Canada: Court Of Appeal Finds Break In Chain For Loss Transfer

Last Updated: October 26 2015
Article by Ashleigh T. Leon

On October 20, 2015, the Court of Appeal rendered its decision in State Farm Automobile Insurance Company v. Old Republic Insurance Company of Canada, 2015 ONCA 699.  The decision involved the correct interpretation of subsection 9(4) of the Fault Determination Rules.

At arbitration, the parties had submitted an agreed statement of facts.  The accident occurred in Mississauga when a heavy commercial vehicle, insured by Old Republic, struck a Dodge from behind pushing it into the rear of a Nissan which was insured by State Farm. The Dodge and the Nissan were stopped at the time of the accident. The driver of the Nissan was injured in the accident and applied for accident benefits from State Farm.  In turn, State Farm sought indemnification from Old Republic pursuant to the loss transfer provisions of the Insurance Act and Regulations.

Both parties agreed that Rule 9(4) of the FDRs would apply to the collision but differed on how that Rule is to be applied to the collision at hand.  Rule 9 states as follows:

9(1)      This section applies with respect to an incident involving three or more automobiles which are travelling in the same direction and in the same lane ("chain reaction").

9(2)    The degree of fault for each collision between two automobiles involved in the chain reaction is determined without reference to any related collisions involving either or the automobiles and another automobile.

9(3)      If all of the automobiles involved in the incident are in motion and automobile "A" is the leading vehicle, automobile "B" is the second vehicle and automobile "C" is the third vehicle,

(a)        In the collision between automobiles "A" and "B", the driver of automobile "A" is not at fault, and the driver of automobile "C" is 50 per cent at fault for the incident;

(b)        In the collision between automobiles "B" and "C", the driver of automobile "B" is not at fault, and the driver or automobile "C" is 100 per cent at fault.

9(4)      If only automobile "C" is in motion when the incident occurs,

(a)        In the collision between automobiles "A" and "B", neither driver is at fault for the incident;

(b)        In the collision between automobiles "B" and "C", the driver of automobile "B" is not at fault and the driver of automobile "C" is 100 per cent at fault for the incident.

The arbitrator was presented with conflicting Superior Court decisions on the issue and found in favour of Chapnik, J's reasoning in Royal and Sun Alliance Insurance Company of Canada v. AXA Insurance (Canada), 2012 ONSC 3095 holding that there did not have to be a collision between vehicles "A" and "C" in order for Rule 9(4) to apply and vehicle "C" to be 100 percent at fault for the entire collision. The Superior Court judge agreed and held that Old Republic vehicle was 100 per cent at fault for the entire chain reaction and State Farm was entitled to indemnification.

The matter proceeded to the Court of Appeal, with leave.  The Court of Appeal overturned both the arbitration decision and the Superior Court decision, finding that Rule 9(4) only apportions fault as between the two vehicles that actually collide, therefore as between vehicles "A" and "C" no loss transfer indemnification is available.  

J.A. Simmons found that Rules 9(3) and 9(4) are parallel provisions which cannot be read inconsistently.  It would not make sense to to apportion fault in the situation of Rule 9(3) as between both vehicles "A" and "B" as well as vehicles "A" and "C" because this would allow for indemnification for the insurer of vehicle "A" in the amount of 150% (recall in Rule 9(3), the driver of vehicle "B" is 50% at fault for the incident between "A" and "B" and the driver of vehicle "C" is 100% at fault for the incident between "B" and "C").  Therefore, it could not have been the intent that the driver of vehicle "C" could be found to be at fault for the incident involving vehicle "A". 

He also found, among other things, that apportioning fault to driver "C" for the entire chain reaction would be inconsistent with Rule 11 which is the only other FDR dealing with multiple vehicle collisions.  Rule 11 finds that during a pile up (multiple vehicle collision involving vehicles in adjacent lanes), each vehicle is 50% at fault for the incident as between it and other vehicle.  Thus, to also find that the vehicle that caused the pile was was 100% at fault for the entire incident would again overcompensate the insurers of the other vehicles involved.

For a complete copy of the decision visit:

The insurers of heavy commercials vehicles are breathing a sigh of relief after this decision I'm sure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ashleigh T. Leon
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