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.
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.