Canada: The Art of Due Diligence: Priority Disputes Among Insurers

NUTS & BOLTS

The enactment of Ontario Regulation 283/95 – Disputes Between Insurers (the "Regulation") has obliged insurers to continue payment of Statutory Accident Benefits ("SABS") to injured person even where entitlement to these benefits is disputed. At the same time, the insurers 'battle it out' behind the scenes over which has higher priority and should be paying for the claimed benefits.

A priority dispute arises when there are multiple motor vehicle liability policies which might respond to a SABS claim made by an individual involved in a motor vehicle accident.

Section 268(2) of the Ontario Insurance Act sets out the hierarchy of insurers obligated to pay SABS with respect to the occupant claimants, as follows:

  1. Insurer of an automobile in respect of which the claimant is an insured;
  2. Insurer of the automobile in which claimant is an occupant;
  3. Insurer of any other automobile in the subject accident; and
  4. The Motor Vehicle Accident Claims Fund.

With respect to non-occupant claimants (i.e. pedestrians), the hierarchy remains the same, but for the second recourse, which for non-occupants, is the insurer of the automobile that struck them.

Lastly, if an individual has recourse against more than one insurer for the payment of SABS, that individual, in his or her "absolute discretion", may decide the insurer against which he or she will claim the benefits.

The success of a priority dispute often depends on the parties and arbitrator having enough information upon which to establish priority. As such, production of documentation and thorough due diligence on behalf of the claims handler is critical to the success of priority dispute arbitration.

(STRINGENT) TIMELINES

The time begins to run once the insurer has a "completed application". The Regulation defines "completed application" as "completed and signed application" and "application" is defined as "application for accident benefits (OCF-1) approved by the Superintendent for the purposes of the Schedule." In other words, the priority disputes timeline generally begins to run once the insurer has received a completed and signed OCF-1. However, it has been argued that if there is sufficient information upon which to adjust a file, it may be found to constitute an application in the absence of an OCF-1.

It is important to note that the first insurer that receives a completed application for benefits is obligated to pay benefits regardless of priority. In fact, claims analysts are barred from taking any steps intended to prevent or stop the claimant from submitting a completed application to the insurer and should not refuse to accept the completed application or re-direct the claimant to another insurer. The claims analysts are simply advised to adjust the file in accordance with the provisions of the SABS pending the resolution of any priority dispute.

Once the insurer receives a "completed application", it must provide written notice within 90 days of receipt of a "completed application" for benefits to every insurer who it claims is required to pay under s. 268 of the Insurance Act.

An insurer may give notice after the 90-day period if

  • 90 days was not a sufficient period of time to make a determination that another insurer or insurers is liable under section 268 of the Act; and
  • the insurer made the reasonable investigations necessary to determine if another insurer was liable within the 90-day period.1

In addition to providing the notice, the insurer ought to give notice to the insured person using a form approved by the Superintendent.

It is worth noting that the above exception requires a hefty burden of proof and as such claims analysts are encouraged to conduct appropriate due diligence in the early stages of the file in order to satisfy the 90-day notice requirement. It is important to note that in many instances the claims analysts might have to retain counsel to conduct an Examination Under Oath ("EUO") in order to determine whether another insurer has priority.

Finally, the arbitration must be initiated no later than one year after the day the first insurer gives notice. The following rules apply with respect to an arbitration of a dispute relating to an accident that occurs on or after September 1, 2010:

  1. If an insurer to whom a notice to initiate arbitration is delivered does not respond to the notice within 30 days, the insurer is deemed to have accepted the jurisdiction of the arbitrator proposed in the notice.
  2. A pre-arbitration hearing must be scheduled and take place no later than 120 days after the appointment of the arbitrator.
  3. Subject to paragraph 4, once a date for the arbitration is scheduled, the arbitration must be conducted on that day.
  4. The arbitrator may grant an adjournment on such terms as the arbitrator considers appropriate, but only if there is cogent and compelling evidence of the reasons why the hearing cannot proceed on the scheduled day.
  5. Unless consented to by all parties, the hearing of the arbitration must be completed within two years after the commencement of the arbitration.

Therefore, the success of priority dispute arbitration largely depends on the steps and due diligence conducted by claims handler in the early stages of the file.

'DEPENDENCY', "A SPOUSE" OF A NAMED INSURED & "REGULAR USE OF AN AUTOMOBILE"

Priority disputes tend to arise from ambiguous policy wordings and as such any time there is some question as to whether, for instance, a claimant is "dependent" on a named insured or "a spouse" of a named insured, the claims analyst should be flagging these files and diligently assessing the likelihood of another insurer having higher priority.

Another situation wherein priority disputes frequently arise is where there is some question as to whether the claimant had "regular use of an automobile" during the course of his or her employment.

The relevant sections pertaining to the issues of 'dependency', "a spouse" of a named insured and "regular use of an automobile" indicate as follows:

(5) Despite subsection (4), if a person is a named insured under a contract evidenced by a motor vehicle liability policy or the person is the spouse or a dependent, as defined in the Statutory Accident Benefits Schedule, of a named insured, the person shall claim statutory accident benefits against the insurer under that policy. 1993, c. 10, s. 26 (2); 1999, c. 6, s. 31 (9); 2005, c. 5, s. 35 (13).

(5.1) Subject to subsection (5.2), if there is more than one insurer against which a person may claim benefits under subsection (5), the person, in his or her discretion, may decide the insurer from which he or she will claim the benefits. 1993, c. 10, s. 26 (2).

(5.2) If there is more than one insurer against which a person may claim benefits under subsection (5) and the person was, at the time of the incident, an occupant of an automobile in respect of which the person is the named insured or the spouse or a dependant of the named insured, the person shall claim statutory accident benefits against the insurer of the automobile in which the person was an occupant. 1993, c. 10, s. 26 (2); 1999, c. 6, s. 31 (10); 2005, c. 5, s. 35 (14). [Emphasis Added].

Furthermore, section 3(7)(f) of the SABS states that an individual who is living and ordinarily present in Ontario shall be deemed to be the named insured under the policy insuring an automobile at the time of an accident if, at the time of the accident,

  • The insured automobile is made available for the individual's regular use by a corporation, unincorporated association, partnership, sole proprietorship or other entity; or
  • The insured automobile is rented by the individual for a period of more than 30 days. [Emphasis Added].

I. (Financial) 'Dependency'

Financial dependency is one of the most common issues that arise in 'dependency' priority disputes. This issue commonly arises when the claimant is seeking accident benefits payments from the insurer of the vehicle he or she was in but at the same time, he or she is financially dependent on another insured (i.e. family member) who has their own automobile insurance policy.

Some aspects of the financial dependency issue are well-known to insurers and well-established in the case law. However, other aspects of the issue may be more elusive. For instance, how is a claimant's income defined for financial dependency purposes? What time frame should be used for determining dependency?

  1. Background

    In part, the SABS defines a dependent as someone who "is principally dependent for financial support... on [another] individual or the individual's spouse."3 decision in Miller v. Safeco4 four criteria to consider in looking at whether someone is a dependent:

    1. the amount of dependency;
    2. the duration of the dependency;
    3. the financial and other needs of the alleged dependent; and
    4. the ability of the alleged dependent to be self-supporting.5
    In turn, principal dependency is determined by looking at what is known as the "50+1%" analysis. For a claimant to be "principally dependent" on another individual, "50+1%" of their resources must come from that individual.6

    The "50+1%" analysis can be done in one of two ways:

    1. by looking at the claimant's expenses or needs; or
    2. in the alternative, by looking at the Low Income Cut-Off (LICO) measure as an indicator of the claimant's expenses or needs.7
    The claimant's expenses or needs (actual or as a LICO measure) are then compared to their income and the resources provided by the individual upon whom the claimant is thought to be dependent. If this individual provides "50+1%" of the resources required to support the claimant's needs or expenses, then the claimant will be found dependent on them.
  2. Defining Income

    Defining the claimant's income is one of the first steps to determining whether "50+1%" of his or her resources comes from another individual.

    The SABS defines income as "salary, wages and other remuneration from employment," as well as "any benefits received under the Employment Insurance Act (Canada)".8 However, the definition does not include "any retiring allowance within the meaning of the Income Tax Act (Canada)" or severance pay.9

    In line with this definition, arbitrators and courts have considered the following resources as income for the "50+1%" analysis:

    1. T4 income10
    2. Social assistance income/Ontario Works income11
    3. Self-employment income12
    However, scholarships and government student loans (e.g., OSAP) are not considered income.13 Otherwise, college and university students who have large scholarships or loans would be eliminated from their parents' insurance policies. This rationale goes against the public policy to ensure that insurance coverage is broadened and not restricted for claimants.14
  3. Determining Timeframes

    The timeframe for determining principal dependency varies from case to case. The general rule is that arbitrators and courts should consider the "big picture" and not just a "snapshot" of the claimant's life.15 The chosen timeframe should fairly reflect "the status of the claimant [on] the date of the accident".16

    Overall, arbitrators and courts have considered timeframes up to several years.17 As outlined in Co-operators General Insurance Co v. Royal & Sunalliance Insurance Co, the traditional timeframe generally is twelve months. However, there is case law to suggest that short periods may be considered.18

    The following are some examples of timeframes chosen by arbitrators and courts:

    1. Seven weeks: in the seven weeks prior to the accident, the claimants (two young children) moved out of their biological father's home and into a home with their biological mother and her boyfriend, upon whom they were found to be dependent;19
    2. Two months: in the two months prior to the accident, the claimant discontinued his relationship with Children's Aid Society and changed his education, employment and residency arrangements;20
    3. Three months: in the three months prior to the accident, the claimant began college and was living with her boyfriend away from home.21

Overall, the focus is not about the permanence of a status change – which, as the Ontario Court of Appeal stated, can be "speculative or unreliable" – but rather on the "true nature" of a status change at the time of the accident.22 A recent change in the claimant's living arrangements, or relationships may ultimately affect who they were (or were not) dependent upon at the time of the accident.

Therefore, the case law clearly considers certain resources as income and other resources as excluded under the definition of income. However, the timeframe for determining dependency must be done on a case-by-case basis. The focus must be on the "big picture" with a view towards a fair and true reflection of the claimant's status at the time of the accident.

II. Regular Use of an Automobile

With respect to the "regular use of an automobile" prong, an illustrative (recent) case is Intact Insurance v. Aviva Canada Insurance.23 The issue in this case was whether the claimant had "regular use" of the company vehicle while he was on seasonal lay off and had not returned to regular duties.

The Arbitrator looked to the decision in ACE INA Insurance v. Co-operators General Insurance Co. [2009] CanLII 13625, O.J. No. 1276 for guidance. In this case, Justice Belobaba interpreted the principle of a work vehicle "being made available" at the time of the accident. The claimant was an employee of a rental car service and had access and permission to use the rental vehicles for his employment-related needs. The claimant was involved in a motor vehicle accident when he was heading downtown on a Sunday morning, when he was not in the course of his employment and when he was off work for nine days. Justice Belobaba noted that the main question was whether the vehicle was made available to the claimant at the time of the accident, "when he was off work and on his way downtown...."

Justice Belobaba held that regular use of a vehicle is not a "portable status that remains with the insured – the status is only conferred at and for, a moment in time, namely the time of the accident. The employer's insurer is liable to pay accident benefits, if and only if, at the time of the accident a company-insured car was being made available to the employee." As such, Justice Belobaba concluded that the claimant did not have regular use of the company vehicle at the time of the accident.

The decision in ACE INA outlined a number of important cases with relevant factors to consider when determining whether priority rests with the company insurer. These factors are reproduced as follows:

  • The fact that the use of a vehicle is limited to work purposes does not change the categorization of the use as "regular".
  • The language employed by the SABS does not require the use of the employer's motor vehicle to be frequent, exclusive or personal. The mere fact that there is some use that can be said to be regular was sufficient to give the individual status under the policy.
  • Using a company vehicle 3-4 times per month constitutes "regular use" within the meaning of section 66 of the SABS.
  • Regular use does not mean frequent use. A "reasonable" and "common sense" definition for "available" and "regular use" was applied concluding that one need not have exclusive or personal use in order to be deemed to have regular use of a vehicle.
  • "Regular" is intended to describe "periodic, routine, ordinary or general" as opposed to "irregular or out of the ordinary". "Regular use" does not apply where the characterization is "irregular at best and out of the ordinary".

In the ACE INA case, the Arbitrator concluded that the employee had regular use of the company car at the time of the accident. The Arbitrator looked at the following factors in reaching his decision:

"The evidence discloses several other indicia of permission for personal use. He was given the keys and permission to take the vehicle home. He was not asked to return the vehicle to the company between work assignments or during seasonal layoff. The company admittedly took no steps to monitor personal use. There was no evidence adduced of any disciplinary action even having been taken against the Claimant for personal use, or for that matter, any other employee. I am satisfied that the Claimant was never specifically told he could not use the vehicle for personal tasks. The impression left is that this was a small company where the employer turned a blind eye to occasional personal use by its trusted and long-term employees such as [the Claimant], and that they would not step in unless there was serious abuse of the privilege. On this basis, I find that the Claimant had permission, or at the very least implied permission, to have personal use of the vehicle." [Emphasis Added].

Therefore, the Arbitrator found that the claimant had "regular use" of a company vehicle insured by Aviva at the time of the accident and therefore qualified as a deemed named insured by reason of s. 3(7)(f) of the SABs.

CLOSING REMARKS

Although the above information is intended to be helpful in dealing with priority disputes issues, it is important to note that priority disputes are largely decided on 'case-by-case' basis.

The facts of the case, documentation produced (including any transcripts from Examination Under Oath and witness statements) and due diligence of both the claims handler (in the early stages) and counsel (in the latter stages) ultimately decide the outcome of priority dispute arbitrations.

Footnotes

1. O. Reg. 283/95, s. 3 (2).

2. O. Reg. 38/10, s. 9.

3. O Reg 34/10, s 3(7)(b).

4. Miller v. Safeco (1986), 48 OR (2d) 451 (HCJ), aff'd 50 OR (2d)797 (CA) ("Miller").

5. Ibid.

6. Co-operators Insurance Co v Halifax Insurance Co, (Ont Insurance Act) (December 14, 2001, Arbitrator Samis), aff'd[2002] OJ No 2459 (Sup Ct J) ("Co-operators No. 1").

7. Co-operators General Insurance Co v Royal & Sunalliance Insurance Co, 2017 CarswellOnt 7984 (Ont Insurance Act) (May 16, 2017, Arbitrator Bialkowski) at paras 35-36 ("Co-operators No. 2").

8. O Reg 34/10, s 4(1).

9. Ibid.

10. Intact Insurance Co. of Canada and Economical Mutual Insurance Co., Re, 2014 CarswellOnt 10515 (Ont Insurance Act) (July 17, 2014, Arbitrator Bialkowski) at paras 34-35 ("Intact No. 1"); Royal & SunAlliance Insurance Co. of Canada and AXA Insurance (Canada), Re, 2014 CarswellOnt 7180 (Ont InsuranceAct) (May 7, 2014, Arbitrator Bialkowski) at para 20 ("Royal & SunAlliance").

11. Ibid; Intact Insurance Co. and State Farm Mutual Automobile Insurance Co., Re, 2013CarswellOnt 19271 (Ont Insurance Act) (June 6, 2013, Arbitrator Bialkowski) at para 25 ("Intact No. 2").

12. Ibid.

13. Co-operators No. 2, supra note 5 at paras 55-57.

14. Ibid.

15. Ibid at para 52.

16. Guarantee Co. of North America and Wawanesa Insurance Co., Re, 2010 CarswellOnt 18810 (Ontario Insurance Act) (May 7, 2010,Arbitrator Samis) at para 19 ("GuaranteeCo.").

17. Intact No. 1, supra note 8.

18. Co-operators No. 2, supra note5 at para 43.

19. Intact Insurance Co v Allstate Insurance Co of Canada, 131 OR (3d) 625, 403 DLR (4th) 438 (CA) at para 81 ("Intact No. 3").

20. Guarantee Co., supra note14 at paras 23-24.

21. Co-operators, supra note5 at paras 28 and 43.

22. Intact No. 3, supra note17 at paras 77-81.

23. Intact Insurance Company v. Aviva Canada Insurance Company,March 8, 2018.

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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