Module 11 - Personal Property & Insurance

Readings: McInnes, M., Kerr, I., & VanDuzer, J. A. (2020).  Managing the law: The legal aspects of doing business  (5th Edition). Pearson. o Chapter 17: Personal Property: Bailment and Insurance Introduction In the last two modules, we discussed real property (immovable property), and now, in this module, we will discuss personal property (moveable property). Personal property can be divided into tangible and intangible property. Tangible property can be touched, whereas intangible cannot. Examples of tangible property includes cars, furniture, equipment, and animals. Examples of intangible property include accounts receivables, cheques, shares in a corporation, and intellectual property (patents, copyrights, trademarks). We will discuss how to acquire rights in personal property and how you can lose or transfer those rights. In our early discussion on real property we looked at leasing, which is a transfer of possession of real property to a tenant for a limited period of time. Similarly, with personal property it is possible to transfer possession of an item to another, which brings us to an area of law known as bailment. We will explore how bailments arise and the legal obligations of the parties involved. Lastly, we will discuss insurance as a risk management tool. We will look at different types of insurance and available coverages, and some important insurance concepts and limitations. Topics and Learning Objectives Topics This module will cover the following topics:  Personal Property Rights o Introduction o Acquiring Personal Property Rights o Losing Personal Property Rights   Bailment o What is a bailment? o Liability of Bailors o Liability of Bailees o Common Carrier and Private Carrier

o Sub-Bailment   Personal Property, Risk Management, and Insurance o Insurance o Property Insurance and Liability Insurance o Property Insurance o Other Forms of Business Insurance Learning Objectives By the end of this module you should achieve the following objectives:  Personal Property Rights o Distinguish between real property and personal property. o Explain the difference between tangible personal property and intangible personal property. o Explain different ways of acquiring rights in personal property and different ways of losing rights in personal property. o Apply the law pertaining to the acquisition of rights in personal property. o Apply the law pertaining to the loss of rights in personal property.  Bailment o Define a bailment and identify the 3 essential elements of a bailment. o Identify examples of bailment relationships. o Distinguish a licence from a bailment. o Apply the law pertaining to a bailor’s liabilities and responsibilities. o Explain a bailor’s lien right and right to sell. o Apply the law pertaining to a bailee’s liabilities and responsibilities. o Apply the law to assess whether a bailee acted reasonably in the circumstances. o Distinguish between a bailee that is a common carrier versus a bailee that is a private carrier. o Apply the standard of care expected from a common carrier and the defences available to a common carrier. o Apply the standard of care expected from a private carrier and the defences available to a private carrier. o Describe the process of sub-bailment. o Apply the law pertaining to the liability and responsibilities of sub-bailor and sub- bailee.   Personal Property, Risk Management, and Insurance o Explain property insurance (first-party insurance) and liability insurance (third- party insurance). o Explain indemnification and deductibles in the context of property insurance. o Explain an insurable interest and why it is important in property insurance.

Activity Please read  Case Brief 17.1 (Parker v British Airways Board)  in your textbook. Question: How did the court decide who should be entitled to the money received from the sale of the found gold bracelet? What was the court’s reasoning? Answer: The court decided that Mr. Parker was entitled to the money from the sale of the bracelet. The court made a distinction between items found in premises available to the public versus items found in the private part of premises.  An occupier is entitled to things that are found in the private area of its premises.  A  private area  is an area that the occupier shows a  “manifest intention” to exercise control. A finder is entitled to items found in the public areas of an occupier’s premises.  In this case Mr. Parker found the bracelet in the occupier’s public waiting area, therefore Mr. Parker was entitled to the money. Losing or Transferring Rights in Personal Property  A person can lose rights or transfer them in the following ways:  By  Contract   o A person can sell  all  his/her rights to another person by contract (i.e., sale). On the other hand, a person can transfer  part  of his/her rights in property to another person for a fixed period of time (i.e., lease).   By  Making a Gift to Someone   o A person can intend to give rights and the other person intend to receive them, and then the item must be delivered.  By  Abandoning    o A person with property rights can intend to give up those rights, such as throwing an item in the garbage. o However, if you lose something or it is stolen, your rights are not extinguished.   By  Destruction   o If personal property is destroyed the rights in it would terminate. For example, if you burned your book, your rights in it would cease to exist.  By  Affixation   o A person that has rights in an item that is attached to, or mixes with, land or other personal property, may lose their property rights.

o The most common example involves  fixtures . A fixture is an item that has been sufficiently affixed or attached to land or a building affixed to land. Generally, in such cases, the rights in the item disappear and the combined property is owned by the owner of the real property. o In some cases, it is not easy to determine whether an item has become a fixture. It will turn upon the specific facts and circumstances. The courts will consider the following factors:  Degree of Attachment    An item that just sits on land or in a building by its weight is unlikely to be a fixture (e.g., chair, table, microwave oven)  Items attached have a greater likelihood of being a fixture, but the degree of attachment will likely also be a factor. A built-in microwave oven may have become a fixture.  Purpose of Attachment    Objective intention  – would a reasonable person think the item was attached to become part of the land (i.e., to add value to the land then it is more likely to be a fixture) or to better use the item (chattel). An installed furnace is likely to be a fixture because it enhances the value of the building. A painting screwed to a wall may be a chattel because the painting was put on the wall to better appreciate the painting. o Tenant Fixtures  There are special rules regarding whether a tenant can remove fixtures that they attached to the real property. The law also varies depending upon whether the tenancy is a residential or commercial tenancy.  Katerina purchased a new computer tablet, so she threw out her old tablet in a public garbage can. A few minutes later Brian walked by the garbage can and saw the tablet. He picked it out of the garbage and saw that it was in good shape. He put it in his knapsack. He walked over to a park bench and sat down. He took the tablet out and opened it. It worked! It had been stripped of any personal information or data so it was impossible to know to whom it belonged. He played with the tablet for a while and then placed it on the bench so he could make a call on his cellphone. Jerry walked up to the park bench and grabbed the computer tablet. Brian yelled “Stop that’s mine”. Jerry responded “ No it’s not. I saw you picked it out of the garbage. It’s mine.”  Question: Who has the best legal rights to the computer tablet?  Answer:  Brian  has the  best legal rights  to the computer tablet.  Katerina abandoned her rights by throwing the tablet in the garbage. This act showed an intention to permanently give up her rights to the tablet. Brian retrieved the abandoned tablet and showed an intention to keep it by possessing it. He placed it in his knapsack and then later used the tablet. When he placed the tablet on the park bench he was not intending to abandon his rights to it, he was merely putting it down, temporarily, so he

In the module on Real Property Interests we briefly discussed a  licence  for space. An owner of real property (licensor) can give a licence to someone (licencee) permitting them the non-exclusive use of space. The licencee can place an item in that space without being considered a trespasser. Importantly, the licencee has  not  delivered control and possession of the item to the licensor. As a result, generally, the licensor is not responsible for any damage or loss to the item. Certain types of arrangements where an item is left on premises can give rise to a bailment but on the other hand it may give rise to a licence. If it is a bailment, the bailee has responsibilities with respect to the item, but it is a licence the licence generally does not. Whether an arrangement is a bailment or licence often turns on  whether a reasonable person would view the intention of the parties to be that possession and control of the item be substantially handed over.  If yes, it is a bailment; if no, it is a licence. Activity Please read  Business Decision 17.1   (Parking Lot: Bailment or Licence?)  in the textbook. See  Concept Summary 17.2  ( Parked Car – Bailment or Licence?)  in the textbook. Question: Present an argument that it was a licence. Explain and support your answer identifying the law and applying the facts to the law. Answer: A  licence  is  permission  to do something that would otherwise be wrongful. A  bailment  occurs when one person intends to  deliver control and possession  of the property with the expectation of getting it back. Argument that it is a licence : In this case the customer was merely given permission to park his/her car in the restaurant’s parking lot, so that the customer would not be trespassing. If it is a licence the restaurant is not responsible for taking reasonable care of the car while in the parking lot. Some factors that would support that this is a licence (permission to park) and control and possession of the car was not delivered to the restaurant:  There was no fee for the service. A tip could be given, but it would be a small amount and not required.  It was a complimentary service on busy nights. Customers did not have to use it. Parking lot was usually un-staffed except on busy nights  No tickets or receipts given to customer.  Parking lot was open so owner could retrieve his/her own car.

 There were no signs that the restaurant was taking responsibility for the car.  ( Note : there are no facts indicating whether the customer had used this service before and, if so, whether he/she was reasonably led to believe the restaurant was or was not taking responsibility). A reasonable person would not believe that the restaurant took responsibility for the safekeeping of the vehicle. It would not be fair and just to find the restaurant liable for a wrongful act (theft and damage) committed by an unknown person. Question: Present an argument that it was a bailment. Explain and support your answer identifying the law and applying the facts to the law. Answer: A  licence  is  permission  to do something that would otherwise be wrongful. A  bailment  occurs when one person intends to  deliver control and possession  of the property with the expectation of getting it back. Argument that it is a bailment : In this case the customer was giving control and possession of the vehicle to the restaurant with the expectation that the car would be returned in good condition. If it is a bailment, the restaurant (bailee) has to provide reasonable care for the vehicle while in its possession. The restaurant did not provide reasonable care because it should have had someone watching the parking lot, and if it did the car would not have been stolen. Some factors that would support that this is a bailment, in other words,  control and possession of the car was delivered to the restaurant:  The attendant offered to take the keys and park the car.  The attendant took possession of keys and drove the car and decided where to park it.  The attendant kept keys.  It could be argued that the parking service was paid for by paying for a meal in the restaurant. Also, the attendants received tips.  The customer could not get their own car without retrieving keys from attendant.  ( Note : there are no facts indicating whether the customer had used this service before and, if so, whether he/she was reasonably led to believe the restaurant was or was not taking responsibility.) Based upon the points above, a reasonable person would believe that the restaurant took possession and control of the vehicle and was therefore responsible for acting reasonably in taking care of the vehicle. The restaurant did not act reasonably because it should have had attendants guarding the parking lot. Question: What could the restaurant have done to prevent a bailment from arising?

o Bailee’s degree of care and caution can vary depending upon contract, custom or statute.   Benefit of the Bailment   o Bailee must provide greater care and caution if the bailment is entirely for benefit of the bailee.   Gratuitous (Free) or Fee Paid   o Whether a bailee pays for the benefit of a property or receives it gratuitously (for free) will impact the degree of care and caution expected. o A bailee who receives the bailor’s property  for free  must provide a higher degree of care because the bailee is benefiting significantly from the bailment. o A bailee  who pays  a bailor for use of their property may have a lower degree of care because both parties benefit from the bailment.   Value and Nature of Property   o If the bailee knows or should know the property is expensive and/or unique it is reasonable to expect the bailee to provide a higher degree of care and caution.  Bailee’s Expertise   o If the bailee claims to have experience in handling such a property it would be reasonable to expect a higher degree of care and caution from the bailee.   Activity A bailee is expected to act as a reasonable person would act in similar circumstances. The degree of care expected from the bailee will vary depending upon factors. In the following scenarios describe the degree of care that the bailee must provide. Raj asked Nina, his neighbour, if he could store his boat in her garage for the winter. The garage was empty and Nina wanted to be neighbourly so she agreed. The boat was placed in Nina’s garage. In the spring, when Raj went to retrieve his boat it was found to be damaged. Question: What degree of care did Nina owe Raj? Answer: Nina would owe a very low degree of care. It appears that the bailor (Raj) solely benefited from the bailment and he received it gratuitously (free). The bailee (Nina) received no benefit. In such cases, the bailee’s duty of care is very low. Omar and Sasha are neighbours. Omar borrowed Sasha’s lawnmower. When Omar returned the lawnmower, it was damaged. Question: What degree of care did Omar owe Sasha? Answer:

Omar would owe a very high degree of care. The bailor (Sasha) did not receive any money nor other benefit from the bailment. The bailee (Omar) received the sole benefit of the lawnmower gratuitously (free). In such cases, the bailee’s duty of care will be very high. Burden of Proof and Liability of Bailees Usually, a plaintiff has the burden to prove, on a balance of probabilities, that the defendant wrongfully caused the loss. But, if a bailee loses or damages the bailor’s property the bailor will not have knowledge of what happened to the property, since the property was at all material times in the possession of the bailee. So, the law has  shifted the burden  – the bailee must prove that  they acted like a reasonable person would act in similar circumstances  (unless it would be unfair – see  You be the Judge 17.1  in the textbook). Common Carriers and Private Carriers A special type of bailment involves carriers. A  carrier  is a bailee who receives and transports the bailor’s property. Two types of carriers are private and common carriers.  Private Carrier   o Definition  – a private carrier that reserves the right to refuse to carry some goods. o examples: moving company; airline. o a  private carrier is liable if it does not exercise the level of care reasonably expected in that line of work . o “ care reasonably expected ” depends upon the circumstances. o the private carrier would have to prove it met the required level of care to avoid liability. o contractual (e.g., exclusion clause) and statutory provisions can limit the liability of a private carrier.  Common Carrier   o Definition  – a carrier that offers to deliver any goods for any person in exchange for a standard price, provided space is available.  A common carrier does  not  reserve the right to refuse to deliver some goods while taking others.  o examples: railways, ships. o a  common carrier is generally liable for any loss or damage, even if it was not careless nor personally at fault  (i.e., akin to an insurer)  Bailor only has to prove that:  carrier was a common carrier;  and

Sub-Bailment A sub-bailment occurs when property that is already in a bailment is transferred into a further bailment. Sub-bailments are common in certain industries such as repair shops, moving companies and equipment rentals. Imagine taking your computer to your local electronics store for repairs. The store does not have the equipment and skills to retrieve data from the corrupted hard drive so the store sends the computer to a specialty service company to complete the retrieval. The store created a sub-bailment. Please review  Figure 17.1 (Sub-Bailment)  in the textbook. If the property that is in the sub-bailment is lost or damaged while in the hands of the sub-bailee   who is responsible for the loss?  We will address this issue and related issues below:  A bailee can create a  sub-bailment only if the bailor consents (expressly or implicitly) .   A  sub-bailment without the bailor’s consent (express or implied) makes the bailee liable for any loss  and possibly liable for the tort of conversion.  If the property is lost or damaged in a sub-bailment: o bailee/sub-bailor can sue the sub-bailee for damages (on behalf of original bailor);  or o original bailor can sue the sub-bailee if:  original bailor consented to the sub-bailment, expressly or implicitly;  and  sub-bailee knew, or ought to have known, that it received possession of goods that were already under bailment.  Pause and Reflect Please read  Case Brief 17.2   (Punch v Savoy’s Jewellers Ltd. 1986 OCA)  in the textbook. Follow the chain of events very carefully. This case will test your knowledge of sub- bailments. Notice that the court found that Ms. Punch implicitly consented to the sub- bailment and the sub-sub-bailment. Also, note how the court treated exclusion clauses. Overview of Risk Management and Insurance We will look at property insurance as a risk management tool with respect to the potential loss or damage to personal property. Many of these same concepts would apply to insurance for real property.

Please review  Figure 17.2   (Third Party and First Party Insurance)  in the textbook for a brief explanation of the difference between third party insurance (i.e., liability) and first party insurance (i.e., property). Both types of insurance are important risk management tools for businesses. Since we are discussing personal property in this section, we will focus upon property insurance. Property Insurance Property insurance is complex and varies considerably. The policy will provide coverage for what it states (e.g., fire, storms, theft) and nothing more. Further, policies usually have a list of express exclusions (e.g., losses caused by floods, earthquake, riots or from the storage of explosives). Sometimes additional coverage can be purchased for a higher premium. Insurance provides, at best,  indemnification  (i.e., reimbursement for a loss to property). However, what will actually be paid depends upon the policy. The policy may state that the insured will receive the  depreciated value  of the property or  depreciated value minus a deductible  (-$10,000), or in very rare cases the  value of a new replacement  property. In order to purchase property insurance, you must have an insurable interest. An insurable interest exists if a person benefits from the existence of the property and would be worse off it was damaged. In the following sections, we will discuss the implications of purchasing too much insurance and too little insurance coverage, and an insurer’s subrogation rights when it pays an insured. Excessive Insurance Since insurance will, at best, indemnify the insured, there is no advantage to purchasing excess insurance or insurance from more than one insurance company because you will only receive the value of the damaged property, as set out in the policy. If you purchase insurance from more than one insurance company, the  doctrine of contribution  provides that the insurance companies will share the loss. In other words, you will not be able to recover more than the property is worth, and the payout will be split between the insurance companies. Let’s see how contribution works with an example. Activity Tri-Star Construction Ltd. (“Tri-Star”) owns equipment worth $800,000. It purchased property insurance coverage of $800,000 from Nova Insurance Ltd. (‘Nova”). Tri-Star

Example #2 The facts are the same as in Example #1 except the fire caused $4,000 damage to the equipment.  How much will Sally receive from the insurance company?    RULE : If equipment  damage  amounts to  LESS than the co-insured amount  (i.e., less than 80% of equip value: less than $8,000) then  Sally becomes a co-insurer to the extent she did not buy enough coverage . Since Sally  only bought 75%   ($6,000/$8,000 = 75%)  of the coverage  required under the co-insurance clause, Sally  will only receive 75% of loss  (.75 X $4,000 =  $3,000 ). The formula in Figure 17.3 (Co-Insurance) can be used in this scenario (i.e., the damage is less than the co- insured amount). amount of coverage purchased × actual loss = insurer's liability minimum coverage purchased under co-insurance clause   $6,000                                                     × $4,000 =  $3,000 $10,000 x .8 = $8,000 Activity Tri-Star Construction Ltd. (“Tri-Star”) owns equipment worth $1,000,000. It purchased property insurance coverage of $700,000 from Nova Insurance Ltd. (“Nova”). The policy contained a 90% co-insurance clause. A few months later, Saturn Trucking Ltd. (“Saturn”) was delivering supplies to Tri-Star, and Saturn’s truck hit a natural gas pipe causing an explosion that damaged some of Tri-Star’s equipment, causing a loss of $500,000. Tri-Star submitted an insurance claim with Nova. Question: How much will Tri-Star receive from Nova Insurance Ltd.? Answer: Co-insurance Amount  = $1,000,000 x .9 =  $900,000    Tri-Star should have obtained a minimum of $900,000 coverage but only obtained $700,000. RULE : If the equipment  damage  amounts to  LESS than the co-insured amount  (i.e., less than 90% of equipment value: less than $900,000) then  Tri-Star becomes a co-insurer to the extent it did not buy enough coverage .  

Since Tri-Star  only purchased 78%  ($700,000/$900,000 = 78%)  of the coverage  required under the co-insurance clause, Tri-Star  will only receive 78% of loss  (.78 X $500,000 = $390,000). Tri-Star will receive  $390,000  from Nova despite purchasing $700,000 of coverage. Tri-Star is responsible for the additional $110,000 loss ($500,000 - $390,000 = $110,000). amount of coverage purchased  × actual loss = insurer's liability minimum coverage purchased under co-insurance clause $700,000                                                                            × $500,000 =  $390,000 $1,000,000 x .9 = $900,000 Let’s assume that the insurance policy had a $50,000 deductible. Question: How much will Tri-Star receive from Nova Insurance Ltd.? Answer: When there is a deductible in an insurance policy that amount will be deducted from the amount that would normally be paid to the insured. As calculated in the question above, Nova would be required to pay $390,000, however, since there is a $50,000 deductible, Nova would only be required to pay  $340,000  ($390,000 - $50,000 = $340,000). Nova Insurance Ltd. has paid a significant amount of money to Tri-Star. Question: Is there any way to recoup some or all of that money? Answer: Read the next section on  subrogation  and find out. Subrogation Subrogation is a very important concept for insurance companies. If an insurance company pays an insured for property damage, the insurance company would understandably want to recoup as much of the payout as possible from the party that wrongfully damaged the insured’s property. The insured could have sued the wrongdoer, but instead chose to make a claim with its insurance company, which is easier and faster. When the insurance company pays the insured under the policy, the insured’s legal rights against the wrongdoer are subrogated to the insurance company. In other words, the insurance company is able to legally sue the wrongdoer for the

bailments, including the responsibilities and liabilities of bailors and bailees. We distinguished a bailment from a licence for space, and discussed how it impacts the responsibility and liability for the personal property being stored or bailed. And, lastly, we looked at insurance as a risk management tool, and some important concepts such as contribution, co-insurance, and subrogation.