Canadian Underwriter

Priority dispute in mechanic test-drive case could reach top court

June 27, 2018   by Greg Meckbach

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A priority dispute between Ontario auto insurers over who should pay accident benefits to a mechanic injured while test-driving a customer’s car could be headed to Canada’s highest court.

Auto repair shop owner Jing Hua Fan was hurt in 2011 while test-driving a customer’s vehicle. He claimed accident benefits with The Dominion of Canada General Insurance Company (acquired in 2013 by The Travelers Companies Inc.), which wrote a garage policy of insurance.

The Dominion said Unifund Assurance Company, which insured Fan’s own personal vehicle, should be the insurer that pays Fan’s accident benefits.

In the meantime, The Dominion was paying Fan’s accident benefits because Ontario has a pay-first-dispute-later system. This means that whichever insurer gets an accident benefits claim must normally adjust (and pay benefits on) that claim, and then recoup from the other insurer if it is later ruled that the other must pay.

The Dominion received Fan’s accident benefits claim on Jan. 4, 2012. The Dominion told Unifund 20 days later that it intended to argue Unifund should have to pay Fan’s accident benefits. The Insurance Act stipulates that the Dominion has 90 days to give such notice.

The Insurance Act also says The Dominion had to give Fan notice. Fan was not notified until June 2014. Section 4. (1) of the Insurance Act does not explicitly say the client must be informed within 90 days. Section 3. (1) of the Insurance Act says the insurer has to give notice to the other insurer within 90 days. Unifund argues the intent of the law is that the client should also be notified within 90 days, even if the clause in the law does not explicitly say so.

Arbitrator Shari Novick disagreed, in a ruling released Oct. 20, 2015. As a result, Novick ruled that The Dominion could still proceed with its priority dispute. That ruling was reversed in 2016 by Justice Mario Faieta of the Ontario Superior Court of Justice, but later restored by the Court of Appeal for Ontario in a ruling released March 27, 2018.

The Supreme Court of Canada announced June 22, 2018 that Unifund is applying for leave to appeal. This does not mean the Supreme Court of Canada will necessarily hear an appeal from Unifund. Normally in such cases an application for leave to appeal is sent to a panel comprised of three judges of the Supreme Court of Canada, who decide whether the application is granted or dismissed.

Related Supreme Court of Canada cites dissenting appeal court judge’s reasons in allowing Zurich’s appeal of Ontario auto claim dispute

In overturning Novick’s initial arbitration ruling, Justice Faieta found it is not accurate to say the drafters of Ontario’s auto insurance law “did not intend for a timeline to apply because none is expressly provided.” Otherwise, Justice Faieta reasoned, it leads to “an absurd consequence.” The right of a claimant to participate in a priority dispute is meaningless if the claimant “is unaware of the dispute until after the one-year time limit on initiating arbitration of the dispute has passed,” Faieta  wrote.

But in The Dominion’s case, the claimant did find out about the priority dispute before the arbitration hearing started, Justice Katherine van Rensburg of the Court of Appeal for Ontario noted. In restoring the arbitrator’s original ruling, the Court of Appeal for Ontario ruled that Justice Faieta erred in applying a “correctness” standard of review rather than a “reasonableness” standard to the arbitrator’s ruling. For example, a court would not overturn a decision if is “reasonable” for the lower-court judge to have drawn that particular conclusion.