When you park your car at a hotel or restaurant, or leave it with a valet, you might not think twice about leaving the keys behind. But can a business that holds the keys to your car be considered to exercise “care and control” over it?
3091?5177 Québec Inc (éconolodge Aéroport) v Lombard General Insurance Company of Canada, 2018 SCC 43?[éconolodge] says no. The case explores the question of who is liable for a car left by a guest in (and subsequently stolen from) a hotel parking lot. The insurance policy between the hotel, éconolodge Aéroport (“éconolodge”), and its insurer, Lombard General Insurance Company of Canada (“Lombard”), included a “care, custody or control” exclusion clause which, if applicable, would exempt Lombard from covering the thefts of the cars. In a fairly straightforward decision, the Supreme Court of Canada (“SCC”) determined that custody is not transferred with the handing over of keys, and so the exclusion was not applicable. This post follows the SCC’s judgment and highlights key areas of the decision, such as appellate review and the concept of custody.
éconolodge Aéroport (“éconolodge”), a park-and-fly hotel in Montreal, allows its guests to stay in its rooms, park their cars in its lot, and use its shuttle to get to the nearby airport. Guests using éconolodge’s parking lot in the winter must leave their keys at the front desk so that éconolodge staff can move the cars to clear the parking lot of snow. In January 2005, one of éconolodge’s guests returned from a trip and discovered their car had been stolen off the lot. In March 2006, another guest had their car stolen as well. The guests’ insurers, acting in subrogation of their clients, brought actions against éconolodge to cover the thefts. Lombard pointed to its care, custody, or control exclusion clause, claiming that éconolodge had custody of the cars, which exempted Lombard from covering the thefts.
The case centered on two issues: (i) éconolodge’s liability for the thefts, and (ii) the applicability of Lombard’s exclusion clause.
The actions by the guests’ insurers were joined and brought before the Court of Quebec (“CQ”). On the first issue, Judge Chalifour found éconolodge liable for the thefts. Based on éconolodge’s advertised business model, Judge Chalifour characterized the relationship between the hotel and its guests as a contract for services which “included an obligation to look after the guests’ interests with prudence and diligence” (éconolodge, para 13). éconolodge’s parking lot was unfenced, unsupervised, and easily accessible to many individuals, not just éconolodge’s guests, and the hotel was not even aware that the cars had been stolen until their owners returned to retrieve them. In Judge Chalifour’s view, this gap between the guests’ expectations and éconolodge’s actual, insufficient measures was so wide as to potentially find the hotel operator actively deceitful to its guests. éconolodge was thus found liable for the thefts. On the second issue, however, Judge Chalifour was not convinced that the exclusion clause applied, determining that the guests’ handover of their car keys did not constitute a transfer of custody. éconolodge holds its guests’ car keys solely for the limited purpose of moving cars for snow removal, which would make the care, custody, or control clause only applicable in the winter. This would be, for Judge Chalifour, “absurd” (éconolodge, para 34).
Both Lombard and éconolodge appealed to the Quebec Court of Appeal (“QCCA”): éconolodge appealed the finding of its liability for the thefts, while Lombard appealed on the issue of the applicability of its exclusion clause. The QCCA affirmed the former decision, but diverged from the trial judge on the latter, claiming that the handover of the keys amounted to a transfer of custody to éconolodge, which meant that Lombard’s exclusion clause was applicable, and it did not need to cover the thefts. The QCCA stated that “it would be incongruous for the hotel operator to have an obligation of prudence and diligence without having custody of its guests’ vehicles” (éconolodge, para 16).
In its decision, the SCC explicitly covered the two issues analyzed by the lower courts. It also, however, spent some time on the subject of appellate review and the necessity of higher courts to show deference to the trial judge.
Who Was Liable?
?In analyzing the purpose of the contract, the SCC agreed with Judge Chalifour that it was “not appropriate” to separate the package of services advertised by éconolodge. éconolodge invited its guests to leave their vehicles in its parking lot while traveling, and as such, “guests were reasonably entitled to expect that éconolodge would look after their interests and take such security measures as were necessary in the circumstances” (éconolodge, para 19). It thus agreed with Judge Chaiifour’s characterization of the contract as a contract for services, meaning éconolodge was liable for the thefts.
Who Had Custody?
?The applicability of the exclusion clause was slightly more contentious. The SCC determined that the QCCA had unjustifiably intervened on the trial judge’s decision on the inapplicability of the exclusion clause. The ruling of the QCCA was thus overturned, and the trial judge’s decision restored: Lombard’s exclusion cause was found not applicable, and so it had to cover éconolodge’s liability for the stolen cars. The SCC agreed that applying Lombard’s exclusion clause could lead to inconsistent, “absurd” results. Besides the seasonal application observed by the trial judge, insurance coverage would also depend on the guests’ activities: a guest staying at éconolodge would not need to hand over her car keys. By Lombard’s logic, the theft of her car would be covered, but the theft of a car whose car keys were left by a traveling owner would not, even if éconolodge was equally liable for both thefts (éconolodge, para 55). Such a policy would serve to punish guests taking advantage of éconolodge’s established services.
The question of who had custody is a question of mixed fact and law, because while custody is a legal concept, determining who it applies to is a highly contextual, fact-based issue. Thus, when Lombard insisted that custody was automatically transferred with the handover of the car keys, the SCC pointed out that “[s]uch an absolute rule [would be] inconsistent with the highly contextual nature of the determination of custody,” and rejected the claim (éconolodge, para 40).
The SCC considered and interpreted the same exclusion clause in the case Indemnity Insurance Co. of North America v. Excel Cleaning Service,  SCR 169 [Indemnity], and found it to “[require] that control and responsibility for the preservation of the property be transferred sufficiently to change legal custody of the property” (éconolodge,para 39). Custody implies some physical power to control the property, and is distinguished from the concept of merely “holding” the property by the amount of power that can be exercised by the individual claiming custody. In the instant case, for example, the holder of the property (i.e. éconolodge) had a very narrow purpose for which to exert power over the property: to move cars so snow could be cleared from the parking lot. éconolodge was thus only fulfilling its contract for services by clearing its parking lot, not directing any sort of special attention to or control over the property in question, evidenced by the fact of éconolodge’s limited security over the parking lot. This is not enough to establish custody.
Justice Gascon noted that it is important to not apply the exclusion clause in such a way as to negatively impact the coverage offered by the insurer, that is, the courts do not want to overextend the applicability of the exclusion clause. The idea is “to maintain some balance between the coverage taken out by an insured and the exclusions in the policy[, which] promotes a sensible commercial result” (éconolodge, para 53). At the same time, however, the insurance must cover the bases; an insurer cannot exclude the insured’s main activities for which it has purchased the insurance. In éconolodge, for instance, Lombard could not be exempted from covering cars left parked in éconolodge’s lot, as that was one of éconolodge’s main business offerings (éconolodge, para 54).The SCC thus tries, in éconolodge, to make insurance law more consistent, fair, and predictable.
The Principle of Appellate Review
?The SCC seemed equally concerned in its judgment with the issue of appellate review. The SCC repeatedly insisted that the trial judge’s conclusions on the two issues of the case were based on questions of fact, or mixed fact and law, and therefore entitled to deference on appeal, absent an overriding error. Indeed, the SCC’s analysis of Lombard’s exclusion clause was framed by a discussion on the QCCA’s unjustified intervention. Though the SCC fundamentally agreed with the ruling of the trial judge, its analysis was largely focused on the QCCA’s error. Even the SCC’s only point of dissent concerned the characterization of a question: the majority held that the characterization of a contract was a question of mixed fact and law, while Justice Rowe insisted that, absent external facts, this is a question of law—an important standard to recognize in the context of an appellate review.
éconolodge?is of particular importance for what it had to say about insurance coverage. Though the SCC already covered the “care, custody, or control” clause in?Indemnity, it elucidated on the purpose of the concept in this case. The SCC found that the reasoning behind such a clause is to “prevent liability coverage from being transformed into property coverage” (éconolodge, para 36). Insurers do not want to cover risks outside the scope for which the insurance was purchased, so Lombard did not want to insure guests’ property when it was only contracted to cover éconolodge’s acts of liability. The exclusion clause thus does exactly that, attaching to applicable property, so the lability insurance can focus only on the acts of the insured.
On its surface, the case is extremely straightforward. However, the SCC uses this judgment to clarify principles of insurance coverage, appellate review, and custody for future cases.