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Liability of Vehicle Owners: The Ontario Superior Court of Justice's Decision in Case v. Coseco Insurance Co.

David Elmaleh
David Elmaleh
Partner

November 10, 2011

by David Elmaleh
Presented at McCague Borlack LLP's Transportation Law Practice Group Seminar

Introduction

On June 29, 2011, the Ontario Superior Court rendered a decision in the case of Case v. Coseco Insurance Co.1 this case reviewed an array of issues, including the law regarding the vicarious liability of a motor vehicle owner for loss or damages sustained when the vehicle was in the possession of another person. The Court also delved into the oft-analyzed issue of consent; specifically, whether an owner of a vehicle can be found vicariously liable for giving consent to have possession of the vehicle, even though it expressly prohibits the other person from operating the vehicle.

The Facts

This decision arose from a motion by the defendant, Coseco Insurance Company, for summary judgment dismissing two actions arising from injuries sustained in a motor vehicle accident when the plaintiff's vehicle was struck by a school bus which allegedly ran a red light.

In the first action, the plaintiff named Ms. Punch (the driver/operator of the bus), Mr. McCluskey (the owner of the bus/employer of Ms. Punch), and Coseco Insurance (the plaintiff's insurer) as defendants. There was no evidence in dispute as to the fact that the driver was an employee of McCluskey, or that McCluskey owned the vehicle. However, McCluskey denied liability on the basis that the driver was operating the vehicle without its consent; for the same reasons, McCluskey's insurer denied coverage.

The police report records the collision as having occurred at 10:00 p.m. on a Friday night, which was well after the driver's shift ended. The evidence established that the driver's work consisted of three bus routes per day, between the hours of 7:30 a.m., and 4:00 p.m. Furthermore, there was no challenge to the evidence that the employer explicitly prohibited its drivers from operating their vehicles after-hours without authorization. However, the employees were permitted to travel to and from work using their assigned bus.

In the second action, the plaintiffs sought indemnity from Coseco pursuant to the uninsured and underinsured provisions of the plaintiffs' policy with Coseco. The plaintiffs' logic was that if the owner of the vehicle was not obligated to provide coverage, then the plaintiffs' own insurer should indemnify the plaintiffs pursuant to the uninsured and underinsured provisions of their policy.

Coseco sought summary judgment dismissing both actions.

The Law and its Application

a. Definition of chauffeur pursuant to the Highway Traffic Act

Under section 192 of the Highway Traffic Act,2 an owner of a motor vehicle is liable for loss that results from the negligent operation of its vehicle, unless the vehicle was in the possession of another person without the consent of the owner. More specifically, section 192(1) and (2) provide as follows:

Liability for loss or damage

192.  (1) The driver of a motor vehicle or street car is liable for loss or damage sustained by any person by reason of negligence in the operation of the motor vehicle or street car on a highway. 2005, c. 31, Sched. 10, s. 2.

Same (2) The owner of a motor vehicle or street car is liable for loss or damage sustained by any person by reason of negligence in the operation of the motor vehicle or street car on a highway, unless the motor vehicle or street car was without the owner's consent in the possession of some person other than the owner or the owner's chauffeur. 2005, c. 31, Sched. 10, s. 2.

The Court embarked on the exercise of determining whether the driver was legally classified as a “chauffeur”. Paragraphs 20 and 21 of Justice Mullin's ruling are informative in this regard and provided below for ease of reference:

20 Section 192(2) of the Highway Traffic Act addresses liability of the owner of a motor vehicle for damages sustained as a result of negligence in the operation of the vehicle. The owner is liable, unless the vehicle was without the owner's consent in the possession of some other person other than the owner or the owner's chauffeur [emphasis added].

21 Section 1 of the Highway Traffic Act defines chauffeur to be a person who operates a motor vehicle and receives compensation therefore.

In determining that the driver was indeed a chauffeur pursuant to the Highway Traffic Act, the Court relied on the Court of Appeal's reasoning in Clayton v. Reiter Transportation3, a case involving the operator of a tractor trailer involved in a collision outside working hours, and ruled that the driver was a chauffeur within the meaning of the Highway Traffic Act as at the time Punch was operating McCluskey's bus. As a result, the Court noted that McCluskey ought to be liable for the negligence in the operation of the motor vehicle and its insurance policy could be invoked to indemnify it.

b. Did the owner consent to the driver's possession of the motor vehicle?

The Court next sought to determine if McCluskey was liable as an owner by an alternative mode; namely, if an owner can attract liability because the vehicle was in the driver's possession with the owner's consent within the meaning of section 192(2)?

While the section states in clear terms the manner in which an owner will be found liable for damages caused by another person operating the vehicle, the interpretation of what actually constitutes consent is a subject that is more difficult to define with precision.

Mullins J. cited a number of authorities, and ultimately relied on the Ontario Court of Appeal decision in Finlayson v. GMAC,4 which drew a distinction between possession and operation:

32 The Court of Appeal determined that GMAC, having consented to the driver's possession of the vehicle by operation of the lease, was vicariously liable under section 192(1), regardless of the express prohibition from operation. The vicarious liability of the owner of a motor vehicle under the section is based on possession, not operation of the vehicle. The decision of Thompson v. Bourchier, [1933] O.R. 525 (C.A.) was cited as an articulation of the policy underlying the vicarious liability of the owner for the operation of his vehicle, which is that the owner of the vehicle has the obligation to protect the public by managing the risk of the vehicle's operation. [emphasis added]

Regarding the consent issue, in Finlayson, the Court of Appeal ultimately concluded that an owner who gives the driver possession and control of a vehicle cannot escape liability under the Highway Traffic Act by prohibiting the driver from operating the vehicle.

Applying Finlayson to the matter at hand, the Court concluded that McCluskey was unable to contract out of its statutory liability for negligence in the operation of its vehicle by the driver, as the driver was in possession of the vehicle with the owner's consent. Consequently, the owner of the vehicle was found to be vicariously liable for the driver's negligence in its operation, if any, under section 192(1) of the Highway Traffic Act. Flowing from the finding of liability, the owner's insurer had a responsibility to indemnify the defendant, and therefore, Coseco, the plaintiff's insurer, had the actions dismissed against it, for there was no longer a premise that the at-fault party was uninsured or underinsured.

Food for thought: What are the implications of this decision?

The Court's reasons in Case v. Coseco Insurance Co. provide two mechanisms for imposing liability on an employer or owner of a motor vehicle due to the negligence of an employee or operator. Interestingly, the ruling reproduced a citation of an appellate case from the 1930s that first articulated the public policy reason underlying the vicarious liability of a motor vehicle owner.

...it was clear company policy that a driver was not permitted to drive after-hours for any other purpose without the express authorization of the employer...

The decision of Thompson v. Bourchier5 was cited [in Finlayson v. GMAC, supra] “as an articulation of the policy underlying the vicarious liability of the owner for the operation of his vehicle, which is that the owner of the vehicle has the obligation to protect the public by managing the risk of the vehicle's operation6 .” But should an owner who explicitly prohibits a driver from operating the vehicle still be held liable merely because he consented that the driver can have possession of the car?

While the owner did permit his employees to travel to and from work using their assigned bus, it was clear company policy that a driver was not permitted to drive after-hours for any other purpose without the express authorization of the employer. In reaching its verdict, the Court was clearly conveying the important role motor vehicle owners play in society and their obligations to manage the risk of their vehicles' operation. The lesson for employers, vehicle owners, and insurers alike is that to avoid liability for the negligent act of another person driving a vehicle, do not consent to possession by that driver, as prohibiting the operation of said vehicles for certain times of uses is not enough to absolve owners from vicarious liability.

It is also noteworthy, that the factual matrix of this case involved defendants who had an employer/employee relationship. There is a question as to whether this decision would apply to a different set of facts outside of the employment relationship; although the Finlayson v. GMAC decision cited above involved a leased vehicle outside the employment context. Presumably, the public policy concerns of protecting the public by managing the risk of the vehicle's operation would be applicable in a multitude of different factual scenarios.

To summarize, this ruling is significant, as it clarifies the ambit by which an owner of a motor vehicle will be liable for the acts of its drivers. The ruling reiterates the distinction between operation and possession, and states that liability attaches to motor vehicle owners for the actions of a chauffeur as defined by Section 1 of the Highway Traffic Act. Alternatively, motor vehicle owners will be liable if they consent to give possession of the vehicle to the driver, as owners cannot escape liability under the Highway Traffic Act even by expressly prohibiting the operation of the vehicle for certain uses.


1 [2011] O.J. No. 3233, 2011 ONSC 2499, 106 O.R. (3d) 472

2 R.S.O. 1990, Chapter H.8

3 [1948] O.R. 897 (C.A.)

4 (2007) 86 O.R. (3d) 481 (C.A.)

5 [1933] O.R. 525 (C.A.)

6 Case v. Coseco Insurance Co., supra note 1 at 32.


 

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