Not The First Stop: Reasonable Investigations Before Putting The Fund On Notice

The recent arbitration decision in Echelon General Insurance Company v Motor Vehicle Accident Claims Fund provides useful guidance on the investigative steps an insurer must undertake before doing so. The decision clarifies both the purpose and scope of the “reasonable investigation” requirement under s. 3.1(2) of Regulation 283/95 (the “Regulation”), as well as the potential consequences of prematurely involving the Fund without first conducting sufficient inquiries.

Background

The dispute arose from a January 12, 2023 accident, in which the claimant suffered significant injuries after he was struck by a vehicle while walking in a residential neighbourhood.

The claimant later submitted an Application for Accident Benefits (OCF-1) under an automobile policy issued by Echelon to his sister.

In his application, he reported that the vehicle involved in the accident had fled the scene. Although the claimant indicated that he intended to claim benefits under the policy insuring the striking vehicle, he did not provide any information regarding the identity of the vehicle's owner or its insurer. No police report was attached to the OCF-1.

Shortly after opening the claim, Echelon contacted the claimant's legal representative, who advised they had limited information about the accident and were still awaiting a copy of the requested police report.

Echelon subsequently obtained a statutory declaration from the claimant, and later conducted an EUO, which determined the following:

• the claimant was single;
• he did not hold a driver's licence;
• he was unemployed and receiving Ontario Works benefits;
• he had lived with his sister only briefly before the accident; and
• he had no knowledge of the identity of the driver of the insurer of the vehicle that struck him.

The 90-day limit for disputing priority expired on April 26, 2023. By that time, Echelon had not yet determined whether the striking vehicle could be identified or whether it was insured under a valid motor vehicle liability policy. As a result, Echelon placed the Fund on notice.

In its notice letter to the Fund, Echelon outlined the investigative steps undertaken and the information obtained through its investigation. It also noted that a police report had been requested but had not yet been received from the police department.

Shortly thereafter, Echelon received the police report, which revealed that the striking vehicle was insured by Economical Insurance. Notably, the report indicated that it was not finalized until May 3, 2023—one week after the 90-day deadline had expired.

The Arbitrator's Decision

The central issue before the arbitrator was whether Echelon had complied with its obligations under s. 3.1(2) of the Regulation before placing the Fund on notice.

In addressing this issue, the arbitrator emphasized that the purpose of s. 3.1(2) is closely tied to the Fund's role as a “payer of last resort” within Ontario's accident benefits regime. The provision was introduced to prevent insurers from prematurely shifting responsibility to the Fund without first conducting their own investigation into priority.

In particular, the decision notes that the provision was intended to guard against what is often referred to as “dumping” claims onto the Fund:

In my view, dumping occurs when an insurer fails to make appropriate efforts and incur the needed expense to properly investigate a priority dispute within the 90 days and chooses instead to simply put the Fund on notice and then leave it up to the Fund to complete investigations and bring in any other insurers in accordance with s. 10 of the Regulation.

…

Therefore, the Regulation required an insurer to conduct reasonable investigations into other insurers before putting the Fund on notice, and to provide the Fund with reasonable particulars of that investigation so the Fund could be sure that they were not a victim of dumping.

Against that backdrop, the arbitrator turned to the question of what qualifies as a “reasonable investigation” for the purposes of s. 3.1(2). The Regulation does not require insurers to conduct a perfect or exhaustive investigation, nor does it require them to conclusively establish no other insurer stands in priority to the Fund. Rather, the requirement is simply that the investigation be reasonable in the circumstances.

What constitutes a reasonable investigation will depend on the facts of each case. The analysis therefore focuses on whether the insurer made genuine efforts to determine if another insurer could be identified before placing the Fund on notice.

On the facts before her, the arbitrator was satisfied that Echelon had undertaken appropriate steps before notifying the Fund of its priority dispute. Based on the information available at the time, the only potential insurer that could respond to the claim was that of the striking vehicle. The only viable source of information was the police report, which was not released until after the 90-day period had passed.

The arbitrator rejected the Fund's argument that further investigative steps should have been taken, noting that many of the proposed steps reflected speculation about what additional results might have uncovered rather than pointing to deficiencies in the investigation itself. Ultimately, it was determined that Echelon had conducted “more than reasonable investigations”.

Finally, the decision addressed the potential consequences of a breach of s. 3.1(2). Relying in part on earlier arbitral decisions, including Dominion of Canada General Insurance Company v AXA Insurance Company, it was confirmed that non-compliance with s. 3.1(2) does not invalidate a priority notice or bar an insurer from pursuing a priority dispute. Instead, the Regulation contemplates potential cost consequences, including the possibility of a special award, where an insurer has improperly involved the Fund. In this case, however, Echelon was found to have satisfied the reasonable investigation requirement, and therefore no such consequences were warranted.

Key Takeaways

Overall, the decision confirms that the “reasonable investigation” requirement under s. 3.1(2) is grounded in practicality. Insurers are not expected to exhaust every possible investigative avenue or conclusively rule out the involvement of another insurer before placing the Fund on notice. Rather, the focus is on whether meaningful and proportionate steps were taken, based on the information available at the time, to identify any insurer that may stand in priority.

At the same time, the decision reinforces the purpose of the provision. That is, recognizing the Fund's role as a payer of last resort and preventing insurers from prematurely shifting responsibility to the Fund without first conducting their own investigation.

The decision also serves as a reminder that the 90-day period should be used to actively pursue available sources of information and to document the investigative steps taken. Doing so not only assists in identifying the proper insurer but also helps demonstrate compliance with the Regulation if the adequacy of the investigation is later challenged.

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.