Canadian Underwriter

AB claimant can’t circumvent tribunal by suing insurer for bad faith, court rules

March 13, 2018   by David Gambrill

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Launching an independent bad faith claim in court against an insurer over a loss of accident benefits cannot be done to circumvent the tribunal and arbitration process, the Ontario Superior Court of Justice has found.

Economical Mutual Insurance Company successfully petitioned the court to strike the statement of claim of Morgan Stegenga, who was injured in a car accident and claimed that Economical wrongfully denied her benefits payments. She also pleaded that Economical had shown bad faith, negligence and fraud in administering her claim.

Economical argued that Stegenega’s bad faith claim should be struck because of a limit on court proceedings outlined in s. 280 of the Insurance Act. The relevant section of the act says: “No person may bring a proceeding in any court with respect to [an accident benefits dispute], other than an appeal from a decision of the Licence Appeal Tribunal or an application for judicial review.”

Stegenga conceded that while the Insurance Act prevented her from suing for accident benefits, it did not bar her from making an independent claim in court for bad faith in the administration of accident benefits.

The Superior Court rejected her lawsuit, finding that it was too closely related to her accident benefits claim. The court noted that the province’s Fighting Fraud and Reducing Insurance Rates Act, introduced in 2014, mandates that disputes be heard at first instance by a tribunal and limits the involvement of the court to appeals and review.

“Formerly, claimants could not go to court or arbitration until they had attempted mediation,” the court noted. “Under the present legislation, claimants cannot go to court at all at first instance.”

In Ontario, they go to the Licence Appeal Tribunal first, although the tribunal cannot make an award for bad faith. Alternatively, the tribunal can award an additional 50% of benefits if it finds that insurer has denied benefits unreasonably. In addition, a punitive rate of pre-judgment interest is payable by insurance companies that unsuccessfully contest benefits disputes, whether they have acted unreasonably or not.

The exclusive jurisdiction of the tribunal is essential to achieve the law’s intent to reduce the cost of litigation, the court ruled.

“There is no reason to doubt that the legislature, in enacting the present s.280 of the Insurance Act, intended to deprive a claimant of resort to the court at first instance whenever the claim is based on denial of accident benefits, no matter how the denial is characterized in legal terms,” the court ruled. “Accordingly, I order that the statement of claim be struck without leave to amend, and I determine as a matter of law that the Licence Appeal Tribunal has exclusive jurisdiction to decide the claim at first instance.”

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