Insurance policies and statutes provide for insurance claims to be brought forward in a variety of ways. Oftentimes, there are a plurality of claims happening at the same time. An insurer must identify the relationship between the claims with the view of reaching an efficient and effective resolution to the matter. This article discusses two interesting issues that occur in the context of a Section D claim under a standard automobile insurance policy. The first issue deals with the insured's ability to use its SEF 44 endorsement in a claim against an unidentified driver. The second issue pertains to the subrogation of Section D claims by a workers' compensation authority. Both of these issues are important for an insurer's assessment of a Section D claim.
Section D provides for uninsured automobile coverage. In general, an insured is entitled to recover damages for bodily injuries caused by the driver of an uninsured or unidentified automobile. Section D claims are subject to a statutory limit.
The person bringing the Section D claim may also have SEF 44 endorsement coverage. SEF 44 is an excess insurance coverage that indemnifies insureds for shortfalls in the payment of damages against underinsured tortfeasors.
SEF 44 endorsements are a "last ditch" or "safety net" coverage. SEF 44 protection does not provide a windfall or double recovery of a claim. It is triggered when there is a shortfall in the actual recovery of an insured's claim. A Section D claim does not preclude the application of an SEF 44 endorsement. However, an SEF 44 endorsement will not apply to Section D claims involving an unidentified driver.
The standard wording of an SEF 44 endorsement requires the insured to be an "eligible claimant" in order to avail themselves of SEF 44 coverage. An "eligible claimant" is a person who is entitled to maintain an action against an "inadequately insured motorist". An "inadequately insured motorist" is a defined term in the SEF 44 endorsement. In short, the owner or driver of the uninsured vehicle must be "identified".
The Ontario Court of Appeal decided this issue in Chilton v. Co-operators General Insurance Co.,  32 OR (3d) 161 (ONCA) ["Chilton"]. In Chilton, the issue was whether an accident victim could resort to his SEF 44 coverage if the driver of the car that struck him had not been identified and the car itself was stolen. The Court of Appeal determined that an unidentified driver was not within the meaning of "inadequately insured motorist" (para 37):
37 These circumstances, however, do not exist in this case. Other parts of the S.E.F. 44 endorsement may not be models of clarity but the terms of the insuring agreement, and more particularly, the definition of "inadequately insured motorist", are clear and understandable. A reasonable insured who had read the definition would not be misled. Unlike Eberle J., I do not think that the title of S.E.F. 44 coverage, "Family Protection Endorsement", gives a misleading impression of coverage for fact situations like the one in this case. Nor do I think that restricting the definition of "inadequately insured motorist" to an identified driver is "illogical." The insurer's concern over preserving its right of subrogation cannot be dismissed because in this case that right is of no practical value.
Chilton remains a strong authority on this issue. An insured person injured by an unidentified driver will not be entitled to indemnification under their SEF 44 endorsement.
Another interesting Section D issue is the interplay between a Section D claim and a claim made under workers' compensation legislation. Workers' compensation statutes give a worker the right to elect to make a compensation claim to the provincial workers' compensation authority. Generally, the workers' compensation authority becomes subrogated to the workers' claim for damages. This raises the issue of whether the workers' compensation authority is subrogated to the worker's Section D claim.
The case law is unsettled on this issue. There are two lines of authority. One line of authority is of the view that any compensation to which an injured employee may be entitled because of his injury, whether in contract or tort, is subject to the right of subrogation by the workers' compensation authority. The other line of authority states that the right of subrogation is limited to the compensation available for actions in tort against the tortfeasor directly.
The first line of authority comes from the New Brunswick Court of Appeal decision of New Brunswick (Workplace Health, Safety & Compensation Commission) v. Gillespie, (1996) 179 NBR (2d) 233 (NBCA) ["Gillespie"]. In Gillespie, the respondent employee, Mr. Gillespie, worked for the City of Fredericton paving crew. During the course of his employment, he was struck and badly injured by an uninsured motorist. He claimed and received compensation benefits from the Workplace, Safety and Compensation Commission.
The issue before the Court was whether the Commission was subrogated against Mr. Gillespie's insurer to the extent of the compensation benefits paid to Mr. Gillespie. The Court decided that the Commission was subrogated to the Section D claim (paras 6-7):
6 In my opinion, the Board is subrogated to Mr. Gillespie's claim against State Farm for his Section D benefits. Mr. Gillespie is bringing his action against State Farm "in respect of [his] injuries" and, by virtue of the Insurance Act, he can "maintain an action" against State Farm, thus bringing the Commission within the scope of s. 10(10) of the Workers' Compensation Act. The subrogation remedy created by the section is predicated on the ability of the injured worker to bring an action against his insurer, an action that is based on the liability of a tortfeasor. State Farm thus only becomes liable because of the conduct of a tortfeasor.
7 For the above reasons, I would answer the question referred to us by the Commission in the affirmative, namely, the subrogation provisions contained in s. 10(10) of the Workers' Compensation Act apply to damages recovered from an injured worker's insurer that has paid damages resulting from the negligence of an uninsured or unidentified motorist.1
The second line of authority comes from the Supreme Court of Canada's decision in Madill v. Chu,  2 SCR 400 (SCC) ["Madill"]. In Madill, the plaintiff employee had been injured in a motor vehicle accident while driving his taxi during the course of his employment. As a result, he was wholly and continuously disabled and prevented from performing any or every duty pertaining to his employment for 28 weeks.
The plaintiff's insurance policy contained an exclusion clause that said the insurer was not liable for bodily injury of any person who is entitled to receive the benefits of any workmen's compensation law or plan. The plaintiff did not make a claim for worker's compensation. His insurer refused to pay disability benefits based on the ground that the plaintiff was entitled to receive benefits under worker's compensation law.
The Supreme Court of Canada examined the workers' compensation statute and stated, in obiter, that the workers' compensation authority is only subrogated to actions in tort (para 25):
25 It was contended on behalf of the respondent that the reference in s. 8(1) to the entitlement of a workman, "to an action against some person other than his employer", is to be construed as including the insurer. This contention, however, fails to take into account the fact that the type of action contemplated by the section against any "person other than the employer" must be founded in tort rather than contract, and that an action against the insurer must, out of necessity, be based on the terms of the contract of insurance
Despite their differing conclusions, both Gillespie and Madill have been cited with approval by subsequent cases. The law appears to be unsettled on this issue.
Section D claims can be difficult to manage. The lessons learned from these two scenarios are important for insurers seeking to minimize exposure. A claim may appear legitimate on its face. However, diligent insurers will investigate and scrutinize claims to determine whether other factors prohibit or limit the claimed amounts.
Cox & Palmer is a member of the Risk Management Counsel of Canada.
1. Gillespie at para 6.
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.