8.2 Section 7 Loss or Damage Coverages (Collision, Comprehensive, All Perils, Specified Perils)

8.2 Section 7 Loss or Damage Coverages (Collision, Comprehensive, All Perils, Specified Perils)

Key Focus: While Section 6 DCPD covers vehicle physical damage when an insured is not at fault in an Ontario multi-vehicle accident, Section 7 of the O.A.P. 1 provides optional first-party physical damage protection for at-fault collisions, single-vehicle accidents, severe weather, vandalism, animal strikes, and theft. Policyholders may select from four distinct coverage subsections: Specified Perils, Comprehensive, Collision or Upset, or All Perils, each offering differing scopes of peril protection, exclusion boundaries, and deductible rules.

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The Architecture of Section 7: First-Party Physical Damage

Section 7 (Loss or Damage Coverages) of the Ontario Automobile Policy (O.A.P. 1 Owner's Form) is entirely optional. While Sections 3 (Liability), 4 (Accident Benefits), 5 (Uninsured Auto), and 6 (DCPD) form the compulsory bedrock of Ontario automobile insurance, a vehicle owner is under no statutory obligation under the Compulsory Automobile Insurance Act to purchase Section 7 coverage. However, if an automobile is financed through a commercial auto lender or leased through a leasing company, the financing agreement or lease contract will contractually mandate comprehensive physical damage coverage (typically Collision and Comprehensive, or All Perils) to safeguard the financial institution's insurable interest.

Under Section 7, the insurer agrees to indemnify the insured against direct and accidental loss of or damage to the described automobile, its permanently attached equipment, and newly acquired or temporary substitute automobiles as defined in Section 2.

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The Four Coverage Subsections Compared

To tailor coverage to client budgets and risk profiles, Section 7 is subdivided into four distinct insuring agreements. Policyholders can select individual coverages (such as Comprehensive only for stored vehicles, or Collision plus Comprehensive) or the bundled All Perils option:

graph TD
    subgraph Section7Coverages["Section 7 Physical Damage Options"]
        SP["Subsection 1: Specified Perils<br/>• Strict Named Perils List<br/>• Fire, theft, wind, hail, flood, explosion"]
        COMP["Subsection 2: Comprehensive<br/>• Any peril EXCEPT collision or upset<br/>• Animal impact, falling objects, vandalism<br/>• EXCLUDES theft by household member/employee"]
        COLL["Subsection 3: Collision or Upset<br/>• Impact with another car, ground, tree, guardrail<br/>• Rollover / upset, ditch, potholes"]
        AP["Subsection 4: All Perils (Broadest)<br/>• Combines Collision + Comprehensive<br/>• INCLUDES theft by household member<br/>• INCLUDES theft by employee"]
    end

1. Specified Perils (Subsection 1)

Specified Perils provides basic, budget-oriented physical damage protection written strictly on a named perils basis. The insurer indemnifies only if the loss or damage is directly caused by one of the following enumerated perils:

• Fire or lightning;
• Theft or attempted theft of the entire vehicle or permanently attached equipment;
• Windstorm, hail, or rising water (flood);
• Earthquake or explosion;
• Riot or civil commotion;
• Falling or forced landing of aircraft or parts thereof;
• Conveyance perils: Stranding, sinking, burning, derailment, or collision of any railway car, ferry, or transport conveyance in or upon which the automobile is being transported on land or water.

Important Limitation: Specified Perils does not cover vandalism, malicious mischief, flying stones or missile impacts, glass breakage (unless caused by an enumerated peril), or impact with animals.

2. Comprehensive (Subsection 2)

Comprehensive is an expansive coverage form that covers any peril other than collision or upset. Rather than enumerating every covered event, Comprehensive covers all accidental physical damage losses, including all Specified Perils, plus:

• Missiles and falling objects (e.g., tree branches falling during a storm);
• Flying stones and road debris (e.g., gravel kicked up by a dump truck shattering a windshield);
• Vandalism and malicious mischief (e.g., vehicle keyed or tires slashed by an unknown vandal);
• Windshield and window glass breakage;
• Impact with domestic or wild animals and birds (e.g., striking a deer, moose, or coyote on a highway);
• Theft of the entire vehicle or attempted theft by unknown third parties.

Crucial Exclusion: As detailed below, Comprehensive strictly excludes theft committed by a person residing in the same household or by an employee whose duties involve maintaining or using the automobile.

3. Collision or Upset (Subsection 3)

Collision or Upset covers direct and accidental damage caused by:

• Collision with another object: This includes impact with another automobile, a pedestrian, a tree, a telephone pole, a bridge abutment, a guardrail, a rock, a building, the surface of the ground, or road hazards such as deep potholes; or
• Upset (Rollover): Loss caused by the automobile losing stability and overturning or rolling over in a ditch or on an embankment.

Collision coverage responds to at-fault accidents, single-vehicle crashes, collisions with non-insured road obstacles, and the at-fault portion of split-fault collisions under Regulation 668.

4. All Perils (Subsection 4)

All Perils is the broadest and most comprehensive physical damage coverage available in Canadian automobile insurance. It operates as a master package that:

1. Combines the full scope of Collision or Upset AND Comprehensive under a single insuring agreement with a unified deductible; and
2. Closes the Household and Employee Theft Gap: Unlike Comprehensive, All Perils expressly provides coverage if the automobile is stolen by an employee whose duties involve maintaining or using the vehicle, or stolen by any person residing in the same household as the insured.

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High-Frequency Exam Distinctions: Household Theft & Animal Strikes

Two specific coverage boundaries appear repeatedly on the RIBO Level 1 licensing exam and must be thoroughly mastered:

1. Comprehensive vs. All Perils: The Household Theft Exclusion

Under the standard wording of Subsection 2 (Comprehensive), the policy contains an express exclusion:

"The insurer shall not be liable under Comprehensive for loss or damage caused by theft by any person residing in the same dwelling premises as the insured, or by any employee of the insured whose duties include the operation, maintenance, or repair of the automobile."

• Rationale: Insurers exclude household theft under Comprehensive to eliminate moral hazard and intra-family fraud (e.g., an unauthorized family member joyriding without permission, or disputed domestic disputes);
• Broker Recommendation: If a client has teenage children, adult offspring living at home, roommates, or domestic employees (such as au pairs, chauffeurs, or private mechanics), the broker must recommend All Perils. Under All Perils, if an unlisted teenager takes the vehicle keys from the kitchen counter without consent and wrecks the vehicle, the entire loss is fully covered.

2. Animal Impacts vs. Swerving to Avoid an Animal

Under Section 7 of the O.A.P. 1, impact with wild or domestic animals (deer, moose, bears, dogs, cattle) or birds is contractually classified as Comprehensive, not Collision:

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Comparative Perils Matrix across Section 7 Options

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General Exclusions under Section 7

Section 7 contains standard operational exclusions designed to separate insurable fortuitous accidents from ordinary vehicular maintenance and non-auto property risks:

1. Wear and Tear, Rust, and Mechanical Breakdown: The insurer does not pay for loss or damage caused by normal wear and tear, gradual deterioration, rust, corrosion, mechanical or electrical breakdown, or failure of parts. However, if a mechanical breakdown causes a subsequent collision (e.g., ball joint snaps and vehicle crashes into a guardrail), the resulting collision damage is covered;
2. Freezing: Damage caused by freezing of engine coolant or heating systems is excluded, unless the freezing results from an unheated vehicle storage facility after an independent covered loss;
3. Tires: Damage to tires is excluded unless caused by fire, theft, or unless the tire damage coincides with and is caused by another covered collision or upset loss;
4. Contents Not Permanently Attached: Tapes, compact discs, cell phones, laptops, removable GPS devices, sports equipment, luggage, and personal tools left inside the vehicle are excluded under Section 7. Such property must be claimed under habitational property insurance (Homeowners, Tenants, or Condominium forms), subject to habitational deductibles and special personal property limits;
5. Radioactive Hazards: Damage caused directly or indirectly by nuclear radiation or radioactive contamination is excluded;
6. Excluded Drivers (OPCF 28A): If the automobile is driven by an individual named on an approved OPCF 28A (Excluded Driver Endorsement), all Section 7 coverage is completely void while that individual is operating the vehicle.

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Deductible Application, Settlement Basis & Salvage Rights

Deductible Application & Statutory Waiver

A deductible applies per occurrence under Section 7. If a hail storm dents the roof, hood, and trunk, one comprehensive deductible applies. If an insured is involved in two separate at-fault collisions in the same month, two separate collision deductibles apply.

Statutory Deductible Waiver: Under standard O.A.P. 1 wording, the deductible is completely waived if the loss or damage is caused by fire or lightning. If an automobile is destroyed by an engine fire or lightning strike, the insurer pays the full claim without deducting a single dollar.

Basis of Settlement: Actual Cash Value (ACV)

Under the O.A.P. 1 terms, the insurer's liability is strictly limited to the lesser of:

1. The Actual Cash Value (ACV) of the automobile and its permanently attached equipment at the time of loss (defined as replacement cost less physical depreciation, based on vehicle age, mileage, pre-accident condition, and local market comparables); and
2. The cost to repair or replace the automobile or damaged parts with materials of like kind and quality.

When repair costs approach or exceed approximately 75% to 80% of the vehicle's ACV, the insurer declares the vehicle a constructive total loss (write-off) and settles the claim by paying the vehicle's pre-loss ACV (minus applicable deductible).

Insurer's Right of Salvage

When an insurer settles a claim on a total loss basis and pays the insured the full Actual Cash Value of the vehicle, the legal ownership of the damaged vehicle (the salvage) belongs exclusively to the insurer. The insurer is entitled to sell the vehicle to an automotive recycler or salvage auction to recover a portion of the claims settlement. The insured has no right to demand payment of the full ACV while retaining the damaged vehicle, unless the insurer agrees to deduct the salvage value from the settlement cheque.

Prohibition of Abandonment

Under General Provision 4 and Statutory Condition 4 of the O.A.P. 1, there can be no abandonment of the automobile to the insurer without the insurer's consent. An insured motorist whose vehicle sustains severe damage cannot simply leave the wreck at a body shop or towing yard, surrender the keys, and legally demand that the insurer buy out the vehicle.