In a rare move the Ontario Court of Appeal overturned its previous decision in the 1955 case of Newman v. Terdik firmly closing the door on an automobile insurer’s ability to deny liability coverage to its insured when a negligent driver operates their vehicle in a manner prohibited by the owner.
In Fernandes v. Araujo 2015 ONCA 571, Craig Brown and Stacey L. Stevens successfully challenged the principle that Courts must adhere to prior decisions and persuaded the panel that leaving the decision in Newman v. Terdik to stand would result in inconsistency and unpredictability with respect to the proper interpretation of s. 192 (2) of the Highway Traffic Act, which provides:
192(2) The owner of a motor vehicle or street car is liable for loss or damage sustained by any person by reason of negligence in the operation of the motor vehicle or street car on a highway, unless the motor vehicle or street car was without the owner’s consent in the possession of some person other than the owner or the owner’s chauffeur.
On May 26, 2007, Sara Fernandes was a passenger on an ATV being driven on a public highway. The driver lost control and Ms. Fernandes sustained catastrophic injuries. There was no dispute the owner of the ATV consented to the driver’s possession of the ATV. However, he took the position that his consent was limited to the operation of the ATV on his farm property and not the highway.
Allstate insured the ATV. Allstate took the position that Ms. Fernandes did not have a valid claim against the ATV owner based on a lack of consent as required under s. 192(2). Allstate subsequently brought a motion for summary judgment to dismiss Ms. Fernandes claim.
On November 4, 2014, Stacey L. Stevens appeared before Justice Perrell to oppose this motion. Ms. Stevens successfully argued the ATV owner’s vicarious liability for Ms. Fernandes injuries was triggered once he gave consent to the driver possessing his vehicle and not his consent to operate it.
Allstate appealed forcing the Court of Appeal to decide between its previous decisions in Newman v Terdik  O.R. 1 (Ont. C.A.) and Finlayson v. GMAC 2007 ONCA 557 (CanLII).
In Newman, the Defendant Terdik owned a tobacco farm. Terdik gave his employee Perkinson possession of his farm truck for the sole purpose of driving it on the tobacco farm with express instructions not to go on the highway with the automobile. Perkinson took the truck on the highway and subsequently injured the Plaintiff, Newman. The trial judge and the Court of Appeal held that given Terdik’s expressly forbade Perkinson from driving the truck on the highway, he did not have possession of it with Terdik’s consent and, therefore, Terdik was not vicariously liable.
The Finlayson decision follows a line of authority that began with Thompson v. Bourchier,  O.R. 525 (C.A.), wherein the Court of Appeal held that vicarious liability under 192(1) of the Highway Traffic Act is based on possession, not operation, of the vehicle. In Finlayson, the Defendant GMAC leased a motor vehicle to John Simon and Theresa Jefferies. Section 18 of the lease expressly prohibited Mr. Simon from operating the vehicle. Both Simon and Jefferies signed an acknowledgement to that effect. On March 3, 2000, Simon was operating the vehicle when it was involved in a single vehicle collision. His passengers were injured and commenced an action against Mr. Simon and GMAC. GMAC subsequently brought a motion for summary judgment arguing that its vicarious liability under section 192(1) was limited by the terms of the contract. The motion judge agreed. The Plaintiff appealed. The Court of Appeal overturned the lower court’s decision and in doing so, ruled that consent to possession is the triggering event for owner’s liability based on the reasoning established in Thomson which found that public policy dictates a motor vehicle owner cannot escape vicarious liability simply because the person with possession breaches some condition of having possession, but rather it imposes the responsibility of careful management upon whom possession is entrusted.
Counsel for Allstate argued that “possession can change from rightful possession to wrongful possession, or from possession with consent to possession without consent” where the person in possession violates a condition imposed by the owner. Further, Allstate argued there is no consent within the meaning of s. 192(2) where the person with possession of the vehicle violates the owner’s stipulation that the vehicle not be taken off private property and on to the highway. In those circumstances the consent required by the statue is absent. Justice Strathy, on behalf of the 5-member panel expressly rejected Allstate’s position and concluded as follows:
The reference to “negligence in the operation of the motor vehicle…on a highway” means nothing more than that the owner’s liability will only be triggered where the place of the negligence and injury is on a highway. That does not qualify the general proposition that the owner’s liability turns on consent to possession, and consent to possession is not vitiated by violation of a condition attached by the owner to his or her consent to possession. If the owner cannot escape liability where the person with possession violates a condition that he or she not drive the car at all, it is difficult to see why the result should be different where the condition is that the car not be driven on a highway. I see nothing in the language of s. 192(2) capable of justifying treating a stipulation by an owner that his or her vehicle not be taken on the highway differently from any other stipulation restricting the use or operation of the vehicle.
In the end, the Court of Appeal unanimously ruled that the interests of certainty and predictability in law would not be served by leaving Newman intact as it undermines the coherence of the law and is likely to lead to confusion.
The result obtained by Stacey L. Stevens and L. Craig Brown ensures the Defendant and his insurer Allstate will not be unjustly absolved of their responsibility for the damages suffered Sara Fernandes and protects the rights of future litigants.
View PDF version: Accident Benefit Reporter | Vol 16, Issue 2 | November 2015