Vehicle Leasing Company 25% Liable for Drivers' Negligence

In the recent case of Dempsey v. Bagley (“Dempsey”), Justice C.S. Phillips of the Alberta Court of King's Bench considered the issue of vicarious liability of a vehicle lessor for the actions of a driver of the leased vehicle.

Dempsey involved two actions, both of which arose from single-vehicle accidents involving Brinks armored vehicles. The passengers of the Brinks vehicles were injured in the accidents, and sued the drivers, the drivers’ employer, Brinks Canada Limited (“Brinks”), and PHH Vehicle Management Services Inc. (“PHH”), which had leased the vehicles to Brinks. One of the terms of the lease between PHH and Brinks was that Brinks would indemnify PHH for any claims relating to the leased vehicles. It was agreed by the parties that by virtue of the Traffic Safety Act (“TSA”), both PHH and Brinks were “owners” of the vehicles.

Liability was admitted in respect of the accidents, and the amount of damages for each passenger had been agreed upon by the parties. Because it was determined that the passengers and drivers were in the course of their employment with Brinks at the time of the accidents, the parties agreed the claims could not proceed against the drivers or Brinks by virtue of s. 23 of the Workers’ Compensation Act (“WCA”), which bars claims against workers and employers who are subject to the WCA. Thus, the issue at play in this trial was the liability of PHH.

The parties agreed that the claims could proceed against PHH, even though PHH was also a registered employer under the WCA, as PHH was not the employer of the passengers or the drivers. Because of the indemnity clause between Brinks and PHH, the practical result is that Brinks would be paying any damages assessed against PHH, even though Brinks is a “protected” employer under the WCA scheme.

Brinks and PHH argued that the claim against PHH should be estopped on the basis that the indemnity clause creates a result that is contrary to the spirit of the WCA. The Court held that the commercial arrangement between Brinks and PHH could not be used to circumvent the intention of the TSA, which states that an owner of a vehicle is vicariously liable for a driver operating the vehicle with consent. The fact that the practical result is something unintended by the WCA was not persuasive to the Court. As such, the claim was allowed to proceed against PHH.

The Court was therefore asked to apportion vicarious liability as between Brinks and PHH, in accordance with s. 23(2) of the WCA. In assessing this issue, the Court agreed that these parties should be severally liable—in other words, each party should only be liable for their own degree of fault. The Court confirmed Brinks and PHH were only vicariously liable as a result of their status as employer of the drivers (in the case of Brinks) and as owners of the vehicles (in the case of Brinks and PHH). The Court considered the control each party exercised over the vehicles and drivers involved in the accidents, and ultimately apportioned liability at 75% to Brinks and 25% to PHH. Thus, the Plaintiffs were entitled to judgment against PHH for 25% of their agreed-upon damages.

This case will no doubt encourage lessors to continue the use of indemnity clauses in motor vehicle leases and should serve as a warning to employers who expect to be immune from liability as a result of the WCA. In circumstances where they have entered into lease agreements with a comprehensive indemnity clause, the employer may wind up paying both WCB premiums and compensation for injured employees.