivery. When he subsequently obtained a new policy from Economical for another vehicle, he provided a guarantee that he no longer worked as a delivery driver.
In 2019, the insured was sued in relation to the accident. Economical denied coverage to the insured for the action on the basis that he had breached the policy by failing to disclose on his application for insurance and at any point during the duration of the policy that he used his vehicle for business purposes, namely, delivering pizzas. The insured subsequently brought an application against Economical to determine coverage under the policy.
The Court ultimately agreed with Economical. The application’s judge, Justice Shaw, held that the insured’s use of the vehicle to deliver pizzas was a material change in risk within the insured’s knowledge and that the non-disclosure of the change to Economical was a breach of the policy. The Court noted that a change is “material” if it can be established that a reasonable insurer, if properly informed of the fact, would have acted differently by refusing to accept the risk or by imposing special conditions. The uncontradicted evidence from Economical was that fast food delivery did not qualify for coverage under Economical’s underwriting criteria.
The insured attempted to argue, relying on older case law, that Economical waived its right to deny coverage by treating the policy as valid and subsisting, by failing to rescind the policy, ab initio, and by failing to refund the premiums that it had received dating back to when the insured began using his vehicle to deliver pizzas. However, the Court noted that the principle stated in the previous cases, namely, that an insurer, having discovered a material change, must void its policy and return the premiums in order to deny coverage for a claim, is no longer good law since the Court of Appeal’s decision in Merino v. ING Insurance Company of Canada, 2019 ONCA 326. In Merino, the Court held that rescinding a policy ab initio for misrepresentation was not available for automobile insurance, but that an insurer may terminate the contract by providing proper notice to the insured. However, as also noted in Merino, if the insurer does not take that step (which it did not in this case) and an accident occurs, s. 233(1) of the Insurance Act (which deals with certain insurance coverage being forfeited for, among other things, a misrepresentation in the application for insurance or breach of the policy by the insured) will nevertheless govern the rights as between the insurer and the insured and s. 258 of the Insurance Act gives the injured third party the direct right to sue the at-fault driver’s insurer up to the minimum limits of $200,000.
This case is a reminder that failure to disclose to an insurer a business use of a personal vehicle, such as making food or grocery deliveries for compensation, may be a material change in risk that may impact an insured’s entitlement to coverage under a policy. As such, drivers who intend to use their personal vehicles for deliveries for compensation (or for other commercial purposes, such as ridesharing) would be well advised to confirm whether the businesses for which they are doing their deliveries (or providing their other driving-related services for) maintain commercial auto insurance on their behalf and, in any event, to contact their broker or personal auto insurance provider to notify them of their business use.
Alex Reyes is a member of the Licence Appeal Tribunal (LAT), Coverage, Special Investigations, Examination Under Oath (EUO) and Workplace Safety Insurance and Appeals practice groups, and is the author of this blog. If you have a question about this decision or a similar file, please contact Alex at 416.777.2050