The Ontario Court of Appeal recently held in Siena-Foods Limited v. Old Republic Insurance, 2012 ONCA 583, that a lessor's automobile insurance policy may provide coverage for damage to a lessee's property.
Siena-foods Limited ("Siena") rented a truck from Ryder Canada ("Ryder") to transport a food-packaging machine. The truck was involved in a head-on collision and the food-packaging machine was damaged. Siena sought compensation from Ryder's insurer, Old Republic, for recovery for the damaged machine.
The motions judge held that Siena was not entitled to recovery for three reasons: first, liability coverage excluded damage to Siena's property; second, Siena was not entitled to recovery pursuant to the rental agreement; and third, any entitlement to recovery was terminated because Siena materially misrepresented its cargo.
The Court of Appeal overturned the motions judge's decision based on the following:
- Siena was "an insured" under the policy based on endorsement
Old Republic relied on s. 247 of the Act and s. 3.5.1 of the policy, which provided that the insurer would not be liable for damage to property incurred in an accident. However, the Court of Appeal concluded that these provisions only applied to damage sustained to a third party's property. Siena's claim did not fall under these provisions, as it was claiming for damages to its own property, not that of a third party.
Further, Siena was considered an insured under the policy due to an endorsement (OPCF 5) which clearly stated that the policy provided coverage to lessees. The Court noted that because s. 263 of the Act allowed insureds to apply to their own insurer for indemnity, Siena, as an "insured", could seek recovery directly from Old Republic.
- Rental agreement had no impact on Siena's recovery
The rental agreement between Siena and Ryder included liability protection that did not cover damage to Siena's property. However, Old Republic was not a party to this rental agreement, and the rental agreement was not part of the insurance policy between Ryder and Old Republic. Therefore, it had no impact on Siena's recovery.
coverage should be denied as Siena misrepresented its "cargo contents" |
- Misrepresentation by insured will not necessarily vitiate coverage
Old Republic argued that coverage should be denied as Siena misrepresented that its "cargo contents" were produce, rather than a food packaging machine.
The Court of Appeal held that even if Siena misrepresented its cargo contents, the misrepresentation could not affect its entitlement for two reasons. First, s. 263 of the Act specifies that under the direct compensation regime for property damage, the insured (Siena, in this instance) is treated as a third party. Therefore, Siena could recover from Old Republic, even though it was not a party to the insurance contract. Second, coverage under the policy could only be terminated in accordance with applicable legislation, and at the very least, with written notice. Siena's conduct alone was not sufficient to terminate coverage.
With the Siena-Foods decision, insurers should take note that courts are willing to extend coverage under a lessor's automobile insurance policy to a lessee. Further, courts are reluctant to find that misrepresentation should nullify entitlement to coverage. |
