1. Bill 18 and Other Recent Automobile Issues ORIMS Professional Development Day Maurice Audet Aon Reed Stenhouse Inc. April 2008

2. 2 Bill 18 and Other Recent Automobile Issues ISSUES FOR DISCUSSION Bill 18 Adequate limits Authorized to operate a motor vehicle What constitutes use or operation of a motor vehicle

3. 3 Bill 18 and Other Recent Automobile Issues The Law Pre Bill 18 For long term leases – lessees insurance was primary. Lessor, as owner of the vehicle, was vicariously liable for damages arising out of the use of the automobile. May Brown v Primus Automotive Financial Services, out of court settlement $13,000,000 of which $10,000,000 paid by leasing company’s insurer. Cause of accident – drunk driver.

4. 4 Bill 18 and Other Recent Automobile Issues The Law continued Morrison v Greig (Ont. 2007) judgment of the Ontario Superior Court of Justice. Two passengers with crippling injuries – $24,000,000 judgment. Most of the award paid for by insurers for Ford Credit, the leasing company. Transportaction Lease Systems v Yeung (litigation guardian) Supreme Court of Canada (2007). The Supreme Court ruled that the leasing company was vicariously liable for the injuries caused by the lessor’s negligence. Award – $5,800,000. Marcoccia v Ford Credit (Ont. 2008) jury award of $17,000,000 for crippling injuries (24 hour care required for rest of life) from an intersection collision.

5. 5 Bill 18 and Other Recent Automobile Issues Bill 18 Proclaimed March 1, 2006 The liability of leasing companies for vicarious liability for bodily injury claim is limited to $1,000,000, less any amount recovered from lessor’s insurer. This cap on the leasing company’s liability applies to both long term and short term leases except where lessor is negligent. Lessee is usually liable under contract. Lessee is now vicariously liable for injury or damage arising out of the use of the leased vehicle just as he would be if he was the owner of the leased vehicle. Both long term leases and daily rentals are treated as leased vehicles.

6. 6 Bill 18 and Other Recent Automobile Issues Similar Legislation Bill 35 in British Columbia enacted in 2007 Federal law in the United States 2005

7. 7 Bill 18 and Other Recent Automobile Issues Impact on Lessee For long term leases, for corporations, very little difference. Most corporations purchase adequate liability limits. Insurers may have tried to involve leasing company’s insurance through application of other insurance clauses. That is no longer possible. For individuals with long term leases, their own insurance is primary. Adequacy of limits becomes problematic. Coverage purchased by leasing company can no longer be accessed to cover large awards.

8. 8 Bill 18 and Other Recent Automobile Issues Impact continued On short term rentals, the lessee’s vicarious liability is now to be covered by automobile policy – OAP 1 & OPCF 27. For corporations, who is the lessee? If vehicle is rented by an employee, the employee is the lessee. What coverage applies? If vehicle is rented by the corporation, how is the employee and the corporation covered? Coverage applies only to vehicles whose gross vehicle weight does not exceed 4,500 kilograms.

9. 9 Bill 18 and Other Recent Automobile Issues Insurance Priority a)The lessee’s automobile insurance is primary. -If the corporation is the lessee and the corporation has purchased an OAP 1 it would appear that that policy is primary. --If the employee is the lessee and the employee has purchased an OAP 1, the employee’s insurance is primary. --Include OPCF 27. b) The driver’s insurance, if the driver is not the lessee, is secondary. –If the amounts recovered under a) and b) is equal to or are greater than $1,000,000 the lessor has no liability –Non-owned auto is being made excess.

10. 10 Bill 18 and Other Recent Automobile Issues Vicarious Liability Under Bill 18, the lessee assumes the responsibility of the owner with respects to vicarious liability arising out of the use or operation of the leased or rented vehicle. If Smith rents a vehicle and allows Jones to drive the vehicle, Smith is vicariously liable at law for any injuries or damage caused by Jones.

11. 11 Bill 18 and Other Recent Automobile Issues Smith & Jones Prior to Jan. 1, 2007 Smith may have had no coverage for liability arising out of Jones’ activities. Effective Jan. 1, 2007 coverage is provided under OAP 1 and OPCF 27 –Liability for Damage to Non-owned Automobile(s), and Other Coverages When Insured Persons Drive, Rent or Lease Other Automobiles. –… we will provide the Liability, Accident Benefits, Uninsured Automobile and Direct Compensation-Property Damage coverage described in your policy when the insured persons drive other automobiles. … We will also provide Liability coverage to insured persons who rent or lease automobiles for periods of not more than 30 days, but only with respect to the liability of the insured person for the negligence of drivers of the rented or leased automobile.

12. 12 Bill 18 and Other Recent Automobile Issues Corporations Non-owned coverage should continue to protect the corporation as it has in the past except where the short term rental is in the name of the corporation. The corporation’s automobile policy may be primary in this case. Primary coverage for employees will be provided by their own automobile policy, or where the employee is an insured under a corporate fleet policy, under the fleet policy. (Where the employee is covered under both a fleet policy and has his own OAP 1 ?) Corporate non-owned policy will be excess only.

13. 13 Bill 18 and Other Recent Automobile Issues Non-owned as Excess OEF 95B –Reduction of Coverage for Lessees or Drivers of Leased Vehicles Endorsement –Non-owned coverage becomes excess of lessees’ and/or drivers’ automobile insurance Though employee is an insured under corporate non- owned policy for liability arising out of short term rentals, employee’s insurance is primary.

14. 14 Bill 18 and Other Recent Automobile Issues Insurance Priority? Where does non-owned automobile fit into the mix? Non-owned automobile policy will be excess to coverage purchased by employee and excess of any coverage otherwise available to driver.

15. 15 Bill 18 and Other Recent Automobile Issues Lessons Learned Everyone needs to rethink what qualifies as adequate liability limits. Employees who believe that employer’s non-owned automobile policy will provide primary protection when renting a car for business will be surprised. Think twice before letting someone else drive. The primary risk is yours. Also, are others authorized by law to drive? If driver is an excluded driver there is no coverage. However, excluded drivers are not the only “unauthorized” drivers that can void coverage.

16. 16 Bill 18 and Other Recent Automobile Issues Adequate Limits In Ontario juries have awarded several large awards –$24,000,000 for injuries to two passengers. –$17,000,000 for injuries to one person. –$13,000,000 for injuries to a young child. –$12,500,000 medical malpractice –$11,000,000 medical malpractice Ontario Court of Appeal has upheld awards exceeding $11,000,000 for injuries to one person. In Florida, crippling injuries were assessed at $40,000,000 What limits should a corporation consider? What limits should individuals be advised to purchase?

17. 17 Bill 18 and Other Recent Automobile Issues Authorized By Law Statutory Condition # 4 –The insured shall not drive or operate or permit any other person to drive or operate the automobile unless the insured or other person is authorized by law to drive or operate it.

18. 18 Bill 18 and Other Recent Automobile Issues Not Authorized? In Miller v Carluccio, (Ont. 2007) Pat Carluccio inadvertantly did not renew his drivers license. Following an accident, at which time he discovered his license had expired, Carluccio’s insurer denied coverage based on Statutory Condition No. 4. The court ruled that Carluccio was not authorized to drive so he was not covered by the insurance policy. The vehicle was owned by his employer. Was his employer covered? The court said no.

19. 19 Bill 18 and Other Recent Automobile Issues Employer’s Obligations The court ruled that the employer was obliged to take reasonable steps to confirm that the drivers of its automobiles were licensed or otherwise authorized to drive. Carluccio Construction had done nothing to confirm that its drivers were licensed nor that they continued to be licensed. Therefore, the employer was also uninsured.

20. 20 Bill 18 and Other Recent Automobile Issues Owner’s Obligation The same as that of the employer in Carluccio. Allowing an unlicensed person to drive if no reasonable steps are taken to confirm that driver is licensed will result in no coverage. What qualifies as reasonable is undefined. Doing nothing is not considered reasonable.

21. 21 Bill 18 and Other Recent Automobile Issues Use and Operation? In Derkson the Supreme Court of Canada ruled that an accident caused both by the use of an automobile and improper site cleanup was not excluded by the automobile exclusion in a standard IBC CGL policy. IBC changed the wording to conform with what the Supreme Court stated was language that would be exclusive.

22. 22 Bill 18 and Other Recent Automobile Issues Acceptable Exclusion According to the Supreme Court of Canada insurance companies have developed adequate language in other instances. Accordingly: –Similar exclusion clauses have used language such as “caused directly or indirectly”. Or “caused by, resulting from, contributed to or aggravated by”

23. 23 Bill 18 and Other Recent Automobile Issues Why Is This An Issue? Djepic v Kuburovic; Belair Direct et al (2006) –While helping his brother in law load a mattress onto his mini van Djepic lost an eye when a bungee chord being attached by Kuburovic let go. The auto insurer denied coverage on the basis that the accident did not arise out of the use and operation of the motor vehicle and the home owner’s insurer denied coverage because it arose out of the use and operation of a motor vehicle. *Kuburovic did not have an automobile insurance policy of his own. Would it have mattered?

24. 24 Bill 18 and Other Recent Automobile Issues Use and Operation Was Kuburovic an insured under Djepic’s policy? Under the Insurance Act of Ontario coverage is provided to: –Every person who with the named person’s consent drives, or is an occupant of, an automobile owned by the named insured

25. 25 Bill 18 and Other Recent Automobile Issues Occupant Under the Act, occupant means: (a)the driver, (b)a passenger whether being carried in or on the automobile, (c)a person getting into or on or getting out of or off the automobile; Since Kuburovic was not a driver, a passenger or a person getting onto or off of Djepic’s van, … Kuburovic was not an occupant…

26. 26 Bill 18 and Other Recent Automobile Issues Home Owners Policy Excluded from coverage were “claims made against you arising from: the ownership, use or operation of any motorized vehicle. The Ontario Court of Appeal noted that the words “directly or indirectly” were not used, as such the exclusion did not apply. IBC has added the words “directly or indirectly” to the automobile exclusion in CGL policies.

27. 27 Bill 18 and Other Recent Automobile Issues Scope of Auto Policy In Djepic, attaching a bungee chord to another persons automobile did not result in coverage under the automobile owner’s policy. In Axa v Dominion of Canada, attaching a bungee chord to one’s own boat trailer resulted in coverage under own auto policy. In Citadel v Vytlingham the Supreme Court of Canada ruled that injuries caused by throwing rocks from an overpass onto passing automobiles, rocks transported by car, did not arise from use or operation of motor vehicle.

28. 28 Bill 18 and Other Recent Automobile Issues Scope continued In Lumbermens Mutual v Herbison, shooting hunting partner while shooting into area illuminated by car headlights was not an accident arising out of the use or operation of a motor vehicle. What about an accident arising out of helping load another person’s truck, or an accident arising from acting as a flagman? In one U S case, mining company had no coverage under CGL for damages arising out of accident involving allegations that it had improperly loaded a customers truck. In a second case, the court ruled that an accident caused in part by a flagman was not covered by the automobile policy. Where would coverage be found? – CGL? Owned auto policy? Non-owned?

29. 29 Bill 18 and Other Recent Automobile Issues Future IBC wordings are being reconsidered with the goal being to clarify intent and to plug possible gaps in coverage.

30. 30 Bill 18 and Other Recent Automobile Issues In Summary Our personal automobile insurance policies will be playing a large role in claims involving daily rentals. Insurance limits should be closely reviewed, not only for corporations but also for individuals. Be aware of when your license is to expire. Do not simply assume that employees are licensed. Confirm that they are licensed and do spot checks on MVR’s. Be diligent before letting anyone drive your vehicles. What qualifies as use of an automobile can be murky. Placing automobile risk with same insurer as CGL does improve the odds.

31. Questions?