The Ontario Court of Appeal held that one co-insured could not unilaterally cancel or delete the coverage of the other co-insured under the automobile insurance policy. The majority held that for the cancellation or deletion by one co-insured to be effective against the other co-insured, the insurer had to give fifteen days prior notice of that cancellation or deletion to, and obtain the express or implied consent of, the other co-insured.

Transportaction Lease Systems Inc. v. Guarantee Co. of North America, [2005] O.J. No. 5036, Ontario Court of Appeal

Transportaction Lease Systems Inc. (“Transportaction”) and Martin Beals (“Beals”) were co-insureds under an automobile insurance policy.

Transportaction leased a motor vehicle to Beals. As part of the lease agreement, Beals was required to secure insurance on the vehicle naming both Transportaction and Beals as named insureds. Beals decided to place the leased vehicle in storage over the winter, and as a result, directed the insurer to delete all insurance coverage on the vehicle except fire and theft. The insurer, in turn, wrote a letter to Transportaction notifying it of the cancellation of coverage. The vehicle , while driven by Beals, was damaged in an accident ten days after Transportaction had received the letter from the insurer. The trial judge found that Transportaction was not entitled to judgment against the insurer, but only against Beals. Transportaction appealed.

On appeal, the Court of Appeal held that the rights and obligations of the co-insureds were several and not joint. Statutory condition 11(2) provided that the “contract may be terminated by the insured at any time on request”. The Court noted that statutory condition 11(2) was ambiguous where the rights of co-insureds are several.

Statutory condition 11(1) provided that the insurer may terminate the contract by giving the insured fifteen days notice of termination. The majority stated that there was no reason why Transportaction would not be entitled to similar notice in the circumstances. The majority thus held that where the co-insureds are severally insured, the contract and statutory condition 11(2) require fifteen days prior written notice to a co-insured in order for cancellation or deletion of coverage by another co-insured to become effective. The majority found that the insurer had not provided fifteen days notice to Transportaction. The majority further found that the insurer had not obtained the express or implied consent of Transportaction.

The minority preferred to base its decision on the narrow ground that because Transportaction and Beals were separately insured, Beal’s deletion of coverage only affected his coverage, and not that of Transportaction.

In the result, the appeal was allowed, and Transportaction was granted judgment against the insurer.

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