In this loss transfer private arbitration decision released on December 22, 2016, Arbitrator Bialkowski was asked to determine the preliminary issue of whether ACE INA, which insured the City of Toronto, was responsible to indemnify accident benefit payments made to the two insureds of Certas Direct.
The two insurers proceeded on an agreed statement of fact. The two claimants, who were insured under a standard automobile policy issued by Certas Direct, were injured as pedestrians by a truck owned by the City of Toronto on March 7, 2013. It was undisputed that the truck was a “heavy commercial vehicle” as defined by section 9 of Ontario Regulation 664, and that a Side Agreement between Toronto and ACE INA dated June 1, 2004 was in effect on the date of loss. Certas Direct sought loss transfer indemnity from ACE INA as the insurer of the Toronto truck as of the date of loss pursuant to section 275 of the Insurance Act.
At the hearing, Certas Direct took the position that a “plain language interpretation” of the legislation was required. Certas Direct was the insurer responsible to pay accident benefits pursuant to section 268(2) of the Insurance Act. ACE INA was an “insurer” within the meaning of section 275(1) because it was licensed to undertake automobile insurance in Ontario, it had issued a policy of automobile insurance that insured the City of Toronto truck on the date of loss, and the truck was a heavy commercial vehicle. Therefore, all the requirements for loss transfer indemnity from ACE INA had been met.
ACE INA argued that a plain language analysis was only the first step, and that the application of the “purposive approach” required by the Ontario Court of Appeal in Wawanesa Mutual Insurance Company v. Axa Insurance (Canada), 2012 ONCA 592 (CanLii) led to the conclusion that it would be inequitable to impose the indemnity obligation on ACE INA based on the history of the provision in issue, it’s place in the overall scheme of the Act, the object of the Act itself, and the Legislature’s intentions.
This argument arose from the outcome of a loss transfer arbitration in St. Paul Fire and Marine Insurance Company v. Intact Insurance Company, released March 21, 2014. Arbitrator Densem held that because St. Paul had not actually paid benefits to the claimants in that case, but rather the insured of St. Paul, the City of Mississauga, had paid them pursuant to a Side Agreement, it was not open to St. Paul to seek loss transfer indemnity from Intact. Arbitrator Densem did not adopt the purposive approach of statutory interpretation urged upon him by St. Paul, nor the argument that it would be unjust and unfair if St. Paul or its insured was unable to seek loss transfer yet still be exposed to a loss transfer claim where it was the owner/insurer of the heavy commercial vehicle. This decision was subsequently upheld by Justice Whittaker (St. Paul Fire & Marine Insurance Company v. Intact Insurance, 2014 ONSC 6039 (CanLII).
According to ACE INA, and the City of Toronto, the result in that St. Paul Fire was that Mississauga was burdened with a cost the obligation to pay accident benefits that ought to have been passed along to Intact, which unfairly escaped from having to pay through the loss redistribution scheme envisioned by the Legislature. ACE INA and the City of Toronto argued that the loss transfer regime has become skewed, and no longer balances the costs under Ontario’s no-fault automobile regime, and the proper analysis was to return to the remedial purposes of the loss transfer regime to balance the cost of no-fault benefits so that if a self-insured entity cannot claim loss transfer, it should not be exposed to claims for loss transfer indemnity.
Arbitrator Bialkowski understood and accepted that it was unfair that the effect of the decisions in St. Paul Fire was to prohibit municipalities and other self-insured entities, which are not an “insurer” under Ontario Regulation 664, from seeking loss transfer where those entities rather than their insurer make payment of accident by way of a Side Agreement between the two. However, he accepted the argument of Certas Direct that the Side Agreement between ACE INA and the City of Toronto was an “extraneous factor” that could not be considered based on previous decisions of arbitrators and the courts, including:
• ING Insurance Co. of Canada v. Non-Marine Underwriters, Members of Lloyds of London England, upheld on appeal by Justice Little in an unreported decision, where Arbitrator Samis held that section 275 of the Act and Regulation 664 represent an independent statutory liability imposed upon insurance companies. In that case, Lloyds was found responsible to indemnify ING even though Lloyds had voided the policy with it’s insured.
• Jevco v. Wawanesa and Jevco v. Pilot Insurance (1998) O.J. No. 5037, where Justice Spiegel held that Pilot was responsible to indemnify Jevco where the Pilot vehicle was being operated without the consent of the owner.
• In Royal & Sun Alliance v. Wawanesa (2006) CanLii 42663, 84 O.R. (3d) 449, the court held that the second party insurer was bound by the loss transfer provisions of s. 275 regardless of the fact that the accident occurred in a non-loss transfer jurisdiction, such as Vermont.
• In Primmum v. Allstate (2010) O.J. No. 600, the court held that as the second party insurer, Allstate was bound by s. 275 regardless of the fact that the Allstate policy was issued in North Carolina, and the accident took place in North Carolina. The court concluded that a second party insurer could remedy this either by withdrawing from writing Ontario policies, or creating subsidiaries that would only underwrite policies in non-Ontario jurisdictions.
In finding against ACE INA, Arbitrator Bialkowski endorsed three ways in which the situation complained of by private entities such as the City of Toronto and their insurers could be remedied. The first involves having the issue adjudicated by the Ontario Court of Appeal.
The second, identified by Arbitrator Demsem in St. Paul Fire, involves legislative amendment, using language such as “the insurer responsible under subsection 268(2) for the payment of (SABS), its agent, assignee or guarantor…is entitled…to indemnification in relation to such benefits paid by it…”.
The third, also identified by Arbitrator Densem, involves the re-writing of Side Agreements. In the words of Arbitrator Bialkowski: “If the City wanted to be able to access the loss transfer provisions so as to be able to claim loss transfer indemnification, it could easily have done so by structuring its contractual arrangement with ACE INA through its Side Agreement in a way that would not defeat access to loss transfer. Specifically, the Side Agreement could simply provide that ACE INA pay accident benefits claims to claimants directly from its own funds in situations where loss transfer indemnity may be available, to be later reimbursed by the City. ACE INA would then be able to claim for accident benefits ‘paid by it’, thereby bringing itself within the scope of s.275(1) and taking it outside of the ruling in St. Paul Fire and Marine Insurance v. Intact.”
This last option appears to be one that Ontario automobile insurers and their large corporate and municipal clients with large deductibles or self-insured retentions should seriously consider implementing. If worded properly, such Side Agreements would “level the playing field” by facilitating recovery of loss transfer indemnity where those types of insureds have paid accident benefit claims in circumstances where a right to loss transfer would exist if they were an “insurer” licensed to transact in automobile insurance in Ontario.