BILL 18

Bill 18, which came into force Mar. 1, 2006, reformed the law with respect to the liability of those who own rental and leased vehicles and those who lease or rent them. Unfortunately, Bill 18 could not reform the law in this area all by itself. Significant amendments to a number of standard form auto policies and endorsements were required before the Bill could accomplish all that its drafters had intended. These amendments were issued in two batches — one in 2006 and one in 2007 — with the final set coming into effect at the beginning of this year.

Creation of lessee and renter’s liability

Prior to Mar. 1, 2006, anyone who leased or rented an automobile (lessees) was not vicariously liable for the negligent operation of that automobile. As of Mar. 1, 2006, lessees do have such liability. The liability of the owner, lessee and operator is joint and several vis–vis the plaintiff. This means that when a vehicle is rented or leased, the lessee can now expect to be sued.

Property damage claims

Bill 18 places a cap on the liability of the owner and reorders the priority of insurance coverages amongst owners, lessees and operators for bodily injury and death claims.

These changes were not intended to apply to property damage claims. Therefore, if a rented tractor trailer destroys a bridge, the tractor trailer owner’s liability is unlimited and its insurers are the primary insurers in respect of the loss.

A close reading of the new OAP 1 (Standard Owners’ Policy), OAP 4 (Garage Policy) and OPCF 5C (Permission to Rent for Short Term Rentals) indicates they purport to re-order the priority of policies for both bodily injury and property damage claims. The superintendent may approve policies and endorsements that do not comply with the provisions of Part VI of the Insurance Act. However, the courts have indicated that such an intention will not be presumed. The superintendent must provide some indication that he intended to alter the law. It is my belief no such intention can be gleaned from the bulletins promulgating the new policies and endorsements.

If the provisions of Bill 18 apply, then the owner’s policies will provide primary coverage for property damage claims. If the priority rules in the policies and endorsements apply, then the lessee’s policies will be primary, the operator’s will be next in line and the owner’s will provide excess coverage only. This inconsistency between the legislation and the policies will likely lead to litigation.

The scheme for bodily injury claims is a little complicated. In most cases, the vicarious liability of the owner of a leased or rented vehicle is capped at $1 million. However, this liability is reduced by any insurance available to the lessee or operator. If that other insurance equals or exceeds $1 million, then the owner’s liability is reduced to zero.

Bodily injury claims

Additionally, the priority of coverages has been altered for bodily injury claims. For bodily injury claims, Bill 18 makes the lessee’s policy primary, the operators secondary and the owner’s excess.

These changes do not apply to taxis, limousines or livery vehicles. Additionally, this figure can be altered by a regulation (there are none) or if another law requires a higher level of insurance. For example, the Public Vehicles Act requires a bus which carries 13 or more passengers to carry $8 million of coverage in respect of the passenger hazard.

These changes only apply to the vicarious liability of the owner. If the owner itself has been negligent (for example, if it rented a car with defective brakes), then its liability remains unlimited.

When Bill 18 came into force, the major problem was that it reduced the liability of car rental and leasing companies, but it did not reduce the liability of their insurers. This was due to the fact that the standard SPF 7 (Excess Auto Policy) provides coverage to the driver of the rented or leased vehicle. Since the operator’s liability is unlimited, the insurer of the leased or rented vehicle (and the operator) was potentially liable to pay out its entire limits.

New and renewal SPF 7s (Excess) issued on or after Jan. 1, 2008, can be endorsed with the new OEF 110 endorsement. This endorsement is intended to limit the coverage under the SPF 7 to the leasing or rental company only. The operator is generally not entitled to any coverage under this endorsement. It has taken 22 months for the promise of Bill 18 to actually manifest.

Unless an insurer is proactive, this endorsement will not take effect until the renewal of the leasing or car rental company’s policy in 2008. I would recommend placing this endorsement on all such policies immediately. Of course, to do so will require the consent of the insured.

Those who rent vehicles and do not own their own automobiles probably cannot access more than $1 million of coverage, which is the coverage the car rental coverage is obliged to provide the renter. The renter cannot purchase additional liability coverage from the car rental company and I am not aware of any insurer that sells drivers’ policies. Hopefully, some method will be found to make additional coverage available to those who rent vehicles as $1 million is not enough in the event of a serious bodily injury claim.

Non-owned coverage

Non-owned coverage will be much more important under Bill 18. Since any policy that covers the renter or operator is primary to that of the owner for bodily injury claims (and possibly property damage claims as well), the standard SPF 6 will be called upon to respond much more frequently than it did when the owner’s policy was primary. Clearly, insurers need to be much more careful in underwriting SPF 6 coverage. There is evidence that underwriting practices are changing. For example, this year Blaney McMurtry was required to provide information to its CGL carrier regarding the amount spent on rental cars and the number of times partners and employees used their own vehicles for work. Any insurer which has not reviewed their underwriting practices with respect to SPF 6 coverage should do so immediately.

Additional observations

It has taken some 22 months for Bill 18 to effectively limit the exposure of car rental companies, car leasing companies and their insurers to $1 million for most bodily claims. Unfortunately, there are still issues with respect to the drafting of certain provisions in the Bill and with respect to the interpretation of the new policies and endorsements which will take years to resolve. The most egregious is the uncertain situation with respect to the priority of policies for property damage claims.

There is an incentive for both plaintiff and defence counsel to attack this legislation and the new policies in an effort to gain access to the deep pockets of car rental and leasing companies and their insurers. I anticipate it will take several years to sort out just how effective the government’s efforts have been in limiting the liability of car leasing and rental companies.

Additionally, I anticipate the plaintiffs’ bar will be more assiduous in trying to determine whether there is an employer which might be vicariously exposed for the negligence of its employee who has rented a vehicle. This suggests the SPF 6 will be called upon to respond much more often than it has been in the past.

The foregoing is only an abbreviated description of the workings of Bill 18. It is far from a complete analysis of the legislation and the new policies and endorsements that have been issued by the superintendent. Hopefully, however, it has provided you with an overview for when you are assessing claims involving leased or rented vehicles.

Stephen Moore is a partner with the Toronto law firm Blaney McMurtry LLP. He specializes in commercial automobile regulatory issues and the defence of personal injury motor vehicle claims.