Supreme Court of Canada grants Zurich Insurance leave to appeal ruling over Ontario auto ‘pay first dispute later’ system

The Supreme Court of Canada recently announced it has granted, to Zurich Insurance, leave to appeal a Court of Appeal for Ontario ruling, over an auto insurance claim, released last May.

In September, 2006, Sukhvinder Singh was injured in an accident while driving a rental vehicle. The rental company had offered an optional accident policy – which she declined – written by Chubb. Chubb’s policy provided coverage in the event of accidental loss of life and injury, wrote Mr. Justice Robert Goldstein of the Ontario Superior Court of Justice, in a ruling two years ago in favour of Zurich.

“Chubb declined to provide benefits on the basis that the optional policy was not a motor vehicle policy, but rather was a commercial policy,” Justice Goldstein wrote at the time. His ruling was overturned by the Court of Appeal for Ontario, and the highest court is now allowing Zurich leave to appeal.

Zurich had administered Singh’s claim “on a ‘without prejudice’ basis,” and Zurich argued “that even though it is ultimately responsible for the payment of benefits, Chubb should have administered the claim, given notice to Zurich …. and then either let Zurich pay, or, if Zurich contested its obligation, proceed to arbitration,” Justice Goldstein noted in his ruling, released Nov. 13, 2012.

Court records indicate that the arbitrator had agreed that Chubb was not an “insurer,” but Justice Goldstein set aside that decision, ordering the case “remitted back to the arbitrator in order to determine the remaining issues on the priority dispute arbitration.”

In Chubb’s dispute with Zurich, “there was no question that the claimant believed that there was coverage with Chubb when she applied there,” wrote Daniel Strigberger, a Kitchener, Ont.-based insurance lawyer for Miller Thomson LLP, in the October-November issue of Claims Canada magazine. Insurance companies, Strigberger added, “should be aware of the huge (and sometimes very costly) risk of relying on the nexus test to refuse an application for accident benefits …”

Ontario has a “pay first dispute later” system for auto accident benefits claims. Ontario Regulation 283/95 section 2 stipulates that the “first insurer that receives a completed application,” for auto accident benefits, “is responsible for paying benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits.” 

In Zurich’s dispute with Chubb, the arbitrator ruled that Chubb was not an “insurer” under section 268 of Ontario’s Insurance Act, which pertains to auto. 

That ruling was reversed by the Ontario Superior Court of Justice, but restored by the Court of Appeal for Ontario in a decision released May 13, 2014. In August, Zurich applied for leave to appeal to the Supreme Court of Canada, which announced Nov. 27 it had granted Zurich’s application.

In ruling against Chubb in 2012, Justice Goldstein cited a Court of Appeal for Ontario ruling, released in 2007, in Kingsway vs Ontario. In that case, the court noted: “As long as there is some nexus – some connection – between the insurer receiving an application for benefits and the insured, the insurer must pay pending the determination of its obligation to do so.”

That nexus test “has been the subject of much debate over the past several years, primarily because insurers that did not have valid auto policies in play at the time of a loss were being forced to pay accident benefits (and incur loss control expenses) at the outset,” Strigberger wrote in Claims Canada. “Some of those insurers became saddled with claims indefinitely, having taken an off-coverage position initially without pursuing a priority dispute.”

Justice Goldstein “erred in concluding that the Chubb policy was a ‘motor vehicle liability policy,'” wrote Madam Justice Gladys I. Pardu of the Court of Appeal for Ontario, in a divided decision released May 13, 2014.

“There was no element of that accidental death and dismemberment policy that insured against liability to others arising out of property damage or injury caused by an automobile or the use or operation thereof.”

Madam Justice Sarah E. Pepall concurred with Justice Pardu’s ruling, but Mr. Justice Russell Juriansz dissented, noting that he would “simply apply the established ‘nexus’ test to determine whether Chubb, as the first insurance company to receive a completed application for benefits,” was obligated to pay SABS benefits “while disputing coverage.”

The Court of Appeal for Ontario reviewed the question, of whether Chubb was a motor vehicle liability insurer within the meaning of Ontario law, “on the correctness standard,” wrote Mark Gelowitz, Senior Partner; and Gerard Kennedy Associate, Osler, Hoskin & Harcourt LLP, in a recent article in Canadian Underwriter.

“Justice Pardu found that the arbitrator’s decision was correct,” wrote Gelowitz and Kennedy. “However, a deferential attitude is nonetheless implicit in her decision, as she held that ‘whether there was a sufficient nexus between Chubb and the claimant is a question of mixed fact and law reviewable on the standard of reasonableness.'”