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Supreme Court of Canada allows Zurich Insurance’s appeal over Ontario auto ‘pay first dispute later’ regulation


April 20, 2015   by Canadian Underwriter


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The Supreme Court of Canada has allowed an appeal, from Zurich Insurance Company, of an earlier Court of Appeal for Ontario decision, over Ontario’s “pay first dispute later” system for auto accident benefits claims.

The Supreme Court of Canada allowed an appeal, from Zurich Insurance Company, of a decision in favour of Chubb over Ontario's "pay first dispute later" system for auto accident benefits claims

The highest court announced April 17 it allowed Zurich’s appeal with costs. The judgment is expected to be published within 48 hours.

Ontario Regulation 283/95 section 2 stipulates that the “first insurer that receives a completed application,” for auto accident benefits, “is responsible for paying benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits.”

Court records indicate that in September, 2006, Sukhvinder Singh was injured in an accident while driving a rental vehicle insured by Zurich. Singh declined coverage under an optional policy, written by Chubb Insurance Company of Canada and offered by the rental firm. Chubb’s policy provided coverage in the event of accidental loss of life and injury, wrote Mr. Justice Robert Goldstein of the Ontario Superior Court of Justice, in a decision released Nov. 13, 2012.

Singh’s claim was administered “on a ‘without prejudice’ basis,” by Zurich, Justice Goldstein noted.

In 2012, Zurich had appealed a ruling, by an arbitrator, that Chubb “is not an insurer for the purposes of a priority dispute under Ontario’s automobile insurance regime.”

Chubb had argued “that because the optional policy did not specifically insure a motor vehicle, it could not be an insurer for the purposes” of Ontario Regulation 283/95 section 2, Justice Goldstein wrote. “Chubb argued that the policy was not a ‘motor vehicle liability policy’ as defined by the Act, and was actually a commercial policy.”

Justice Goldstein set aside the arbitrator’s decision, remitting the case back to arbitration in order to determine the remaining issues on the priority dispute.

Chubb successfully appealed Justice Goldstein’s decision. In a divided ruling, released May 13, 2014, the majority of appeal court judges hearing the case ruled that there was “no element” in Chubb’s policy “that insured against liability to others arising out of property damage or injury caused by an automobile or the use or operation thereof.”

In August, Zurich applied for leave to appeal to the Supreme Court of Canada, which heard the appeal April 17, 2015.

Related: Substance over Convenience

In his dissenting arguments, Mr. Justice Russell Juriansz of the Court of Appeal for Ontario, wrote that he would “simply apply the established ‘nexus’ test to determine whether Chubb, as the first insurance company to receive a completed application for benefits, was obliged by [Ontario Regulation Ontario Regulation 283/95 section 2] to pay those benefits while disputing coverage.”

In his 2012 ruling, Justice Goldstein explained the nexus test, citing a 2007 Court of Appeal for Ontario ruling, in the case of Kingsway General Insurance Company versus the Ontario Ministry of Finance.

“As long as there is some nexus – some connection – between the insurer receiving an application for benefits and the insured, the insurer must pay pending the determination of its obligation to do so,” wrote Mr. Justice John Laskin, of the Court of Appeal for Ontario, in Kingsway.

In Zurich vs Chubb, the connection between Singh and Chubb “may have been remote, but it was not arbitrary,” Justice Goldstein wrote in 2012.

He added: “The connection must not be arbitrary to establish a nexus. The connection may well be very remote. Remoteness vs. arbitrariness is also consistent with the twin policy objectives of providing benefits now and paying later, and of encouraging certainty and predictability in the dispute resolution system. Insurers should be encouraged to pay benefits immediately to victims and then determine, through the dispute settlement mechanism, which of them bears the ultimate cost.”