Off-Coverage Still Means On-Claims

A FSCO arbitrator has confirmed that the first insurer that receives a completed application for accident benefits is required to adjust and pay the claim, even if the insurer is taking an off-coverage position.

Overview

In Cankaya v. Intact / Cankaya v. Unifund, the claimant was working on the engine of a 2001 BMW vehicle he was about to repair at his mechanic shop. The cooling fan or other part of the BMW broke apart and flew into his face. He sustained multiple injuries. He was acting in the course of his self-employment as a garage repairman when the incident occurred.

At the time of the incident, the claimant was insured with Unifund under a standard Ontario Automobile Policy (OAP 1), which insured his personal vehicle. He was also insured with Intact under the standard Ontario Garage Automobile Policy (OAP 4). Both policies were valid at the time of the incident.

The claimant submitted an application for accident benefits to Unifund on January 10, 2014. On March 27, 2014, Unifund advised the claimant that he was precluded from receiving any accident benefits under his policy because of the garage exclusion under section 1.8.4 of the OAP 1.

On April 15, 2014, the claimant’s lawyer wrote to Unifund and advised about the Intact policy. The claimant’s lawyer encouraged Unifund to pursue a priority dispute against Intact, pursuant to O. Reg. 283/95 . Unifund refused to do so.

On June 18, 2014, the claimant submitted an application for accident benefits to Intact. Intact denied the application on the basis that it was not the first Insurer to receive a completed application.

The claimant did not receive any benefits, so he applied for mediation and arbitration at FSCO. A preliminary issue hearing was held to determine a number of issues, the main one being whether FSCO had jurisdiction to determine whether section 1.8.4 of the OAP 1 could relieve Unifund of its obligations to respond/adjust and pay benefits, pursuant to section 2.1 (6) of O. Reg. 283/95. In other words, could FSCO determine coverage or was that issue reserved for a priority dispute?

Priority Dispute Scheme ( in a nutshell)

Section 2.1 (6) of O. Reg. 283/95 requires the first insurer who receives a completed application for accident benefits to respond and pay benefits pending the outcome of any priority dispute with another insurer. In Kingsway v. Ontario (2007), the Court of Appeal stressed that the “pay now, fight later” principle is vital:

Section 2 of regulation 283 is critically important in the timely delivery of benefits to victims of car accidents. The principle that underlies section 2 is that the first insurer to receive an application for benefits must pay now and dispute later. The rationale for this principle is obvious: persons injured in car accidents should receive statutorily mandated benefits promptly; they should not be prejudiced by being caught in the middle of a dispute between insurers over who should pay, or as in this case, by an insurer’s claim that no policy of insurance existed at the time.

Where an insurer receives a completed application and believes that another insurer has priority over it for the claims, O. Reg. 283/95 allows the insurer to compel the other insurer(s) to participate in a priority dispute. The entire procedure is contained in the Regulation and disputes are resolved in private arbitration, pursuant to the Arbitration Act, 1991.

O. Reg. 283/95 has strict timelines: When an insurer receives a completed application for accident benefits, it has 90 days from the date of receipt to investigate priority and to give a target insurer written notice of the dispute, pursuant to section 3. An insurer that fails to give written notice within that 90-day period is barred from pursuing priority against the other insurer, unless it can show, firstly, that 90 days was not enough time to make its determination and, secondly, that it made reasonable investigations during those 90 days. These two “saving provisions” are often difficult to satisfy.

Section 4 requires the insurer giving notice under section 3 to also give the claimant a Notice to Applicant of Dispute Between Insurers form, which is a prescribed document that advises the claimant of the dispute and the name or names of the other insurer(s) who might have priority over the claims. The claimant is given 14 days to object to the transfer of their file. If the claimant objects, he or she becomes a participant in any proceeding to determine priority. The Superior Court[1] held recently that the notice under section 4 must be given within 90 days after the insurer receives the claimant’s completed application for benefits.

Once an insurer gives its written notice, subsection 7 (3) states that any arbitration to decide the issues between the parties must be initiated within one year from the date the insurer paying benefits gave its priority dispute notice.

Cankaya Decision

As noted above, Unifund rejected the application on the basis that the claimant was subject to the garage exclusion under section 1.8.4 of the OAP 1. Having determined that there was no coverage under the policy, Unifund refused to adjust and pay benefits pending the outcome of any priority dispute with Intact. Actually, Unifund refused to initiate a priority dispute against Intact.

Meanwhile, Intact refused to adjust the claim on the basis that it was not the first insurer to receive an application for accident benefits. Essentially, Intact argued that Unifund was the first insurer to receive an application, so only Unifund was compelled to pay now and dispute later.

The first issue was whether FSCO had jurisdiction to determine whether section 1.8.4 of the OAP 1 could relieve Unifund of its obligations under section 2.1 (6) of O. Reg. 283/95. The arbitrator relied on previous FSCO decisions (Vieira and Royal & SunAlliance and Chubb, 2004 FSCO App) and Bianca v. Wawanesa, 2004 FSCO Arb) and held that FSCO did not have jurisdiction to make that decision.

Put another way, FSCO (and the courts, and likely the LAT) often determines whether a particular claimant was involved in an “accident”. This is a general coverage issue that applies to a claimant regardless of where she applied for benefits. If she was involved in an “accident”, she is entitled to benefits from at least one insurer. If she was not involved in an “accident”, she is not entitled to benefits from any insurer. FSCO has jurisdiction to make this determination.

However, where there is no issue as to whether a claimant was involved in an “accident”, any other coverage issues (i.e., whether the claimant is an “insured person” under a particular policy) is determined in a priority dispute between insurers. FSCO does not have the jurisdiction to make that determination.

Although FSCO does not have jurisdiction to determine coverage in a priority dispute, it t is well settled law that FSCO has the jurisdiction to determine whether an insurance company complied with section 2.1 (6) of O. Reg. 283/95. The test is whether there is a sufficient nexus between the claimant and the target insurer. For example, in Vieira, there was a nexus even though the policy under which the application was made was not in force at the time of the accident.

It is easy to see the nexus between Mr. Cankaya and Unifund: At the time of the accident he was a named insured of Unifund. Therefore, Unifund’s obligations under section 2.1 (6) of O. Reg. 283/95 would have been triggered when its insured applied for benefits under his policy. It would be open to Unifund to rely on any exclusions under section 31 of the SABS to deny certain benefits. Unifund could also pursue a priority dispute against another insurer, such as Intact. In this case, it failed to do both.

Consequently, the arbitrator found that Unifund was required to adjust the claims and pay benefits:

Given my findings above in Issue 1, Unifund is obliged to respond and adjust Mr. Cankaya’s application for statutory accident benefits.  This finding is necessary so Mr. Cankaya may be treated fairly and receives benefits under the SABS to which he is entitled.  As well it is consistent with the purpose and rationale of O. Reg. 283/95.

Takeaways

Except in the most unusual circumstances, any insurer in Unifund’s position should take the safe route: They should accept the application, pay the benefits, and dispute priority.

If Unifund was correct that there was no coverage under its policy, the file would have gone to Intact and Unifund would not be responsible for paying benefits.

However, Unifund failed to pursue priority against Intact, so the merits of the dispute will never be resolved because the priority dispute would be time-barred. Accordingly, Unifund is now saddled with the responsibility to pay benefits indefinitely, regardless of whether priority rested with another insurer.

See Cankaya and Intact, FSCO A14-009220

[1] Unifund Assurance Company v The Dominion of Canada General Insurance Company, 2016 ONSC 4337 (CanLII), <http://canlii.ca/t/gshr3>