April 22, 2015 by Canadian Underwriter
The Supreme Court of Canada released Tuesday its reasons for allowing Zurich Insurance Company’s appeal of a ruling where the issue was whether Chubb Insurance Company of Canada, in writing an optional accidental death and dismemberment policy offered by a car rental company, is an insurer for the purpose of Ontario’s ‘pay first dispute later’ policy.
The highest court said it is allowing Zurich’s appeal for the reasons stated by Mr. Justice Russell Juriansz, of the Court of Appeal for Ontario, in dissenting arguments in the 2014 decision that it overturned April 17, 2015.
Zurich had insured a vehicle rented by Sukhvinder (Susan) Singh from Wheels4Rent in 2006. Singh was offered and declined an optional accidental death and dismemberment policy written by Chubb. She was injured in an accident and applied to Chubb for accident benefits. Chubb declined her claim, arguing it was not a motor vehicle policy for the purpose of Ontario Regulation 283/95 section 2. That law 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.”
The “overriding public policy” of that law “is to provide timely delivery of benefits to all persons injured in car accidents in Ontario, despite the inconvenience to insurance companies who must provide benefits immediately and seek reimbursement from the correct insurance company later,” Justice Juriansz wrote in his dissenting argument in 2014. “In my view, that public policy would be seriously eroded by allowing an insurance company that writes motor vehicle liability policies in Ontario to argue, in a case in which the nexus test is satisfied, that it is a ‘non-motor vehicle liability insurer.’”
The “nexus” test was explained by Mr. Justice John Laskin, also of the Court of Appeal for Ontario, in a 2007 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,” Justice Laskin wrote in Kingsway.
Insurance carriers “need to be aware of the huge (and sometimes very costly) risk of relying on the (no) nexus test to refuse an application for accident benefits,” insurance lawyer Daniel Strigberger wrote in a post to insBlogs.
Court records indicate that Zurich administered Singh’s claim on a “without prejudice” basis but argued before an arbitrator that Chubb should have administered the claim first. The arbitrator ruled against Zurich, which appealed to the Ontario Superior Court of Justice, which in turn set aside the arbitrator’s decision.
In 2012, Mr. Justice Robert Goldstein found the arbitrator erred in ruling Chubb was not an insurer under Ontario Regulation 283/95. Justice Goldstein remitted the case back to arbitration in order to determine the “remaining issues” on the priority dispute, which include whether Chubb owes Zurich any money.
The issue, on Chubb’s appeal, was whether Justice Goldstein “erred in deciding that Chubb is an ‘insurer’ for the purposes of the pay first and dispute later rules.”
Two of the three Court of Appeal for Ontario judges hearing the case found in favour of Chubb. The appeal court ruled that there was “no element” of Chubb’s “accidental death and dismemberment policy that insured against liability to others arising out of property damage or injury caused by an automobile or the use or operation thereof.”
Ontario motor vehicle liability policies are regulated and “must provide for payment of (the Statutory Accident Benefits Schedule) and a statutory minimum amount of liability coverage,” Madam Justice Gladys Pardu wrote on behalf of herself and Madam Justice Sarah E. Pepall. “The Chubb policy has none of these characteristics.”
“Both the plain meaning of s. 268 of the Insurance Act and O. Reg. 283/95, and the underlying policy behind the legislation, favour excluding non-motor vehicle liability insurers from the obligation to pay first and dispute later,” Justice Pardu added.
But in dissent, Justice Juriansz said he “would simply apply” the nexus test “to determine whether Chubb, as the first insurance company to receive a completed application for benefits, was obliged” under law to pay those benefits while disputing coverage.
Although the optional Chubb AD&D policy offered to Wheels4Rent customers was not a motor vehicle liability policy, Justice Pardu “does not use the term ‘non-motor vehicle liability insurer’ in the narrow sense to denote an insurer who, as a matter of fact, has not issued a motor vehicle liability policy that provides coverage to the applicant,” Justice Juriansz wrote in 2014. “To apply this narrow sense of the term would effectively overturn existing case law” under Ontario’s pay first dispute later regulation, he added.
Justice Pardu “avoids overruling the earlier case law by suggesting that the Regulation will continue to apply to an insurance company that has not issued a policy to any relevant person so long as there was ‘purported’ or ‘represented’ coverage,” Justice Juriansz wrote. But he added that adjudicators in future cases would “have difficulty reconciling the conclusion that the plain meaning of the Regulation excludes ‘non-motor vehicle liability insurers’ with the proposition that the pay first obligation will continue to apply in cases where there is no actual coverage, but only ‘purported’ or ‘represented’ coverage.”
In 2012, Justice Goldstein noted that the connection between Singh and Chubb “may have been remote, but it was not arbitrary.” To establish a nexus, the connection between a claimant and insurer “must not be arbitrary,” but can be remote, he suggested.
“With the advantage of hindsight, it is evident that, as a matter of fact, Zurich is the motor vehicle liability insurer of Wheels 4 Rent’s vehicles, and Chubb is not,” Justice Juriansz wrote in his dissenting opinion in 2014. “However, there is no hint in the record that Ms. Singh knew anything about the relationship between Wheels 4 Rent and Zurich when she was injured in the rental car or when she applied to Chubb.”