Vehicle damage arising from a lessee’s arson does not fall within the conversion exclusion clause in Division 5 of the ICBC Autoplan Optional Policy, and an innocent lessor may accordingly be entitled to coverage

Automobile insurance – Actions – Intentional torts – Policies and insurance contracts – Coverage – Interpretation of policy – Defences to exclude coverage – Damages – tort claims

CIT Financial Ltd. v. Insurance Corporation of British Columbia, 2017 BCJ No 753, 2017 BCSC 641, British Columbia Supreme Court, April 20, 2017, N. Kent J.

This action arose out of a coverage dispute involving the alleged arson of a leased vehicle (the “Vehicle”). The Court was asked, by way of special case, to interpret the insured plaintiff’s insurance policy and, in particular, whether coverage for the fire damage to the Vehicle was excluded by virtue of the “conversion exclusion” clause.

The special case proceeded by way of an agreed statement of facts. According to those facts, the parties agreed for the purposes of the litigation that the Insured was the registered owner of the Vehicle at all material times. The Insured leased the Vehicle to a third party, Snap Transport Inc., by way of lease dated September 22, 2010 (the “Lease”). In 2013, Snap Transport insured the Vehicle via a temporary contract of insurance with the Defendant ICBC (the “Policy”). The Policy provided third party liability, collision, and comprehensive insurance coverage from March 4 through 18, 2013 (the “Policy”) to the Insured. The Policy was subject to, inter alia, the ICBC Autoplan Optional Policy. On March 9, 2013, the Vehicle was damaged by Fire. According to the assumed statement of facts, the president and sole director of Snap Transport intentionally caused the Fire for the benefit of Snap Transport. The Plaintiff paid for the Vehicle’s repairs, and subsequently sought coverage for its losses.

The Court considered whether paragraph 5.9(b)(i) of Division 5 of the ICBC Autoplan Optional Policy excluded the plaintiff’s claim for losses. That provision states:

5.9     Restrictions on Indemnity –

…

(b) The corporation is not liable to indemnify any person under this Division for loss or damage, (i) caused by conversion, theft or concealment of a vehicle by a person in lawful possession of the vehicle under a lease, rental agreement or similar written agreement.

The parties focused on the interpretation of the word “conversion” and whether Snap Transport’s conduct constituted the same. The insured took the position that the tort of conversion had a number of different definitions and the word was thus ambiguous. The insured further argued that deliberate but economically repairable damage to the chattel is not sufficient to support a claim of conversion and hence the exclusion does not apply in this case. The insurer argued that “conversion” had a specific legal meaning arising from a well-recognized, clearly-defined tort. It argued that the tort’s proper legal definition was not limited to acts of total destruction of the property, but included substantial intentional damage like that had occurred in this case.

The Court noted that the parties’ arguments appeared to be based largely on the meaning of “conversion” in the context of tort law, rather than on the plain and ordinary language the ‘proverbial average insured’ might know. Nonetheless, Justice Kent reviewed various definitions, legal and otherwise, of the term conversion, and the parties’ positions on the same. He reached the conclusion that “conversion” and the exclusion clause more generally, did not cover the alleged damages in this case. In doing so, he offered the following caution to insurers (paragraphs 52-60):

[52]  In drafting exclusions insurers would be wise to avoid obscure legal terminology or concepts beyond the understanding of the ordinary insured. The Supreme Court of Canada has repeatedly said the language should be clear, express and easily intelligible. The “conversion exclusion” in the ICBC policy under consideration in this case does not come close to meeting those criteria.

[53]  Some legal concepts, e.g., theft, defamation, et cetera, are likely to be sufficiently well-known that the use of such terminology in an exclusion may not baffle or confuse. “Conversion” most certainly does not belong in that category.

[54]  Here, the policy was issued for the benefit of a lessor. The insurer obviously intended to exclude from coverage certain types of loss or damage to the leased vehicle caused by the lessee or those to whom possession of the vehicle had been permitted by the lessee (e.g., employees, et cetera). If so, a prudent insurer in such a position should figure out the precise scenarios of loss it wishes to exclude (e.g., theft, deliberate damage, et cetera) and then insert those circumstances in the exclusion using plain English readily understandable by an ordinary person…

[57]  The case law is itself unclear about the extent of damage that would be required to a leased vehicle in order to constitute the tort of conversion. If the case law is unclear, then so too is the meaning of the word “conversion” in the exclusion…

[60]  I am inclined to the view that this particular exclusion (“conversion”) is so vague and obscure in its application as to be effectively unenforceable. However, it is not necessary for me to make any final determination as to what the exclusion does cover. It is sufficient in the circumstances for me to simply determine what the exclusion does not cover… [Emphasis omitted]

Based on the above, Justice Kent determined that the exclusion clause was not applicable, and the insured lessee was entitled to coverage.

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