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Coverage Denial for Highway 417 Accident: Lending Car to Unlicensed Driver

The Issue: If you lend your car to someone who doesn’t have a proper driver’s license, who then gets into a car accident, are you (as owner) denied coverage from the resulting lawsuit by the other driver who was hurt in the accident?

This Case Situation

In this recent case, a 23 year old bank employee lent his vehicle to his girlfriend, with whom he had been together with for 5 months.

Unfortunately, the girlfriend got into a car accident, at which point it was revealed to the boyfriend (car owner) that she only had a G1 driver’s license, which was a restricted learner’s driver’s license.

The boyfriend was under the impression that his new girlfriend had a proper driver’s license. The issue wasn’t discussed when the car was lent to her.

As a result, the car owner’s insurance company denied him coverage during the subsequent car accident lawsuit: O’Connell v. The Personal Insurance Company, 2014 ONSC 1469 (CanLII)

The car owner sued his insurer for a defence and indemnification from the lawsuit arising from the accident.

Mr. Justice McNamara found that the G1 driver’s license appears to be almost the same as a regular license and that the car owner had not been imprudent nor unreasonable in lending his girlfriend his vehicle:

[14] In this case the issue is, obviously, not whether the insured drove or operated the vehicle when not authorized by law to do so, but rather whether he permitted any other person to drive or operate the vehicle when that person was not authorized by law. The case law that has developed when that is the fact situation, much of which was supplied by counsel in their materials, indicates that the test to determine whether an insured permitted the use of their vehicle by an unauthorized driver, thus breaching the statutory condition, is whether the facts establish that the insured took all “reasonable and prudent precautions” to see that the statutory condition was not contravened. An insured would also, of course, contravene the condition if he or she knew the individual was not authorized to drive or was willfully blind to that fact.

[15] The matter was concisely put by the Ontario Court of Appeal in Miller (Litigation Guardian of) v. Carluccio 2008 ONCA 370 (CanLII), [2008] ONCA 370, [2008] 91 O.R. (3d) 638 at para. 6 of that decision it provides, in part, as follows:

The corporate appellant is off coverage if it “permitted” Pat to drive the vehicle while he was not authorized by law to do so. We think the word “permits” connotes knowledge, wilful blindness, or at least a failure to take reasonable steps to inform one’s self of the relevant facts: see Peters v. Saskatchewan Government Insurance Office, reflex, [1956] 18 W.W.R. 80 (Sask. C.A.); 2 D.L.R. (2d) 589 Co-Operative Fire & Casualty Co. v. Ritchie et al., 1983 CanLII 155 (SCC), [1983] 2 S.C.R. 36.

[16] There is no evidence on this application that the applicant had knowledge or was willfully blind to the driver’s license status. The issue then, as is often the case, is whether the applicant took reasonable steps to inform himself as to whether or not the driver was authorized by law to operate or drive the vehicle. In terms of what are reasonable steps, the case law clearly establishes that that is a question of fact, and the relationship of the insured to the driver is an important factor.

[17] In this case the applicant insured and the driver were boyfriend and girlfriend and had been for some five months. That, in my view, is a relationship of trust. The applicant knew Ms. Smith had a license because he had seen her use that license as a means of official identification, and it looked no different than his own license. He had also been in a car when she was the driver, and had heard anecdotes involving driving. Very significantly she never informed him at any time pre-accident, including the day she borrowed the car, that her license had limitations. There is no evidence he had any basis to suspect that she would withhold that crucial information from him, and it would be reasonable for him, in their circumstances, to assume she would not do that.

[18] Having regard to the facts, it is my view that the applicant acted as reasonably and prudently as would any other average individual in similar circumstances. In consequence it cannot be said the applicant contravened the statutory condition.

The car insurer was ordered to provide the car owner a defence and indemnification, as well as paying $15,000 in costs to the insured car owner for the motion.

Gregory Chang

Toronto Personal Injury and Insurance Lawyer

Source: Ontario Superior Court, O’Connell v. The Personal Insurance Company, 2014 ONSC 1469 (CanLII), dated March 24, 2014.