The “Care, Custody and Control” Exclusion in 2017The “Care, Custody and Control” Exclusion in 2017http://chad.ca/en/members/professional-practice/industry/commercial-lines-insurance/510/the-care-custody-and-control-exclusion-in-2017L’exclusion « soin, garde et contrôle » en 2017

​​​​This article provides an overview of current law regarding “care, custody and control” exclusion clauses as well as the principles that apply to it.

​​In 1954, the Supreme Court of Canada handed down its famous ruling on this type of exclusion in the Indemnity Insurance v. Excel Cleaning Service case,1 which was under Ontario jurisdiction. Since then, many judgments have dealt with this question, including a number in Quebec; we therefore now have a body of case law and doctrine to help us tackle these clauses, which are found in many damage insurance contracts.

​​It should first be noted that the choice of words used in the exclusion to the insurance contract has not always been the same. These clauses have evolved over the years to become more precise and less prone to the vagaries of interpretation.

​​In 1954, the exclusion clause read as follows in the Indemnity Insurance case:2 

​This policy does not apply:
[…]
(g) to damage to or destruction of property owned, rented, occupied or used by or in the care, custody or control of the insured.

In Quebec today, it is not unusual to find the following clause in damage insurance contracts:

​Are excluded from this chapter...:
d) Damage to property
i) [...]
ii) that an insured owns or rents;
iii) in the custody of the insured; or
iv) on which an insured has a right of control or management. [Unofficial translation]

Quebec courts have thus interpreted the term “custody” to determine in particular whether the custody is physical or legal in nature. Adding the terms “right of control” and “management” clarifies the meaning of the word “custody” in this type of clause and enables lawyers to better understand the consequences of the exclusion.

Contrary to other types of exclusions found in legal liability insurance contracts, a reading of the “care, custody and control” exclusion clause makes it clear that this clause is not related to the insured’s behaviour or activities, but rather to the property that suffered damages. Consequently, it is the property itself that is excluded from insurance coverage due to the fact that the insured exercises a right of control or management over it.

What can recent case law teach us about “care, custody and control” exclusions? We shall now examine two recent decisions handed down in the Court of Appeal and Superior Court on this topic.


Compagnie canadienne d’assurances générales Lombard v. Promutuel Portneuf-Champlain, Société mutuelle d’assurances générales3

On appeal of a Court of Quebec decision ordering it to compensate the two insurers subrogated to the rights of their insureds after their vehicles disappeared from a hotel parking lot, Lombard pleaded the “care, custody and control” exclusion in its insurance policy.

In this case, Lombard provided liability insurance to Econolodge, a hotel that offered its customers a Park and Fly service, which included accommodations, breakfast, parking and a shuttle to Montreal-Trudeau Airport. In separate incidents, upon returning from vacation, two of its customers realized that their car had disappeared and made a claim to their respective insurers, who, subrogated in the rights of their insured, legally pursued Lombard.

After having confirmed Econolodge’s liability as a result of its having breached its obligations to the clients who had entrusted their cars in its care, the Court of Appeal overturned the trial court’s judgment regarding the interpretation of the insurance contract and applied the “care, custody and control” exclusion in Lombard’s insurance contract.

The Court of Appeal stressed three important principles:

  1. ​The insurer must demonstrate that the insured truly had a right of direction and control on the property.
  2. The clause must not be interpreted in such a manner that the coverage would be annihilated.
  3. The application of the restriction is mostly a question of fact.

The Court of Appeal stated that the judgment at trial incorrectly disregarded the fact that the clients had given the keys to their cars to the hotel management, which gave the hotel the actual power to preserve, conserve, manage and physically control their cars and thus triggered the application of the exclusion clause.

And what of the second principle, according to which the clause must not be interpreted in such a manner that the insurance coverage would be annihilated? This is the issue that Justice Granosik analyzed in the 347265 Canada Inc. v. 9124-8948 Québec Inc.4 case.


347265 Canada inc. v. 9124-8948 Québec inc.

In this case, the insured operated a helicopter repair and maintenance business. The insured was sued after one of its employees crashed a client’s helicopter, which he had just repaired. The insurer, the Allianz Insurance Company, denied coverage, in particular due to the “care, custody and control” exclusion in its insurance policy.

In its analysis, the Court reaffirmed the importance of establishing a balance between the coverage the insured purchases and the policy’s exclusions. At the preliminary stage of the motion for dismissal, the Court arrived at the conclusion that the insurer’s interpretation of the clause effectively annihilated the insured’s civil liability coverage. Justice Granosik stated:

​It is indeed difficult to understand what use liability insurance would be for Hélico Pro—as the policy itself indicates, Hélico Pro operates a helicopter care and maintenance business—if any damage to any aircraft it holds or on which it is working at the site covered by the insurance or outside of the two locations specified in the policy are excluded, when in fact this policy also covers work performed elsewhere. In such an eventuality, coverage H b) could never concretely apply, or at least, it would never be reasonable or likely that it would apply to the insured. [Unofficial translation]


Conclusion

One need only observe the numerous judgments in this area to realize just how much discussion the “care, custody and control” exclusion has sparked over the years. Although clear criteria that define the application of these exclusions have been established,5 the nature of the contract between the insured and his client will nevertheless quite frequently determine the legal relationship that exists between the insured and the property the insurer wishes to exempt from insurance coverage.

For example, when the service the insured provides to the client’s property takes place in the client’s home (a plumber comes to mind) or when there is no contractual relationship between the insured and the owner of the damaged property, the exclusion clause is rarely applied. However, in the case of transportation contracts, given the obligations of the insured-carrier, the “care, custody and control” of the client’s property will often be in the hands of the carrier, which triggers the application of the exclusion clause. In such cases, broader specific liability insurance coverage is advisable to cover damages to the property of a third party.

By Me Jasmine de Guise, Lamarre Linteau & Montcalm


1. [1954] R.C.S. 169.
2. Ibid.
3. Compagnie canadienne d’assurances générales Lombard v. Promutuel Portneuf-Champlain, Société mutuelle d’assurances générales, 2016 QCCA 1903.
4. 347265 Canada inc. v. 9124-8948 Québec inc., 2016 QCCS 2462.
5. Compagnie canadienne d’assurances générales Lombard v. Promutuel Portneuf-Champlain, Société mutuelle d’assurances générales, 2016 QCCA 1903.

6/7/2017 8:34:24 PM