This afternoon, the Court of Appeal released its decision in Avis Rent-A-Car System Inc. v. Certas Direct Insurance Company. The ruling is an important one for car rental companies and their insurers.
The Court held that a renter of a car who had expressly declined to purchase liability coverage over and above the Ontario statutory minimum of $200,000, was nevertheless an insured under the leasing company’s various policies. The renter/driver was entitled to indemnity for the $3 million paid to settle a claim arising from his negligence in operating the leased vehicle.
The ruling went on to say that the leasing company (Avis) and its insurers could not seek contribution from the renter/driver for any part of the $3 million liability settlement.
So, the renter in this case paid for coverage of $200,000 but received coverage of about $26 million.
The renter/driver had his own policy with Certas Insurance, with limits of $1 million, and the litigation arose out of efforts by Avis and its insurers to obtain contribution from Certas to the $3 million settlement which they had funded.
The Court’s decision turned on three sections of the Insurance Act.
The first was s. 239. It provides that an owner’s policy insures every person who, with the consent of the named insured, drives an automobile owned by that insured.
Section 244 permits a person who is an unnamed insured by virtue of s. 239, to recover indemnity under the owner’s policy “in the same manner and to the same extent as if named therein as the insured, and for that purpose shall be deemed to be a party to the contract and to have given consideration therefor.”
Finally, s. 277 of the Insurance Act provides that a contract evidenced by a valid owner’s policy, as defined in the Act, is first loss insurance.
In this case, Avis’ commercial umbrella liability insurer, Illinois National Insurance Company, had limits of $25 million. That policy also contained an endorsement which was aimed at preventing anyone other than Avis and its employees from being insured under the contract. It said: “no person or organization other than the Named Insured shall be an insured under this policy unless acting within the scope of employment with, or as agent of, the Named insured regardless of the fact that the automobile is operated with the permission of the Named Insured unless that person or organization is added as an insured or additional insured by specific endorsement to the policy”.
However, the Court of Appeal found that this endorsement was inoperative in the face of the combined effect of ss. 239 and 244 of the Insurance Act, which deemed the renter/driver to be a party to the Illinois National contract of insurance and entitled to indemnity under that contract.
Because s. 277 made the Avis insurers “first loss” and because the $3 million settlement was well within the total Avis coverage of $26 million, neither the renter/driver nor his own insurer, Certas, was required to contribute anything to the settlement.
Avis, which paid the first $1 million of the settlement itself, asked the court for “equitable subrogation” from Certas, pointing out that the renter had paid for only $200,000 in coverage but had caused an accident that had required Avis to pay $1 million. Avis argued that the renter/driver had therefore been unjustly enriched by $800,000.
The Court rejected this argument too. It pointed to the provision in s. 244 of the Act, whereby the driver was “deemed” to have given consideration for the contract of insurance and so, it held, could not be considered to have been unjustly enriched.