Graham (Litigation Guardian of) v Lemay

The Plaintiff was seriously injured when the vehicle in which she was a passenger was struck by a leased vehicle. The leased vehicle was one of a number of vehicles the beneficial ownership of which had been transferred to Chrysler Canada Inc. (“Chrysler”) by Daimler Financial Services Canada Inc. (“Daimler”) pursuant to an Agreement between them. This Agreement was structured to allow Chrysler to claim certain tax benefits. The Agreement also provided that Daimler retained legal title of the vehicles, would be the registered lessor as trustee and nominee for Chrysler, and would administer the leases. The Plaintiff commenced an action against various parties including Chrysler and Daimler. The Plaintiff, Chrysler, and Daimler all moved for summary judgment. The motions judge held the following: Chrysler was an owner of the vehicle within the meaning of section 192(2) of the Highway Traffic Act; both Chrysler and Daimler were lessors of the vehicle and entitled to the liability cap provided by section 267.12(1) of the Insurance Act; the driver was not an unnamed insured under Daimler’s excess insurance policy; and there was no issue requiring trial with respect to the Plaintiff’s claim for negligent entrustment against Chrysler and Daimler. The Plaintiff and Chrysler appealed.

On appeal, the Court held that the language of section 192(2) of the Highway Traffic Act spoke to “owner” and did not reflect any distinction between non-registered and registered owners nor did it impose any dominion and control requirements. The Court found that in this case, Chrysler admitted that it was a non-registered owner of the vehicle and its Agreement with Daimler explicitly stated that it was the beneficial owner. In addition, its conduct was consistent with that admission in that it had claimed significant tax deductions in its capacity as owner. As such, the Court held that the motion judge did not err in concluding that Chrysler was an owner under section 192(2) of the Highway Traffic Act.

With respect to the designation of Chrysler and Daimler as lessors of the vehicle, the Court held that the legislative intent of section 267.12(1) of the Insurance Act was to reduce insurance costs and the costs of doing business for automobile leasing and rental companies. The Court also found that section 267.12 of the Insurance Act contemplated multiple lessors. In this particular case, the purpose of the Agreement between Chrysler and Daimler was to divide legal title and beneficial ownership of the vehicles. The parties intended that Chrysler would have the benefit of the debt assigned, Daimler would act as agent to administer the leases, and the transfer was made for good consideration. There was nothing that would cause one to conclude that a beneficial owner of a vehicle could not be considered a lessor. Consequently, the Court held that Chrysler was a lessor within the meaning of the subsection and therefore, was entitled to the cap on liability.

The Plaintiff argued that the Court should reconsider Xu v Mitsui Sumitomo Insurance Company in order to allow the Defendant, Mr. Mario Pietrantonio, the driver of the leased vehicle, to be considered an unnamed insured under Daimler’s excess insurance policy. In Xu, McEwen J., did not permit an unnamed insured access to the lessor’s excess coverage. The Court in this case found that McEwen J. correctly concluded that permitting a lessee to access a lessor’s insurance, as an unnamed insured, would undermine the animating purpose of that provision. Consequently, the Defendant was not found to be an unnamed insured under Daimler’s policy.

Finally, the Court held that the Plaintiff’s claim for negligent entrustment was properly dismissed by the motions judge. The Court noted that while there had not been a definitive statement on the existence of the tort by the Supreme Court of Canada, the Court could address the issue on appeal without deciding that such a tort existed. The Court held that the motions judge was correct in finding that Daimler did not owe a duty of care to the Plaintiff. Finding a duty of care in the present case would have led to the conclusion that the lessor had an obligation to inquire into who would be driving the vehicle, which was unreasonable.

Ultimately, the Court dismissed the appeal and the cross-appeal.

What the Insurer Should Know

An owner of a vehicle need not be a registered owner of the vehicle. A known lessee of a vehicle is not an unnamed insured for the purposes of allowing the plaintiff access to a lessor’s excess insurance coverage.

Mitch Kitagawa	Jennifer Therrien