Case Summary: Tokio Marine & Nichido Insurance Company v. Security National Insurance Company

• Published date: 23 December 2020
• Subject Matter: Insurance, Insurance Laws and Products
• Law Firm: Field LLP
• Author: Mr Brian Vail, QC

The Alberta Court of Appeal has interpreted and applied Alberta's legislation, which sets out the priorities of various insurers who may be involved in a leased/rented vehicle situation.

Tokio Marine & Nichido Insurance Company v. Security National Insurance Company, 2020 ABCA 402, per Fraser, Wakeling and Crighton, JJ.A.]

Facts + Issues

This case involves the interpretation and application of s. 7.1(2) Alberta's Miscellaneous Provisions Regulation Alta. Reg. 120/2001, s. 2 (the "Regulation") in determining the priority of various auto insurers involved in potentially rental/leased vehicle situation.

At Gill's request, Sran drove McGill's Acura to the Northwest Acura dealership for servicing. Northwest Acura (owned by 724053 Alberta Ltd. (the "Dealership")) provided Sran with a courtesy car at no cost pursuant to a loaner agreement (the "Courtesy Care Agreement") for less than 30 days. Sran returned the vehicle within the 30 day period. Section 3.4 of the Loaner Agreement stated that the "Dealer agrees that (a) subject to availability, each Customer shall be offered free use of a Courtesy Car for the period during which the Customer's Acura automobile is with the Dealer for servicing" [emphasis added by the Court].

Honda Finance Canada Inc. ("Honda Finance") was the owner of the courtesy car, but neither Honda Finance nor the Dealership were in the business of renting vehicles to the public. Honda Finance leased the vehicle to Honda Canada Inc. ("Honda Canada"), who in turn lent the vehicle to the Dealership.

Honda Finance was insured by the Appellant Tokio Marine & Nichido Insurance Company, whose policy covered the courtesy car. Security National Insurance Company insured Gill pursuant to an Alberta Standard Automobile Policy (S.P.F. No. 1). Sran was not a named insured, additional insured, or spouse under Gill's policy. However, S.P.F. No. 1 does provide coverage for every person who drives Gill's "automobile" with his consent, and the term "automobile" includes a Temporary Substitute Automobile.

Sran collided with a skateboarder while driving the courtesy car on June 4, 2016. The skateboarder sued Sran, Honda Canada Finance Inc. and 724053 Alberta Ltd. The facts did not suggest that the skateboarder's claim exceeded the limits under either of the Tokio Marine or Security National policies.

Tokio Marine and Security National could not agree on who was the first-loss insurer in the circumstances. Tokio Marine brought an Originating Application seeking a declaration that Security National was the first loss insurer. Tokio Marine's position was that although its policy provided coverage here, so did Security National's policy:

1. The courtesy car was covered by both Tokio Marine and Security National because it was a Temporary Substitute Automobile under Security National's policy.
2. Security National's policy was the first loss policy in the circumstances under the Regulation, specifically on the basis that Sran was an "unnamed insured" under Security National's policy according to s. 7.2(2)(b)(ii)(D) thereof.

The issues involved were:

1. Whether or not the Security National S.P.F. No. 1 policy covered the courtesy car as a Temporary Substitute Automobile while being driven by Sran
   1. The Master held that both policies covered the courtesy car as driven by Sran.
   2. On appeal to a justice of the Court of Queen's Bench, the Court held that Sran was not covered by the Temporary Substitute Automobile provisions of the Security National policy because "Mr. Gill cannot authorize Ms. Sran to operate a vehicle in which he has no interest under terms that he does not know".
2. Whether or not the "priority flip" under s. 7.1(2) of the Regulation applied to displace the default priority provision in s. 596(1) of the Insurance Act
   1. The Master held that s. 7.1(2) of the Regulation did not apply to the courtesy car to displace the default priority rule under s 596(1) of the Insurance Act because it was not a "leased" or "rented" vehicle
      1. The Dealership had not "leased" or "rented" the courtesy car to Sran; it had lent the vehicle to Sran at no charge.
      2. The Dealership was not in the business of leasing or renting vehicles to the public.
   2. This was upheld on appeal to a justice.

Tokio Marine appealed.

HELD: For Security National; Tokio Marine held to be first loss insurer.

The Court held that "the owner of an automobile is vicariously liable for the negligence of those who drive the owner's automobile with the owner's consent" ('13).

The Court unanimously confirmed that where more than one auto insurer is involved in a motor vehicle claim, those insurers' relative priority is determined by what is now the Insurance Act, RSA 2000, c., I-3, s. 596. The Court outlined the history of how the current version of that section came to be, as follows:

1. Section 596(1) (like Ontario's s. 277(1) of the Ontario Insurance Act, RSO 1990, c. I.8) sets out the general statutory rule that the owner's policy relating to the vehicle in questions is the first loss insurer as against all other applicable policies.
2. Vehicle leasing and rental companies successfully lobbied Alberta (and Ontario) and persuaded these governments that this placed an unfairly onerous burden on rental and leasing companies (and their insurers) where the accident is caused by the negligence of the rentees and lessees (and their insurers). Accordingly, effective 1 March 2011, these governments amended their legislation in two ways.
3. First, a liability cap was enacted for vicarious liability of the rental/leasing companies to $1,000,000.00 in most cases (Traffic Safety Act, RSA 2000, c. T-6, s. 187 (4); Ontario Insurance Act, s. 267.12(3))
4. Second, s. 596(4) was added to s. 596 (like Ontario's s. 277(1.1.)) to allow the government (by regulation) to alter the general priority rule set out in s. 596(1) (analogous to s. 277(1) in Ontario). In Alberta, the Regulation, s. 7.1 was declared to create a "priority flip" where a rental/leased vehicle is involved such that the rental/leasing company's insurer is no longer the first loss insurer in these situations.

The Court was unanimous in concluding that, assuming that Gill's owner's policy (SPF No 1) issued by Security National covered Sran as the driver of the courtesy car, the "priority flip" did not apply to displace the s. 596(1) general rule that the owner's policy issued to the courtesy car's owner (Honda Finance) by Tokio Marine policy was first loss insurer.

Chief Justice Fraser described how the "priority flip" operates and four general principals relating to the legislative scheme:

186 Those rankings alter the general statutory rule in s 596(1) of the Insurance Act, RSA 2000, c. I-3 [Insurance Act] that the owner's insurance (owner in this context being the owner of the car in the accident, Honda Finance) is first loss insurance and any other insurance policy is excess. The Miscellaneous Regulation provides, in certain circumstances, for what is commonly described as a "priority flip". In particular, s 7.1(2) of the Miscellaneous Regulation provides that where the vehicle involved in the accident is leased or rented, this priority ranking is flipped. Insurance indemnifying a non-owner (i.e., a lessee or rentee or driver of the leased or rented vehicle) is first loss payable and the insurance of the owner (i.e., lessor or renter) is excess insurance.

...

227 Four points about this legislative scheme should be noted.

228 First, the difference between a lessor and lessee on the one hand and renter and rentee on the other lies in the length of time that the person has the use of the leased or rented vehicle. Up to and including 30 days, the relationship is renter and rentee. More than 30 days and the relationship is lessor and lessee.

229 Second, it is evident from the wording of s 7(2)(b)(i) and (ii) of the Miscellaneous Regulation that the driver of the vehicle subject to...