A panel of Supreme Court justices said in a decision released Friday that a hotel is liable for a car stolen from its parking lot, and the hotel’s insurer must pay.
The owner of the car, who left his keys with the hotel staff during his trip as part of a “park and fly” offer, filed a claim with his insurer, AXA Insurance Inc. Friday’s decision said Éconolodge didn’t learn about the thefts until later and the keys were still in the same place, and that the keys were only kept in winters for moving the cars to clear snow. The car was one of two stolen from the Éconolodge in the winters of 2005 and 2006, and both owners have been compensated by their insurance, the decision said.
AXA, in turn, brought an action against Éconolodge, and Éconolodge brought an action against its insurer, Lombard General Insurance Company of Canada. Lombard said the handover of the keys triggered an exclusion in the insurance policy, called the “custody, control or management” clause, and said it would not compensate Éconolodge, the brief said.
Ultimately, the court found that Éconolodge was liable to the client whose car was stolen (upholding the decisions of the lower courts and dismissing the appeal against AXA) and that Lombard should compensate Éconolodge (restoring the trial judge’s decision that custody of the car was not transferred, overturning the decision of the Court of Appeal, therefore allowing the appeal against Lombard and ordering Lombard to pay damages, interest and the additional indemnity).
There were two issues before the Supreme Court of Canada, according to Justice Clément Gascon, who wrote the official English translation of the decision, with justices Richard Wagner, Rosalie Abella, Michael Moldaver, Andromache Karakatsanis, Suzanne Côté, Russell Brown and Sheilah Martin concurring.
While the case “deals primarily with a very technical insurance clause,” the decision “really boiled down to: ‘What are the criteria to transfer legal custody from one person to another?,’” says Gordon Kugler, a senior partner at Kugler Kandestin S.E.N.C.R.L. in Montréal. “And the mere fact that the hotel acquired the keys to move the car in the event of snow removal — that, in and of itself, did not constitute transfer of legal custody of the car.”
The first issue before the court was whether Éconolodge was liable for the theft of the car “because it did not take reasonable steps to secure its parking lot,” Gascon wrote. The second issue was whether the clause in Éconolodge’s insurance contract applied “in a factual context in which guests handed over the keys to their vehicle at the hotel’s front desk.”
“Both the Court of Québec and the Court of Appeal found that Éconolodge had breached its obligation of prudence and diligence by failing to take reasonable steps to secure its parking lot, unbeknownst to its guests,” Gascon wrote. “The Court of Appeal was therefore right to uphold Éconolodge’s liability for the theft of the car insured by Axa. There are no grounds for this Court’s intervention on this first issue.”
But as to the second issue, Gascon wrote that “the Court of Appeal’s statement that the handover of keys could serve other purposes was not based on the facts in evidence, let alone on an improper assessment of that evidence by the trial judge that could be characterized as a palpable and overriding error.”
Gascon added that the exclusion clause of the insurance policy refers to certain property, not the actions of the insured.
In order to succeed in proving its clause applied, Lombard “had to establish that the vehicles in question were in Éconolodge’s care, custody or control. In this regard, Lombard submits that custody of a vehicle is necessarily transferred by handing over the keys, which are needed to start it,” Gascon wrote.
“I cannot accept Lombard’s argument that custody is transferred automatically when the keys to a vehicle are handed over. Such an absolute rule is inconsistent with the highly contextual nature of the determination of custody and with the principles developed in the case law.”
Kugler, who has tried cases both for and against insurance companies said the facts of this particular case were narrow and unusual, so future applications might be limited.
“Where it may arise in the future — it may have some importance but it wasn’t discussed in this case — is when a person brings his car to a parking lot, pays the 10 or 20 dollars, and is asked by the parking lot attendant to leave his keys so the parking lot can move the car if and when it is necessary to allow another car to get in or get out,” Kugler says.
“The parking lot undoubtedly has an insurance policy which contains the same ‘care, custody and control’ exclusion. And this case may be of use if a car is stolen from the parking lot. . . . This Supreme Court decision will be undoubtedly be raised by both sides to say ‘Yes, they did transfer custody,’ or ‘No, they did or did not transfer legal custody.’”