Michelle E. Grose
Counsel for the Respondent, Security National Insurance Company

In the matter of Tokio Marine & Nichido Insurance Co Ltd v Security National Insurance Company, 2020 ABCA 402, the Alberta Court of Appeal dismissed the appeal of Tokio Marine seeking to overturn the  declaration that Tokio Marine was the first-loss insurer.

Mr. Gill required his vehicle to be serviced at the dealership Northwest Acura, and consented to have Ms. Sran take his vehicle to the dealer and acquire a courtesy car. Ms. Sran did so and while driving the courtesy car, she hit a skateboarder, causing injuries. Tokio Marine insured the owner of the courtesy car; Security National was Mr. Gill’s automotive insurer. 

The Court discussed the history of vicarious liability against rental and leasing companies and the statutory reform. Those statutes were under consideration to determine who would be the first-loss insurer. In short, rental and leasing companies used to be first-loss insurers when their customers injured a third party. Two key changes were made in Alberta: (1) a priority flip was introduced and (2) a $1,000,000 cap for vicarious liability would apply against renters or lessors. Tokio Marine sought to apply the priority flip so that Security National would be the first-loss insurer.

Justice Wakeling provided there were three potential outcomes, two of which denied the priority flip and one that was not possible. Justice Wakeling stated there was no reason to consider whether the courtesy car was a ‘Temporary Substitute Automobile’.

Option A was that the priority flip provision was only for entities that ‘in the ordinary course of business’ rented or leased vehicles. The facts of this case did not present that situation. Northwest Acura was in the business of sales and service of vehicles. Additionally, Ms. Sran and Mr. Gill were not renters or lessors, the courtesy car was provided at no cost.
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Option B relaxed the interpretation to allow the priority flip provision to extend to other businesses. If that were true, it was still the case that the car was a courtesy car provided at no cost. The courtesy car was not leased or rented from the owner to the driver. The priority flip would still be inapplicable.

Option C was that the car qualified as a ‘leased vehicle’ because Honda Finance had leased it to Honda Canada before loaning it to Northwest Acura and then loaned to Ms. Sran. Justice Wakeling could not reconcile the logic behind that, stating it would provide non-rental or non-leasing businesses to advance their interests by taking advantage of the priority flip.

Chief Justice Fraser provided a full decision that came to the same result: no priority flip. Chief Justice Fraser broke the appeal into two issues: (1) was the courtesy car a ‘Temporary Substitute Automobile’ and (2) did the priority flip provisions apply?

In considering (1), Chief Justice Fraser provided that the courtesy car “falls squarely within the term ‘automobile’” (para 196). Security National argued Mr. Gill was not capable of giving Ms. Sran consent to operate the courtesy car as a non-party to the loaner agreement, but it was determined that he could and did provide consent. This was because Mr. Gill gave Ms. Sran specific permission to take his vehicle to the dealer and obtain the courtesy car. With this determination, Security National would owe Ms. Sran coverage if necessary.

For (2), Chief Justice Fraser had to interpret the priority flip provisions. Chief Justice Fraser used the Traffic Safety Act definitions of ‘lessor’ and ‘renter’, both of which included the term ‘in the ordinary course of business’. Chief Justice Fraser found that Tokio Marine’s argument that the priority flip applied due to the lease between Honda Finance and Honda Canada was “an acontextual, literal interpretation” that could not be sustained (para 234). Chief Justice Fraser stated that the priority flip would only apply if an ‘End User’ was the renter or lessor. This would be consistent with: (i) the purpose of decreasing liability of rental or leasing companies, (ii) textual interpretation principles, (iii) disallowing other businesses to structure vehicle ownership to take advantage of the flip, (iv) definitions which include ‘in the ordinary course of business’, and (v) the provision itself already contemplating multi-lease scenarios.

Justice Fraser then applied the facts of the matter to two questions: (a) did Ms. Sran rent or lease the courtesy car from Honda Canada and (b) Did Ms. Sran obtain consent to drive the courtesy car from an agent of Honda Canada. The answer to both were no. If the dealership wished to rent or lease the vehicle to Ms. Sran, they would need a valid rental or lease agreement. It was indicated that this could be possible as the provisions seem to leave room for an extension past the rental or lease context.

Michelle E. Grose
Counsel for the Appellant, the Alberta Motor Association Insurance Company

In the recent case of Cardinal v. Alberta Motor Association Insurance Company, Ms. Cardinal sued the AMA Insurance Company for SEF44 benefits after she was injured as a passenger in a single vehicle collision.  The AMA Insurance Company denied the claim on the basis that while Ms. Cardinal was an insured under the policy, she was not entitled to indemnity on the basis that she was a passenger in a vehicle being driven without the consent of the owner.   The owner of the vehicle, was not named in the underlying tort action, but he swore an Affidavit confirming the vehicle was being driven without his consent on the night of the accident (having been stolen off his driveway sometime during the night).  Initially, the AMA Insurance Company applied for, and was granted, summary judgment dismissing the claim against them.  On appeal to the Court of Queen’s Bench, the lower court decision was overturned by Justice Lee who held that there was ambiguity in the meaning of the auto policy – specifically as to whether the plaintiff/passenger’s knowledge about the vehicle being stolen was required before the claim could be denied.   The AMA Insurance Company appealed this decision to the Albert Court of Appeal.

On February 21, 2018, the Alberta Court of Appeal, in Cardinal v. Alberta Motor Association Insurance Company, 2018 ABCA 69, overturned the Queen’s Bench and confirmed that if an Insured is an occupant of a vehicle being driven without the consent of the owner, then there is no coverage under the Auto Policy or the SEF44 endorsement.  Ms. Cardinal had argued at the Court of Queen’s Bench that her knowledge regarding whether the vehicle was driven without the consent of the owner was relevant under the SEF44 and Auto Policy.  She conceded in the application that the vehicle was in fact being driven without consent.
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The Court of Appeal, in a unanimous judgment, held that the exclusion relating to the consent of the owner was not ambiguous and that the plain reading of the provision confirmed that there was no coverage when the vehicle was being driven without consent.  Further, the Court noted that “it is normal for insurance policies to contain exclusions and the fact that some claims are thereby removed from coverage does not, in itself, give rise to unfairness.  If claims by persons without knowledge are to be covered, the remedy lies with the legislature, not with the courts.”   They therefore held that that exclusion was clear and unambiguous and that the Plaintiff’s claim against the AMA Insurance Company was summarily dismissed.

​Leave to appeal to SCC was denied.
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Michelle E. Grose
Counsel for the Appellant, the Alberta Motor Association Insurance Company