|By : Me Catherine Pilote-Coulombe|
The Supreme Court interprets the “care, custody or control” clause
On October 19, 2018, the Supreme Court handed down the highly anticipated decision in 3091-5177 Québec Inc. (Éconolodge Aéroport) v. Lombard General Insurance Company of Canada, 2018 SCC 43 (“Éconolodge”) overturning the judgment by the Court of Appeal concerning the application of the “care, custody or control” exclusion clause, also known as the “custody and control” clause.
The case arose in connection with the park and fly package offered by hotels in the vicinity of airports, consisting of a one-night stay at the hotel, with the guests having the option of leaving their car at the hotel while they are away, combined with a shuttle service between the hotel and the airport.
Two hotel guests, on returning from their trip after taking advantage of the package, found that their cars had been stolen. The events occurred in the winter months, when the hotel keeps the car keys of its guests who are away on a trip so it can move them to clear the snow from the parking lot, which is not the case in the summer months. The insurers that indemnified the guests claimed the cost of the cars from Éconolodge, which in turn impleaded in warranty its civil liability insurer, Lombard General Insurance Company of Canada (“Lombard”). Lombard denied coverage, citing the “care, custody or control” exclusion clause.
The crux of the debate is the application of the exclusion clause. Lombard argued that when a guest hands over his keys to the hotel in the winter months, he is transferring custody and control of the car to the hotel, triggering the application of the exclusion clause.
First instance judgment
The Court of Quebec1 refused to apply the exclusion clause because that would produce absurd results, with the insured only being entitled to coverage in the summer months. According to the judge, the hotel is not given any “real power of preservation, safekeeping, direction and physical control” over its guests’ cars. The judge concluded rather that the establishment is bound by a simple duty of prudence and diligence.
Court of Appeal
The Court of Appeal2 found that the trial judge erred in attempting to find a single solution that would apply to every case, thus failing to take into account the specific circumstances of the case before it, namely the handover of the keys by the guests. This is a key element for purposes of the application of the exclusion clause.
The Court distinguished between a clause aimed at the conduct of the insured as opposed to a clause aimed at specifically excluded property, as is the case for the care, custody or control clause. The purpose of that clause is to avoid the insurer’s being bound to indemnify damages that do not arise from the usual activities of the insured.
Thus, the Court concluded that the handover of the keys gave Éconolodge real power of “preservation, safekeeping, direction and physical control over its guests’ cars,” and applied the exclusion clause.
The Supreme Court
The Supreme Court allowed the appeal and restored the first instance judgment. It found that the mere handover of the keys by the guest does not automatically transfer powers of custody and control over the property to the insured. Indeed, the determination of custody is a question that fundamentally depends on the circumstances, including, above all, the reason for the handover of the keys. This analysis allows a distinction to be made between custody and the mere physical holding of property. The former confers general power over the property, which implies a duty of safekeeping, while the latter confers power over the property limited to certain situations defined by the reason for the handover of the keys. The Supreme Court concluded that it is only for the purpose of clearing snow from the parking lot in the event of a build-up of snow that the keys are handed over, and Éconolodge’s power over the cars is strictly limited to that situation.
The Court added that this solution is in line with the trend where the courts are reluctant to exclude coverage for the main activities engaged in by an insured. Indeed, the parking of cars is a key component of the park and fly service, and to allow the exclusion clause to apply under these circumstances would “undercut the usefulness of the coverage for one of its [the insured’s] main activities.”
Therefore, the trial judge was correct in finding that there was no transfer of legal custody of the property and that the “care, custody or control” exclusion clause does not apply.
1 Axa Assurances inc. c. 3091-5177 Québec inc. (Econolodge Aéroport), 2015 QCCQ 1539.
2 Compagnie canadienne d'assurances générales Lombard c. Promutuel Portneuf-Champlain,
société mutuelle d'assurances générales, 2016 QCCA 1903.