December 1, 2003 by Vikki Spencer
As mutual insurers met in Montreal for the Canadian Association of Mutual Insurance Companies (CAMIC) convention, it was amidst a flurry of industry activity. Auto insurance reform in all private market provinces was being contested in the light of provincial elections, specifically in Ontario. Privacy legislation, to which insurers will be subject to from the beginning of next year, was front and center with the removal of Privacy Commissioner George Radawanski. But, dominating the discussion were recent legal decisions regarding “bad faith” claim lawsuits against mutual insurers – an Ontario court decision slamming Hamilton Township Mutual with $2 million in punitive damages, which is now under appeal, and a legal win by Spencerville Ontario-based Grenville Mutual Insurance Co.
Ten years ago, Grenville Mutual embarked on a legal odyssey when dairy farmer Gerald Laplante of Sarsville, Ontario, saw his barn and its contents destroyed by a fire. While Laplante sought $700,000 in punitive damages, on top of more than $1 million in compensatory damages, an Ontario jury awarded the farmer an additional $50,000 in punitive and $400,000 in compensatory damages.
On appeal, the courts dismissed the punitive damages but upheld the compensatory award. “Although they [the Appeals Court] did not agree with the jury’s reasoning or interpretation of the policy wording, they decided it was within the jury’s right to interpret it as they did,” says Grenville Mutual manager Ross Lincoln. However, the Appeals Court noted that this was not a case of the “big, bad insurer” forcing a settlement, but called the case “a hard fought commercial dispute between two sophisticated parties”. The company had paid out more than $600,000 on the claim within the first six months, and $1 million total within 14 months. The court further ruled the plaintiff was not financially burdened, in fact posting higher earnings in the year following the fire.
Lincoln says the decision is bittersweet – while the compensatory damages do not reflect the insurer’s intent in the policy, this is weighed against the value of the punitive damages being dismissed. “Although we weren’t satisfied at all with the jury’s interpretation of our actions, we realized an award of punitive damages in this case could be devastating to our industry.”
While the Supreme Court of Canada refused to hear the case on appeal, Laplante is making an attempt to have the high court review the case through a “reconsideration” application, although such applications are generally unsuccessful.
Nonetheless, the plaintiff has struck back with online petitions and media interviews, while the insurer has chosen not to partake in public mud-slinging. The company has learned several lessons from its brush with the courts, says Lincoln, including the importance of showing confidence in front-line staff, such as adjusters. Also, having competent counsel and understanding the judicial process are keys, particularly given the volatility of jury trials, where public bias against insurers can color the process.
If insurers face bias in the courts, then they face outright hostility from consumers – and the issue of auto insurance reform is touching mutual insurers as sharply as it is large insurers. At the time of the conference, Ontario was heading into an election with a Liberal victory ensured. On the heels of the changes already being undertaken through Bill-198, the future of the auto insurance system seems up for grabs, with uncertainty ruling the day.
Many of the regulations in support of Bill-198 were not in place prior to the election call, with the Conservatives struggling to put paid to the bill’s provisions in the weeks leading up to the vote. Ruth Henneberry, a partner at Blakeney Henneberry Murphy, notes that this situation has “muddied the waters” with many questioning the validity of these late regulations. And, while the Liberals have said they would not “tinker” with the new system, they did include some “broad strokes” in their election platform aimed at the sensitive issue of rates. “The big push with the Liberal platform is rates,” she observes, beginning with an immediate rate freeze (which was implemented in late October).
Henneberry predicts that some of the auto reforms under Bill-198 could create additional confusion. Notably, she says that insurers can expect to see more personal injury claims for $100,000 or more as this is the point at which the deductible is removed. “Cases that were $50,000 to $75,000 are going to be ‘bumped up’,” she says. Also, there is some confusion about access to tort for ‘excess healthcare’, which is not well defined. The definition of permanent or serious impairment is also questionable at this stage, as it seems to be linked to the ability to carry out employment or daily activities.
Other potential “trouble spots” include the pre-approved framework (PAF) for minor injuries, where claimants could use the PAF period to “get organized” to push for further treatments such as psychological treatment. The result is that claimants may be able to find an end-run around some of the reforms put in place to limit insurers’ claims payouts and reduce abuse of the system.
One regulatory area where mutual insurers may have an advantage over the rest of the property and casualty insurance industry is regarding the incoming privacy legislation. The federal privacy legislation will come into effect for insurers at the beginning of 2004, and it “remains to be seen” how the Insurance Bureau of Canada’s (IBC) standard for its members companies will stand up on issues of consent to collect, use and disclose personal information, says Bill Blakeney, partner with Blakeney Henneberry Murphy. Mutual insurance companies, however, have devised their own standard through CAMIC which he says is preferable. “The CAMIC standard is more plain in wording…and goes into great detail.”
That said, Blakeney feels that some concerns over the privacy commission are unfounded. “You hear a lot of scare mongering from lawyers about the terrible things that will happen to you if you run afoul of the privacy commissioner.” In reality, while some companies have faced fines or sanctions, these have largely been limited to attempts to thwart the privacy commission from investigating complaints. “99.5% of complaints can be handled by a prompt [within 30 days] and courteous response by the company’s privacy officer,” he adds.