Canada: Off The Hook: Responding Insurer Is Not Tied To First Insurer's Definition Of "Accident"

A new Superior Court decision tries to tackle the complicated interplay between a coverage dispute under the SABS and the priority disputes between insurers scheme in section 268 of the Insurance Act and O. Reg. 283/95.

Unifund v Security National involved a claimant who was injured while operating her boyfriend's ATV on his property. The ATV was a "described automobile" on a policy of insurance issued by Security National. The claimant was a named insured under a Unifund policy, which did not specifically include coverage for ATVs.

The claimant applied for benefits to Security National, to which she was entitled (as an occupant of the vehicle at the time of the accident). Security National commenced a private arbitration against Unifund, arguing that Unifund was higher in priority pursuant to section 268 (2) of the Insurance Act. In the usual course, Unifund would stand higher in priority because the claimant was its "named insured", whereas she was merely an "occupant" of the ATV insured by Security National.

Unifund resisted the priority dispute on the basis that the ATV would not be considered an "automobile" under its policy. Section 2(1) of the SABS (2010) indicates that accident benefits are available under a motor vehicle liability policy in circumstances of an "accident", which is defined in part as "the use or operation of an automobile". Based on the existing legal framework, an ATV is not considered to be an "automobile" when being operated on private property belonging to its owner.

Referring to the "is it an automobile?" test that the Court of Appeal established in Adams v. Pineland Amusements¹, Arbitrator Bialkowski found, correctly, that the claimant had been involved in an "accident" as it concerned the Security National policy. He found that the ATV was defined in the Security National policy as an "automobile", satisfying part two of the Adams test.

However, he declined to consider whether the ATV incident would amount to an "accident" under the Unifund policy. His rationale was that the priority scheme in section 268 was an independent process to be engaged once a valid accident benefits claim had been established.

On appeal, Matheson J. found that insurers may resort to the priority regime in section 268 "if more than one policy provides for statutory accident benefits". Therefore, Matheson J. considered it necessary to determine whether each of the relevant policies would have deemed the ATV incident to be an "accident".

Matheson J. agreed with the arbitrator and found that the ATV incident would have been considered an "accident" under the Security National policy. However, she found that it would not meet the definition of "automobile" under the Unifund policy. She held:

In this case, accident benefits were only available through the Security National policy, which defined the ATV as an "automobile" and not through the Unifund policy, which did not define the ATV to be an automobile. Accordingly, Security National did not have recourse to the section 268 priority regime because the Unifund policy could never provide coverage for this loss. Unifund's appeal was granted, effectively overturning arbitrator Bialkowski's decision.

This case raises questions as to the appropriate handling procedures if the circumstances were reversed. For instance, if Unifund was the first insurer to receive the OCF-1, would it have been obligated to handle the accident benefits claim and pursue priority, even though the particular loss was not covered under its policy? Or could it have denied the claim on the basis that the claimant was not involved in an "accident"?

Matheson J.'s policy-specific approach would seem to support Unifund denying the accident benefits claim if it was the first insurer to receive the OCF-1. However, this would also seem to contradict the Supreme Court of Canada decision in Zurich Insurance Co. v. Chubb Insurance Co. of Canada², which found it inappropriate for Chubb to deflect an accident benefits application where the claimant had a subjective reason to believe that benefits were available through Chubb. In that case, Chubb had merely offered a non-automobile policy to the claimant. Chubb's argument was, in part, that the policy did not provide accident benefits coverage. Would it be any different for an insurer to argue that its policy does not cover ATVs, when in other circumstances it does insure ATVs? Is the logic endorsed by Matheson J. therefore inconsistent with the overriding intention of the SABS to provide speedy benefits to a claimant who is elsewhere entitled to accident benefits?

A significant distinguishing factor between the Unifund and Chubb cases is that in Chubb, there was no issue that the claimant was entitled to accident benefits, having been involved in a car "accident". There was no question that her loss was covered under the SABS as an "automobile" "accident" under any auto policy that might have insured the claimant. However, in Unifund, the claimant's entitlement to accident benefits under a specific policy turned on whether the vehicle in question was an "automobile" that triggered entitlement to any accident benefits under that specific policy. Therefore, an insurer in Unifund's position might have a reasonable argument that although there might be a nexus between the claimant and the insurer for a particular loss, the obligation to actually pay benefits and pursue a priority dispute cannot be triggered unless the claimant sustains a type of loss that is covered under the policy

The Unifund v. Security National case supports that a priority dispute is only proper if the claimant would have access to accident benefits under each policy involved in the dispute. For now, this reminds us to be vigilant when responding to a priority demand. However, that proposition might ultimately be incorrect as Zurich v. Chubb does not support that coverage under multiple policies is necessary to engage the Section 268 priority regime. Nor is it explicitly required by Section 268. The proper question for an insurer receiving an OCF-1 might be, among other things, whether the claimant's loss would be covered under the SABS for the particular loss with respect to that policy. The insurer should not determine whether the claimant is an "insured person" under the policy (for example, whether the claimant is a dependant or a spouse), as that is a question reserved for the priority dispute scheme. But the insurer could consider whether the claimant was involved in an "accident" that would otherwise be covered under the SABS.

N.B. – Matheson J. held that the appropriate standard for review on appeal of a question involving mixed fact and law was "reasonableness". This is consistent with the recent Court of Appeal decision in Intact Insurance Company v. Allstate Insurance Company of Canada³. A "reasonableness" standard entails a higher level of deference to the hearing arbitrator than the standard of "correctness". This may cause concern amongst insurers as the appeal process could have less teeth moving forward. However, Matheson J.'s decision is a step in the right direction as she did not shy away from delving into the substantial legal issues to find that arbitrator's decision was unreasonable.

See Unifund Assurance Company v Security National Insurance Company, 2016 ONSC 6798 (CanLII)

Footnotes

[1] 2007 ONCA 844 (CanLII)

[2] [2015] 2 SCR 134, 2015 SCC 19 (CanLII)

[3]2016 ONCA 609 (CanLII).

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