"Loaner" cars are not rental cars

This case concerns the priority as between insurers.

At issue was whether a car loaned to the customer of a car dealership while his vehicle was being repaired was a "loaner" or a rental car.  If it was a rental car, the customer's insurer would be the primary insurer responsible for the loss.

The insurer of the car dealership was found to be the primary insurer with respect to collision damages. There was no written agreement between the car dealership and its customer pertaining to the use of the vehicle and no real terms of use for the vehicle.

Coachman Insurance Co. v. Lombard General Insurance Co. of Canada, [2011] O.J. No. 1236, March 23, 2011, Ontario Superior Court of Justice, M.J. Quigley J.

George Jenkins was insured under a standard policy of automobile insurance issued by Coachman Insurance Company ("Coachman"). Jenkins purchased a vehicle from Edwards Mazda which required warranty work to be performed by Edwards Mazda. In the interim, Edwards Mazda provided Jenkins with a loaner vehicle for a few days while the work was carried out. Jenkins was involved in an accident the following day. Lombard General Insurance Company ("Lombard") insured the loaner vehicle. At issue on this application was which insurer was the primary insurer with respect to the accident.

The Court noted that s. 277 of the Insurance Act provided that an owner's policy which insured a vehicle involved in an accident was primary. However, amendments to s. 277 of the Act provided that where a vehicle is leased and coverage is otherwise available to the lessee, the lessee's policy is primary. Section 277(4) of the Act defined a lessee as "a person who is leasing or renting the automobile for any period of time". The Act did not provide any definition of the words "rent" or "renting".

The issue of whether a loaner vehicle constitutes a "rental" was canvassed in the 2002 case of ING Halifax v. Guardian Insurance Co. of Canada (no cite provided). In that case, the Court held that a loaner vehicle provided by a commercial garage in the course of its business constituted a rental. In the ING case, there was a written agreement setting out the terms including: the length of the rental; the customer was responsible for fuel; $500 insurance deductible in the case of an accident; the customer was responsible for any physical damage to the vehicle; permission to drive was limited to the city limits and to the person who signed the agreement; and that the person was also responsible for any parking and speeding violations. However, in the case at bar, the Court found that there was no written agreement and that both parties understood that the repairs to Jenkins' vehicle were to be completed on the same day that the collision occurred. Given the informal basis of the provision of the loaner vehicle, the Court found that it would be "a stretch" to describe Jenkins' possession of the vehicle as anything other than an discretionary loaner by Edwards Mazda. All the factual indices of the arrangement between the parties suggested to the Court that it was the loan of the vehicle rather than a rental. In the result, Lombard was found to be the primary insurer.

This case was digested by Jonathan D. Meadows and edited by David W. Pilley of Harper Grey LLP.

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