June 29, 2017 by Daniel Strigberger, Partner, Samis+Company; and Ken Parsons, Consultant, Everest Canada
As people gather July 1, 2017 to celebrate Canada’s 150th birthday, thousands of “road-building machine” (RBM) vehicles in Ontario may be required to be registered and insured for the first time as motorized vehicles rather than as road-building or contractors equipment. This will, undoubtedly, have an impact on insurers’ bottom lines and open the door to more loss transfer disputes.
Ontario’s Highway Traffic Act (HTA) governs the province’s public roads and the vehicles/drivers that use them. Among other things, the HTA regulates vehicle and driver licensing and prescribes various rules of the road.
For insurance purposes, the HTA operates in conjunction with Ontario’s Insurance Act and the Compulsory Automobile Insurance Act (CAIA) to ensure that all required vehicles operating on public roads are insured.
Section 2 of the CAIA requires every “motor vehicle” driven on a “highway” to be insured under an automobile policy; Section 1 adopts the HTA definitions of “motor vehicle” and “highway.”
While Section 1 of the HTA currently defines highway to include a public road intended for or used by the public for the passage of vehicles, motor vehicle is defined as follows:
“motor vehicle” includes an automobile, a motorcycle, a motor-assisted bicycle unless otherwise indicated in this Act, and any other vehicle propelled or driven otherwise than by muscular power, but does not include a street car or other motor vehicle running only upon rails, a power-assisted bicycle, a motorized snow vehicle, a traction engine, a farm tractor, a self-propelled implement of husbandry or a road-building machine.
Compare that to the current Ontario HTA definition of RBM:
“road-building machine” means a self-propelled vehicle of a design commonly used in the construction or maintenance of highways, including but not limited to
(a) asphalt spreaders, concrete-paving or finishing machines, motor graders, rollers, tractor-dozers and motor scrapers;
(b) tracked and wheeled tractors of all kinds while equipped with mowers, post-hole diggers, compactors, weed-spraying equipment, snow blowers and snow plows, front-end loaders, backhoes or rock drills; and
(c) power shovels on tracks and drag lines on tracks, but not including a commercial motor vehicle.
This means that any of the RBMs previously defined are not motor vehicles under Ontario’s HTA. Accordingly, under the CAIA, they are not currently required to be insured under an auto policy.
However, effective July 1, 2017, the HTA definition of RBM is being replaced with the following definition:
“road-building machine” means a self-propelled vehicle of a design commonly used in the construction or maintenance of highways that
(a) belongs to a class of vehicle prescribed in the regulations;
(b) has the features or equipment prescribed in the regulations; or
(c) is being used as prescribed in the regulations.
The regulation that will prescribe vehicles as RBMs is aptly called Ontario Regulation 398/16, Road-Building Machines. The regulation significantly narrows the definition of RBM, meaning many vehicles that currently fall within the definition will no longer be considered as such and will now be deemed to be commercial motor vehicles.
RBMs that will be left behind after July 1 include mobile equipment (such as mobile cranes that do not meet previous requirements), stone slingers and any vehicle that is built on truck chassis, such as excavators, street sweepers (except low-moving street sweepers), hydrovacs, sewer cleaners, paint trucks, vacuum trucks, water trucks and others.
The former RBMs will now need to be registered/licensed and insured under an Ontario auto policy.
Brokers and insurers should be aware of – and prepared for – the impact that the change in definition of road construction equipment will have on their auto and package customers from the perspectives of both exposure and loss potential.
Some units may no longer be considered road-building or contractors equipment, but could possibly be deemed to be motor vehicles as defined under the HTA. If such a unit is considered to be at fault and the vehicle weight is in excess of 4,500 kilograms, the principle of loss transfer could potentially come into play.
In such an event, it is possible that insurers could face large claim payouts, even after income replacement, if long-term care and other statutory accident benefits limits (the Statutory Accident Benefits Schedule) are considered.
In some cases, if the personal injury claims exceed the primary auto underlying limits, additional indemnification could fall to the limits provided under an umbrella policy, if one is available.
Ontario automobile losses in the past 10 years involving serious personal injuries have seen increasingly large claim payouts. This fact alone should prompt contractors, brokers and insurers to review the exposure.
Other considerations that should be taken into account given the change in definition include the following:
LOSS TRANSFER EXPOSURE
Since insurers of former RBMs could now be exposed to loss transfer, relevant sections of Ontario’s Insurance Act may come into play. For example, Section 275 allows the insurer responsible for paying a claimant accident benefits (first-party insurer) to pursue and receive loss transfer indemnification against the insurers of a prescribed class of vehicle involved in the accident that triggered the payment of the benefits (second-party insurer).
Regulation 664 of the Insurance Act, for its part, prescribes that an insurer of a “heavy commercial vehicle” involved in the accident triggering the payment of benefits could be a “second-party insurer,” unless the insurer paying the benefits is not paying them under a policy that also insures heavy commercial vehicles (HCVs).
For example, in an accident between a car and an HCV, the insurer paying benefits under the automobile policy could be entitled to loss transfer indemnification from the insurer of the HCV.
As per Ontario Regulation 668, Fault Determination Rules, the amount of indemnification is determined based on the respective degree of fault of each insurer’s insured. The regulation defines “commercial vehicle” to include “a vehicle designed specifically for construction or maintenance purposes.” A “heavy” commercial vehicle is defined in Ontario Regulation 660, Automobile Insurance, as one that weighs more than 4,500 kilograms.
Under the current scheme, there may not be any loss transfer available in accidents involving heavy RBMs because there may be no requirement to be insured. In other words, there may not currently be considered second-party insurers from which a loss transfer indemnification claim could be made.
However, under the new scheme, former RBMs may now be insured and their insurers may become “second-party insurers” subject to loss transfer.
With the amendment of the definition to road-building equipment under the HTA, it is important that contractors, brokers and insurers recognize the impact to their respective operations. Insurers, in particular, could find themselves with a hidden, but significant, auto exposure as these units are legislated to come off package, inland marine or other coverage forms and be written on an approved Ontario auto policy.
The road ahead becomes that much more challenging in terms of sound business practices and a prudent underwriting approach.
The views and opinions expressed in the article are those of the individual authors and do not reflect the views of their organizations and/or affiliates.
—Daniel Strigberger, Partner, Samis+Company; and Ken Parsons, Consultant, Everest Canada
Have your say: