Canadian Underwriter

Optional benefits priority ruling could create “administrative nightmare” for auto insurers

July 9, 2019   by David Gambrill

Print this page Share

An insurance defence lawyer is warning of a potential “administrative nightmare” for insurers in light of a recent Court of Appeal for Ontario decision on priority disputes involving optional benefits.

Continental Casualty Company v. Chubb in Ontario is now becoming referred to as the “optional benefits” case. Essentially, it allows an insurer paying optional accident benefits to a claimant to recover the mandatory portion of its accident benefits payments back from the priority insurer.

But as insurance defence lawyer Daniel Strigberger points out in his blog, posted on Strigberger Brown Armstrong’s website, “there is no process in place now governing how the optional benefits insurer could seek reimbursement from the priority insurer. Likewise, there is no process in place now governing how the priority insurer could dispute the reasonableness of [mandatory] payments made [by the optional benefits insurer] (both benefits and administrative expenses).”

Strigberger says the court’s decision will “undoubtedly” lead to “a significant increase in reimbursement claims, which will not only lead to significant legal costs but also place a burden on already-busy claims handlers, who will now need to consider a new reimbursement process for ongoing priority dispute claims.”

Moreover, he adds, “it will be extremely difficult for priority insurers to set reserves properly, to capture not only benefits that another insurer is paying (like in loss transfer), but also the cost of insurer assessments and administration expenses (which is not an issue in loss transfer because those expenses are not recoverable).”

For these and other reasons, Strigberger concludes, “in my opinion, this decision could cause an administrative nightmare for insurers going forward, especially if more consumers continue to purchase optional benefits.”

Under Ontario’s no-fault insurance laws, if a driver makes an auto accident benefits claim, the first insurer to receive the claim must pay out the accident benefits and then resolve any priority disputes with other insurers later. Ontario has a host of rules that show which insurers should be responsible for paying the claim when there is a priority dispute between insurers.

Under Ontario law, priority rules are waived when optional benefits are involved. Even if the insurer paying the optional benefits is not the priority insurer, it must still pay out the claim so that the insured driver does not lose out on the optional benefits that she or he has purchased. An example of an optional benefit would be receiving $2-million in catastrophic impairment coverage instead of $1 million.

As the Continental ruling currently stands (whether it will be appealed is not known), an insurer responsible for paying optional benefits can now seek reimbursement from the priority insurer for any mandatory accident benefits payment it paid as part of the claim.

In the aftermath of this decision, what should insurers do now?

“If you are the optional benefits Insurer, consider bringing a new claim against the priority insurer for reimbursement, keeping in mind there might be a 90-day notice issue to overcome (this is a topic for a future blog),” Strigberger writes. “If you are the priority insurer, you can expect to receive new notices for reimbursement.”

Print this page Share

2 Comments » for Optional benefits priority ruling could create “administrative nightmare” for auto insurers
  1. Denis Gauthier says:

    Would this not circumvent one of the objective that no fault brought in. “the reduction of legal fees expensed to the individual insurers”? The only benefactors in this are the lawyers even if the insured may be better served the and the no-fault benefits would be somewhat damaged in the legal fight between insurers.

  2. Frank Cain says:

    Maybe not a nightmare for brokers, the agony, of many, of not being able to tell a client how something in insurance is defined. Similarly, the enforced no-no on the broker of interpreting wordings requires we turn to the insurer for the meaning. No different than a garage mechanic saying, “Every vehicle has a differential, but I’m not allowed to tell you what it does?”

    Importantly for the client, if the optional payments are not recoverable, a sizable loss remains and while AB itself will not interfere with premium, how good will that look on your clients loss record?

Have your say:

Your email address will not be published. Required fields are marked *