A vehicle stolen while rented to a third party but still in possession of the owner may be covered under the owner’s insurance policy despite a rental exclusion

Application by the insured for coverage under an insurance policy issued by Zurich Insurance Company was allowed. The policy insured a Caterpillar D6R owned by the insured, which was stolen from a job site. Although at the time of the loss the property was “on rental”, as that term is intended in the policy, it had not left the custody of the the insured because the insured still had some measure of possession, authority over or responsibility for the safekeeping of the equipment.

Paul First Nation v. Zurich Insurance Co., [2010] A.J. No. 831, July 13, 2010, Alberta Court of Queen’s bench, B.R. Burrows J.

A Caterpillar D6R (the “Caterpillar”), owned by the Paul First Nation Band (“Paul Band”), was stolen from a job site near Swan Hills, Alberta. At the time of the loss the Paul Band had entered into a “joint venture” arrangement with Westar Pipelines (“Westar”) whereby the Paul Band provided the Caterpillar, along with one of its band members, Mr. Rain, to operate the machinery, for use on a construction site run by Westar. While involved in the Swan Hills project, Mr. Rain was on Westar’s payroll. Further, both Mr. Rain and the operation of the equipment was entirely under the direction of Westar. The invoices issues by the Paul Band described the items being charged in various ways. The general description on one invoice was “Equipment for Hire” and on another it was “Equipment Rental”. Mr. Rain kept custody of the key for the Caterpillar, not Westar.

The Caterpillar was insured pursuant to a rider to a policy issued by Zurich Insurance Company (“Zurich”). The rider contained an exclusion for “loss or damage to property on rental from the time of leaving your custody”. Zurich denied coverage on the basis that, at the time of the loss, the Caterpillar was being rented to Weststar and was no longer in the custody of the Paul Band.

The court held that the words “property on rental” clearly referred to property owned by the Band which the Band rented out to a third party. However, it decided that it was not necessary for it to determine whether the Caterpillar had been rented to Westar because, on the evidence, the machine had not left the custody of the Paul Band. It reasoned that the exclusion clause was properly construed as meaning that, not withstanding entry into a rental arrangement, coverage would continue until the Paul Band had no measure of possession of, authority over or responsibility for the safekeeping of the Caterpillar. Lastly, it found that, on the evidence, the Paul Band maintained a degree of possession, authority and responsibility for the machine through Mr. Rain. Therefore, the court held that the exclusion clause did not apply and the Caterpillar was covered by the insurance policy at the time it was stolen.

This case was digested by Natasha D. Morley and edited by David W. Pilley of Harper Grey LLP.

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