September 1, 2010 - the effective date for a variety of reforms applicable to the Statutory Accident Benefits Schedule (SABS) - was designed to be a turning point for Ontario auto. The introduction of the reforms was welcomed, but with caution. Two years later, this might be a good time to think about how the reforms are playing out.
By this time, we might have expected to be able to pronounce upon the success, or otherwise, of the effort. But here we are with 24 months of post-reform experience, and not much insight in the outcome of the coverage changes.
In the claims world, it is not the intent of the reform that matters; it is the features that are applied by courts and arbitrators. The signals sent from dispute resolution can, and very often do, recast our understanding of obligations. At the same time, the economic incentives will motivate some people to manipulate the process to take advantage of any weakness that the case decisions identify.
The cynicism that permeates claims departments calls for a "let's-just-watch" approach. Too many well-intended reforms have not had the expected results over the years. The September 2010 reforms started out with fundamental controversy, which in itself is ominous. Key stakeholders vocally disagree about the scope of the "minor injury" concept, yet nothing has emerged to remedy this fundamental disconnect.
Anecdotally, we hear reports of a very large number of cases being characterized as "minor injuries" with the consequent limitation of benefits, notably a $3,500 cap on medical and rehabilitation benefits.
WAITING FOR GUIDANCE
Unexpectedly, not one Ontario dispute about minor injury has emerged from arbitration or court proceedings yet. (Some case law from other jurisdictions is emerging to underscore the vulnerability of a minor injury concept.)
Stakeholders still cling to their perspectives of 2010, but no Ontario case law has brought us any closer to closing the chasms of disagreement. Underlying this lengthy uncertainty is the backlog of cases in the Financial Services Commission of Ontario (FSCO) mediation process.
By statute, all SABS cases must be mediated before arbitration or litigation can commence. With 20,000 or 30,000 cases awaiting attention, it is not surprising the minor injury disputes have not emerged for judicial/arbitral consideration.
The minor injury concept is a tool engaged to contain costs by stratification of auto injuries by severity. Bluntly put, if the injury is minor, then not much is payable.
At the other end of the spectrum, we label the most serious cases "catastrophic" in an attempt to identify the cases that will access a very rich level of compensation. The "Cat" definition has been a problem for 10 years or more, but it is only recently that studies and reports have proferred some strategies for amending the definition.
At this point, we are still dealing with a legacy definition from 1996 that needs to be cleaned up. That reform did not make the 2010 package - and it is still not in place, but is tantalizingly close. In September 2010, Cat reform was an item on the "to do" list; it still is. Conclusion: Two cornerstones to address the pre-September 2010 reform needs remain veiled in uncertainty.
CONCEPTS IN TROUBLE
That is not to say there has not been insight from courts and arbitrators about September 2010 issues. Right now, the case law emerging suggests that some of those reform concepts are in trouble. First, the announced interest rate reform associated with the September 2010 package has been the subject of arbitral consideration. One of the reforms addressed the shocking 2% per month (compounded) interest rate on overdue benefits. The rate was reduced to 1% per month compounded.
FSCO Bulletin 04/10 stated, and many insurers understood this to mean, that the interest rate was reduced to 1% per month as of September 2010. However, the FSCO arbitrator in Federico and State Farm Mutual Automobile Insurance Company notes the interest accumulates at 2% per month before and after September 2010 if the benefit was due prior to that date. The arbitrator further commented that the bulletin provisions were confusing.
Another SABS interpretation decision has given consideration to the effect of the September 2010 reform by specifying the need for claimed expenses to be "incurred" in accordance with the SABS definition. One would be forgiven for thinking that no such provision is necessary in a contract of insurance, but it is commonplace for SABS claims to be advanced asserting "basic supervisory" attendant care - effectively paying family members for their mere presence in the household, "just in case."
It is unpalatable to be funding these claims when there is no corresponding expenditure. And the claims can quite easily mount to many hundreds of thousands of dollars.
The September 2010 reform was thought to have closed this loophole by requiring the person providing the services to have economic loss. In Henry v. Gore Mutual Insurance Company, a judge of Ontario's Superior Court of Justice refused to limit the claim to the amount of economic loss sustained.
The ruling signals that if the person has any economic loss, then the full limit of benefit is claimable whether or not there is economic loss of that magnitude. On this theory, payment for a bus ticket would suffice to give an entitlement to $6,000 per month as an attendant care benefit.
The courts also offer a decision of concern about the concept of optional benefits. Reduction in SABS coverage in recent reforms has been accompanied by a mandatory requirement that insurers offer an optional coverage, at additional cost, to facilitate an attempt to replace the benefits taken out of the basic program. In short, bands of coverage are moved from the mandatory package of coverage to the optional zone. Unfortunately, in the decision of Zefferino v. Meloche Monnex Insurance, Ontario's Superior Court was quite demanding as to what actions are necessary to comply with the obligation to offer the optional benefits.
The judge described the duty of insurers with the words, "consumers must be given an understandable alternative which would allow them to measure the need for more coverage against risk and cost." In that case, it was found to be insufficient to merely mention the existence of optional coverage and to invite a further inquiry.
The judge seems to take the view that there must be some kind of meaningful description of the coverage, its application to the person's personal circumstances, and the cost to enable the applicant to understand the option in a meaningful way.The court did not comment on the fact that such an approach would require the insurer to address the possible claims of the applicant in question as well as others who could claim optional benefits.
It appears that the effect of this decision may be to require many insurers to alter their practices in a significant and, perhaps, costly way. From a claims point of view, there is concern that an inadequate offer will lead to the argument that the person, if more informed, would have purchased optional benefits. Therefore, the argument goes, the person should be provided with the optional level of benefits. Zefferino was unable to persuade the court to take that next step in his case. Conclusion: The scorecard for the cases post September 2010 is 0 for 3.
OPEN TO FRAUD
There is an important point to be learned about anti-fraud efforts as these cases are considered. The cases highlight the following issues: payment of 2% per month interest - an unbelievable economic incentive to dispute, etc.; payment of insurance proceeds in excess of economic losses; and possible access to optional benefit features without applying for or paying for the expanded coverage.
There are many other examples to help us understand that the significant fraud activity in auto insurance is not the cause of the problems - fraud is merely a symptom of a system lacking in adequate controls - which offer benefits that far exceed needs.
It is not a stretch to say that these types of flaws permeate the entire system. No wonder it costs so much and delivers so little in tangible benefits.
Regrettably, many will not see the Emperor's clothes while blinded by the halo of untested 2010 reforms. Ultimately, it will be clear that the reforms, if they turn out to be very effective, have only succeeded in moderating the effect of some of the flaws.
Although the underlying problems are more challenging, these will not be faced as long as opinion leaders are content to wait for better times.
Of course, if the other September 2010 reforms are watered down by future arbitration or court decisions, then insurers will have to reconsider their positions with more than two years of backlog to manage.The long tail of the unveiling is a challenge for all.
Federico and State Farm Mutual Automobile Insurance Company (FSCO A08001138);
Henry v. Gore Mutual Insurance Company, 2012 ONSC 3687 (CanLII); and
Zefferino v. Meloche Monnex Insurance, 2012 ONSC 154 (CanLII).