The Divisional Court has offered some helpful judicial commentary relating to an insurer’s disclosure obligations in loss transfer indemnity disputes. In particular, it commented on the insurer’s burden of proving an applicant’s choice of insurer as well as the requisite scope of disclosure required in such disputes. Ultimately, the court indicated that insurers cannot rely upon pre-populated OCF-1s as conclusive evidence of an applicant’s choice as to which policy and/or insurer it applied to.
The Applicant in this case, Kyle, was struck as a pedestrian by a vehicle insured by L’Unique Assurances Générales.
Kyle’s father, Doug, had an automobile insurance policy with Primmum Insurance Company. The only vehicle listed on this policy was a motorcycle. Kyle’s step-mother, Emma, also had a policy with Primmum. This policy insured two cars.
Following the subject accident, Kyle applied for and received accident benefits from Primmum. He was paid these benefits as a dependent under Doug’s policy. Primmum subsequently submitted an application for loss transfer indemnification from L’Unique for benefits it paid out to Kyle. As Doug’s policy only insured a motorcycle, Primmum asserted that it was entitled to loss transfer against L’Unique pursuant to subsection 9(2)(a) of R.R.O. 1990, Reg. 664 (hereinafter “Reg. 664”).
Subsection 9(2)(a)(ii) states that;
“(2) A second party insurer under a policy insuring any class of automobile other than motorcycles, off-road vehicles and motorized snow vehicles is obligated under section 275 of the Act to indemnify a first party insurer,
(a) if the person receiving statutory accident benefits from the first party insurer is claiming them under a policy insuring a motorcycle and,
(ii) if motorcycles and motorized snow vehicles are the only types of vehicle insured under the policy”
Notably, it was recognized that if the benefits had been paid to Kyle under Emma’s policy rather than Doug’s policy, Primmum would not be entitled to seek loss transfer under this section. As such, Primmum relied on the OCF-1, submitted by Doug on Kyle’s behalf, in arguing that Kyle’s application was made pursuant to Doug’s policy. Notably, Doug’s policy number appeared on the first page of this application form.
However, the policy number section of this form had been pre-populated by Primmum, with Doug’s policy number, before it was sent to Doug for completion on Kyle’s behalf. Moreover, Doug had failed to check off any of the boxes listed in section 4A of the application – which asked if Kyle had coverage under various categories of automobile insurance, including policies “of any person on whom [he was] dependent (e.g. a parent)”. Rather, Doug checked off the box under section 4B of the OCF-1, referencing “[t]he vehicle that struck me as a pedestrian/cyclist”.
Given these circumstances, L’Unique had concerns that the claim may not have been properly made pursuant to Doug’s policy. Accordingly, it sought to investigate the circumstances relating to Kyle’s choice of insurer. It proceeded to bring a pre-hearing motion before an arbitrator asking for an Order;
1. Declaring that how Kyle’s claim for accident benefits came to be adjusted, in particular under Doug’s policy as opposed to under Emma’s policy, forms part of the loss transfer dispute and is therefore to be considered by the arbitrator at the hearing
2. Requiring Primmum to produce various documents with respect to:
a. Issuing policies that insure only motorcycles; and
b. Treatment of claims for SABs when there exists more than one policy pursuant to which an insured may make such a claim; and
3. Requiring Primmum to produce any and all relevant claims, documents, internal records, notes, memoranda, or communication with the insured.
L’Unique’s motion was dismissed at first instance. Accordingly, it proceeded to appeal the arbitral decision to the Divisional Court.
Madam Justice Syliva Corthorn, sitting as a single judge of the Divisional Court, allowed the appeal and granted the relief sought by L’Unique with the exception of the relief enumerated as 2(b) above. Ultimately, she held that the arbitrator’s decision was unreasonable for three reasons.
First, the arbitrator did not properly differentiate between the statutory and regulatory provisions relating to priority disputes and those relating to loss transfer disputes. He had made reference to section 268 of the SABS, relating to priority disputes, and section 275, relating to loss transfer disputes, as the “same scheme” for different types of disputes. Justice Corthorn noted that such a statement overlooked significant differences between the two regulatory regimes. Most importantly, whereas the priority regime served to ensure that an injured person, entitled to accident benefits, received those benefits even where there was a dispute as to which insurer was required to pay, the loss transfer regime functioned to achieve an appropriate balance between the insurers of various classes of vehicles in meeting the cost of providing accident benefits to injured motorists. Justice Corthorn held that the conflation of these fundamentally different schemes was unreasonable and resulted in the arbitrator overlooking or failing to appreciate the evidentiary burden on the first party insurer seeking indemnification under subsection 9(2)(a) of Reg. 664.
Second, it was noted that the issue of whether or not the subject OCF-1 was evidence of Kyle’s choice of insurer was not properly before the arbitrator. Accordingly, it was held that the arbitrator’s decision went beyond the issues in dispute and was unreasonable for this reason.
Nevertheless, Justice Corthorn proceeded to determine that even if the arbitrator had proper jurisdiction to decide this issue, his conclusion on the issue was unreasonable. In particular, she noted that the arbitrator’s decision was not supported by the substantive content contained in the subject OCF-1. Given Primmum’s pre-population of Doug’s policy number on the application form, and further, Doug’s subsequent completion of sections 4A and 4B of the form, the listing of Doug’s policy number on the OCF-1 was considered insufficient evidence to prove Kyle’s intention of claiming accident benefits pursuant to Doug’s policy.
Lastly, it was determined that the arbitrator improperly failed to consider the evidentiary requirements of the statutory and regulatory scheme with respect to applications for accident benefits and the resolution of indemnity loss transfer disputes. Though Justice Corthorn acknowledged that clarity and certainty were of primary concern with respect to these issues, she held that it would put undue emphasis on these principles if insurers involved in a loss transfer indemnity dispute would not be entitled to look behind a completed OCF-1 to determine the insurer of choice.
Importantly, it was noted that applicants have an absolute right to decide which insurer and/or policy they will claim benefits from. Moreover, they are entitled to exercise their discretion with “full information” and based on a “conscious decision”. Accordingly, Justice Corthorn held that in making a determination about an applicant’s insurer of choice, it would be important to know what information was provided by the insurer to the applicant about (a) the potential choice of insurers generally, (b) the potential choice between claiming accident benefits under one policy versus another, and (c) the quantum of benefits available to the applicant under each policy. The scope of documentary disclosure was to be guided by these considerations.
The takeaway for insurers is that the production of a pre-populated OCF-1 is not enough to satisfy their disclosure obligations in loss-transfer indemnity disputes. Ultimately, insurers will have to disclose the information they provided to the applicant prior to the applicant’s submission of their OCF-1. Just as deflection is a serious issue in priority disputes, so too is taking a preference by an insurer on one policy which gives rise to a loss transfer right over another policy that does not.