In our first article in the Priority Dispute Series, I provided an overview of Ontario’s accident benefit priority dispute scheme and the process necessary to pursue and dispute priority. To recap:
- The priority pecking order is found in subsections 268 (2) to (5.2) of the Insurance Act.
- All priority disputes are resolved in accordance with a Regulation named Disputes Between Insurers, Reg. 283/95.
- The first insurer that receives a completed Application for Accident Benefits must handle and pay the claim pending the resolution of any priority dispute.
- The insurer pursuing priority must give the other insurer(s) a priority dispute notice within 90 days after it receives a completed Application. Failing to do so will bar the dispute unless the insurer proves that the saving provisions under the Regulation should apply to save it.
- If the insurer given notice wants to implicate another insurer, it must give that other insurer a priority dispute notice.
- The insurer paying benefits can ask the claimant to submit to an examination under oath, to assist in its priority investigations.
- If the insurers cannot agree on priority, the dispute is resolved in a private arbitration, pursuant to the Arbitration Act, 1991. Any appeals are resolved in court.
In this article, I review the insurer’s obligations to respond to a completed application for accident benefits, pursuant to section 2.1 of the Regulation. As discussed below, section 2.1 is perhaps the most important section under the Regulation, as it seeks to shield claimants from the priority dispute scheme, which is the underlying intent of the entire priority dispute scheme.
Section 2.1: The Younger Brother of Section 2
To understand and appreciate the meaning behind section 2.1, it is necessary to review its predecessor.
Prior to September 2010, there was no section 2.1. There was only a section 2, which read like this:
2. The first insurer that receives a completed application for benefits is responsible for paying benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits under section 268 of the Act.
The wording in section 2 appeared to be relatively straightforward: The first insurer who received a completed application was required to pay the benefits pending the resolution of a priority dispute. The purpose and intent of section 2 was to ensure that injured claimants received their benefits in a timely manner without getting caught with no benefits while insurers disputed priority.[1]
However, shortly after the Regulation came into force, some insurers were still refusing to pay benefits. This was on the basis that, in their respective opinions, there was no coverage/priority for the claims. This would usually happen when the claimant submitted an application to an insurer under a policy that was not in force at the time of the accident. In a creative play on words, those insurers would argue that they were not “insurers” under section 2 because they did not have a policy that could respond to the claim. It is somewhat interesting to read these older cases and try to understand how an insurance company can argue that they are not an “insurer” when they clearly are an “insurer”, as that word is not only defined in the Insurance Act to include an insurance company, but also there was no question that these insurers were insurers!
But I digress. From the insurer’s perspective, the argument was that there was no policy in force, so it could not be compelled to pay any benefits under a policy that did not exist anymore. This makes sense and, as discussed in the first article, would be a valid position under other, non-auto insurance policies.
Unfortunately, what happened in practice was that the claimant would apply to Insurer A for benefits, and Insurer A would deny benefits on the basis that there was no policy. The claimant would then apply to Insurer B (for example, the insurer of the vehicle they were in). Insurer B would refuse to respond to the claim on the basis that it was not the first insurer to receive a completed application, relying on the plain wording of section 2. The claimant would return to Insurer A and would be told “there’s no policy”. The claimant would be in a black hole.
The act of refusing to accept an application for accident benefits became known in the industry as “deflection”. Still used today, “deflection” could happen in different ways. For example, in some cases insurers refuse to accept an application from a claimant, leaving the claimant with no other choice than to apply to another insurer. In other cases, the insurer would assist the claimant with completing the application and then direct the claimant to send it to another insurer (I had a case once where the road adjuster sat with the claimant at her dining room table, completed the application for her, and then gave her an envelope that was already addressed to another insurer). In some cases, the insurer would refuse to send the claimant an application form, prompting the claimant to apply elsewhere.
Whatever the case was, the term deflection was used when an insurer did anything to cause the claimant to apply somewhere else. The purpose and intent of section 2 would be frustrated.
Case law on section 2 developed shortly after,[2] starting in 1998 with the seminal case of Allstate v. Brown[3]. This was the first case where the term “sufficient nexus” was used. In a nutshell, the Divisional Court upheld that an insurer’s obligations under section 2 were triggered as long as there was a “sufficient nexus” between the claimant and the insurer. The idea was that the nexus test would cover a wide spectrum where, on one end there was absolutely no connection between the claimant and the insurer and, on the other end, the connection was so obvious (for example, the claimant was the named insured on a valid policy with that insurer).
The Nexus Test – What Nexus?
Having said that, almost every decision that followed Brown found that there was a sufficient nexus in the circumstances of each case. For example, in Her Majesty the Queen (MVACF) vs. Royal & SunAlliance, Economical Insurance, CGU Insurance Company and Zurich Insurance (2003), Arbitrator Jones found a sufficient nexus existed where the claimant applied to an insurer under a policy that had expired some four years before the accident.
Later cases also clarified that the sufficient nexus test is a subjective test, determined through the eyes of the claimant. The question is whether the claimant’s application to the insurer was random or arbitrary. Put another way, the question is whether the claimant, before applying, turned her mind to the question of whether the insurer would be required to pay accident benefits in the circumstances. An example of arbitrariness (used a lot before smartphones became mainstream) was where the claimant opened a telephone book[4] and randomly chose an insurer’s name from the listings. The consensus was that the application would be arbitrary. Otherwise, it didn’t matter if the application was sent to an insurer who had never issued such policy (for example, where the claimant applied under a fraudulent/fake policy). So long as the claimant turned their mind to where the application was going and why, a nexus was found.[5]
The most recent and authoritative nexus decision is Zurich v. Chubb[6]. In this case, the claimant rented a vehicle and was involved in an accident. She first submitted a completed application to Chubb, who had issued an accident policy (not an automobile policy) to the rental company. Chubb denied the claim on the basis that there was no Chubb automobile policy at play. Chubb was correct: It was Zurich that insured the rental company under an automobile policy. To its credit, Zurich eventually started paying the claimant benefits and then pursued a priority dispute against Chubb.
The arbitrator held that there was no nexus between the claimant and Chubb to trigger the insurer’s obligations under section 2. In his view, no nexus existed because Chubb had never issued an automobile policy to either the rental company or the claimant.
On appeal, the Superior Court judge disagreed and held that there was a sufficient nexus between the claimant and Chubb to trigger the insurer’s obligations under section 2. Of note, the appeal judge found that the Chubb policy was an automobile policy.
On further appeal, the Court of Appeal disagreed with the Superior Court judge and held there was no nexus in the case because the Chubb policy was not an automobile policy. The Court found that Chubb was, at best, a “non-motor vehicle liability insurer” (i.e., not an automobile insurer). Although the claimant’s application to Chubb was not random or arbitrary, there was no nexus between the claimant and Chubb because there was never an automobile policy at play.
However, Juriansz J.A. dissented, finding that there was a sufficient nexus between the claimant and Chubb. He disagreed that a distinction should be drawn between an automobile insurer and a non-automobile insurer, especially since Chubb did regularly write motor vehicle liability policies in Ontario. Chubb was not a “non-motor vehicle liability insurer” in the broad sense. Juriansz J.A.’s opinion was that the Court’s decision was inconsistent with the jurisprudence to date on nexus.
The Supreme Court of Canada agreed with Juriansz J.A. and allowed the appeal. The end result was that there was a sufficient nexus between the claimant and Chubb, requiring the insurer to respond to her claim pending the outcome of a priority dispute with Zurich.
If it wasn’t already clear (as mud), the Zurich decision highlights how low the nexus test really is. There will always be a “nexus” unless there is evidence that the claimant’s application was random or arbitrary. Accordingly any auto insurer who refuses to respond to an application for accident benefits and pay benefits does so at their peril.
What Completed Application?
Nexus issues aside, the obligation under section 2 was triggered when the insurer received a “completed application”. Unfortunately, the Regulation did not define the term “completed application”. Neither did the SABS. Section 32 of the SABS required the insurer to send a potential claimant the appropriate application forms, which would include an OCF-1. But otherwise it was somewhat unclear whether a completed application meant a completed OCF-1.
The “completed application” issue was first addressed at the Ontario Insurance Commission (predecessor to FSCO). Arbitrators had held that an application does not need to be on any specific form. An insurer was deemed to have received a completed application for benefits if the form (letter or other form) provided sufficient particulars to assist the insurer to identify the benefits that an applicant might be entitled to receive[7]
In Liberty Mutual v. The Commerce Insurance Company (2001, Guy Jones), Arbitrator Jones adopted the same reasoning and found that an insurer is deemed to have received a completed application once it received enough information to process the claim. The form used was irrelevant. This decision was upheld on appeal[8] and followed in a number of cases[9]
In short, before September 2010, an insurer was deemed to have received a “completed application” when it received enough information about the claimant to process the claim. There was no need to receive a completed OCF-1.
We Breached Section 2: So What?
Section 2 required the first insurer who received a completed application to respond and pay the claim, pending the outcome of a priority dispute. However, it did not contain any guidance on the consequences of breaching the provision.
In Liberty Mutual, it was The Commerce who had breached section 2 by refusing to respond to the claimant’s application. Subsequently, the claimant applied to Liberty Mutual, which started handling the claim. Liberty Mutual then realized that priority would lie with The Commerce. Unfortunately for Liberty Mutual, it had given The Commerce a priority dispute notice past the 90-day deadline in section 3. The Commerce argued that Liberty Mutual’s notice was late and that accordingly, the dispute was barred.
Arbitrator Jones disagreed, finding that it was not open to The Commerce to rely on Liberty Mutual’s breach of section 3 when it had first breached section 2. What followed was a principle that an insurer who breached section 2 could not raise a late notice defence against the insurer who had received the application essentially because the first insurer refused to accept it.
But in many cases, the insurer who received the second application and started paying benefits did manage to give a priority dispute notice to the deflecting insurer within the 90 days. Also, in many cases, the deflecting insurer was not the priority payor on the merits of the case. For example, if Insurer A actually didn’t have a valid policy in force at the time of the accident and refused to respond to the claim, the claimant would apply to Insurer B. If so, Insurer B would lose its priority dispute because it would never be able to prove that the claimant had recourse first against Insurer A. In other words, Insurer B would have priority over Insurer A on the merits of the claim.
So, what was Insurer B to do? It could:
- Refuse to accept the claim on the basis that it was the second insurer to receive the application (I call this the “High Risk” option); or
- Accept the claim and then pursue priority against Insurer A (I call this the “Low Risk” option).
The problem with #2 was that, as noted above, Insurer B would lose the priority dispute because there was actually no coverage for the claimant with Insurer A. It would have no remedy against Insurer A and, put another way, Insurer A would get away with its breach of section 2 without penalty.
Arbitrator Bruce Robinson tried to deal with this issue in Kingsway v. Ontario (MVACF), finding that the deflecting insurer (Kingsway) would be saddled indefinitely with the claim because it had breached section 2 of the Regulation. However, the appeal judge held that it was not appropriate to sanction Kingsway like this before determining whether Kingsway would otherwise be liable to pay benefits to the claimant. On further appeal, the Court of Appeal agreed with the appeal judge and held that before an arbitrator could compel Kingsway to handle the file forever, he would first need to determine whether Kingsway had a valid policy in force at the time of the accident (i.e., that the claimant would be able to claim benefits from Kingsway):
- If there was a valid policy, Kingsway would have priority and it didn’t much matter whether it had breached section 2.
- If there was no valid policy, it was then open to the arbitrator to decide the appropriate remedy to impose in the circumstances of the case. In doing so, the Court directed the arbitrator to consider not only Kingsway’s breach of section 2, but also Kingsway’s breach of section 3 of the Regulation (not giving MVACF a priority dispute notice within 90 days after it received a completed application).
In a somewhat unfortunate turn of events, Arbitrator Robinson held that there was a valid policy in force at the time of the accident and that Kingsway had priority over the Fund. I say this is unfortunate because had he found that there was no valid policy, we might have seen a decision in 2007 or 2008 determining the appropriate remedy in light of a breach of section 2 and 3.
Section 2.1: A More Robust Section 2
Section 2.1 applies to accidents occurring on or after September 2010. Recall that section 2 contained one provision? Section 2.1 contains 8:
2.1 (1) This section applies in respect of benefits that may be payable as a result of an accident that occurs on or after September 1, 2010.
(2) An insurer shall promptly provide an application and any other appropriate forms in accordance with the Schedule to an applicant who notifies the insurer that he or she wishes to apply for benefits.
The purpose of this subsection is to make sure insurers send a blank application and any other appropriate forms to a potential claimant. Of note, a new section 0.1 of the Regulation now defines “application” to mean “an application for accident benefits (OCF-1) approved by the Superintendent for the purposes of the Schedule”.
(3) The application provided by the insurer must include the insurer’s name, mailing address and telephone and facsimile numbers.
The purpose of this subsection is to make it clear to the claimant that if they choose to submit the application to the insurer, they can do so. It is also meant to deter an insurer from providing application forms addressed to other insurers, or taking any steps to interfere with the claimant’s right to apply to that insurer (it might be harder for an insurer to deflect an application if it is addressed to them).
(4) The applicant shall use the application provided by the insurer and shall send the completed application to only one insurer.
This subsection seeks to avoid multiple applications to multiple insurers, which among other things makes determining who received it first somewhat tricky. Unfortunately, we still see claimants applying to more than one insurer.
(5) An insurer that provides an application under subsection (2) to an applicant shall not take any action intended to prevent or stop the applicant from submitting a completed application to the insurer and shall not refuse to accept the completed application or redirect the applicant to another insurer.
This subsection deals directly with deflection practices.
(6) The first insurer that receives a completed application for benefits from the applicant shall commence paying the benefits in accordance with the provisions of the Schedule pending the resolution of any dispute as to which insurer is required to pay the benefits.
This subsection mirrors section 2, with some subtle changes in wording. Note that section 0.1 also defined “completed application” to mean “a completed and signed application”. Together with the definition of “application”, it is clear that a “completed application” now means a completed and signed OCF-1. This significantly narrows the meaning of “completed application” that was applied in the section 2 era. It likely means that the old cases on “completed application” have limited precedential value now to the extent they meant that an application did not need to be in any specific form to trigger an insurer’s obligations under section 2 of the Regulation.
Having said that, a signed OCF-1 could still be incomplete. In 2012, the Court of Appeal[10] had a chance to discuss the meaning of “completed application” in the context of a late application under section 3 of O. Reg 283/95 (future article!). The Court held that a “completed application” is one that is either genuinely complete, functionally adequate for its legislated purpose, or deemed complete based on the insurer’s actions. Arbitrator Novick applied this reasoning to a post-2010 accident case in RBC v. ACE INA (2018) and found that a signed OCF-1 was not complete because two relevant (in the circumstances of that case) boxes on the form were left blank.
(7) An insurer that fails to comply with this section shall reimburse the Fund or another insurer for any legal fees, adjuster’s fees, administrative costs and disbursements that are reasonably incurred by the Fund or other insurer as a result of the non-compliance.
This subsection created a remedy in the event an insurer breached section 2.1.
(8) In subsection (7),
“insurer” does not include the Fund.
Much of the section 2 case law continues to apply under the new section 2.1. The nexus test remains the same. As noted above, the term “completed application” is now defined, but there will be issues as to whether an application is “completed” for the purpose of section 2.
There is some debate as to available remedies for breach of section 2.1. Feel free to contact me directly for my thoughts on this issue.
Takeaways
Section 2 was the most important provision under O.Reg. 283/95 because it was meant to ensure that injured claimants were not caught in an endless black hole while insurers disputed priority. Arbitrators and judges repeatedly stressed that insurers were supposed to “pay now, dispute later”. And still it is quite remarkable the number of times insurers would refuse to respond to applications for benefits on the basis that there was no coverage under their policies.
Section 2.1 tried to enhance and enforce the obligations under section 2 by creating step-by-step rules for the application process, starting with first contact up to receipt of the application. The goal is still to make sure injured accident claimants receive benefits as quickly as possible and to protect them from disputing insurers.
Insurers who write and sell automobile insurance in Ontario must comply with section 2.1. Failure to do so will often cost more than accepting the claim and pursuing a priority dispute.
Stay tuned for the next article in this series.
[1] Kingsway General Insurance Company v. Ontario, 2007 ONCA 62 (CanLII), http://canlii.ca/t/1qdb0
[2] For an excellent review of the nexus test, and the interplay between section 2 of the Regulation and section 32 of the SABS, see Vieira v. Royal & SunAlliance and Chubb, (2005), (FSCO Appeal 3616, P04-00016)
[4] See https://en.wikipedia.org/wiki/Telephone_directory
[5] See Valauskas v. Wawanesa (2009), (FSCO Appeal 3579, P07–00021); Danilov v. Unifund (2009), (FSCO Arb 809, A07-001441)
[6] Zurich Insurance Company v. Chubb Insurance Company of Canada, 2014 ONCA 400 (CanLII), http://canlii.ca/t/g6vrk, rev’d 2015 SCC 19 (CanLII), http://canlii.ca/t/gh85t.
[7] See H’ng v. Allstate, [1997] OICD No. 34, aff’d on appeal.
[8] [2001] O.J. No. 5479 (SCJ). The Commerce arbitration decision provides a detailed review of the “completed application” and nexus issues.
[9] For example, see Valauskas v. Wawanesa (2007), (FSCO Arb A05-B001749).
[10] Ontario (Finance) v. Pilot Insurance Company, 2012 ONCA 33 (CanLII), http://canlii.ca/t/fpp37
