Court rules against insurer over limitation period in Ontario auto family protection endorsements

Lombard General Insurance Company is expected to file an application with the Supreme Court of Canada for leave to appeal a court ruling on the limitation period in Ontario’s optional family protection endorsement for auto policies, according to an article in Dutton Brock LLP’s E-Counsel newsletter.

In a decision released Feb. 4, the Court of Appeal for Ontario ruled against Lombard — which is owned by Northbridge Financial Corp. — when a policyholder sought coverage in 2010, under a family protection endorsement, arising from an accident that had occurred in 2006.

That endorsement covers auto policyholders suing defendants with insufficient liability limits.

The Feb. 4 ruling could, in effect, mean that there no longer is a limitation period on claims under family protection endorsements, writes Dutton Brock student Lauren Chen in the law firm’s spring 2014 issue of E-Counsel.

Last month’s appeal court ruling arose from a lawsuit by Eckhart Schmitz against Ervin Bakonyi, whose Ontario auto liability limit was $1 million. Schmitz had been hit by Bakonyi’s vehicle. Schmitz later made a claim under his family protection endorsement with Lombard because he was claiming more than $1 million from Bakonyi.

The optional family protection endorsement insures for the amount that a client is “legally entitled to recover from an inadequately insured motorist as compensatory damages” for bodily injury or death. Ontario auto insurance carriers use the terms stated in Ontario Policy Change Form (OPCF) 44R.

Section 17 of OPCF 44R states: “Every action or proceeding against the insurer for recovery under this change form shall be commenced within 12 months of the date that the eligible claimant or his or her representative knew or ought to have known that the quantum of claims with respect to an insured person exceeded the minimum limits for motor vehicle liability insurance in the jurisdiction in which the accident occurred, but this requirement is not a bar to an action which is commenced within 2 years of the date of the accident.”

Court records indicate that in August, 2013, Mr. Justice Martin James, of the Ontario Superior court of Justice, ruled against Lombard, after Lombard had argued that Schmitz’s claim was barred by the provision of OPCF 44R Section 17. Lombard contended that in Schmitz’s case, the limitation period started to run when Schmitz “knew or ought to have known that the quantum” of his claim against Bakonyi exceeded $1 million.

Lombard appealed Justice James’s decision, but the Court of Appeal for Ontario upheld the lower court ruling.

“It is expected that Lombard will appeal this decision to the Supreme Court of Canada,” wrote Chen.

In arguing that a 12-month limitation period applied, Lombard had argued that the “definition of discoverability” that should have been used was the one in OPCF 44R, rather than in Section 5 of the provincial Insurance Act. Lombard contended that even if Section 5 of the Insurance Act does apply, that in “the unique circumstances involving claims under the OPCF 44R, the limitation period started to run when the respondents first knew or ought to have known that their claims against Mr. Bakonyi exceeded $1,000,000.”

The Court of Appeal rejected Lombard’s arguments, citing a 2012 Court of Appeal for Ontario decision on two separate appeals. In a decision released April 5, 2012, the appeal court ruled in favour of Federation Insurance Company of Canada (in a case against Kingsway General Insurance Company) and in favour of ING Insurance Company of Canada in a case against Markel Insurance Co. That ruling is commonly cited as Markel.

A Federation auto policyholder was getting accident benefits, arising from a collision in January, 2002 with a tractor-trailer insured by Kingsway. Kingsway resisted claims from Federation, made after April, 2004, on the grounds they were barred by the Limitations Act.

An arbitrator ruled against Kingsway on the grounds that “a first party insurer could not discover that it had suffered a loss due to the second party insurer’s omission, or that arbitration was appropriate, until it had requested indemnification.” The Court of Appeal upheld the arbitrator’s ruling.

In Lombard’s appeal in the Schmitz claim, the appeal court noted that “once a legally valid claim for indemnification under the OPCF 44R is asserted, the underinsured coverage insurer is under a legal obligation to respond to it.” Citing the Markel ruling, the court noted that a policyholder making a claim under OPCF 44R “suffers a loss from the moment [the insurer] can be said to have failed to satisfy its legal obligation [under the OPCF 44R]”.

The ruling against Lombard, in effect, “could mean that there no longer exists a limitation period on claims under the OPCF 44R,” Chen wrote in E-Counsel. She added that findings of a court “are not binding on an insurer unless tha insurer has had the opportunity” to participate in the policyholder’s lawsuit against the under-insured motorist.

“The bottom line is that the 2 year limitation period for an indemnity claim under the underinsured motorist coverage begins to run the day after the demand for indemnity is made, but there is no limit on when such a demand must be brought forth,” Chen added.