Priority Insurer Has No Options

Can the insurer, who is required to waive reliance on the priority rules and pay accident benefits, still pursue indemnification from the priority insurer? A Superior Court judge says “yes”.

In Continental Casualty Company v. Chubb, the claimant was catastrophically injured when he was struck by a motor vehicle as a pedestrian. He ended up applying to Chubb for accident benefits. Chubb insured his personal vehicles and he was a named insured on that policy.

At the time of the accident, the claimant was the owner, President, and CEO of a forest products company. Its vehicles were insured with Continental (CNA). The CNA policy included optional coverage that provided up to an additional $1 million for medical and rehabilitation expenses, thus increasing the total available coverage to $2 million.

The claimant eventually submitted an OCF-1 to Chubb, who initiated a priority dispute against CNA.  In a decision, dated April 4, 2018, Arbitrator Kenneth Bialkowski concluded that CNA was the priority insurer, and thus responsible to pay the claimant’s benefits. The arbitrator found that the claimant was a deemed named insured under the CNA policy because his company made its vehicles available for his regular use at the time of the accident. Accordingly, the arbitrator found that the claimant had coverage equally under both policies and that he would have chosen to claim from CNA to take advantage of the optional benefits.

On appeal, Stinson J disagreed with the arbitrator.

Before delving into the decision, some background information is necessary on the interplay between optional benefits and priority disputes.

Why are We Interested in Optional Benefits and Priority Disputes?

The SABS contains various “standard” accident benefits that are part of every motor vehicle liability policy in Ontario. However, insureds can purchase “optional benefits” that enhance the standard coverages.

Meanwhile, section 268 (2) of Ontario’s Insurance Act contains a priority pecking order:

1. An accident victim first has recourse against any policy that insures her as an insured (named insured, spouse, dependent, listed driver).
2. If she is not insured under such policy, she next has recourse against the insurer of the vehicle she was in (occupant) or insurer of the vehicle that struck her (non-occupant).
3. If there is no recourse under #2 (i.e., in the case of an uninsured or unidentified vehicle), she next has recourse against the insurer of any other vehicle involved in the accident.
4. If there is still no insurer under #3, she finally has recourse against the Motor Vehicle Accident Claims Fund.

Sections 268 (4) – (5.2) of the Act contemplate situations where a claimant might have recourse against more than one insurer for accident benefits under the priority rules. For example, Tim could be a listed driver on one policy and a dependant of a named insured (Fiona) on another. Section 268 (5) would break the tie and would make Fiona’s insurer the priority insurer (named insured, spouse, or dependant trumps listed driver). Likewise, suppose Krista and Mike each have their own vehicles and insurance with different policies. If they were involved in an accident while occupants of Krista’s vehicle, Krista’s insurer would have priority over Mike’s insurer because they were occupants of her vehicle.

But what if Tim and Mike had optional benefits on their respective policies? The priority rules would preclude them (and Krista) from receiving the optional benefits that they had purchased.

To solve this problem, the Superintendent of Insurance approved the OPCF 47 Endorsement called Agreement Not To Rely On Sabs Priority Of Payment Rules. As the endorsement’s title states, the OPCF 47 requires an insurer who has sold a policy with applicable optional benefits to waive the priority rules and pay the claim for standard and optional benefits purchased.

In sum, the OPCF 47 endorsement entitles claimants to receive the optional benefits they have purchased from their insurer, despite any priority rules mandating that they have recourse elsewhere. The insurer that has sold the optional benefits must pay accident benefits (standard and optional) to its insured(s) and cannot rely on the priority rules to defeat coverage.

Does this mean that the actual priority insurer gets a free pass?

Why do We Care about Priority if the OPCF 47 Says we Must Pay?

Having found that the claimant was not a deemed named insured of CNA (more on this below), the appeal judge found that Chubb had priority over CNA for accident benefits because, at best, the claimant was only a listed driver on CNA’s policy (recall that named insured trumps listed driver). However, as a listed driver on the CNA policy, the OPCF 47 applied to the claimant and CNA, meaning CNA was precluded from relying on the priority rules to deny the claim.

However, the judge referred to another arbitrator’s decision in Echelon v. Co-operators (2015), wherein the arbitrator found, among other things:

It seems to me that the insurer paying a claim in conjunction with an OPCF-47 endorsement would have the right to reimbursement from a higher ranking insurer, at least to the extent of the mandatory benefits … . Simply put, nothing whatsoever has been done to limit or restrict the optional benefit insurer from pursuing the reimbursement aspect under the priority rules as they exist.

The appeal judge agreed with and adopted the arbitrator’s reasons from Echelon. Accordingly, CNA was required to handle and pay standard/optional benefits for this claim. However, CNA was entitled to reimbursement from Chubb for the cost of all mandatory SABS benefits paid by CNA to the claimant, and reimbursement from Chubb for all expenses associated with administering the mandatory SABS benefits.

It is unknown at this time whether Chubb will be seeking leave to appeal the decision.

What Does this Mean???

The law in Ontario, as it relates to optional benefits and priority is, as follows:

1. Where a claimant has applicable optional benefits on their policy, they have recourse against their insurer despite the priority rules. The insurer must accept the claim and pay the claimant mandatory and optional benefits, in accordance with the terms, limits, etc. in the SABS.
2. However, the insurer responsible for paying optional benefits can now seek reimbursement from the priority insurer for any mandatory benefits it has paid on the claim, plus apparently any administration expenses (which could mean surveillance, adjusting fees, etc.).

What Should We Do?

If you are the insurer that receives an application for benefits under a policy with applicable optional benefits (“Optional Benefits Insurer”):

1. Accept the claim and pay the standard/optional benefits pursuant to the various provision in the SABS.
2. Investigate priority and give any higher-ranking insurer a priority dispute notice.
3. Any disputes as to whether the other insurer has priority (under sections 268(2) – 5(1.2) would be resolved in arbitration.
4. The priority insurer would be obligated to reimburse you for any standard benefits paid, and administration expenses.

If you are the insurer who actually has priority (“Priority Insurer”):

1. You are required to reimburse the Optional Benefits Insurer for any standard benefits paid, and administration expenses incurred.
2. There will likely be issues as to whether the Priority Insurer could challenge the way the Optional Benefits Insurer has handled the claim and paid benefits, much like we see in loss transfer disputes.

What Should We Do Now?

If you are the Optional Benefits Insurer, consider bringing a new claim against the Priority Insurer for reimbursement, keeping in mind there might be a 90-day notice issue to overcome (this is a topic for a future blog).

If you are the Priority Insurer, you can expect to receive new notices for reimbursement.

What does the Future Look Like?

Appeal opportunities aside, in my opinion this decision could cause an administrative nightmare for insurers going forward, especially if more consumers continue to purchase optional benefits:

1. It will be extremely difficult for Priority Insurers to set reserves properly, to capture not only benefits that another insurer is paying (like in loss transfer), but also the cost of insurer assessments and administration expenses (which is not an issue in loss transfer because those expenses are not recoverable).
2. There is no process in place now governing how the Optional Benefits Insurer could seek reimbursement from the Priority Insurer. Likewise, there is no process in place now governing how the Priority Insurer could dispute the reasonableness of payments made (both benefits and administrative expenses).
3. There will undoubtedly be a significant increase in reimbursement claims, which will not only lead to significant legal costs but also place a burden on already-busy claims handlers, who will now need to consider a new reimbursement process for ongoing priority dispute claims.
4. What about reimbursement for legal expenses arising from any LAT disputes between the Optional Benefits Insurer and the claimant? Must the Priority Insurer reimburse the Optional Benefits Insurer for those expenses too?

What was that About Regular Use?

Continental v. Chubb will be forever known as the optional benefits case, but the appeal judge’s decision on regular use is also very noteworthy. The judge wrote:

…[I]n the present case, the evidence is uncontradicted that at no time did Mr. Ekstein make use of any of the company vehicles. Indeed, most of the vehicles insured by the CNA policy were tractor-trailers, although some were smaller trucks used in the business operations of the company. Although, because he was the President, CEO and owner of the company, it was theoretically open to Mr. Ekstein to have access to and choose to drive any of the insured vehicles, he never did so. The only vehicles that he actually drove were expressly insured under his personal Chubb policy.

[26]        Thus, while there was an element of so-called “residual control” over the vehicles covered by the CNA policy, what is missing in this case is any evidence of those vehicles “being made available for [Mr. Ekstein’s] regular use”.

[27]        In my view, it was unreasonable for the Arbitrator to impute regular usage to Mr. Ekstein when none existed. His decision contains no proper analysis of the evidence before him addressing the regular use provisions of s. 3(7)(f) in relation to the facts of this case. The Arbitrator failed to consider Mr. Ekstein’s evidence that he never used a company vehicle prior to or at the time of the accident, or that a company vehicle was not being made available to him at the time of the accident. In so doing, the Arbitrator failed to follow the analytical approach set out in such cases as ACE INA Insurance v. Co-operators General Insurance Co., [2009] CanLII 13625.

[28]        I conclude that the Arbitrator’s decision is unreasonable because he failed to carry out the proper analysis, it is inconsistent with underlying legal principles, and the outcome ignores or cannot be supported by the evidence. To the contrary, the evidence supports the finding that no automobiles that were subject to the CNA policy were made available for Mr. Ekstein’s regular use by the company. 

It appears the appeal judge imputed into the regular use provisions in the SABS a requirement that there be evidence of actual use of a vehicle.

Does regular use require evidence of actual use? Contact me.

See Continental Casualty Company v. Chubb Insurance Company of Canada, 2019 ONSC 3773 (CanLII)