Vehicles need fuel to operate. Until recently the fuel was usually a petroleum product. Conditional sale vendors and lessors of vehicles do not finance equipment to fuel gasoline or propane powered vehicles. Increasingly, the vehicle fuel is now electricity delivered to the vehicle by a charging unit. Dealers and manufacturers will want customers acquiring their electric vehicles to have a smooth transaction, and including the charging equipment for that brand of vehicle is part of a one stop shopping experience.
The inclusion of the charging unit in the vehicle deal, whether it is a lease or conditional sale, is a new business practice that requires some consideration of the risks to the conditional sale vendor or lessor who owns that charging unit. Here are some thoughts in helping to decide whether to become a conditional sale vendor or lessor of charging units.
1. Commercial charging units as a service to others
This discussion is not looking at commercial charging units provided by municipalities, hospitals, parking lots, gas station operators, condominium buildings or others. Businesses providing use of chargers as a commercial service to drivers have different legal issues, such as (i) whether the commercial 'chargers for a fee' are part of the electricity provision regulated market place, and (ii) compliance with local bylaws and electrical safety authority rules.
The following article extracts are examples of some of the added commercial legal issues that can arise in connection with the provision of commercial use charging stations:
(a) Charging stations deemed to be a public utility?
A critical question for the EV charging industry was whether charging station operators would fall under the definition of a "public utility" under the Utilities Commission Act (UCA) because they provide for the "transmission, sale, delivery or provision of electricity" to the public. Falling into this definition would subject charging station operators to regulatory oversight by the British Columbia Utilities Commission (BCUC) and a host of onerous regulatory requirements pursuant to Part 3 of the UCA. Such regulatory capture was viewed by government, industry, and the BCUC as unnecessary.
To prevent this unnecessary regulatory capture, the Government issued a Ministerial Order exempting operators from Part 3 of the UCA. Charging station operators who are not otherwise public utilities are now exempt from BCUC regulation.1
(b) Compliance with network connection rules, planning law and safety regulations
The operator of a network of electric vehicle ("EV") charge points (which could also be an EV manufacturer) will need to locate the charge points subject to general network connection rules, planning law and safety regulations. Typically, the operator leases premises and purchases/provides for electricity necessary for electricity supply at the charge point.2
(c) Indemnifications in favour of the charging station supplier
With respect to private charging stations, associations should require users to sign a written agreement indemnifying and holding harmless the [condo] association and its members, directors, officers and agents from liability from claims related to the installation, operation and use of the charging stations. With respect to common charging stations, associations should require users to sign a written agreement holding harmless the association and its members, directors, officers and agents from liability. The association's legal counsel should draft the appropriate indemnification and/or hold harmless agreement.
Associations should also discuss the installation of charging stations with their insurance carriers to confirm that the appropriate insurance coverage is in place, and whether it is necessary for the owner to maintain an umbrella liability insurance policy.3
(d) Establish the responsibilities of the condominium corporation and the individual owner of the charging station
After the acceptance of the application, then the condominium corporation and the owner must enter into an agreement. This terms and conditions of the agreement must:
... Establish the responsibilities of the corporation and the owner in relation to the cost of the use, operation, repair, maintenance, and insurance of the EVCS, as well as the cost of preparing the agreement and registering it against the title to the owner's unit.4
(e) Written agreement between the condominium corporation and the owner
Once the condominium corporation has accepted the owner's application, the owner and the corporation have 90 days to enter into a written agreement that outlines who is responsible for the ownership, installation, maintenance, insurance and repairs for the EVCS, as well as the associated costs. Unless the condominium corporation and the owner agree otherwise, the owner is responsible for all costs to carry out the installation.5
(f) By-law considerations
2. Encourage developers to include the following in the strata corporation bylaws:
e) the right of an owner, occupant, or tenant to install EVSE in the appropriate parking stall, provided they sign the Alteration and Indemnity Agreement on EVSE installation;
f) the responsibilities of a strata corporation to manage and maintain the common property electrical infrastructure intended for EV charging, including costs of future repairs, maintenance, and upgrades to applicable electrical infrastructure, excluding EVSE;
g) the responsibilities of an owner, occupant, or tenant with regard to installation and use of EVSE.6
(g) Technical considerations
Details: BC Electrical Code 2015, Sections 8 and Section 86 do not permit the installation of any electrical equipment or systems such as EVEMS if the calculated load or demonstrated load exceeds the rating of the distribution equipment, feeders, or services. Electric vehicle supply equipment must be calculated at 100% load based on the nameplate rating of the equipment. Provisions for switching of loads have been identified in rule 8-106.7
One of my energy infrastructure group partners, Aaron Atcheson, has advised me that several provinces now mandate that all new condo projects must build in the infrastructure to enable electric vehicle charging.
2. The single charging unit for a single leased or financed electric vehicle
The following are potential issues for the conditional sale vendor of the financed vehicle or the lessor of the leased vehicle if the charging unit fails and the customer suffers personal injuries, property damage, or environmental contamination results.
(a) Do the product liability indemnities from the charger manufacturer extend to the lender or lessor?
The charger may not be made by the vehicle manufacturer. The charger may (i) be made by a third party and enter the retail market either under the third party's name and brand, or (ii) be privately labelled and sold under the vehicle manufacturer's brand.
In either case, one must consider whether there are adequate indemnities and product liability insurance in place to protect the parties in the retail chain. This chain includes: the third party manufacturer, to the vehicle manufacturer, to the dealer, to the lender or lessor buying the deal from the vehicle dealer. Furthermore, do they extend to the end user?
Contracts are likely in place already to provide indemnities and insurance coverage for the product liability exposure for the vehicle. But have these chains of warranties and indemnities in supply agreements been expanded as necessary to cover a new class of goods, being the charging equipment?
(b) What if the customer causes the accident?
The paper trail to prove customer liability needs to have strong manufacturer warnings and instructions to the customer on how a charging unit is to be installed by the end user in their home, condominium parking area, cottage in a rural setting, business premises etc. Ideally, the consumer is warned to hire a licenced electrician to install the charger. But what if the consumer watches a YouTube video instead and does their own work incorrectly, resulting in a fire?
The lender or lessor, as well as the dealer and manufacturer, may want to require the customer to sign a separate form with the charger purchase, by which the customer agrees to hire a licenced electrician, check for any municipal permits needed for the charger, and contact their real property insurer (to double check if any changes or restrictions apply to their real property coverage) before the charging unit is affixed to their property.
Linked here is an instructional page provided by BC Hydro, detailing the installation steps of residential EV charging units. It covers home eligibility, technical requirements, permits, hiring of electricians and inspections.
There is also content written about what you need to know about insuring an electric car. We've included an excerpt below from a recent article published on the topic:
Installing a car charging station in your driveway or garage may affect your home insurance policy. Some state laws require home and condo owners to have liability coverage for the charging equipment, and some underwriters may want to see photos or documents that show the unit was installed correctly. Be sure to talk to your home insurance agent about any requirements before adding a charging station to your home.8
I understand that new versions of electric chargers will be able to provide two way energy flow, such that the charged electric vehicle may be used by the home owner as a home power source in a black out. This would make the charger more a home improvement, like the addition of a backup generator and not just a vehicle fueling device.
(c) Is the charging unit part of the vehicle?
An electric vehicle cannot work unless it has a charging unit. Because of that fact, is a charging unit so integral to the vehicle that it is considered part of the vehicle itself? The answer to this question is likely to come from the courts at some future date, but until then what should the lender or lessor do to cover their financial and vicarious liability risks?
i) From a financial deal perspective, dealers regularly provide equipment to the customer that is added to the vehicle, such as roof racks and towing packages. These additions are attached to the vehicle and are considered part of the vehicle itself. Under the personal property security statutes, such extras are "accessions". We know how to deal with (i) accessions as part of the vehicle as mobile personal property for secured transactions, (ii) the impact, if any, on manufacturer's warranties if these accessions are not approved goods or not properly installed, and (iii) motor vehicle insurance coverage over the altered vehicle.
Vehicle lenders and lessors regularly finance or lease goods that are located either inside the vehicle, such as a spare tire and jack to change the tire, or attached to the vehicle such as roof racks and tow packages, or a transport truck with truck and trailer considered as one unit.
By contrast, the charging unit is installed, ideally by a licenced electrician, by wiring and affixing it to a building or home. Consequently, the installed charging unit under personal property security statutes and the law of real property, is a "fixture" attached to real property.
To protect the lender or lessor, this charging unit as collateral would require in addition to a personal property security registration, the filing of a notice of security interest or "NOSI" on title to the subject land where the charging unit is attached, before the unit is attached to have priority over mortgagees and subsequent purchasers of this land. The lender or lessor should also insure they have an interest in the real property insurance to protect them for the loss or damage of the charging unit it owns attached to that structure.
ii) From an insurance perspective, it may be that the lender or lessor needs to be named on both the automobile policy and on the real property insurance policy to be covered in the event of loss of the vehicle or charger (as forms of collateral) or by reason of damages in a vehicle accident or charger explosion.
There is existing case law where accidents occurred when a vehicle was being fueled at a gasoline pump. These cases have discussed whether the automobile insurance policy coverage extended to the damages caused in these accidents as fueling a vehicle is part of the normal operation of a vehicle.
Several illustrative case law quotations read, in part, as follows:
I) Thacker v. Lavell, 1991 CarswellAlta 395, overturned on appeal at 1992CarswellAlta 252 (Alberta Court of Appeal)
Headnote: The plaintiff sought a declaration that the fire loss arose from the "ownership, use or operation" of the defendant's truck. The master concluded that the loss did not arise from ownership, use or operation of the truck. The plaintiff appealed. The insurer argued that there was only one test to resolve the issue, the "chain of causation" test, and that here, there was a break in the chain of causation because the defendant's act of looking for the top to the can was an independent negligent act.
Held by Chambers Judge:
The appeal was allowed. Fuelling a vehicle is an incident of its use and operation. In this case, the unusual step of filling the can was incidental to the use of this vehicle. When he searched for the top to the can, the defendant was still in the process of refuelling, so that there was no break in the chain of causation.
Overturned at Court of Appeal:
The chain of causation was broken by the plaintiff's negligence in lighting his cigarette while searching for the missing cap during the fueling.
Regardless of whether the purpose test or the chain of causation test is applied, the act of fuelling a gas can for the future fuelling of the vehicle, coupled with the act of igniting the lighter, are neither attributes of utilization nor part of a continuous chain of causation unbroken by a separate and new act of negligence not related to the use or operation of the vehicle. [at para 2]
II) Clark v. Waterloo Insurance Co., 1992 CarswellOnt 674
Headnote: When one of the plaintiffs discovered her automobile was out of gas and she borrowed her sister's automobile for the purpose of getting a can of gas. The court was asked to decide whether the sister's automobile was a "temporary substitute automobile" within the meaning of the endorsement. "Temporary substitute automobile" was defined as an automobile temporarily used as a substitute while the described automobile was not in use "because of its breakdown, repair, servicing loss, destruction or sale".
Held:
The automobile was a temporary substitute automobile within the meaning of the endorsement. Although going to get gas did not amount to "repair" and being out of gas did not constitute a "breakdown", the act of getting it did amount to "servicing" the automobile. [emphasis added]
However, I do find that in going to get gas Clark was in the course of servicing her car. This interpretation is not only in line with the conclusion of McNeil D.C.J., in Gollan v. Edmonton Credit Co. (supra), it also accords with dictionary definitions of "service" which include "supply the needs of" (Shorter Oxford English Dictionary) and "provision of what is necessary for due maintenance of thing or operation" (Concise Oxford Dictionary), and "to make fit for service, as by inspecting, adjusting, repairing, refuelling etc." (Webster's New World Dictionary, College Edition). [at para 20]
III) Newey v. Dominion of Canada General Insurance Co., 2016 CarswellOnt 8252
Ms. Newey slipped on ice at the gas station while fuelling her vehicle and hit her head.
Paragraph 10 The Applicant believes that her injuries were sustained from an uninterrupted sequence of events that occurred as a result of the use or operation of a vehicle; in this case, the refueling of the gas tank. The Applicant submits that the causation factors such as the activity that was being engaged in, the short amount of time after the car was parked next to the gas pump and the proximity to the car all favour her passing the causation aspects of the two-part test. [emphasis added]
The court held that this was not an "accident" under her automobile insurance policy.
Ultimately, when looking at the risk factor associated with Ms. Newey's incident, it is imperative to ask the question: "Was the injury a natural and reasonable incident or consequence of the use of a motor vehicle and risk associated with the motoring?" In my opinion, slipping on ice and falling once a vehicle is turned off and the occupants have fully disembarked is not a risk that is normally associated with the activity of motoring. [at para 19]
In the foregoing cases, fueling a vehicle with gasoline was considered to be part of its operation and accidents may be covered by insurance if there is no intervening factor such as the plaintiff's negligence in lighting a cigarette or ice left by the gas station owner.
By analogy to these gasoline fuel cases, one could argue that an accident that occurs while charging an electric vehicle would also be incidental to the electric vehicle's normal use and operation and covered by the automobile policy. That will be determined by case law and it may be the vehicle insurance policy that responds or the real property insurance, or both may be needed for full coverage.
Lessors and lenders need to get comfort that the customer has advised its vehicle and property insurer that (i) this is an electric vehicle, and (ii) that a charging unit is to be installed to the customer's premises. They also need to ensure that the customer has dealt with all conditions that the insurer has stipulated so that the policy is in good standing and coverage extended to both the customer and the lender or lessor.
We should expect that the insurance industry has set requirements for its customers, such as (i) proof of proper charger installation by a licenced electrician, and (ii) copies of any applicable municipal permits, as pre-conditions to coverage being in effect.
(d) Vicarious Liability of Lessors and Owners of the Vehicle and Charging Unit
Owning collateral is not always wise from a risk perspective. In most Canadian jurisdictions there are statutes and case law that exclude or cap vicarious liability on the conditional sale vendor and or the lessor of the vehicle. But that raises several issues when a charging unit is included in the deal.
If a charging unit is such an integral item for the operation of an electric vehicle that the Courts in future determine that it is part of the vehicle, then vicarious liability laws may extend to the vehicle and charging unit. It is to be noted that vicarious liability caps in some provinces and exclusions under no fault jurisdictions, extend largely to personal injuries and not all extend to property damage, and none extend to environmental damages.
For example, if the charging unit explodes while charging the vehicle parked inside the customer's home garage, burning down the home and releasing battery and other chemicals into the natural environment, then by analogy to the case law on gasoline fueling accidents the automobile policy should answer for the accident damages to the vehicle and any personal injury, to the limits of the policy. But the lender or lessor may still be liable for property damages and environmental damages by reason of owning the vehicle and charger.
If the lessor or lender were also named on the real property insurance, then that policy should cover the property damages, but may not cover the environmental damages, assuming the customer complied with all of the insurer's pre-conditions for coverage to be extended.
Again, we are going to have to wait for some case law to determine whether these anticipated outcomes come true.
3. Fleet lessees and business customers and charging units
The same issues as listed for the single charger deal will also apply to fleet customers such as fleet leases of electric vans to a courier company or to the customer financing a number of electric vehicles for its business use. For example an affiliated group of vehicle dealers needing to keep their vehicle inventory charged.
The risk level however may be higher if these business customers are acquiring a set of rapid chargers that pull more energy when in use and have higher electrical safety standards and different bylaw, municipal permit, insurance and other standards to meet.
4. So what should the lender or lessor do for now?
Given the risks of personal injuries, property damage and environmental damage, the conservative position for a lessor or conditional sale vendor would be to never take ownership of the electric charger. The charging unit should also never be considered an accessory or equipment item in the description of the vehicle in the lease or conditional sale, since the correct insurance, maintenance and other covenants applicable to the "Vehicle" as defined in these contracts, do not work for the charging unit.
Until some case law develops that may give conditional sale lenders and lessors some legal comfort, lessors and lenders may want to fund the charger price only for the customer's outright purchase of the charger from the dealer. This way no title ever vests in the lender or lessor and product liability and vicarious liability risks are avoided. This is the same for lenders and lessors who now fund the price for auxiliary product purchases such as credit life and disability insurance or an extended warranty.
To fund the cost of the charging unit, the lender or lessor would get a copy of the bill of sale from the dealer to the customer for the unit, and then add that price into the lease or conditional sale contract as an added item purchased by the customer. For example, the price might be entered into the lease or conditional sale contract using a spare line for the optional items included in the price in a conditional sale contract or the capitalized amount in the lease.
In the charger bill of sale the customer would have to agree that:
i) this purchase was not an "optional service" as regulated for fixed credit agreements in consumer protection statues, for which time purchase consumers have a statutory rights to cancel;
ii) they would hire an electrician to do the installation; and
iii) they have been warned to contact their real property insurer for insurance requirements to keep their property insured after the charger is installed.
In addition to the bill of sale for the charging unit, the conditional sale lender or lessor should also:
i) get a copy of the valid insurance coverage over the electric vehicle;
ii) get a copy of the warnings to the customer, signed back by the customer, agreeing they have received the manufacturer's specifications and installation instructions; and
iii) as belt and suspenders, in addition to the bill of sale, the lender or lessor may want a small contract addendum to have the customer confirm that the lessor or conditional sale vendor is not the owner of and is not taking any security over the charger unit, but merely financing the charger purchase.
This would mean the charging unit price is an unsecured amount, but by not taking ownership of or security over the charger, the lender or lessor is not exposed to the risks of damages the charger may cause, would not need to do PPSA registrations, NOSI filings or get real property insurance coverage and copies of all documents required by the property insurer, such as the electrician's certificates for installation, municipal permits and other documents given to the insurer to get the coverage issued.
If security is required, then in addition to the bill of sale, the lender financing the acquisition of the charger would take a chattel mortgage over the unit owned by the borrower, do the PPSA and NOSI registration and follow up on valid insurance coverage over the property where the charger is installed. While this secures the lender's loan for the purchase price, the time and expenses for putting this security and insurance in place may not make the effort cost effective.
Prepared originally for the Canadian Finance & Leasing Association annual conference on September 23, 2021.
Footnotes
1 Wally Braul, Jimmy Burg & Emma Hobbs "Electric vehicles: Accelerating in BC and beyond" (January 19, 2021), online: Lexology https://www.lexology.com/library/detail.aspx?g=9a9e139a-bbde-4a9c-9d33-3716977d4dae [emphasis added].
2 Lawrence Freeman, "Contractual and liability issues regarding the rollout of electric vehicle charge points in Europe" (November 30, 2018), online: Bird&Bird https://www.twobirds.com/en/news/articles/2018/global/contractual-and-liability-issues-rollout-of-ev-charge-points-in-eu [emphasis added].
3 Nowak Howard, "An Introduction to Electric Vehicle Charging Stations at Condominiums", online: Nowak Howard https://nowackhoward.com/an-introduction-to-electric-vehicle-charging-stations-at-condominiums/ [emphasis added].
4 Edmund Leong, "Electric vehicle charging systems in condominiums" (January 14, 2018), online: Canadian Condominium Institute https://cci.ca/resource-centre/view/164.
5 Condominium Management Regulatory Authority of Ontario, "Electric Vehicle Charging Station Regulations: What Condo Managers Need to Know" (2021) at 20, online (pdf): https://www.cmrao.ca/resources/electric-vehicle-charging-station-resources/evcsguideforcondomanagers.pdf.
6 City of Richmond "Residential Electric Vehicle Charging: A guide for Local Governments" (2018) at 27, online (pdf): https://www.richmond.ca/__shared/assets/Residential_EV_Charging_Local_Government_Guide51732.pdf [emphasis added].
7 Technical Safety BC "Information Bulletin: Electric vehicle energy management systems" (October 31, 2018) online: Technical Safety BC https://www.technicalsafetybc.ca/alerts/information-bulletin-electric-vehicle-energy-management-systems [emphasis added].
8 Lorraine Roberte, "What You Need to Know About Insuring an Electric Car" (February 19, 2021), online: the balance https://www.thebalance.com/insuring-an-electric-car-5113366 [emphasis added].
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
