Last week, the Court of Appeal released an important decision for rental car companies and their insurers.
Section 277(1.1) of the Insurance Act contains a priority scheme for accidents involving rented or leased vehicles. The provision states as follows:
(1.1) Despite subsection (1), if an automobile is leased, the following rules apply to determine the order in which the third party liability provisions of any available motor vehicle liability policies shall respond in respect of liability arising from or occurring in connection with the ownership or, directly or indirectly, with the use or operation of the automobile on or after the day this subsection comes into force:
- Firstly, insurance available under a contract evidenced by a motor vehicle liability policy under which the lessee of the automobile is entitled to indemnity as an insured named in the contract.
- Secondly, insurance available under a contract evidenced by a motor vehicle liability policy under which the driver of the automobile is entitled to indemnity, either as an insured named in the contract, as the spouse of an insured named in the contract who resides with that insured or as a driver named in the contract, is excess to the insurance referred to in paragraph 1.
- Thirdly, insurance available under a contract evidenced by a motor vehicle liability policy under which the owner of the automobile is entitled to indemnity as an insured named in the contract is excess to the insurance referred to in paragraphs 1 and 2. 2005, c. 31, Sched. 12, s. 6 (1).
In Enterprise Rent-A-Car v. Intact Insurance Company, 2019 ONCA 916, the Court of Appeal confirmed that the priority scheme does not create insurance coverage where none is available. The operation of section 277(1.1) depends on insurance being available under an insurance contract.
Perets was involved in an accident while driving a rental car owned by Enterprise. At the time, she was living with her parents and was a listed driver on an automobile policy issued to her father by Intact. She was not a named insured on the Intact policy.
Perets was sued as a result of the accident. There was a dispute as to whether Enterprise’s insurer or Intact was the first loss insurer in terms of defending Perets.
In order to determine this issue, the Court of Appeal agreed with the lower court decisions that the first step is to determine whether Perets was covered under the Intact policy.
Perets was not covered because under section 2.2.4 of the Ontario Automobile Policy, liability coverage for rented or leased vehicles is only provided to the named insured and the spouse of the named insured. Perets was only a listed driver on the Intact policy.
Since Perets did not have coverage under the Intact policy, the priority rules were not relevant. Enterprise’s insurer is responsible to provide coverage to Perets.
The situation would have been different if the Intact policy contained an optional OPCF 27 endorsement. This endorsement covers listed drivers who drive, rent, or lease other vehicles.
This decision demonstrates that, regardless of whether a driver is listed on a policy, insurance needs to be available to that driver in order to engage the priority rules in section 277(1.1) of the Insurance Act.