



COURT OF APPEAL FOR ONTARIO

CITATION: Aviva Insurance Company v. Wawanesa Mutual
    Insurance Company, 2019 ONCA 704

DATE: 20190910

DOCKET: C66043

Feldman, Paciocco and Fairburn JJ.A.

BETWEEN

Aviva Insurance Company

Applicant (Appellant)

and

Wawanesa Mutual Insurance Company

Respondent (Respondent)

and

Hy Kiet Liu

Intervenor

Dennis Ong and Christopher Scotchmer, for the appellant

Steven Carlstrom and Genevieve Durigon, for the respondent

Heard: May 15, 2019

On appeal from the order of Justice Shaun Nakatsuru of
    the Superior Court of Justice, dated October 1, 2018, with reasons reported at
    2018 ONSC 5778, 89 C.C.L.I. (5
th
) 332.

Fairburn J.A.:

A.

OVERVIEW

[1]

On October 29, 2010, Hy Kiet Liu was driving a car that was rear-ended
    by a rental truck driven by Maroof Shah Mahamood. The rental company was New
    Horizons Car and Truck Rentals/Discount Rent-a-Car (New Horizons). At the
    time of the accident, Mr. Mahamood was delivering furniture for a company named
    Fine Furnishings. Mr. Liu sued Mr. Mahamood, New Horizons, and Fine Furnishings
    in a negligence claim. The insurers for New Horizons and Fine Furnishings,
    Aviva and Wawanesa respectively, cannot agree upon their insurance obligations.

[2]

When a rental vehicle is involved in a collision and there is
    overlapping liability coverage, s. 277(1.1)(1)-(3) of the
Insurance Act
,
R.S.O. 1990, c. I.8, sets out the following order in which the policies
    will respond:

1.

any policy under
    which the 
lessee
of the automobile is entitled to indemnity (emphasis
    added);

2.

any policy under
    which the 
driver
of the automobile is entitled to indemnity (emphasis
    added); and

3.

any
    policy under which the 
owner
of the automobile is entitled to
    indemnity (emphasis added).

[3]

The purpose of s. 277(1.1) is to relieve the insurer of the owner of a
    rented vehicle from being the first loss insurer where other insurance is
    available to the renter or driver of the rented vehicle:
Enterprise
    Rent-a-Car Canada Limited v. Meloche Monnex Financial Services Inc.
,
2010
    ONCA 277, 102 O.R. (3d) 87, at para. 4. It results in a cascading priority
    effect in relation to insurance claims arising in the rental vehicle context.
    Insurance available to drivers operates in excess to insurance available to
    lessees. And insurance available to owners operates in excess to insurance available
    to lessees and drivers.

[4]

To determine who is the first loss insurer under s. 277(1.1), it is first
    necessary to determine the identity of the lessee and whether that lessee is
    entitled to indemnity under a motor vehicle liability policy. In this case, the
    parties cannot agree upon the identity of the lessee. Aviva says that Fine Furnishings
    was the lessee. Wawanesa says that Mr. Mahamood was the lessee.

[5]

Aviva sought to resolve this dispute by bringing an application pursuant
    to rr. 14.05(3) and 38 of the
Rules of Civil Procedure
, R.R.O. 1990,
    Reg. 194, effectively seeking two declarations:

a.

that Fine
    Furnishings was the lessee of the rental truck driven by Mr. Mahamood; and

b.

that at the time
    of the collision, Mr. Mahamood was acting as an employee of Fine Furnishings
    (as distinct from an independent contractor).

[6]

The application judge found that Mr. Mahamood was the lessee but left
    the determination as to whether Mr. Mahamood was an employee or an independent
    contractor for trial in the main action. Since Mr. Mahamood had no motor
    vehicle liability policy of his own, the application judge made an order
    declaring Aviva, as the owners insurer, the first loss insurer.

[7]

This is an appeal from that order. The appellant maintains that the
    application judge erred by failing to take into account all relevant
    circumstances when determining the identity of the lessee. Alternatively, the
    appellant submits that the application judge erred by declaring Aviva to be the
    first loss insurer after finding that Mr. Mahamood was the lessee. The
    appellant contends that Mr. Mahamood was acting as an employee of Fine
    Furnishings when he rented the truck, which the appellant says would have
    entitled him to indemnity under the Wawanesa policy.

[8]

For the reasons that follow, I would grant the appeal.

B.

BACKGROUND FACTS

[9]

Mr. Mahamood immigrated to Canada in 2000 as an international student.
    He remained in the country under a work permit after he graduated. Under that
    permit, he was only authorized to work for Fine Furnishings.

[10]

Mr.
    Mahamood began working for Fine Furnishings in 2009. While he initially worked in
    an administrative position, he later asked Mr. Rajiv Mehta, the owner of Fine
    Furnishings, whether he could take on additional responsibilities to increase
    his income. Mr. Mehta offered Mr. Mahamood a job delivering furniture for the
    company. He asked Mr. Mahamood to sign a subcontract agreement which set out the
    amount he would be paid for each delivery and required Mr. Mahamood to arrange
    his own insurance. Mr. Mahamood signed the agreement but maintains that he did
    not understand its terms. Mr. Mahamood has never worked for anyone other than
    Fine Furnishings.

[11]

Mr.
    Mahamood did not have his own vehicle or credit card. When delivering furniture
    for Fine Furnishings, Mr. Mahamood always obtained his rental trucks from New
    Horizons. This was because Fine Furnishings had a standing arrangement with New
    Horizons under which Fine Furnishings authorized New Horizons to charge the
    cost of vehicle rentals directly to a credit card on file. Without a credit
    card to obtain the rental trucks, Mr. Mahamood had no option but to obtain the vehicles
    from that location. Mr. Mahamood gave evidence that he was told that he could
    only use the rental trucks to make furniture deliveries for Fine Furnishings.

[12]

On
    October 29, 2010, Mr. Mahamood picked up a truck from New Horizons to complete his
    deliveries. Mr. Mahamood was the sole signatory to the New Horizons rental
    agreement. In the course of delivering furniture to Fine Furnishings customers,
    Mr. Mahamood rear-ended Mr. Lius vehicle.

C.

THE
APPLICATION JUDGES DECISION

[13]

Early
    in his reasons for decision, the application judge expressed the view that the
    identity of the first loss insurer would depend on the identity of the
    lessee. In approaching this issue, the application judge observed that the
Insurance
    Act
defines lessee as a person who is leasing or renting the automobile
    for any period of time: s. 277(4). For the application judge, this definition
    pointed toward the primacy of the contractual arrangement in determining the
    identity of the lessee. Accordingly, the application judge adopted the test
    set out in
Intact Insurance Company of Canada v. American Home Assurance
    Company of Canada
,
2013 ONSC 2372, 115 O.R. (3d) 708, at para. 18
    for determining who is the lessee under the
Insurance Act
:

Who is the lessee can be tested and determined
    by asking the following question:
Who
    can the lessor (Budget Car Rental) sue to enforce the car rental contract
?
[Emphasis added.]

[14]

The
    application judge acknowledged that there may be cases where it is appropriate
    to look beyond the four corners of the rental agreement to determine the
    identity of the lessee, especially if the contract is ambiguous in nature.
    However, he found that this was unnecessary in the case before him and held as
    follows:

In my opinion, I need not go further than
    the rental agreement in this case. Mr. Mahamood signed it. He rented the truck.
    He is the person New Horizons must sue to enforce the car rental contract. He
    is therefore the lessee. It does not matter why he was renting it or what he
    was going to use the truck for. It does not matter how the rental would be paid
    for and by whom.
The focus of the inquiry should be
    on the contractual arrangement made to rent or lease the vehicle. [Emphasis added.]

[15]

The
    application judge concluded that Mr. Mahamood was the lessee because there was
    nothing on the face of the two-page rental agreement that signalled Fine
    Furnishings involvement apart from its phone number, which Mr. Mahamood listed
    as his contact number. Instead, the rental agreement contained Mr. Mahamoods
    name, home address, and signature.

[16]

The
    application judge did not consider it necessary to resolve whether Mr. Mahamood
    was acting as an employee or an independent contractor at the time that he
    rented the vehicle. He decided not to do so because resolving these issues
    would require him to make specific findings of fact based on conflicting
    evidence; findings which raise credibility assessments. Although he concluded
    that the resolution of that issue may be germane to some issue at trial, he
    held that it was immaterial to determining the priority of insurance policies.

[17]

Ultimately,
    the application judge declared Aviva, as the insurer of the owner of the rental
    truck, the first loss insurer.

D.

ANALYSIS

(1)

Did the Application Judge Fail To Take All Relevant Circumstances into
    Account When Determining the Identity of the Lessee?

(a)

Overview

[18]

In my view, the application judge erred in determining the identity
    of the lessee by restricting himself to the face of the two-page rental
    agreement. By deciding that he had to go [no] further than the rental
    agreement in this case, the application judge failed to grapple with whether
    Mr. Mahamood was acting as an authorized representative, or agent, of Fine
    Furnishings when he signed that agreement. Taking agency principles into
    account, I conclude that Fine Furnishings was the lessee.

(b)

Intact
and
Lloyds

[19]

The
    parties rely on two decisions of the Superior Court that deal with how to
    determine the identity of a lessee for purposes of s. 277(1.1):
Intact
and
The Insurance Corporation of British Columbia v. Lloyds Underwriters
,
2017 ONSC 670, [2017] I.L.R. I-5949. The parties suggest that
Intact

and
Lloyds

stand in conflict with each other, unsusceptible
    to reconciliation. I do not agree. Considered against their factual backdrops,
    the principles from these cases are clear and support

the finding that
    Fine Furnishings was the lessee.

(i)

Intact

[20]

In
Intact
, an
employee was
    driving a rental vehicle for work-related purposes when he collided with
    another vehicle and injured its passenger. As in this case, the insurers for
    the employer and the employee disputed who was the lessee for the purposes of
    s. 277(1.1). The employee had signed the rental agreement and paid for the
    rental vehicle with a credit card provided to him by his employer. His employer
    ultimately reimbursed him for the cost. However, the credit card was in the
    employees name alone. He was also permitted to use the card for both business
    and personal expenses.

[21]

Perell J. rejected the argument that the employer was
    the

de facto
lessee of the rental vehicle. He saw no reason
    to introduce the concept of a 
de facto
 lessee into s. 277(1.1) and
    preferred a straightforward interpretation of the provision: at paras. 17-18.
    He reasoned that it was inadvisable to encourage factual and legal disputes over
    the identity of a lessee for the purposes of the
Insurance Act
. Ultimately,
    Perell J. found that the identity of the lessee could be determined by asking
    the following question: who can the lessor  sue to enforce the car rental
    contract?: at para. 18.

[22]

The
    answer was the employee. There was no need for Perell J. to go beyond the
    rental agreement to understand the identity of the contracting parties:
Intact
,
    at para. 18. Apart from its policy of reimbursing employees who rented vehicles
    for work-related purposes, there were no facts that suggested that the employer
    had authorized the employee to contract with the rental agency on its behalf.

(ii)

Lloyds

[23]

A
    similar dispute arose in
Lloyds
.
In resolving that dispute,
    Penny J. adopted the same test for determining the identity of a lessee as that
    set out in
Intact
:
Lloyds
,
at paras. 14-15. However,
    the facts before him required a more expansive approach, one that engaged
    principles of agency. As Penny J. determined at para. 17:


(i)

the employee was required to rent the car to fulfill
    her employment obligations;


(ii)

the employer kept an account with the rental
    agency;


(iii)

the employee was required by company policy to
    rent from that rental agency;


(iv)

the rental car was rented on the employers
    account;


(v)

the rental was paid for on a corporate credit
    card;


(vi)

the employee was not permitted to use the credit
    card for personal expenses;


(vii)

the credit card bill went directly to the
    employer; and


(viii)

the rental agency was entitled to collect, and
    did collect, from [the employer] reimbursement for the cost of repairing
    accident damage to the rented car.

[24]

In
    considering the
Intact

question  who can the lessor  sue to
    enforce the car rental contract  Penny J. looked for what he described as the
    true counterparty to the rental contract: at para. 15. In doing so, Penny J.
    looked beyond the four corners of the contract to factors that would indicate
    whether the employee was acting as an agent of her employer when she signed the
    rental agreement. Based on the facts before him, Penny J. concluded that the
    employee signed the agreement as a mere authorized representative of her
    employer:
Lloyds
,
at para. 18. The employer being the true counterparty
    to the agreement, Penny J. declared that the employers insurer was the first
    loss insurer.

(c)

The Test for Determining Who Is the Lessee

[25]

The
    appellant says that
Lloyds

was correctly decided and the
    application judge should have applied the reasoning from
Lloyds

to
    this case by looking beyond the actual rental agreement to determine the
    identity of the lessee.

[26]

The
    respondent counters that
Intact

was correctly decided and
    applied by the application judge when he refused to consider factors beyond the
    four corners of the rental contract in determining the identity of the lessee. In
    support of that argument, the respondent contends that car rental agreements
    are contracts of adhesion which should be interpreted without regard to the
    circumstances surrounding their formation, absent ambiguity:
Ledcor
    Construction Ltd. v. Northbridge Indemnity Insurance Co.
,
2016 SCC
    37, [2016] 2 S.C.R. 23, at paras. 27-32. The respondent maintains that there is
    no ambiguity on the face of the rental agreement in this case and that the
    application judge was right to focus upon who signed that agreement.

[27]

I
    do not agree with the parties that the judgments in
Intact

and
Lloyds

stand in conflict, one with the other. Although stated somewhat
    differently, at their core, both decisions correctly focus upon identifying the
    lessee by determining the identities of the actual contracting parties. Importantly,
    the parties to a contract are not always those who sign it. Determining the
    identity of the lessee for the purposes of s. 277(1.1) may require courts to
    apply agency principles where the face of the agreement and the surrounding circumstances
    show that one of the signatories was signing on behalf of another person. As
    G.H.L. Fridman explains in his text,
The Law of Contract in Canada
,
    6th ed (Toronto: Thomson Reuters, 2011) at p. 192:

Under the law of agency, a principal may contract with another
    party through an agent. In such circumstances,
even though the contract is
    negotiated between the agent and the third party (and may even be signed by the
    agent, not the principal), the contract which comes about is held to be between
    the principal and the third party, not the agent and the third party
.
    [Ordinarily,] the principal, on whose behalf the agent contracts, is the one
    entitled to take the benefit of the contract so negotiated, as well as being
    the one liable in the event of default. [Emphasis added.]

[28]

In
Intact
,
there was no indication that the employer had
    authorized the employee to contract with the rental agency on its behalf. Not
    so in
Lloyds
. In essence, the application judge in
Lloyds
concluded
    that the employer had given its employee authority to deal with the rental car
    company on its behalf:
Hav-A-Kar Leasing Ltd. v. Vekselshtein
, 2012
    ONCA 826, at para. 42. In those kinds of situations, ones raising relationships
    of agency, I agree with Penny J.s observation, at para. 18, that:

I do not think the fact that [the employee] signed the rental
    contract is necessarily evidence that she was the lessee. This is because
    corporations like [the employer] are legal fictions. While [the employer] could
    enter into a contract it could not sign a contract other than through an
authorized
    representative
. [The employee] was that authorized representative.
    [Emphasis added.]

[29]

Although
    the contracting parties will typically be identified by ascertaining the
    identities of the signatories to a rental agreement, in those situations where a
    relationship of agency is raised, like in
Lloyds
, it may be necessary
    to go beyond the four corners of a rental agreement to understand the
    identities of the actual contracting parties.

(d)

The Decision Below

[30]

In my view, it was an error of law to simply rely upon the face of
    the two-page rental agreement to determine the lessee status in this case. By
    doing so, the application judge failed to grapple with the fact that Mr.
    Mahamood was acting as Fine Furnishings agent when he rented the truck. Mr.
    Mehta impliedly authorized him to do so by telling him that he could rent a
    vehicle from New Horizons and have that vehicle billed to the credit card on
    file for Fine Furnishings. New Horizons was aware of this grant of authority
    and dealt with Mr. Mahamood on that basis.

[31]

Mr.
    Mahamoods evidence was that:

a.

Fine Furnishings
    instructed him to rent vehicles from New Horizons for the purposes of completing
    Fine Furnishings deliveries;

b.

Fine Furnishings
    did not permit him to use the rental vehicles for any purpose other than making
    deliveries to its customers;

c.

Fine Furnishings
    paid for the cost of fuelling the rental vehicles;

d.

Mr. Mahamood
    never paid New Horizons directly for the rental vehicles, as they were always billed
    to the credit card on file for Fine Furnishings; and

e.

when he called
    to reserve the rental vehicle for October 29, 2010, Mr. Mahamood told New
    Horizons that he would be picking it up on behalf of Fine Furnishings.

[32]

The
    evidence also shows that Mr. Mahamood entered into the rental agreement pursuant
    to a longstanding arrangement between Fine Furnishings and New Horizons. The
    car rental agency says that it was contracting with Fine Furnishings and not
    Mr. Mahamood, as evidenced by their decision not to enforce the contract
    against Mr. Mahamood.

[33]

Moreover,
    the Fine Furnishings phone number was the contact number on the face of the
    rental agreement. As well, the rental agreement contains an R.A. number that is
    the same number that appears on a document with the corporate account number
    assigned to Fine Furnishings. Under this account, New Horizons had recorded Fine
    Furnishings address and phone number, as well as a credit card number that
    belonged to the owner of Fine Furnishings, Mr. Mehta. Mr. Mehta acknowledges
    that he authorized New Horizons to keep [his] personal credit card on file for
    independent contractors to use in the event that they did not have their own credit
    card. He paid for car rentals from New Horizons with some regularity. And while
    Mr. Mehta maintains that he would always deduct the cost of the truck rental
    from the amount he paid Mr. Mahamood for the furniture deliveries, it is agreed
    that his credit card was billed for Mr. Mahamoods rentals.

[34]

These
    factors all point toward the fact that Mr. Mahamood entered into the rental
    agreement as an authorized representative of Fine Furnishings. On this basis, I
    conclude that Fine Furnishings was the lessee.

(2)

Did the Application Judge Err by Determining that Aviva Was the First
    Loss Insurer?

[35]

On
    appeal, Aviva also argued in the alternative that Wawanesa should have been
    declared the first loss insurer even if Mr. Mahamood was found to be the
    lessee. Aviva contends that Mr. Mahamood was acting as Fine Furnishings
    employee at the time of the accident, which Aviva says would have entitled him
    to indemnity under the Wawanesa policy. Wawanesa counters that Mr. Mahamood was
    an independent contractor at the time of the accident and, even if he was Fine
    Furnishings employee, the Wawanesa policy did not necessarily provide coverage
    relating to his alleged negligence. Importantly, we have not been provided with
    the Wawanesa policy.

[36]

Bearing
    in mind the credibility assessments that would be required to determine whether
    Mr. Mahamood was acting as an employee or an independent contractor at the time
    that the vehicle was leased, the application judge understandably declined to
    determine that factual issue and left it for determination on the main action. In
    light of my conclusion that Fine Furnishings was the lessee, it is unnecessary
    to determine Mr. Mahamoods employment status. I would simply say this: priority
    under s. 277(1.1) can only be determined after determining the identity of the
    lessee, driver and owner, and the sources of insurance available to each. In
    other words, priority depends upon whether there is a right to indemnity under
    the policy and who has that right to indemnity.

[37]

For
    that very reason, despite my finding that Fine Furnishings was the lessee, I
    would decline the appellants request to make a declaration that Wawanesa is
    the priority insurer. During oral submissions there was some dispute about the
    content of that policy and its reach. As we have not been provided with the
    Wawanesa policy, we are not in a position to determine the issue of priority,
    particularly where there remains some dispute about the extent of coverage.

[38]

I
    also note that the initial application did not ask for a declaration of
    priority. Rather, it asked for a declaration as to the identity of the lessee
    and a declaration as to whether Mr. Mahamood was acting as an employee or
    independent contractor at the time of the lease. As for the latter issue, I
    agree with the application judge that, if the issue remains important, it will
    have to be determined in the main action. Alternatively, the
    employee/independent contractor issue could be determined by way of trial of an
    issue if considered advisable and if all necessary parties agree to be bound by
    the result.

E.

CONCLUSION

[39]

I
    would allow the appeal and make a declaration that Fine Furnishings was the
    lessee.

[40]

On
    consent, I would vacate the costs order from below, except to the following extent.
    The costs made payable to Mr. Liu as the intervenor in the original action are
    not vacated. He did not appear in this court and we heard no submissions as to
    those costs. Accordingly, that costs order remains in place.

[41]

In
accordance
with their
    agreement, the respondent will pay the appellant $20,000 in costs for the
    appeal, inclusive of G.S.T. and disbursements.

Released: K.F. September 10,
    2019

Fairburn J.A.

I agree. K. Feldman J.A.

I agree. David M. Paciocco J.A.


