Recent Alberta Court of Appeal decision, Tokio Marine & Nichido Insurance Co. Ltd, 2020 ABCA 402 (“Tokio”), provides insight into determination of the first loss insurer, and in particular looks into the application of the priority flip mechanism on a loaner vehicle (“Loaner Vehicle”). We will further explore the priority flip mechanism introduced to protect car rental companies and whether its application extends to a Loaner Vehicle from a dealership.
A vehicle, Acura MDX, is brought into the Acura dealership to be serviced. The vehicle was owned by Mr. Gill, and with his consent was driven by Ms. Sran. Ms. Sran received a Loaner Vehicle, after signing a loaner agreement with the dealership. Ms. Sran allegedly collided with a skateboarder while operating the Loaner Vehicle. The skateboarder has brought forward a claim as against Ms. Sran, the financial institution which is the owner of the Loaner Vehicle, and against the owner of the dealership itself. The Loaner Vehicle was leased by the financial institution to Honda Canada Inc., who in turn lent it to the dealership.
This action was started via an Originating Application seeking declaration as to the primary insurer to defend the third party claim from the skateboarder, as between the insurer of the owner of the dealer’s Loaner Vehicle, the financial institution, or the insurer for the owner of the Acura MDX, Mr. Gill.
A concept important to the analysis of the Court is the application of the priority flip. A well established element of liability insurance for automobiles is that the owner of an automobile is vicariously liable for negligence of those that drive the owner’s vehicle with consent, such as Ms. Sran in this case. Applying this flip led to substantial financial burden on car rental and car leasing companies, and Canada’s car rental and leasing industry, including Alberta successfully lobbied for legislative relief.
Firstly, Alberta imposed a $1M vicarious liability cap for the negligence of rentees and lessees, followed by a series of related enactments. These enactments through the Insurance Amendment Act,2008 , Traffic Safety Amendment Act, 2007 , the Traffic Safety Amendment Act, 2009 , and the 2010 Miscellaneous Provisions Amendment Regulation ,together formed the basis of the Priority Flip. The changes via the Insurance Amendment Act allowed for the modification of the Insurance Act for the benefit of the car rental companies. The Miscellaneous Provisions Amendment Regulation allowed for the Priority Flip of a “leased or rented automobile”.  These series of changes enacted via legislation combine for the priority flip mechanism.
Thus, the insurer for the owner of the dealer’s Loaner Vehicle, via this Application was looking for the application of priority flip to the situation at hand.
The Court of Appeal notes three different “possible answers” to the application of a priority flip to the case at hand, noted as Options A, B or C. Option A looks at section 596(4) of the Insurance Act,that allowed the Lieutenant Governor in Council to pass a regulation that allowed “only car rental and leasing car companies that rent or lease automobiles to the public of the burdens associated with the imposition of vicarious liability on the owners of automobiles and the first-loss insurance rule incorporated in section 596(1) of the Insurance Act.”  Thus, Option A considers that the Lieutenant Governor in Council did not have the authority to allow the application of priority flip on businesses that are not part of the “car rental or car leasing industry”. The Loaner Vehicle in this case was not a car that was “rented or leased”, neither was the dealership operating a “car rental or car leasing business”.
Option B, looks at if the section 596(4) was not restricted as discussed in Option A, Option B looks at section 7.1(2) of the Miscellaneous Insurance Provisions Regulation, which mentions the automobile needs to be a “leased…. automobile”. Neither the driver of the vehicle, Ms. Sran, nor the owner, Mr. Gill, who gave the driver permission to drive the automobile was in a lessor-lessee relationship, therefore priority flip does not apply here as well.
Option C, considers whether the financial institution that leased the Loaner Vehicle to Honda Canada Inc., qualifies the Loaner Vehicle as a “leased vehicle” under section 7.1(2) of the Miscellaneous Insurance Provisions Regulation. However, the Court determined this interpretation does not make any sense, as the priority flip is “designed to protect the renter and lessor that are parties to a rental or lease agreement. This assumes that the lessor and lessee are parties to the same lease agreement”.
The Court determined that either Option A or Option B should be adopted, and that Option C is “untenable”.
 Insurance Amendment Act, SA 2008, c 19, s 29.
 Traffic Safety Amendment Act, SA 2007, c 45, s 13(a).
 Traffic Safety Amendment Act, SA 2009, c 45, s 9(2)(a)
 Miscellaneous Provisions Amendment Regulation, Alta Reg 203/2010.
 Tokio at para 24.
 Ibid at para 139.
 Ibid at para 39.
 Ibid at paras 44-46.
 Ibid at para 54.
 Ibid at para 58.
 Ibid at para 61.
 Ibid at para 139.