First presented at MB's Transportation Law Seminar
As discussed at our last transportation seminar, the cases of Canada v. Lombard General Insurance Company of Canada1 and Zurich Insurance Company v. TD General Insurance Company2 had left the law unclear with respect to the doctrine of laches as applied to Ontario's loss transfer regime. While the law was clear that a first party insurer 'discovers' its claim for loss transfer on the day after it makes a request for indemnification3, it was unclear whether there are any limitation periods relating to when a first party insurer must deliver an indemnification request to be entitled to seek indemnification under the loss transfer provision of the Insurance Act4. This gap in the legislation was clarified in November when the Court of Appeal released its decision in the appeal of Intact Insurance Company of Canada v. Lombard General Insurance Company of Canada5 and found that the doctrine of laches is not available to second party insurers when defending a claim for loss transfer.
Underlying Conflicting Decisions
In Intact v. Lombard, Intact paid accident benefits to their insured following a motor vehicle accident that occurred on February 13, 2007. Intact submitted its first request for indemnification to Lombard on September 7, 2011 and Lombard refused to indemnify Intact based on the amount of time that had elapsed from the date of the accident to the date of Intact's first indemnification request. The matter was submitted to arbitration where the arbitrator agreed with Lombard that laches barred Intact from pursuing its loss transfer claim against Lombard.
On appeal to the Superior Court of Justice, Justice Chiappetta concluded that the doctrine of laches did not properly apply to loss transfer claims as loss transfer indemnity is purely statutory and Lombard's claim did not have a "distinctively equitable flavour" rendering it devoid of equitable relief.6 As such, Justice Chiappetta concluded that "only statutory limitation periods limit the statutory right to loss transfer indemnity."7 While this could prove contrary to the legislative purpose of the Insurance Act by providing an "expedient and summary method" of reimbursement and indemnification8, it was "nonetheless not appropriate to purposely re-characterize the equitable doctrine of laches in an effort to fill a perceived legislative omission, or to augment a statutory limitation period."9 Even if the doctrine could apply, Lombard could not establish the necessary elements of the defence10 as a defendant relying on the laches defence must show a combination of delay and either (a) the plaintiff's acquiescence or (b) prejudice to the defendant. The appeal was allowed and Lombard was ordered to indemnify Intact.
In the case of Zurich v. TD, Zurich rejected a demand for loss transfer that was made approximately 11 years after the subject accident. While the arbitrator acknowledged that he was bound by the decision in Intact v. Lombard, he found that laches could not be applied to a claim for loss transfer and that Zurich had failed to establish "the necessary components of laches... one of them being presumed prejudice or actual prejudice."12
Upon appeal to the Superior Court, the doctrine of laches was found to apply where a "first party insurer delays for approximately 11 years in requesting loss transfer from a second party insurer."13 While the doctrine of laches had traditionally only been applied to equitable, and not legal, claims, a more flexible approach ought to be utilized under "certain circumstances."14 As Ontario's loss transfer regime possessed an "equitable flavor" and was designed to address unfairness between participants in the province's insurance industry, this was found to be a sufficient basis to permit the application of the doctrine of laches.15 As the loss transfer claim was made almost 11 years after the accident, "[a]pplying laches in these circumstances is... consistent with the principle that the fusion of law and equity has evolved in order to achieve just results."16 Furthermore, it was found that applying the doctrine of laches to loss transfer claims was consistent with the purposes of the Limitations Act, which was for the "promotion of certainty and clarity in the law of limitation period."17 It was ultimately held that "TD's delay in requesting loss transfer gave rise to an inference that it had abandoned or waived its rights to the claim."18
Decision of Court of Appeal
The Court of Appeal found that the loss transfer mechanism does not have the "distinctively equitable flavor" required to establish the defence of laches. Furthermore, the Court of Appeal found that the Limitations Act, 200219 prohibits second party insurers from raising this defence to defeat a claim for legal relief that is not subject to the unexpired basic limitation period prescribed by the Limitations Act.
While the second party insurers argued for the inherent unfairness in allowing a first party insurer to advance a claim where unreasonable delay has occurred, the Court highlighted that any unfairness could be rectified through the enactment of regulations. The Court also stated that this decision does not address the availability of other equitable defences (such as waiver, estoppel and acquiescence) to the extent not founded solely on a first party insurer's delay in initiating its claim.
We now know that second party insurers are unable to rely on the doctrine of laches to defeat a claim for loss transfer. This decision will have significant consequences for insurers of heavy commercial vehicles or for the insurers of vehicles that collide with motorcycles or motorized snow vehicles as these insurers must continue to adjust for and reserve for the possibility of a demand for loss transfer in the future as there is no limitation period for a first party insurer to make a demand.
In this new environment, we recommend that second party insurers thoroughly investigate liability even though they have no knowledge of whether litigation or a demand for loss transfer will ever be presented. We also recommend that parties potentially affected by this loophole lobby for a change in the legislation relating to the lack of a deadline to make a demand for loss transfer as this decision seems to run counter to the general purpose of the loss transfer regime.
By Michael Blinick - First presented at MB's Transportation Law Seminar
1 2013 ONSC 5878 [Intact v. Lombard].
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.