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The keys to the “care, custody and control” exclusion

By Patrick Henry, from our Insurance Law Practice Group.

December 19, 2016 — “Park’n Fly” services have become ubiquitous. A hotel, generally located close to an airport, provides one night’s accommodation, breakfast, car parking during the stay abroad and shuttle services to and from the airport, all for a flat fee. The service is especially popular in the wintertime, as the lure of warmer climates suddenly becomes irresistible to many.

In 2005 and 2006, Econolodge, close to the Pierre-Elliott-Trudeau airport, was offering such a package. For $99, the customer got all four services. Of course, for winter travel, customers who purchased this package had to deposit their car keys with the hotel reception, and provide their car’s license plate number. This was meant to allow hotel staff to move the car if necessary: to allow for snow removal operations, for instance.

In late January 2005, a vacationer who had purchased this package was quite upset when he realized that the vehicle he had left at the hotel had disappeared. He filed a claim with AXA, his insurer, and received compensation for the theft; AXA, subrogated in his rights, filed a claim against the hotel which, in turn, called its insurer, Lombard, in warranty. By a stroke of bad luck, in mid-March 2006, another suntanned customer had a similar surprise, with the same hotel. The same legal scenario was repeated albeit with Promutuel as the customer’s insurer, and a new hotel owner: but Lombard was once again the liability insurer.

In both cases, Lombard denied coverage, under the “care, custody and control” exclusion.

The trial judge  ruled that the hotel had been negligent by failing its obligation of prudence and diligence regarding the cars that were left by the customers. She refused, however, to apply the exclusion: doing so, she committed a “fatal error” (“erreur déterminante”) as the Court of Appeal stated in a decision released on November 23, allowing Lombard’s appeal, thus dismissing the hotel’s claim against its insurer and leaving it liable.

The Court of Appeal noted that, in both cases, the vehicles had been left with the hotel during winter months and that, consequently, the hotel requested the keys.

The exclusion clause read as follows:

 

Excluded from this insurance are:

[…]

H) Loss of enjoyment, deterioration or destruction:

[…]

d) of movable property under your care or on which you have a right of control or management. [Our translation]

First, the Court of Appeal ruled that the exclusion is not related to the insured’s behaviour, but to the property under its care or on which it has a right of control or management.

Referring to a 1954 decision of the Supreme Court of Canada, the Court stated that the exclusion could only apply if the insured exercised “‘care’ [which] would include a measure of protection and preservation, ‘custody’ of safekeeping and protection and ’control’ of direction or domination.”

The Court reminded that three rules can be derived from the case law: “1) The insurer must demonstrate that the insured really had a right of direction and control on the property; 2) the clause must not be interpreted in such a manner that the coverage would be annihilated; and 3) the application of the restriction is mostly a question of fact.” [Our translation]

The Court noted that, by handing the car keys to the hotel staff, the owner gave them the actual power to preserve, conserve, manage and physically control their cars while they were abroad. Since the trial judge had ruled that Econolodge owed a duty of prudence and diligence, logically, to carry it out, it had to have the care of the vehicles.

This decision will help clarify the application of an exclusion frequently invoked and discussed.

Compagnie canadienne d’assurances générales Lombard c. Promutuel Portneuf-Champlain, société mutuelle d’assurances générales, 2016 QCCA 1903

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