Denial, Deflection and Duty to Pay

Every motor vehicle liability policy in Ontario provides statutory accident benefits coverage as set out in the Statutory Accident Benefits Schedule (SABS), pursuant to section 268 of the Insurance Act.

Ontario Regulation 283/95 — Disputes Between Insurers (O. Reg. 283/95) — sets out the process for disputing the obligation to pay accident benefits. The intent of the priority dispute scheme is to ensure that the first insurer to receive an application for benefits “pays pending” the resolution of the dispute. Historically, insurers have denied any obligation to respond to an accident benefits claim or to comply with O. Reg. 283/95 on the basis that they have no connection or “nexus” with the claimant.

With Auto Bulletin A-07/10, the Financial Services Commission of Ontario (FSCO) highlighted changes to the regulation to ensure compliance by all insurers in the province. Additionally, these changes were designed to ensure that claimants receive accident benefits in a timely fashion while priority disputes are resolved between insurers.

The changes to O. Reg. 283/95 appeared to mostly eliminate the common law “nexus test” for determining whether or not an insurer in Ontario is required to comply with the regulation to transfer an accident benefits claim to a priority insurer. O. Reg. 283/95 now provides that any “insurer” who receives a completed Application for Accident Benefits (OCF-1) is obligated to accept that application and pay accident benefits, pending the result of the priority dispute.

This was designed to prevent an insurer from denying or deflecting the claim on the basis that it did not insure the claimant or did not have a valid policy at the time of the accident.

Importantly, subsection 2(2) of O. Reg. 283/95 provides that the requirement to respond to the OCF-1 and “pay pending” applies retroactively “in respect of benefits that may be payable as a result of an accident that occurs before September 1, 2010.”

ZURICH INSURANCE V. CHUBB INSURANCE

Zurich v. Chubb is a recent SABS priority dispute appeal relating to an accident in 2006. Justice Robert Goldstein of the Superior Court of Justice held that the priority arbitrator erred in finding that Chubb was not an insurer for the purposes of O. Reg. 283/95.

The facts are relatively straightforward: the claimant rented a vehicle from Wheels4Rent, which was insured with Zurich. At the time of rental, she declined an optional policy for accidental loss of life and injury coverage offered by Chubb. The claimant was then injured as a result of a motor vehicle accident on September 23, 2006 and submitted an OCF-1 to Chubb.

Chubb denied the claim for accident benefits on the basis that it was not an insurer under either SABS or O. Reg. 283/95, because it did not offer or underwrite a policy of motor vehicle liability insurance. Rather, the offered product of insurance was simply a commercial policy for accidental loss or injury.

Following Chubb’s denial of benefits, Zurich eventually paid benefits to the claimant. Zurich then commenced a priority dispute with Chubb, arguing that Chubb improperly deflected the claim and ought to have accepted the OCF-1 pending any priority dispute.

Arbitrator Stanley Tessis accepted Chubb’s position that the offered policy was commercial and not a motor vehicle liability policy. Tessis, therefore, found that there was no nexus or connection between Chubb and the claimant for the purposes of section 268 of the Insurance Act and O. Reg. 283/95. As such, Chubb was not required to pay any accident benefits or obligated to comply with O. Reg. 283/95.

On appeal, Justice Goldstein relied on the Insurance Act definitions of “insurer” and “motor vehicle liability insurer” to find that Chubb was obligated to both respond to the OCF-1 and to comply with the priority dispute scheme.

 Section 1 of Ontario’s Insurance Act provides as follows:

“insurer” means the person who undertakes or agrees or offers to undertake a contract. …

“motor vehicle liability policy” means a policy or part of a policy evidencing a contract insuring,

(a) The owner or driver of an automobile, …

against liability arising out of bodily injury to or the death of a person, or loss or damage to property caused by an automobile or the use or operation thereof.

Justice Goldstein observed that simply calling a policy a commercial policy does not necessarily make it so. The policy offered by Chubb insured the driver of a motor vehicle against damages caused by the use of a vehicle. Accordingly, it was a motor vehicle liability policy and Chubb was, therefore, an insurer for the purposes of O. Reg. 283/95.

Justice Goldstein also reviewed the “nexus test” discussed in the 2007 decision by the Court of Appeal for Ontario, Kingsway General v. Ontario. The nexus test provides that an insurer cannot avoid its obligation to “pay pending” on the basis that another insurer should pay or that its policy was cancelled prior to the accident. So long as there is a nexus or connection between the insurer and the claimant, the insurer must pay accident benefits pending the determination of its obligation to do so.

Justice Goldstein applied the nexus test to find that the choice of Chubb by the applicant was not arbitrary; there was a connection between the claimant and Chubb. Arguably, based on the changes to subsection 2(2) of O. Reg. 283/95, there was no need for a finding that Chubb had a nexus with the claimant. All that was really required was a finding that Chubb was an insurer that agreed or offered to undertake a contract insuring any owner or driver of an automobile for damages related to its use or operation.

The matter was remitted back to the arbitrator to determine the remaining issues in arbitration, including whether Chubb complied with procedural requirements of O. Reg. 283/95, and whether the consequence of its failure to do so should result in an obligation to pay accident benefits, as well as the amount of any indemnification owed to Zurich.

In Wawanesa Mutual Insurance Company v. Lombard Canada, released in 2010, the Court of Appeal for Ontario found no error in law regarding the arbitrator’s determination that a breach of section 2 of O. Reg. 283/95 ought not to result in an obligation to pay benefits indefinitely.

However, the Kingsway decision “left the door open” for the arbitrator to conclude that Kingway’s deflection and failure to comply with the 90-day priority notice should result in its obligation to pay benefits indefinitely.

In a proper case, it remains open for a priority arbitrator to conclude that an insurer’s decision to deflect the accident benefits claim to another insurer and not comply with O. Reg. 283/95 should result in the first insurer’s obligation to pay the claim indefinitely.

DENY OR DEFLECT AT PERIL

The changes to O. Reg. 283/95 and the Chubb v. Zurich decision highlight the increased duty of insurers in Ontario to respond to a completed OCF-1, regardless of whether or not a nexus exists between the insurer and claimant. Insurers continue to deny or deflect claims at their peril.

Any insurer licensed in Ontario that offers or underwrites a policy insuring the owner or driver of a motor vehicle is obligated to comply with O. Reg. 283/95. This means the insurer is obligated to respond to a completed OCF-1, pay accident benefits in the interim, and comply with O. Reg. 283/95 to transfer the claim to the priority insurer.

This broad obligation is particularly relevant for insurers who offer “non-traditional” policies of insurance related to the use or operation of a motor vehicle, such as add-on
policies through employment, educational, recreational and rental relationships.

The December 13, 2012 FSCO appeal decision, MVAC(F) and Buckle, further reminds the insurance industry that there may also be broader exposure for insurers of golf carts, pocket bikes,

ATVs and other off road-type vehicles that are not traditionally considered to be motor vehicles, depending on the particular facts of the case.

Last, the Power of Attorney and Undertaking continues to apply to mean that extra-provincial insurer signatories are held to the same standard as all other insurers in Ontario.