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Arbitrator in priority case not allowed to consider quality of insurer’s investigation after 90-day notice period is over: Ontario court


July 23, 2009   by Canadian Underwriter


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If an Ontario auto insurer disputes its priority to pay no-fault accident benefits after the statutory 90-day notification period is over, an arbitrator oversteps his or her bounds by considering the quality and/or timing of the insurer’s investigation after the 90-day notice period is over, the Ontario Superior Court has ruled in Dominion v. Certas.
Lawyers for Certas Direct Insurance Company are seeking leave to appeal the decision to the Ontario Court of Appeal.
They argue the Superior Court took too narrow a view of the statutory discretion allowed to arbitrators in such priority cases.
Under Ontario’s no-fault accident benefits legislation, the first insurer claimed against must pay accident benefits upon notification of the claim. The insurer then has 90 days to notify another insurer of any intent to dispute priority.
Once the 90-day notice period is over, an insurer can only challenge priority if it can be shown that:
•    90 days wasn’t enough time to investigate, and
•    the insurer seeking the extension had undertaken reasonable efforts to investigate during the 90-day time period.
Certas submitted that Dominion had failed on both counts.  
The case arises out of an incident in which Julia Gordyukova was injured in an accident in 2001.
Gordyukova was legally married but separated from her husband at the time of her injuries. But when she filled out an application to Dominion for accident benefits (Dominion insured the car), she answered ‘No’ or ‘Single’ to all of the questions that would have revealed her true marital status.
Based on the fact that Gordyukova remained legally married, her husband’s insurer, Certas, should have been the first-priority insurer, Dominion argued.
Dominion first learned that Gordyukova might have provided misleading or incorrect information about her marital status well after the 90-day notice period for disputing priority was over, during a court discovery in 2003 (Gordyukova had launched a proceeding against Dominion related to her claim).
Even then, Dominion’s confirmation of her true marital status took a full year after the court discovery; the insurer didn’t notify Certas about its intent to challenge priority until 2004 — two-and-a-half years after the notification period was over.
An arbitrator found Dominion had delayed its investigation of the information first learned at discovery “for an unreasonable period of time.” As a result, the arbitrator ruled he had discretion not to extend the 90-day time frame for notification.
The Ontario Superior Court overturned the decision on appeal.
“In taking the approach that he did, the arbitrator effectively rewrote the regulatory scheme,” the Superior Court ruled. “The legislature has decided that an insurer who receives an application for accident benefits may serve a notice disputing priority outside of the initial 90-day window if two criteria are established.
“In essence, the arbitrator amended the scheme by adding a third criterion, namely a requirement that the insurer move with reasonable dispatch after discovering that another insurer may be liable.
“It may well be that this would be a sensible and fair amendment, but it was not the arbitrator’s function to make it.”