ONSC: Loss Transfer Deductible Applied Per Claimant

A Superior Court judge has held (finally) that the $2,000 loss transfer deductible is applied per claimant.

Ontario’s loss transfer scheme is found in section 275 of the Insurance Act. Section 275 (1) allows the insurer paying accident benefits to an insured, in certain situations, to claim “loss transfer” indemnification from the insurer of the other driver involved in the accident. At the risk of oversimplification, the insurer paying accident benefits to an occupant of a motorcycle would be able to claim loss transfer indemnification from the insurer of the car that collided with the motorcycle. Likewise, the insurer paying benefits to an occupant of car would usually be able to claim loss transfer indemnification from the insurer of a heavy commercial vehicle involved in the accident. One way to look at it is that the insurer of the much smaller vehicle (whose insured likely sustained serious injuries) claims loss transfer from the insurer of the much larger vehicle (whose insured likely walked away from the accident without a scratch.

Section 275 (2) of the Act mandates that the amount of loss transfer indemnification is based on fault:

275. (2) Indemnification under subsection (1) shall be made according to the respective degree of fault of each insurer’s insured as determined under the fault determination rules.

Section 275 (3) of the Insurance Act creates the deductible:

(3) No indemnity is available under subsection (2) in respect of the first $2,000 of statutory accident benefits paid in respect of a person described in that subsection. [emphasis added]

The question is: If a vehicle has five injured passengers who each file five individual accident benefits claims, does the insurer paying loss transfer get to deduct one deductible per claimant ($10,000) or just one deductible ($2,000).

In 1994, an arbitrator ruled in Progressive v. Jevco that the $2,000 deductible in section 275 (3) applied only to the named insured claimant as opposed to each claimant. The arbitrator held that the phrase “in respect of a person described in that subsection” in section 275 (3) could mean only the named insured. The appeal judge agreed with the arbitrator.

In Economical v. Northbridge, the arbitrator was asked to determine whether the deductible applied per claimant or only the driver. The arbitrator disagreed with the Progressive decision but noted (correctly) that he was bound to follow it, since it was a Superior Court decision.

On appeal, the judge agreed with the arbitrator that the Progressive decision was wrong. Among other things, the appeal judge found that to apply a deductible only for a claim made by a named insured would “thwart the objective of the deductible” if the named insured was not injured in the accident but a claim for benefits was advanced by an occupant.

The appeal judge also agreed with the arbitrator that it would make little sense to allow insurers to pursue nominal loss transfer claims against each other, which is one of the purposes behind instituting the $2,000 deductible:

In my view, as Arbitrator Samis noted, it makes little financial sense for first party insurers to pursue, and second party insurers to respond to, small loss transfer claims given the transactional costs for each claim.

Perhaps the most interesting part of this case is that it took the insurance industry over 20 years to bring the deductible issue before the Superior Court again. Our experience has been that insurers usually apply a deductible per claimant regardless of Progressive, which might explain why it has been “business as usual” for the past 20 years. Accordingly, this decision might not impact too many claims. Nevertheless, it is refreshing to see the Superior Court overrule an old decision that did not advance the purpose and objectives of the loss transfer scheme.

See Economical Mutual Insurance Company v. Northbridge Commercial Insurance, 2016 ONSC 458