Appeal court rules for insurers in handling of HST in auto AB claims

Ontario auto insurance claimants cannot take insurers directly to court over how carriers treat sales tax on accident benefits claims, the province’s appeal court has ruled.

This is because the province’s Licence Appeal Tribunal, not the Superior Court of Justice, has exclusive jurisdiction over auto accident benefits disputes, the Court of Appeal for Ontario found in its unanimous ruling in Dorman v. Economical Mutual Insurance Company, released earlier this month. In Dorman, the Appeal Court upheld a July, 2020 ruling by Justice Edward Belobaba of the Ontario Superior Court of Justice.

The decision affects 29 separate lawsuits against more than a dozen insurers and the province’s insurance regulator over essentially the same issue.

Some Ontario auto insurers are alleged to have included harmonized sales tax in the calculation of the benefit entitlements, or that they paid only the cost of benefits without the HST. Allegations against the insurers have not been proven in court. The insurers argued, and the court agreed, that only the LAT can hear any such dispute.

Justice Belaboba’s 2020 ruling dismissed the proposed class action lawsuits against the insurers but not against the Financial Services Commission of Ontario (FSCO), which was the province’s insurance regulator when the suit was launched. FSCO became the Financial Services Regulatory Authority (FSRA) in 2018.

For many goods and services purchased in Ontario, the consumers must pay an additional 13% HST.

Some health services such chiropractic treatment or physiotherapy are not subject to HST, Harte Law principal Paul Harte told Canadian Underwriter earlier. Harte is representing plaintiffs in the HST dispute in Ontario. Massage therapy is subject to HST, as is home care if the service is not supplied by the government or by an organization administering home care on the government’s behalf.

For motor vehicle accident victims, the impact is that if they are only reimbursed by insurers for pre-tax costs of services, then claimants could have to pay HST out of pocket. It is also possible for a catastrophically impaired auto injury claimant – whose attendant care is capped at $6,000 a month – to get only $5,310 in coverage, Harte told Canadian Underwriter in 2018 after the lawsuits were announced.

FSCO adjudicated auto accident benefits disputes until 2018, when it was replaced by FSRA. In 2016, the Ontario government transferred responsibility for auto accident benefits dispute resolution to the LAT.

In addition to naming insurers, the plaintiffs in the sales tax dispute also allege that some FSCO officials were “aware” of the insurers’ conduct, received complaints about that conduct, and either didn’t take any steps to put a stop to it or took “insufficient” steps to stop it. Allegations against FSCO officials have not been adjudicated in any court or tribunal.

In his 2020 ruling, Justice Belaboba ruled the Superior Court of Justice had the jurisdiction to hear a lawsuit against FSCO but not against the insurers. He also found the court lacked jurisdiction to approve settlements with two insurers (Intact and direct writer Belair) because those lawsuits could not be approved as class actions; again, because the court lacked jurisdiction.

FSCO and the plaintiffs appealed. All appeals were dismissed by the Court of Appeal for Ontario in its ruling released May 13, 2021. Economical, as the lead respondent, was awarded costs of $10,000.

In addition to Economical, Intact and Belair, other insurers named as defendants included Aviva Insurance Company of Canada, Unifund Assurance Company, Certas Home and Automobile Insurance Company, The Commonwealth Mutual Insurance Group, Co-operators General Insurance Company, Echelon General Insurance Company, Wawanesa Mutual Insurance Company, St. Paul Fire and Marine Insurance Company, Travelers Insurance Company of Canada, TD Insurance, Gore Mutual Insurance Company and CUMIS General Insurance Company.

Feature image via iStock.com/Sadeugra