It has been almost 18 years since a Conservative government implemented Ontario's third major tort reform automobile compensation system. It came into force on October 23, 1996. That fall I presented my first iteration of this paper which explained how tort damages should be calculated under this new system. Since then, significant changes have been made to the legislation in 2003, 2006, 2010 and 2011 and there have been a number of judicial decisions interpreting various provisions of the tort reform scheme. There have also been a number of versions of this paper. This one is intended to provide a reasonably comprehensive analysis of how tort damages should be calculated for accidents occurring on or after May 12, 2011 based on the law as of March 1, 2014.2 These changes are largely embodied in Bills 198 (2003), 18 (2006) and 34 (2010).

Bill 59 ("Bill 59") ushered in a complex and confusing damage assessment model for victims of automobile crashes. Bill 198, which came into force on October 1, 2003, made several changes to the damage calculation rules.3 Further significant changes were introduced in Bill 18 which rewrote the vicarious liability rules for leased and rented automobiles effective March 1, 2006. Finally, Bill 34 made some additional changes to the tort reform model effective September 1, 2010. A minor amendment was made in May of 2011 which affects public transit vehicles.

In previous versions of this paper I have commented on the changes originally ushered in by Bill 59 and then on the modifications to this regime contained in Bill 198. In this paper, I intend to simply discuss the law is it stands today without considering the differences between the various Bills. If you need some historical context or are still dealing with pre-Bill 198 or 34 claims, then I would suggest that you review one of the earlier versions of this paper. I will simply refer to the current version of the legislation as AIRS.

The appendix contains a set of rules designed to simplify calculations under AIRS. However, these rules only work if the assumptions contained in this paper about a number of nuanced interpretative issues are correct. Therefore, I would caution the reader to carefully assess the assumptions that I have made in each of the damage calculation rules before using them.


A. Introduction

AIRS divides defendants into two classes; namely, protected defendants and other persons. Before discussing how the damage calculation and apportionment provisions work ,it is important to understand the distinction between these two types of defendants.

(i) Who are "Protected Defendants"?

AIRS defines a "protected defendant" as a person who is protected from liability under subsections 267.5(1), (3) and (5) of AIRS.4 In later subsections, persons who are not "protected defendants" are simply described as "other persons". I will refer to them as "unprotected defendants".

In the previously referred-to subsections, the persons protected from liability are enumerated. They are:

  1. the owner of an automobile,
  2. the occupants of an automobile,5 and
  3. any person present at the incident.

There is a great deal of case law on who is an "owner" of an automobile which I will not canvass in this paper. The term "owner" is also defined in section 267.3 of the Insurance Act to include a CVOR operator and, effective March 1, 2006, this definition has been expanded to include a lessee.6

Expanding the definition of "owner" under the Insurance Act to include a lessee was part of legislative scheme which has made lessees vicariously liable for the negligent operation of a rented or leased vehicle.7 The amendments to the Insurance Act, as well as to the Compulsory Automobile Insurance Act and the Highway Traffic Act, took effect on March 1, 2006. These amendments were intended to accomplish a number of goals. The first was to make lessees, who had not previously been vicariously liable for the negligent operation of a rented or leased vehicle, vicariously liable for such operation. Second, they limit the vicarious liability of lessors for bodily injury and death claims to $1 million less any insurance that is available from the lessees' and the operators' policies. Finally, the priority of payment rules for the insurers of lessors, lessees and operators were changed.8

Subsection 267.5(6) adds a very important qualification to the definition of a protected defendant. The effect of this subsection is to strip a protected defendant of this status if the person is defended by an insurer that is neither an Ontario automobile insurer nor has filed the requisite undertaking.9

This provision strips owners, occupants and persons present at the incident of their status as protected defendants if they are defended by the "wrong type" of insurer. They do not lose their status if they defend themselves.

A rare but interesting problem can arise for "persons present at the incident". Let us suppose a collision was partly caused by a bicyclist. The bicyclist's home insurer would likely defend the action. In most cases, that insurer also underwrites automobile insurance in Ontario. Therefore, the bicyclist would be a "protected defendant". However, there are a few insurers who underwrite homeowners' policies that are not licensed to undertake automobile insurance. A bicyclist defended by such an insurer would not be a "protected defendant". It does not appear that such insurers are entitled to file section 226.1 undertakings.

The phrase "any person present at the incident" has not been interpreted broadly. It probably only includes natural persons who were actually present at the scene of the crash.10

Persons who are vicariously liable for the negligence of protected defendants are unprotected defendants but now their liability is no greater than that of the protected defendants. The most common situation will involve a driver who was in the course of his or her employment at the time of the crash.11 This issue is discussed in further detail below.12

(ii) What are the Advantages of Being a Protected Defendant?

Protected defendants receive preferential treatment with respect to three heads of damage: Non-pecuniary general damages, income loss and loss of earning capacity claims and health care expenses. In addition, protected defendants are immune from tort claims advanced by uninsured plaintiffs.13

(a) Non-Pecuniary General Damages

Non-pecuniary general damages and damages under the Family Law Act14 for loss of care, guidance and companionship cannot be recovered against a protected defendant unless the injury satisfies the verbal threshold set forth in the legislation.15 This threshold is an amalgam of the tests set forth in previous legislation.16 A protected defendant is only liable for non-pecuniary general damages or for loss of care, guidance and companionship claims if the injured party dies, suffers a permanent serious disfigurement or suffers a permanent serious impairment of an important physical, mental or psychological function as a result of the crash. If the injury does not meet this threshold, then only an unprotected defendant would be obliged to pay non-pecuniary damages to the injured person or any FLA claimant. In addition, even if the injury does meet this threshold, section 267.5 provides for deductibles of $30,000.00 and $15,000.00 respectively for non-pecuniary general damage claims and for FLA loss of care, guidance and companionship claims.17 These deductibles are only available to protected defendants.

It should also be noted that when Bill 198 came into force, Regulation 461/96 was amended to add provisions defining the elements of the threshold and how they must be proven.18

(b) Income Loss or Loss of Earning Capacity Claims

Protected defendants are not liable for income loss or loss of earning capacity (collectively "loss of income") claims suffered in the first seven days following the crash. Also, they are not liable for more than 70% of any gross income loss suffered after the first seven days and prior to trial.19 Additionally, a protected defendant is not liable for more than 70% of an injured plaintiff's gross loss of earning capacity suffered before the trial.20 After the trial commences, the liability of both protected and unprotected defendants is 100% of the future gross loss of income or earning capacity.

Subsection 267.5(2) purports to make the same rules applicable to claims made pursuant to subsection 61(1) of the FLA. Technically, however, claims made pursuant to the FLA are for loss of dependence, rather than for loss of income. While the intent of the legislation is to apply the same rules to loss of dependency claims, the language used in the legislation may not have accomplished this goal.21

Protected defendants are also given a partial priority with respect to the deduction of loss of income collateral benefits. These collateral benefits are deducted first from the damages that protected and unprotected defendants are jointly and severally liable to contribute to. If there are any past losses left after this deduction, then the remaining collateral benefits are deducted from the damages that the unprotected defendants are solely liable for. This priority only applies to past losses and not to future losses.22

(c) Health Care Expenses

Protected defendants are only liable for health care expenses if the injury pierces the verbal threshold.23 Unprotected defendants are liable for health care expenses even if the injury does not pierce the threshold.

(d) OHIP and Subrogated Claims

There is no convenient place to discuss this topic, so I will comment on it here. Subsection 267.8(17) strips anyone who has paid collateral benefits of their common law, statutory or contractual rights of subrogation. Subsection 267.8(18) carves out an exception for OHIP, but only as against a person who is not insured under a motor vehicle liability policy issued in Ontario.24

Automobile insurers licensed in Ontario are assessed annually for the estimated costs OHIP incurs due to the negligence of their insureds.25 The intent of subsection 267.8(18) was to ensure that OHIP would be entitled to subrogate against everyone else. One would presume that this permits OHIP to pursue subrogated claims against all unprotected defendants and a number of persons who would qualify as protected defendants but whose insurers are not assessed annually. The latter would include persons present at the incident, uninsured drivers and owners and any person insured by an out of province automobile insurer which has filed a section 226.1 undertaking.

Accordingly and given the above presumption, one would expect that OHIP should be entitled to recover all sums it pays out as a result of automobile crashes that occur in Ontario. The mechanism of recovery would differ depending on whether the person at fault is or is not insured under a motor vehicle liability policy issued in Ontario.

Unfortunately, this interpretive approach to subsection 267.8(18) was rejected by the Court of Appeal. The Court of Appeal has concluded that if a defendant is insured under the requisite type of policy, even if that is not the policy that is obliged to respond to the claim, then the defendant is immune from a subrogated claim by OHIP.26 For example, if a tavern owns a car or, possibly, if it has a non-owned automobile endorsement on its CGL policy, then it cannot be called upon to reimburse OHIP. Frankly, this interpretation destroys the entire logic behind OHIP's subrogation rights. Following this decision, OHIP can only subrogate against non-residents and people who are not insured under any type of motor vehicle liability policy issued in Ontario.

There is nothing in AIRS that specifically describes how OHIP's claim would be calculated. Since the distinctions in subsection 267.8(18) are not premised on the protected defendant/unprotected defendant dichotomy, it is arguable that the apportionment provisions contained in section 267.7 are inapplicable. In situations where there is a mix of defendants, some of whom OHIP is permitted to sue and some whom it is not permitted to sue, it would be reasonable to treat the latter group as having paid their proportionate share of OHIP's claim through the mandatory assessment mechanism.27 This should leave the defendants, against whom OHIP is entitled to subrogate, jointly and severally liable, as between themselves, for only that portion of the damages they caused.

Subsection 267.8(17) of AIRS prohibits subrogation by anyone who has paid collateral benefits other than OHIP. As the result of the Court of Appeal's ruling in the Wawanesa case any doubt that this provision applied to unprotected defendants has been laid to rest.28 Of course, subsection 267.8(18) of AIRS permits OHIP to subrogate in the circumstances described above.

(e) Vicarious Liability

Prior to the enactment of AIRS, the Court of Appeal had concluded that those who employed protected defendants were not themselves protected defendants. This could and did result in the employer of a protected defendant, who might actually have owned the vehicle involved in the collision, being obliged to pay those damages which the driver/employee was excused from paying under Bill 59.29 As a result, when Bill 198 was enacted the following subsection [267.5(10.1)] was added:

Despite any provision of this Part, a person vicariously liable for the fault or negligence of a protected defendant is not, in respect of the person's vicarious liability, liable for any amount greater than the amount of damages for which the protected defendant is liable.

The effect of this provision is to turn a vicariously liable person into a pseudo "protected defendant". The result is that the vicariously liable person is never liable for more damages than the protected defendant. To put it somewhat differently, a vicariously liable defendant will be obliged to pay precisely the same damages as the protected defendant. This provision, however, does not extend to the liability of that person for his or her own independent negligence. The most common situation where this provision will apply will be where the employer of an at-fault driver is sued.30

An anomalous situation can arise because vicariously liable persons are not actually "protected defendants". Protected defendants lose their protected status if they are defended by an insurer which is not licensed to undertake automobile insurance in Ontario or which has not filed a protected defendant undertaking. These requirements do not apply to the vicariously liable person. This could be significant in one situation:

If an out of province driver driving a car rented in Ontario, then the driver will be defended by the rental car company's insurer and both the driver and the rental car company will be protected defendants. However, the employer may well be defended under a non-owned automobile endorsement issued by an extra-provincial insurer, which is not licensed to undertake automobile insurance in Ontario. Nevertheless, the employer's exposure cannot be any greater than its employee's.

(f) Vanishing Deductibles and Miscellaneous Issues

Bills 198 has created vanishing deductibles.31 If the injured plaintiff's general damages are assessed in excess of $100,000.00, then no deductible is applied. Similarly, if an FLA claimant's damages for loss of care, guidance and companionship are assessed in excess of $50,000.00, then no deductible is applied. It is important to note that the assessments must exceed $100,000.00 or $50,000.00 respectively for the deductibles to "vanish". Bill 34 has removed deductibles for fatal accidents occurring after August 31, 2010.32

Finally, regulations passed under Bill 198, which came into force on October 1, 2003, have set out detailed criteria for proving that an injury satisfies the verbal threshold. A detailed discussion of those provisions is beyond the scope of this paper.33

(g) Non-collision Events and Public Transit Vehicles

As of May 12, 2011, the owner or driver of a public transit vehicle, which is a defined term, is not entitled to the benefit of the income loss, health care expense, threshold provisions or the deductibles unless the public transit vehicle was involved in a collision with another vehicle or object.34 In such circumstances, the claimant is not entitled to Statutory Accident Benefits.

This provision was clearly intended to force transit passengers in non-collision incidents to pursue pure tort remedies rather than accident benefits. This would apply to injuries sustained because of sudden starts or stops of transit vehicles.35

To read this article in full, please click here.


1 I would like to thank Jessica Freiman, a student-at-law with Blaney McMurtry LLP, for updating all of the research for this paper.

2 S.O. 1996, c.21. The formal title of the Bill is the Automobile Insurance Rate Stability Act (AIRS).

3 In fact, the provisions of Bill 198 came into force on that date but, in addition, a number of regulatory changes were also made. These appear to have been made pursuant to the Insurance Act as it read before Bill 198 came into force. In this paper, I will distinguish between the regulatory and statutory amendments. However, given that they all came into force on the same date and for the sake of simplicity I will refer to all of these changes collectively as Bill 198.

4 Section 267.3

5"Occupant" is defined as the driver of the automobile, a passenger whether being carried in or on the automobile and a person getting into or on or getting out of or off the automobile. See section 224(1) of the Insurance Act, R.S.O. 1990, c. I.8 amended (hereinafter the "Act").

6 See section 267.3

7 The term lessee includes a person who rents or leases a vehicle for any period of time. See section 192 of the Highway Act.

8 See section 277

9 Section 226.1 of the Act permits an insurer, which issues automobile policies in another province or U.S. state, to file an undertaking with the Financial Services Commission of Ontario (FSCO) obliging it to provide certain minimum mandatory coverages on any vehicle which it insures when such vehicle are operated in Ontario. The coverages which must be provided are minimum third party liability limits of $200,000.00, basic SAB benefits and $200,000.00 of uninsured motorist protection. Although mandatory in Ontario policies, the undertaking does not oblige insurers to provide direct compensation coverage. Most American and Canadian insurers are providing these minimum coverages anyway. Extra-provincial insurers are often obliged to provide such minimum coverages by the laws of the jurisdiction which licensed them, by the so-called conformity provisions in their policies which require them to provide the minimum coverages mandated by the law of the jurisdiction in which the automobile is being operated or have undertaken to do so in the undertakings they have filed with the Superintendent of Financial Institutions for the Province of British Columbia (now administered by the Canadian Council of Insurance Regulators). See Healy v. Interboro Mutual Indemnity Insurance Company (2000) 138 O.A.C. 199 (note), 2000 CarswellOnt 1805, [1999] S.C.C.A. No. 384, [2000] 1 S.C.R. xiii Leave to appeal refused 119 O.A.C. 354, [1999] O.J. No. 1667, (Ont. C.A.); Affirmed (1998), [1999] I.L.R. I-3636, 1998 CarswellOnt 2142, 2 C.C.L.I. (3d) 281, 40 O.R. (3d) 270, 38 M.V.R. (3d) 57 (Ont. Gen. Div.) and cases referred to therein. I used to recommend that out of province insurers file this undertaking as there was probably no risk in doing so. However, the recent Court of Appeal decision in Avis v. Certas, 2005 CarswellOnt 7442, 215 O.A.C. 396 (note), Leave to appeal refused, 22 C.C.L.I. (4th) 1198, [2005] I.L. R. I-4413, 18 M.V.R. (5th) 61, 197 O.A.C. 214, 75 O.R. (3d) 421, 2005 CarswellOnt 1926 (Ont. C.A.); Affirmed, 18 M.V.R. (5th) 43, 71 O.R. (3d) 313, 13 C.C.L.I. (4th) 115, 2004 CarswellOnt 1876 (Ont. S.C.J.) suggests that the filing of this undertaking can have unintended consequences for such insurers if they write excess or umbrella automobile coverage.

10 See Young v. Donway Ford Sales Ltd. (1995), 129 D.L.R. (4th) 279 (Gen. Div.), Kochis v. Dolmage, [1999] O.J. No. 1712 and Zsoldos v. Canadian Pacific Railway (2007) CarswellOnt 1511, 46 C.C.L.I. (4th) 294 (Ont. S.C.J.). See also Hachey-Tweedle v. Trillium Funeral Service Corp. (c.o.b. as Morris Sutton Funeral Home), [1999] O.J. 883 which may suggest that a corporation can be present at the incident through its employees. See discussion at "Vicarious Liability" at III.C.viii below.

11 Vollick v. Sheard (2005), 75 O.R. (3d) 621. In Linhares v. Seals (2007), 87 O.R. (3d) 557, Belobaba J. had to consider the situation where the owner's employees failed to properly maintain the vehicle's brakes but the employed driver was not negligent. The Court found that the owner was not a protected defendant. Whether the negligence of its employees arose from driving a vehicle or from maintaining that vehicle's brakes, an employer is vicariously liable for its employees and an unprotected defendant pursuant to Vollick. Of course, the employees who failed to properly maintain the brakes were probably not protected defendants. Since October 1, 2003 the employer of a protected defendants has no greater liability than the employee (subsection 267.5(10.1) Leave to appeal was denied in Linhares v. Seals, [2007] O.J. No. 3799. Please note that the earlier decision in Linhares v. Seals (2006) CarswellOnt 8843, of Himel J., to the opposite effect, was decided before amendments were made to the pleadings by the plaintiff. See also MacKinnon v A.J. Bus Lines Ltd. [2010] O.J. No 2018 at para. 33.

12 See "Vicarious Liability" II.A.ii.e below.

13 See section 267.6 which provides that a person cannot advance a tort claim for bodily injury or death if the person was contravening subsection 2(1) of the Compulsory Automobile Insurance Act. The Court of Appeal in Hernandez v. 1206625 Ontario Inc. (2002), 61 O.R. (3d) 584 concluded that this provision only prohibits actions against protected defendants.

14 R.S.O. 1990, c. F.3 as amended [hereinafter the "FLA"]

15 Subsection 267.5(5)

16 The Court of Appeal in the leading decision of Meyer Bright 1993 CANLII 3389 has indicated that the phrase "threshold" is inappropriate. Nevertheless, most lawyers and many judges continue to use it. I have used it in this chapter as the alternative phrase recommended by the Court of Appeal is cumbersome.

17 Subsection 267.5(5) and O.Reg 461/96 section 5.1 Since Bill 34 came into force on September 1, 2010 these deductibles do not apply to the injured party if the non-pecuniary damages exceed $100,000 or to the FLA claimants if the damages exceed $50,000. Additionally, no deductible applies to FLA claimants in respect of a fatal injury.

18 See sections 4.1 through 4.3. For a discussion of some of these rules see MacKinnon v A.J. Bus Lines Ltd. [2010] 2018 and cases cited therein and Adams v Taylor, 2013 ONSC 7920.

19 See O. Reg. 461/96 for definitions that apply to subsection 267.5(1).

20 Prior to September 1, 2010 these figures were 80% of net income rather than 70% of gross income.

21 Frankly, O. Reg 416/96 should have set out rules for the calculation of loss of dependency under the FLA. This omission could support an argument that the court must ignore this subsection for fatality claims, as there is no formula provided to calculate such losses. Even if the loss of income formula in the regulation were used, plaintiffs could be over-compensated. It should also be noted that there are problems with the regulatory formula if a self-employed individual has ongoing business expenses or the plaintiff is on a pension. Further, there can be no gross-up for future loss of income claims with the exception of claims made under subsection 61(1) of the FLA. (see section 267.11)

22 See subsections 267.8(1) and (3). As will be discussed later (see the discussion under the heading "Collateral Benefits" III.C.iii.a below) certain interpretations of the Sullivan Estate decision may strip this provision of any vitality.

23 Subsection 267.5(3).

24 It is clear that the exception to the prohibition on subrogation in favour of OHIP is limited to OHIP. Other provincial health insurance plans cannot subrogate. See Matt (Litigation Guardian of) v. Barber (2002), 216 O.A.C. 34 (C.A.) and Landry v. Roy (2001), 55 O.R. (3d) 605; and Meady v. Greyhound Canada Transportation Corp., 2012 ONSC 657 at para 254.

25 See O. Reg. 401/96

26 Georgiou v. Scarborough (City) [2002] O.J. No. 3335. The Supreme Court of Canada refused leave to appeal this decision.

27 This argument was more attractive before the Court of Appeal decision in Georgiou. Now it will be more difficult to argue that a contribution has been made on behalf of a defendant to OHIP if the defendant is not defending the claim under a motor vehicle liability policy issued in Ontario.

28 Wawanesa Mutual Insurance Company v. O.P.P. (2002), 212 D.L.R. (4th) 191 (C.A.) affirming 54 O.R. (3d) 112 (Divisional Court) reversing 47 O.R. (3d) 332 (per Kozak J.). There appears to be a conflict between this case and the later Court of Appeal decision in Hernandez (see footnote 13). Wawanesa is not referred to by the Court in Hernandez. For an interesting analysis of the scope of the phrase "arising directly or indirectly out of the use or operation of an automobile" see the decision of Boyko J. in Scanes v. Datillo (2003), 65 O.R. (3d) 768. See also Greenhalgh v. ING Halifax Insurance Co.(2004), 72 O.R. (3d) 338 (C.A.) and cases cited therein. Greenhalgh was followed by the Ontario Court of Appeal in Martin v. 2064324 Ontario Inc. (c.o.b. Freeze Night Club), 2013 ONCA 19, at para 39. All cases which turn on the meaning of the phrase "arising directly or indirectly out of the use or operation of an automobile" as do the above cited cases may require reconsideration in light of the recent Supreme Court of Canada decisions in Citadel General Assurance Co. v. Vytlinga, 2007 CarswellOnt 6626 and Herbison v. Lumberman's Mutual Casualty Co., 2007 CarswellOnt 6628. In my view, the result in Wawanesa would not be changed by these decisions. Martin v. 2064324 Ontario Inc. (c.o.b. Freeze Night Club), 2013 ONCA 19 discusses Citadel General Assurance Co. v. Vytlinga and Herbison v. Lumberman's Mutual Casualty Co. at paras 69 through 71, in which Cronk J.A. held the causation requirement contemplated by Vytlingam and Herbison was not met on the facts in Martin.

29 See footnote 11. See also MacKinnon v. A.J. Bus Lines Ltd. [2010] O.J. No. 2018 at para 33.

30 The result in the Linhares case (see footnote 11) would be the same under Bill 198 because the person who repaired the brakes is not a protected defendant.

31 See subsections 267.5 (8) and (8.1).

32 Subsection 267.5(8.1.1)

33 Sections 4.1 through 4.3 of O.Reg 461/96 as amended.

34 See subjection 267.5(6.1)

35 Quaere whether driving over a pothole would be considered to be a collision with an object (the bottom of the pothole).

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.