Decisions of the Court of Appeal

COURT OF APPEAL FOR ONTARIO

CITATION: Coast Capital Equipment Finance Ltd. v. Old Republic Insurance Company of Canada, 2018 ONCA 540

DATE: 20180613

DOCKET: C64713

Rouleau, van Rensburg and Pardu JJ.A.

BETWEEN

Coast Capital Equipment Finance Ltd.

Applicant/Appellant

and

Old Republic Insurance Company of Canada

Respondent/Respondent in Appeal

Caroline Gronke, for the appellant

Patrick Monaghan, for the respondent

Heard: April 27, 2018

On appeal from the judgment of Justice P.J. Monahan of the Superior Court of Justice, dated November 7, 2017 with reasons reported at 2017 ONSC 6694.

Pardu J.A.:

[1]          This appeal concerns a dispute between a lessor of a vehicle, Coast Capital Equipment Finance Ltd. (“Coast Capital”), and an insurer as to whether the lessor is insured for third party liability under a policy of automobile insurance. The appeal turns on the construction of a Certificate of Automobile Insurance and an OPCF 25 Change Form, both issued by the respondent, Old Republic Insurance Company of Canada (“Old Republic”).

[2]          62254641 Canada Inc. (“622”), a trucking company, leased a 2008 Peterbilt tractor from a third party. Old Republic issued a Certificate of Automobile Insurance which lists that vehicle (the “Certificate”).[1] The Certificate includes a box for describing lessors and lienholders.  It was completed as follows:

Lienholders (to whom loss may be jointly payable) (if applicable)

Name                                                               Address

AS PER OPCF 23A FORMS

Lessor (if applicable)

Name                                                                Address

AS PER OPCF 5 FORMS

[3]          An OPCF 23A endorsement provides for payment to a lienholder in the event of damage to the vehicle.

[4]          An OPCF 5 endorsement expressly allows a lessor to rent or lease a motor vehicle to a lessee who has completed an Ontario Application for Automobile Insurance – Owner’s Form, and also provides coverage to a lessee as if the lessee were the named insured. It is common ground that if that endorsement is part of the policy, both the lessor and the lessee benefit from third party liability insurance.

[5]          In describing the insurance coverage, the Certificate lists various other unrelated endorsements, including: “OPCF 19 - LIMITING THE AMOUNT PAID FOR LOSS OF DAMAGE COVERAGES; OPCF 27B - BUSINESS OPERATIONS - LIABILITY FOR DAMAGE TO NON-OWNED AUTOMOBILES; OPCF 40 - Fire Deductible; PER OCCURRENCE DEDUCTIBLE”.

[6]          The OPCF 23A endorsement is attached to the Certificate as a separate document.  None of the other additional endorsements, including the OPCF 5 endorsement, is similarly attached as a separate document.

[7]          On June 15, 2012, 622 leased two more tractors, this time from Coast Capital. Coast Capital had informed its insurance broker in writing that it wanted third party liability coverage in the minimum amount of $2,000,000, and indicated “The policy must contain an OPCF #5 Permission to Lease or Rent Endorsement.” This document was found in Old Republic’s underwriting file, however there is no evidence as to when it received that document.

[8]          On July 5, 2012, Old Republic issued an OPCF 25 Change Form showing 622 as the insured, and listing the two new Peterbilt tractors. The new tractors are identified as automobiles 2 and 4. The policy change that is noted on the form indicates “Automobile added to policy (Auto No. 2 and 4)”.

[9]          The OPCF 25 Change Form includes a box in which to describe lienholders and lessors and their addresses.  This box was completed as follows:

Auto No	Specify Lienholder/Lessor- Name	Address
2,4	Coast Capital Equipment Finance Co.	[Coast Capital’s address is specified]

[10]       The OPCF 25 Change Form recites that other terms and conditions of the policy remain the same.

[11]       It also lists the other unrelated OPCF endorsements mentioned in the original Certificate, but it makes no mention of either the OPCF 5 or OPCF 23A endorsements.

[12]       622 also entered into an agreement with First Insurance Funding of Canada (“First Insurance”) in which First Insurance agreed to finance the cost of 622’s insurance premium. 

[13]       On November 8, 2012, after 622 failed to make its required payment, First Insurance contacted Old Republic to cancel the insurance. On November 12, 2012, one of the 2009 leased Peterbilt tractors was involved in a motor vehicle accident.

[14]       It is Old Republic’s position that it is not required to respond to the loss.  Initially it conceded that the Certificate insured Coast Capital for liability and the only coverage issue was the effect of the cancellation by First Insurance.  Shortly before the hearing of the application, Old Republic took the position that Coast Capital had no liability coverage.  Old Republic successfully resisted a motion by Coast Capital to conduct a further cross-examination on its affidavit once this issue was raised.

Application judge’s reasons

[15]       The application judge concluded that while the OPCF 23A endorsement was part of the policy, the OPCF 5 endorsement was not and Coast Capital was not entitled to liability coverage.  He stated repeatedly that the OPCF 5 endorsement was never part of the Certificate or added by the OPCF 25 Change Form.  He did not address the significance of the phrase “AS PER OPCF 5 FORMS” contained in the Certificate.

Arguments on appeal

[16]       Coast Capital argues that the Certificate includes the OPCF 5 endorsement which provides liability insurance to both the lessor and the lessee. When the two additional tractors were added to that Certificate and Coast Capital was shown as “lienholder/lessor,” it acquired the benefit of that coverage as no change form was completed deleting the OPCF 5 coverage. On its face, the Certificate refers to “Lessors, if applicable” and indicates OPCF 5 coverage is provided. The face of the Certificate describes $2,000,000 liability coverage.

[17]       The appellant argues that there would be no purpose served by using OPCF 5 to give permission to a lessor to lease a vehicle, if a lessor was not intended to be treated as a named insured under the policy. The lessee was already a named insured in the policy.

Respondent’s arguments

[18]       The respondent submits that the OPCF 5 endorsement is not part of the Certificate and was not added by the OPCF 25 Change Form. It submits that the language “AS PER OPCF 5 FORMS” is part of its standard form, and that no significance should be attached to those words.

Analysis

[19]       The application judge accurately summarized the law related to interpretation of insurance contracts at paragraphs 21 and 23 of his reasons:

[21]    The courts have recognized that insurance contracts are subject to particular rules of interpretation. In Brissette Estate v. Westbury Life Insurance Co., Sopinka J. identified the following rules of construction in relation to insurance contracts:

(1)   The court must search for an interpretation from the whole of the contract which promotes the true intent of the parties at the time of entry into the contract.

(2)   Where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention of the parties will be selected.

(3)   Ambiguities will be construed against the insurer.

(4)   An interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided.

[23]    These principles were recently refined and clarified in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. Wagner J. for the majority of the Supreme Court noted that the primary interpretive principle governing the interpretation of insurance policies is that where the language of the insurance policy is unambiguous, reading the contract as a whole, effect should be given to that clear language. Where, however, the policy’s language is ambiguous, general rules of contract construction must be employed to resolve that ambiguity. These rules include that the interpretation should be consistent with the reasonable expectations of the parties and should not give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the policy was contracted. Only if ambiguity still remains after the above principles are applied should the contra proferentem rule be employed to construe the policy against the insurer.

[20]       A Certificate of Automobile Insurance defines the coverage provided by the policy.

[21]       Sections 232(3), (5) and (5.1) of the Insurance Act require the insurer to send a copy of the policy and every endorsement to the insured. If an insurer adopts a standard policy it may, instead of issuing the policy, issue a certificate in a form approved by the Superintendent. Section 5.1 provides that a certificate issued under subsection (5) is “of the same force and effect as if it were the standard policy, subject to the limits and coverages shown by the insurer on the certificate and any endorsements issued with or subsequently to the certificate.” [Emphasis added]

[22]       Following the hearing, the panel requested that the parties provide copies of the forms approved for use at the relevant times.

[23]       The material submitted following the hearing demonstrates that the Superintendent approved a form of Certificate of Automobile Insurance for the relevant time, and has also approved a custom form of Certificate of Automobile Insurance submitted for approval by Old Republic (the “Approved Certificate”).

[24]       The Approved Certificate does not contain the phrase “AS PER OPCF 5 FORMS”. This phrase must have been added to the Certificate by Old Republic. If added for this particular transaction, it leads readily to the inference that the Certificate was intended to provide coverage to both the lessor and the lessee. If Old Republic added this language to its Approved Certificate as a standard form for use in its business, this still leads to the inference that its usual practice was to insure both lessors and lessees for liability. At the very least, if ambiguity is created by Old Republic’s use of an unapproved altered standard form, it should bear the consequences of that use.

[25]       No deference is owed to the application judge’s decision as he did not address this additional language in the Certificate upon which this appeal turns. It may be that that issue was not identified for him with the same clarity as on this appeal.

[26]       I would attach no significance to Old Republic’s failure to attach a physically separate copy of the OPCF 5 endorsement to the Certificate. As mentioned, none of the other unrelated endorsements listed in the Certificate were attached.

[27]       I conclude that the OPCF 5 endorsement is part of the Certificate; the insurer intended to provide liability coverage to both the lessor and lessee. The OPCF 25 Change Form did not delete that coverage, but added new vehicles. Absent deletion of the OPCF 5 coverage, I conclude that Coast Capital is entitled to the benefit of that coverage. Old Republic’s insertion of the OPCF 5 language into the Certificate accords with the commercial reality of the transaction. Old Republic was providing automobile insurance to a trucking company’s fleet. The trucking company leased multiple vehicles, to the knowledge of the insurer. It makes commercial sense for the lessors who were financing the purchase of the vehicles to protect themselves from liability as the owners of those vehicles when they would have no control over the trucking company operations.

[28]       There is nothing in the Certificate that suggests that the liability coverage described in the policy is solely for the benefit of the lessee.

[29]       I would accordingly allow the appeal and set aside the decision of the application judge dismissing the application by Coast Capital. The OPCF 5 endorsement is part of the Certificate covering the vehicles leased by Coast Capital. Costs of the appeal are awarded to Coast Capital in the agreed amount of $14,750 inclusive of disbursements and taxes.

[30]       This application is returned to the Superior Court for hearing of the remaining issues, relating to the effect of the cancellation of the policy by First Insurance, and the claims for defence costs and indemnity by Coast Capital, and costs of the application, bearing in mind the success of the appellant on the issue before this court.

“G. Pardu J.A.”

“I agree Paul Rouleau J.A.”

“I agree K. van Rensburg J.A.”

Released: June 12, 2018