What happens when two insurers cover the same risk and each declare themselves excess to other available insurance? Ontario’s Court of Appeal addressed that issue in the recent case of TD General Insurance v. Intact Insurance, which involved a claim for bodily injury advanced by a passenger in a boat driven by the insured.
The TD policy covered the specific boat involved in the accident and the driver was covered as he was operating the boat with the owner’s consent. The driver was also covered under his homeowner’s policy with Intact, which provided liability coverage for claims arising out of the insured’s use or operation of any type of watercraft. Each policy declared itself excess to other available insurance.
Because the TD policy specifically covered the boat in question, the application judge held that the TD policy provided primary insurance for the watercraft in question and dismissed TD’s application that the two policies share equally in the defence and indemnity of the driver. In doing so he relied on the ‘closeness to the risk approach’ in which courts consider:
- Which policy specifically described the accident causing instrumentality?
- Which premium reflect the greater contemplated exposure?
- Is coverage of the risk primary in one policy and incidental to the other?
Unfortunately the Supreme Court of Canada expressly rejected this approach to overlapping coverage in the Family Insurance Corp. v. Lombard Canada Ltd. Case. Instead, the Supreme Court preferred to focus on “whether the insurers intended to limit their obligation to contribute, by what method, and in what circumstances vis-à-vis the insured”. Because the contest, as here was between two insurers, the court held that there was no need to look to surrounding circumstance and instead relies strictly on the policy wording. If there are no limiting intentions or limiting intentions that cannot be reconciled, the burden is shared equally between the insurers. The Court of Appeal considered the identical ‘other insurance clauses’ to be limiting intentions. Because each policy was declared excess to the other, the court concluded that they were irreconcilable. As a result, the policies had to contribute equally. The reasons of the Court of Appeal in this case are nuanced and underscore the importance of a close reading of policy wording when faced with a circumstance of overlapping coverages.
In the decision ofThe Dominion of Canada General Insurance Company v. Unifund Assurance Company, the Court of Appeal has confirmed that the standard of review applicable in priority disputes is reasonableness.
The decision primarily deals with whether the failure to provide notice to an insured within 90-days of receipt of the OCF-1 precludes the insurer from proceeding with a priority dispute. In this matter, notice was provided to the insured after the priority arbitration had commenced (beyond the 90-day period) but before the arbitration hearing.
At the preliminary issue hearing, Arbitrator Novick decided that the 90-day notice period did not apply to insureds, only to insurers giving notice to other insurers. The Arbitrator held that, while insurers should ideally provide notice to insureds at the same time as notice is given to the other insurer, late notice to an insured is permitted, as long as it provides the insured with the opportunity to participate in the process.
The appeal of the preliminary issue decision was heard by Faieta J. of the Superior Court, who concluded that the applicable standard of review was correctness. He held that failure of the insurer to provide notice to the insured within the same 90-day notice period was fatal to the priority dispute.
A three-judge panel of the Court of Appeal reversed the decision of Faieta J. and restored the decision of the Arbitrator. A reasonableness standard was applied. The Court noted that the Arbitrator was a specialized decision-maker engaged in interpreting her home statute and regulation.
In determining the Arbitrator’s decision was reasonable, the Court of Appeal found that the failure to give notice to the insured within 90 days did not ignore the policy objectives of the Regulation. It did not affect the insured’s right of prompt receipt of accident benefits, nor did it affect the insured’s participation rights in priority disputes, held to be procedural rights. In addition, the late notice had no impact on the rights of the second insurer in the priority dispute.
The Court determined that it was up to the Arbitrator to determine whether the notice to an insured was given too late in order for the insured to exercise their participation rights. In the case at hand, the Arbitrator found that as the insured received notice before the actual arbitration hearing commenced and did not object to the transfer of the claim, the late notice was not fatal to the priority dispute. The Court ultimately concluded the Arbitrator’s decision was reasonable – although the notice was late, the lateness was not an impediment to the priority dispute, and the proceeding could continue.
This case is significant because the Court of Appeal has determined that notice to an insured of the priority dispute in excess of the 90 days is not necessarily fatal to a proceeding. The analysis is now whether the lateness of the notice to the insured precludes their ability to participate in the priority dispute.
Biblical proportions: Divining King Solomon (or Geddy Lee?) in the determination of priority disputes.[et_pb_section bb_built=”1″][et_pb_row][et_pb_column type=”4_4″][et_pb_text _builder_version=”3.9″]
In this January 5, 2018 priority dispute private arbitration award of Ken Bialkowski, the main issue was principle dependency; a construct of the definitions contained in s. 3(7)(b) of the SABS. The definition of ‘insured person’ in s. 3(1) of the SABS ties in the ‘dependant’ definition to the authorizing section for priority disputes: s. 268(2) of the Insurance Act. RBC, in respect of two claimants injured in an auto accident on April 4, 2015, sought to have TD assume handling of the SABS claims and indemnify it for benefits it had to date expended.
The elder claimants were both passengers in the RBC insured auto at the date of loss and, by s. 268(5.2), RBC would be the highest priority insurer if the two were found dependent upon their younger son. At a minimum, however, they were insured persons of RBC, based upon occupancy alone, and that is likely the reason their OCF-1s were sent to RBC in the first place. Notwithstanding, it was argued the claimants were dependent upon either of their two sons, each of which were the named insureds of the parties to the dispute.
The arbitrator started by defining the duration of the time period pre-loss to be considered that would give the best indication of the situation that existed as of the date of loss. This inquiry largely surrounded where they primarily resided. His review of the case law confirmed the preference by our Superior Court for the statistical LICO methodology over the mathematical one. The arbitrator astutely noted the mathematical approach was rooted in a criterion for dependency, which was rejected by the Ontario Court of Appeal back in 1986 in the seminal Miller v. Safeco case. RBC argued a third methodology, the plural approach. This approach is meant to determine upon whom a claimant is dependent when that claimant provides less than half of their own needs and one, of at least two individuals, provides a financial amount in excess of the claimant or anyone else who is also contributing. It, however, would appear to go against the established, and in my opinion inaccurately named, ‘51% rule’. To be accurate mathematically, it should be named the ‘50% + 1’ rule. Its distinct departure from the 51% rule is that the individual upon whom the claimant is said to be dependent contributes less than 50% of the claimant’s needs (not more) but more than the claimant or anyone else involved.
In this case it was argued by RBC the majority contributor was the eldest son; TD’s named insured. Even if RBC hadn’t admitted dependency upon its named insured (albeit not the greatest contributor), it still had the onus of proof in the dispute since it, at a minimum, was liable to pay benefits, per s. 268(3), based upon mere occupancy. The arbitrator found the sons to be equal financial contributors to their parents so, although they were each not independent, they were not considered principally dependent upon any one individual. RBC was found to be the priority insurer for both claimants and responsible for TD’s partial indemnity costs and the arbitrator’s account. The arbitrator thereby skirted support for what was said to be the genesis for the plural approach; the January 2013 award of arbitrator Scott Densem in Economical v. Aviva, which was not appealed, while yet paying homage to the 51% rule. It is too early to tell if this award will be appealed. However, with the standard of review still reasonableness, although requested to be revisited by the Court of Appeal in a pending decision where our firm was counsel, I doubt RBC will be so inclined.[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]
A FSCO arbitrator has confirmed that the first insurer that receives a completed application for accident benefits is required to adjust and pay the claim, even if the insurer is taking an off-coverage position.
In Cankaya v. Intact / Cankaya v. Unifund, the claimant was working on the engine of a 2001 BMW vehicle he was about to repair at his mechanic shop. The cooling fan or other part of the BMW broke apart and flew into his face. He sustained multiple injuries. He was acting in the course of his self-employment as a garage repairman when the incident occurred.
At the time of the incident, the claimant was insured with Unifund under a standard Ontario Automobile Policy (OAP 1), which insured his personal vehicle. He was also insured with Intact under the standard Ontario Garage Automobile Policy (OAP 4). Both policies were valid at the time of the incident.
The claimant submitted an application for accident benefits to Unifund on January 10, 2014. On March 27, 2014, Unifund advised the claimant that he was precluded from receiving any accident benefits under his policy because of the garage exclusion under section 1.8.4 of the OAP 1.
On April 15, 2014, the claimant’s lawyer wrote to Unifund and advised about the Intact policy. The claimant’s lawyer encouraged Unifund to pursue a priority dispute against Intact, pursuant to O. Reg. 283/95 . Unifund refused to do so.
On June 18, 2014, the claimant submitted an application for accident benefits to Intact. Intact denied the application on the basis that it was not the first Insurer to receive a completed application.
The claimant did not receive any benefits, so he applied for mediation and arbitration at FSCO. A preliminary issue hearing was held to determine a number of issues, the main one being whether FSCO had jurisdiction to determine whether section 1.8.4 of the OAP 1 could relieve Unifund of its obligations to respond/adjust and pay benefits, pursuant to section 2.1 (6) of O. Reg. 283/95. In other words, could FSCO determine coverage or was that issue reserved for a priority dispute?
Priority Dispute Scheme ( in a nutshell)
Section 2.1 (6) of O. Reg. 283/95 requires the first insurer who receives a completed application for accident benefits to respond and pay benefits pending the outcome of any priority dispute with another insurer. In Kingsway v. Ontario (2007), the Court of Appeal stressed that the “pay now, fight later” principle is vital:
Section 2 of regulation 283 is critically important in the timely delivery of benefits to victims of car accidents. The principle that underlies section 2 is that the first insurer to receive an application for benefits must pay now and dispute later. The rationale for this principle is obvious: persons injured in car accidents should receive statutorily mandated benefits promptly; they should not be prejudiced by being caught in the middle of a dispute between insurers over who should pay, or as in this case, by an insurer’s claim that no policy of insurance existed at the time.
Where an insurer receives a completed application and believes that another insurer has priority over it for the claims, O. Reg. 283/95 allows the insurer to compel the other insurer(s) to participate in a priority dispute. The entire procedure is contained in the Regulation and disputes are resolved in private arbitration, pursuant to the Arbitration Act, 1991.
O. Reg. 283/95 has strict timelines: When an insurer receives a completed application for accident benefits, it has 90 days from the date of receipt to investigate priority and to give a target insurer written notice of the dispute, pursuant to section 3. An insurer that fails to give written notice within that 90-day period is barred from pursuing priority against the other insurer, unless it can show, firstly, that 90 days was not enough time to make its determination and, secondly, that it made reasonable investigations during those 90 days. These two “saving provisions” are often difficult to satisfy.
Section 4 requires the insurer giving notice under section 3 to also give the claimant a Notice to Applicant of Dispute Between Insurers form, which is a prescribed document that advises the claimant of the dispute and the name or names of the other insurer(s) who might have priority over the claims. The claimant is given 14 days to object to the transfer of their file. If the claimant objects, he or she becomes a participant in any proceeding to determine priority. The Superior Court held recently that the notice under section 4 must be given within 90 days after the insurer receives the claimant’s completed application for benefits.
Once an insurer gives its written notice, subsection 7 (3) states that any arbitration to decide the issues between the parties must be initiated within one year from the date the insurer paying benefits gave its priority dispute notice.
As noted above, Unifund rejected the application on the basis that the claimant was subject to the garage exclusion under section 1.8.4 of the OAP 1. Having determined that there was no coverage under the policy, Unifund refused to adjust and pay benefits pending the outcome of any priority dispute with Intact. Actually, Unifund refused to initiate a priority dispute against Intact.
Meanwhile, Intact refused to adjust the claim on the basis that it was not the first insurer to receive an application for accident benefits. Essentially, Intact argued that Unifund was the first insurer to receive an application, so only Unifund was compelled to pay now and dispute later.
The first issue was whether FSCO had jurisdiction to determine whether section 1.8.4 of the OAP 1 could relieve Unifund of its obligations under section 2.1 (6) of O. Reg. 283/95. The arbitrator relied on previous FSCO decisions (Vieira and Royal & SunAlliance and Chubb, 2004 FSCO App) and Bianca v. Wawanesa, 2004 FSCO Arb) and held that FSCO did not have jurisdiction to make that decision.
Put another way, FSCO (and the courts, and likely the LAT) often determines whether a particular claimant was involved in an “accident”. This is a general coverage issue that applies to a claimant regardless of where she applied for benefits. If she was involved in an “accident”, she is entitled to benefits from at least one insurer. If she was not involved in an “accident”, she is not entitled to benefits from any insurer. FSCO has jurisdiction to make this determination.
However, where there is no issue as to whether a claimant was involved in an “accident”, any other coverage issues (i.e., whether the claimant is an “insured person” under a particular policy) is determined in a priority dispute between insurers. FSCO does not have the jurisdiction to make that determination.
Although FSCO does not have jurisdiction to determine coverage in a priority dispute, it t is well settled law that FSCO has the jurisdiction to determine whether an insurance company complied with section 2.1 (6) of O. Reg. 283/95. The test is whether there is a sufficient nexus between the claimant and the target insurer. For example, in Vieira, there was a nexus even though the policy under which the application was made was not in force at the time of the accident.
It is easy to see the nexus between Mr. Cankaya and Unifund: At the time of the accident he was a named insured of Unifund. Therefore, Unifund’s obligations under section 2.1 (6) of O. Reg. 283/95 would have been triggered when its insured applied for benefits under his policy. It would be open to Unifund to rely on any exclusions under section 31 of the SABS to deny certain benefits. Unifund could also pursue a priority dispute against another insurer, such as Intact. In this case, it failed to do both.
Consequently, the arbitrator found that Unifund was required to adjust the claims and pay benefits:
Given my findings above in Issue 1, Unifund is obliged to respond and adjust Mr. Cankaya’s application for statutory accident benefits. This finding is necessary so Mr. Cankaya may be treated fairly and receives benefits under the SABS to which he is entitled. As well it is consistent with the purpose and rationale of O. Reg. 283/95.
Except in the most unusual circumstances, any insurer in Unifund’s position should take the safe route: They should accept the application, pay the benefits, and dispute priority.
If Unifund was correct that there was no coverage under its policy, the file would have gone to Intact and Unifund would not be responsible for paying benefits.
However, Unifund failed to pursue priority against Intact, so the merits of the dispute will never be resolved because the priority dispute would be time-barred. Accordingly, Unifund is now saddled with the responsibility to pay benefits indefinitely, regardless of whether priority rested with another insurer.
See Cankaya and Intact, FSCO A14-009220 Unifund Assurance Company v The Dominion of Canada General Insurance Company, 2016 ONSC 4337 (CanLII), <http://canlii.ca/t/gshr3> [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]
The task force looking at reform of FSCO has issued a preliminary position paper today calling for a new structure with broader supervisory jurisdiction. It appears that insurance issues would come under the watch of two Superintendents, one for market conduct and product issues, and another Superintendent of Prudential Matters.
The panel is inviting feedback.
For more info and to read the paper: Ministry of Finance[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]
The recent FSCO preliminary issue decision of Arbitrator Rogers in Deschambault v. Wawanesa Mutual Insurance Company (October 2015) confirms that an Insurer has a prima facie right to schedule examinations under section 44. It also confirms that the Insurer controls the examination process and an Insured does not have a right to impose his/her own terms upon the examination.
The Insured, Robert Deschambault, attended a multidisciplinary insurer examination in January and February 2013, about one year post-accident, to address non-earner benefits. Following the examination, his non-earner benefits were terminated on the basis of the assessors’ opinions. In late 2013, the Insured submitted an updated Disability Certificate suggesting he still met the test for non-earner benefits. He also submitted a significant amount of new medical documentation in support of his position. The Insurer determined that it required further section 44 assessments and notified the Insured in accordance with the SABS. However, the Insured refused to attend unless Wawanesa agreed to limit the assessments on the basis of terms proposed by him. Among other things, the Insured demanded that the assessments be limited to the consideration of new medical productions only and imposed a one hour time limit. Wawanesa refused to agree to the terms proposed by the Insured and the Insured refused to attend the assessments.
This matter proceeded to a preliminary issue hearing in writing. Wawanesa took the position that the requested assessments were reasonably necessary, that the Insured’s failure to attend the assessments was unreasonable, that the FSCO arbitration should be stayed until the Insured attended the assessments and that the Insured was precluded from claiming non-earner benefits due to his failure to attend the assessments.
The Arbitrator agreed with Wawanesa that the assessments were reasonably necessary. In his analysis, he recognised that procedural fairness is now considered an overriding consideration when determining if an examination is reasonably necessary.
The Arbitrator rejected the Insured’s argument that the use of a company to co-ordinate the assessments was not permitted by the SABS in light of the fact that the assessors themselves were regulated health professionals. The Arbitrator rejected the Insured’s proposal that only new medical productions be considered. He also rejected the proposed one hour time limit. He stated that the Insured’s proposed limitations were not a reasonable restriction of Wawanesa’s rights of examination, which are quite broad. He also rejected the Insured’s proposal that Wawanesa be limited to obtaining only one copy of the assessment report and requiring Wawanesa to obtain consent from the Insured to request any further copies of the assessment report. The Arbitrator stated that this condition would prevent Wawanesa from being able to request additional paper review assessments, if necessary, which ran contrary to the Insured’s principal position that in-person examinations should be avoided.
The Arbitrator ultimately concluded that Wawanesa’s requested examinations were reasonably necessary, without terms, and that the Insured had failed to attend. As a result of this non-attendance, the arbitration was stayed until the Insured attended, as it would be unfair to Wawanesa to continue without the additional opinions sought. While the Arbitrator also stated that Wawanesa may rely on section 37(7) to refuse to pay non-earner benefits until the Insured attended, he refused to make a decision on whether the Insured’s refusal to attend was reasonable, as required by section 37(8).
As noted above, this case confirms that Insurers have the right to control the section 44 examination process without undue restrictions being placed on the process by Insureds. However, it is still important for Insurers to always deal with Insureds in good faith, to provide reasons why any proposed restrictions are considered unreasonable in the particular circumstances of each case and to ensure that they meet the requirements for assessment requests outlined in the SABS.[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]