Priority Disputes 101: The Final Frontier

This is the last installment in our SABS Priority Disputes 101 series. I encourage you to read the entire series here:

1. SABS Priority Disputes 101: Help!
2. SABS Priority Disputes 101: Reflection on Deflection
3. SABS Priority Disputes 101: Notice in 90
4. Priority Disputes 101: The Claimant

The final article looks at the arbitration and appeal process. As bonus, we also look at another interesting notice provision in O Reg 283/95.

Section 7: Initiating Arbitration

Section 7 of O Reg 283/95 deals with priority disputes that cannot be resolved:

7(1) If the insurers cannot agree as to who is required to pay benefits, the dispute shall be resolved through an arbitration under the Arbitration Act, 1991 initiated by the insurer paying benefits under section 2 or 2.1 or any other insurer against whom the obligation to pay benefits is claimed.

(2) If an insured person was entitled to receive a notice under section 4, has given a notice of objection under section 5 and disagrees with an agreement among insurers that an insurer other than the insurer selected by the insured person should pay the benefits, the dispute shall be resolved through an arbitration under the Arbitration Act, 1991 initiated by the insured person.

(3) The arbitration may be initiated by an insurer or by the insured person no later than one year after the day the insurer paying benefits first gives notice under section 3.

(4) Despite subsection (3), the arbitration may be initiated by the Fund at any time before or after the expiry of the time limit set out in subsection (3) if the Fund is paying benefits in respect of an accident that occurred on or after September 1, 2010.

(5) No insured person is entitled to initiate or participate as a party to an arbitration under this section if the insurer paying benefits is the Fund.

(6) If the dispute relates to an accident that occurred on or after September 1, 2010, the failure of an insurer other than the Fund to comply with section 2.1 or 3.1 may be the subject of a special award made by the arbitrator.[1]

Where the insurers cannot agree on priority, the dispute must be resolved in a private arbitration under the Arbitration Act, 1991.[2] This means that neither the courts nor the Licence Appeal Tribunal have jurisdiction to hear priority disputes at first instance.

Section 7(1) stipulates that the arbitration can be initiated by the insurer paying benefits or the insurer(s) that are responding to a priority dispute claim. But I have never seen an arbitration initiated by a responding insurer.

Pursuant to section 7(3), arbitration must be initiated no later than one year after the insurer paying benefits gave a priority dispute notice under section 3, or the claim will be statute-barred.[3] Once the insurer paying benefits gives its section 3 notice, a new one-year limitation period to initiate arbitration starts to tick.

Unlike section 3, there are no saving provisions under section 7, if the one-year limitation is missed. Therefore, insurers must make sure they initiate arbitration properly, pursuant to section 23 of the Arbitration Act, 1991:

Commencement of arbitration

23(1) An arbitration may be commenced in any way recognized by law, including the following:

1. A party to an arbitration agreement serves on the other parties notice to appoint or to participate in the appointment of an arbitrator under the agreement.
2. If the arbitration agreement gives a person who is not a party power to appoint an arbitrator, one party serves notice to exercise that power on the person and serves a copy of the notice on the other parties.
3. A party serves on the other parties a notice demanding arbitration under the agreement.

In practice, we usually initiate arbitration by serving an arbitration notice of some kind to the other insurer(s). There is no standard or prescribed form or pleading for the notice. Some are called Notice to Participate and Demand for Arbitration, or Notice Demanding Arbitration, or Notice to Submit to Arbitration. Whatever the form is named, it should at the very least identify the parties to the arbitration and disclose what the dispute is about. A letter to the same effect is likely satisfactory too.[4] However, to initiate arbitration an insurer must be clear and unequivocal that it is in fact initiating arbitration. A letter saying “we will be initiating arbitration” is not good enough.[5]

Section 8: Procedure for Arbitrations

When the Regulation was amended effective September 1, 2010, section 8 was expanded somewhat to deal with some annoying issues that plagued many priority dispute arbitrations, namely, delay:

8(1) Except as provided in this Regulation, the Arbitration Act, 1991 applies to an arbitration under this Regulation.

(2) The following rules apply with respect to an arbitration of a dispute relating to an accident that occurs on or after September 1, 2010:

1. If an insurer to whom a notice to initiate arbitration is delivered does not respond to the notice within 30 days, the insurer is deemed to have accepted the jurisdiction of the arbitrator proposed in the notice.
2. A pre-arbitration hearing must be scheduled and take place no later than 120 days after the appointment of the arbitrator.
3. Subject to paragraph 4, once a date for the arbitration is scheduled, the arbitration must be conducted on that day.
4. The arbitrator may grant an adjournment on such terms as the arbitrator considers appropriate, but only if there is cogent and compelling evidence of the reasons why the hearing cannot proceed on the scheduled day.
5. Unless consented to by all parties, the hearing of the arbitration must be completed within two years after the commencement of the arbitration.

(3) The decision of an arbitrator made under this Regulation must be made public.

(4) If the decision relates to an accident that occurred on or after September 1, 2010, the decision must be made public,

(a) by the insurer that the arbitrator finds to be liable to pay the benefits; and

(b) in a manner and form specified by the Chief Executive Officer.¹

The first delay tactic (intentionally or not) that responding insurers would use is that they would simply ignore an arbitration notice. To get the matter rolling, the applicant insurer would be forced to apply to the Superior Court for an Order appointing an arbitrator, pursuant to section 10 of the Arbitration Act, 1991. Paragraph 1 under section 8(2) of the Regulation addresses this issue by requiring the respondent insurer to respond to the arbitration notice within 30 days, failing which the insurer is deemed to accept the jurisdiction of the arbitrator proposed in the notice. This provision works well — if the insurer initiating arbitration remembers to propose an arbitrator in their arbitration notice.

Paragraphs 2 to 5 under section 8(2) also seek to accelerate priority dispute arbitrations. Arbitrators have held that the timelines in section 8(2) of the Regulation are directory and permissive, rather than mandatory.[6] In other words, it would be rare for a priority dispute to be dismissed simply because the first pre-hearing wasn’t conducted within 120 days of the arbitrator’s appointment, or the main hearing wasn’t completed within two years.

Section 9: Costs of Arbitration

Section 9 of the Regulation deals with arbitration costs:

9(1) Unless otherwise ordered by the arbitrator or agreed to by all the parties before the commencement of the arbitration, the costs of the arbitration for all parties, including the cost of the arbitrator, shall be paid by the unsuccessful parties to the arbitration.

(2) The costs referred to in subsection (1) shall be assessed in accordance with section 56 of the Arbitration Act, 1991.

In practice, the parties will usually include costs provisions in an Arbitration Agreement.

Section 10: Tiered Notices

In SABS Priority Disputes 101: Notice in 90, I discussed the 90-day limitation period in section 3 of O Reg 283/95:

3. (1) No insurer may dispute its obligation to pay benefits under section 268 of the Act unless it gives written notice within 90 days of receipt of a completed application for benefits to every insurer who it claims is required to pay under that section.

Does an insurer giving notice under section 3 need to give a priority dispute notice to any and every insurer that might have priority for the claim? To answer this question, it is necessary to look at the interplay between sections 3 and 10 of the Regulation. Section 10 states:

10(1) If an insurer who receives notice under section 3 disputes its obligation to pay benefits on the basis that other insurers, excluding the insurer giving notice, have equal or higher priority under section 268 of the Act, it shall give notice to the other insurers.

(2) This Regulation applies to the other insurers given notice in the same way that it applies to the original insurer given notice under section 3.

(3) The dispute among the insurers shall be resolved in one arbitration.

Section 10 of the Regulation allows an insurer that received a priority dispute notice to bring other insurers into the dispute. Pursuant to section 10(1), an insurer given notice under section 3 cannot dispute priority on the basis that another insurer has priority over it. For example, if Insurer A (first tier insurer) sends Insurer B (second tier insurer) a priority dispute notice, Insurer B cannot dispute priority on the basis that Insurer C (third tier insurer) has priority over it. If Insurer B wishes to defend on that basis, it must send Insurer C a priority dispute notice.

In Co-operators v. Ontario[7], Co-operators (first tier insurer) gave the Fund (second tier insurer) a priority dispute notice within the 90-day notice window. The Fund refused to accept priority, in part on the basis that Co-operators had failed to give a section 3 notice to another insurer (TTC Insurance). The Fund argued TTC Insurance would have had priority over the Fund. (As an aside, during the 90-day notice window it wasn’t very clear as to whether a TTC vehicle was involved in the incident.) Co-operators argued that it discharged its obligations under section 3 by giving a bona fidenotice to the Fund under section 3[8], and if the Fund wanted to “point the finger” at TTC Insurance it could have given that insurer a priority dispute notice under section 10.

The arbitrator and appeal judge rejected the Fund’s argument, finding that Co-operators discharged its obligations under section 3 by giving notice to the Fund. Arbitrator Novick wrote:

Mr. Strigberger contends that an insurer should be found to have complied with section 3 as long as it provides timely notice to an insurer who it claims is in higher priority to it. He submits that it is essentially a subjective exercise, and that if with the benefit of hindsight other insurers are later found to be in priority, there should be no penalty to the first insurer for not having provided notice to every last possible priority insurer. I agree with that submission. The words “who it claims” in section 3 modify the requirement imposed on first insurers, and cannot be ignored. In keeping with the rules of statutory and regulatory interpretation, each word in a provision must be assumed to have a purpose and contribute to its overall meaning. If the drafters of the regulation had intended to impose the obligation on a first insurer to provide notice to every potential insurer that could be in priority, those words would not have been included. The fact that they appear in the provision in my view must mean that a first insurer has some discretion in this regard.[9]

Arbitrator Novick applied the same reasoning five years later in Co-operators v. Intact and Northbridge.[10] In this decision, the claimant applied to Co-operators (first tier insurer) for benefits under his spouse’s policy[11]. Co-operators investigated priority and identified that he was also a named insured under a policy with Intact. Co-operators gave Intact (second tier insurer) a priority dispute notice. Meanwhile, further investigations revealed that the claimant might have been an occupant of a company vehicle and likely had regular use of the company vehicle at the time of the accident. However, Co-operators erroneously identified the insurer of the vehicle as Economical and sent that insurer a priority dispute notice within the 90-day window. At some point after giving Economical notice, and after the 90th day had passed, Co-operators discovered that the insurer of the company vehicle was Northbridge. Intact then sent a section 10 notice to Northbridge (third tier insurer).

Northbridge disputed Co-operators’s claim, arguing that Co-operators was required to give Northbridge a priority dispute notice under section 3. Part of Northbridge’s argument was that Co-operators’s priority dispute notice to Intact was invalid because there was no way Intact could be higher in priority to Co-operators (a point Co-operators disputed as well).

Referring to her earlier decision in Co-operators v. Ontario, the arbitrator found for Co-operators:

I find that the same reasoning applies in this case. I appreciate counsel for Northbridge’s contention that it seems unfair to allow Intact to essentially “save” Co-operators by indirectly doing what Co-operators had failed to do directly. However, when the priority scheme set out in the regulation is considered as a whole, I find that this is permitted. A priority investigation is often like chasing a moving target. As Ms. Darke’s evidence revealed, inquiries directed at potential priority insurers can be frustrated, and information is revealed slowly and in a piecemeal fashion. That reality must be balanced against the public policy concern of ensuring that individuals who are in need of benefits receive them on a timely basis.

 

The regulation addresses this balance by requiring a first insurer to provide notice to insurers who it claims are in higher priority to pay within ninety days of receiving an application for benefits. It then permits those insurers, who have the benefit of more time and a singular focus, to bring in other insurers that they feel are in equal or higher priority. Section 10 clearly spells out that once added, all parties must participate in one arbitration process.

 

I find that if the drafters of Regulation 283/95 had intended that the first insurer only be permitted to provide notice to an insurer on a higher priority “rung”, they would have used clear words to convey that message. In my view, a close reading of section 3 and section 10 do not lead to that conclusion. Instead, these provisions acknowledge the reality that determining priority may take a few steps. Section 3 is designed to “get the party started”. Section 10 allows that once the fun begins, others may join in and it does not really matter who arrived with whom, and at what time.[12]

This decision was upheld on appeal.[13]

Arbitrator Bialkowski had an opportunity to deal with a similar issue in Scottish & York v. Belair[14] in the context of a productions motion. In that case, the claimant was an occupant of a taxi involved in an accident. She applied for benefits to S&Y (first tier insurer), which insured the other vehicle involved in the accident. Investigations revealed that the owner of the taxi was insured with Belair, so S&Y gave Belair (second tier insurer) a priority dispute notice under section 3 of the Regulation. Arbitration proceedings began. During the course of the arbitration, Belair’s lawyer advised that Belair did not insure taxis and did not insure the vehicle that was involved in the accident. Further investigations by S&Y’s lawyer confirmed that the taxi was actually insured with Zurich. Belair (not S&Y) then served Zurich (third tier insurer) with a priority dispute notice under section 10 of the Regulation and an arbitration notice.

Zurich disputed the notice it received from Belair, arguing that the section 3 notice that S&Y had given Belair was “invalid”. Like Northbridge’s argument in Co-operators, the gist of Zurich’s argument was that there was no chance that Belair would ever have priority over this claim, and it was actually S&Y who had conducted the investigations to identify Zurich. It argued that S&Y’s reliance on Belair’s section 10 notice was a “clear attempt to circumvent the 90 day notice rule which applies to S&Y, as the s. 10 notice will not protect or benefit Belair in any way”. Zurich sought production of all communications between the lawyers for the two other insurance companies before the section 10 notice was given.

Arbitrator Bialkowski followed Co-operators and rejected Zurich’s submissions. He found there was no basis for a finding that a section 3 notice can only be valid if given to an insurer standing higher in priority. Accordingly, the productions Zurich sought were irrelevant to the issue in the case.

In short, the case law is pretty clear that the insurer giving notice under section 3 (first tier insurer) can rely on any section 10 notices that a second tier insurer gives to a third tier insurer. The result is that the first tier insurer can piggyback on the section 10 notice and pursue priority directly against the third tier insurer.

Finally, the 90-day notice limitation under section 3 does not apply to a notice given under section 10. Insurers trying to read in a 90-day time limit into section 10 have been unsuccessful. In Wawanesa v. Peel Mutual[15], the third tier insurer argued that the second tier insurer had 90 days from the date it received the section 3 priority dispute notice to give a notice under section 10. The arbitrator rejected that argument:

To apply the Notice rule to the second tier insurer vis-à-vis a third tier insurer does not fit within the provisions of the regulation. The second tier insurer is necessarily not the “first insurer”, nor is it the insurer paying benefits under section 2. The second tier insurer is not entitled to be in receipt of a completed (or any) application from the SABS claimant. The second tier insurer does not enjoy the benefit of SABS sections 31 and 32 that allow the SABS insurer to obtain information from the claimant that might assist in identifying higher ranking insurers that should be shouldering the burden of payment.

 

While meeting the 90 day deadline might be challenging for the first tier insurer, that standard of response seems completely unsuitable when cast over an insurer that lacks the most basic access to information that might be critical to impleading the ultimately responsible insurer. I don’t overlook the provisions of section 6 of the regulation in this regard, but note the lack of any compliance parameters that might give hope for a prompt and fulsome response to inquiries made by an insurer that is not administering the claim. At best section 6 is a poor tool if it is to be used to ferret out priority information in a short time frame.

 

I conclude that blindly applying the section 3 procedural provisions to second tier insurer actions is not consistent with the wording of the regulation, and is insensitive to the context. To apply the section 3 provisions to second tier insurers would give rise to an injustice, ultimately resulting in the payment of benefits by the wrong insurer. The regulation is designed to facilitate a process that will lead to the cost of a claim being visited upon the correct insurer, without burdening the insured person with prosecution of priority dispute issues. It would be abhorrent to interpret the regulation in a manner which has the opposite result unless that outcome is required by the clear and specific language of the regulation. The language of the regulation does not have that clarity.[16]

Accordingly, there is no prescribed time limit for a second tier insurer to give a third tier insurer a priority dispute notice under section 10 of the Regulation. Ideally, this notice should be given while the one-year limitation period to initiate arbitration is still open.

The Final Frontier

Once the arbitrator releases their decision, section 47 of the Arbitration Act, 1991 prescribes a 30-day deadline to appeal:

Time limit

47 (1) An appeal of an award or an application to set aside an award shall be commenced within thirty days after the appellant or applicant receives the award, correction, explanation, change or statement of reasons on which the appeal or application is based.

The parties’ Arbitration Agreement will also usually contain a clause stipulating the same deadline to start an appeal.

Appeals are made to a single judge of the Superior Court. By default, section 45(1) of the Arbitration Act, 1991 limits all appeals to questions of law. If the default provision applies, a party cannot appeal any issues involving questions of fact or mixed fact and law. Further, section 45(1) requires a party to seek leave (get the court’s permission) to appeal before they can proceed with the appeal:

Appeal on question of law

45 (1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,

(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and

(b) determination of the question of law at issue will significantly affect the rights of the parties.  1991, c. 17, s. 45 (1).

Idem

(2) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law.  1991, c. 17, s. 45 (2).

However, insurers are free to add a provision in their Arbitration Agreements that allows them to appeal any questions of fact or mixed fact and law:

Appeal on question of fact or mixed fact and law

45 (3) If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law.

Preserving appeal rights is the most important task when formulating an Arbitration Agreement. Rarely do insurers wish to limit their appeal rights to questions of law only, and having to first seek leave to appeal a decision comes with its own unnecessary risks. Therefore, we always make sure our Arbitration Agreements contain a provision that allows a party to appeal the arbitrator’s decision, without leave, on questions of mixed fact and law. I have never agreed to a right to appeal on questions of law only or questions of fact.

Once the Superior Court decides the appeal, the unsuccessful party could try to get leave to appeal the decision to the Court of Appeal. If the Court of Appeal denies leave, the dispute ends according to the Superior Court’s appeal decision. If the Court of Appeal grants leave, the appellant would then file a Notice of Appeal and the matter would be heard before three Court of Appeal judges.

After the Court of Appeal’s decision is released, a party can try to appeal to the Supreme Court of Canada, with leave. It is very difficult to get leave to the Supreme Court of Canada in a priority dispute between two Ontario insurance companies. Accordingly, it is much better to win at the Court of Appeal!

[1] Disputes Between Insurers, O Reg 283/95, s 7, https://canlii.ca/t/rvj#sec7

[2] Arbitration Act, 1991, SO 1991, c 17, https://canlii.ca/t/52wr5

[3] Aviva Insurance Co. of Canada v. Pafco Insurance Co., 2018 CarswellOnt 884 (Arbitrator G. Jones).

[4] Gore Mutual Insurance Co. v. Markel Insurance Co., [1999] O.J. No. 2688, [1999] I.L.R. I-3740 (Ont. S.C.J.).

[5] State Farm Mutual Insurance Co. v. Echelon General Insurance Co., 2008 CarswellOnt 11430 (Arbitrator S. Novick)

[6] Economical Mutual Insurance Co. and Unifund Assurance Co., 2017 CarswellOnt 15486, 72 C.C.L.I. (5th) 254 at para. 23 (Arbitrator K. Bialkowski); Pafco Insurance Co. and Wawanesa Mutual Insurance Co., 2016 CarswellOnt 21858 at para. 23 (Arbitrator S. Novick).

[7] Co-operators’ General Insurance Co. v. Ontario (Minister of Finance), 2013 CarswellOnt 16186 (Arbitrator S. Novick), affd Co-operators General Insurance Company v. Ontario (Minister of Finance), 2014 ONSC 515 (CanLII), https://canlii.ca/t/g32v4, leave to appeal refused 2014 CarswellOnt 19331 (Ont. C.A.).

[8] The subject accident happened before September 1, 2010, so section 3.1 of O Reg. 283/95 did not apply.

[9] Co-operators’ General Insurance Co. v. Ontario (Minister of Finance), 2013 CarswellOnt 16186 at para. 25 (Arbitrator S. Novick).

[10] Co-operators General Insurance Co. v. Intact Insurance Co. and Northbridge General Insurance Corp., 2018 CarswellOnt 877 at paras. 58-60 (Arbitrator S. Novick).

[11] The claimant’s spouse applied on his behalf under her own policy because he was incapacitated in hospital. At an examination under oath, she said that she had completely forgotten that her husband had his own policy with Intact.

[12] Co-operators General Insurance Co. v. Intact Insurance Co. and Northbridge General Insurance Corp., 2018 CarswellOnt 877 at paras. 58-60 (Arbitrator S. Novick).

[13] Co-operators General Insurance Company v. Ontario (Minister of Finance), 2014 ONSC 515 (CanLII), https://canlii.ca/t/g32v4, leave to appeal refused 2014 CarswellOnt 19331 (Ont. C.A.)

[14] Scottish & York Insurance Co. v. Belair Direct Insurance Co., 2019 CarswellOnt 16065 (Arbitrator K. Bialkowski).

[15] Wawanesa Mutual Insurance Co. v. Peel Mutual Insurance Co., 2011 CarswellOnt 19009 (Arbitrator L. Samis).

[16] Wawanesa Mutual Insurance Co. v. Peel Mutual Insurance Co., 2011 CarswellOnt 19009 (Arbitrator L. Samis) at paras. 18-20.