Neutral Citation: 1995 ONICDRG 71

File Nos. A-006394 & A-006466

BETWEEN:

GIFTY MENSAH, PATRICIA YEBOAH, NATALIE YEBOAH, NANA YEBOAH, AFUA YEBOAH, AKUA YEBOAH, GODWELL MENSAH, MARY MENSAH, DORCAS MENSAH, NANA (JOHN) MENSAH AND COMFORT MENSAH

Applicants

and

AETNA CASUALTY & SURETY COMPANY

Insurer

and

ZURICH INSURANCE COMPANY

Insurer

DECISION

There is no dispute as to the facts: Peter B. Mensah, a resident of New York, died in a motor vehicle accident in Ontario on May 31, 1992. The deceased was a named insured under an insurance policy issued in New York by the Aetna Casualty & Surety Company (Aetna). Aetna is licensed to carry on the business of automobile insurance in both New York and Ontario. The New York policy included a mandatory personal injury protection endorsement, providing no-fault benefits. Under New York law, Aetna was not required to offer more than the mandatory coverage, and the deceased did not purchase additional no-fault benefits.

At the time of the accident, the deceased was an occupant of an automobile insured by Zurich Insurance Company under an Ontario owner's policy. The vehicle owner, Mr. A., had purchased Optional Benefit 1, (increased funeral and death benefits) under the Ontario No-Fault Benefits Schedule, Ontario Regulation 672¹.

The Applicants claimed accident benefits arising out of the death of Mr. Mensah. A factual dispute over their spousal and dependant status was resolved at the commencement of the hearing. It was agreed that Aetna was liable to pay accident benefits at the standard Ontario amount set out in sections 10 and 11(1) of the Schedule. The dispute between the parties relates to the availability of the higher benefit rates under Optional Benefit 1 of the Schedule.

There are two issues in this hearing:

Is the deceased deemed to have elected Optional Benefit 1 under the Aetna policy by virtue of the terms of subsection 45(1) of the Insurance Act?²
If Aetna is not liable to pay optional benefits, do the Applicants have recourse to the Zurich policy, under subsection 268(2) of the Insurance Act?

A constitutional challenge to the validity of section 45 of the Insurance Act was withdrawn by Aetna.

The deceased is not deemed to have elected Optional Benefit 1. Aetna is liable to pay benefits to the Applicants at the standard Ontario rate but not optional benefits.
Zurich is not liable for the payment of accident benefits, including optional benefits, to the Applicants. Aetna is the proper insurer under subsection 268(2) 1 .i of the Insurance Act

The hearing was held at the offices of the Ontario Insurance Commission in North York, Ontario, on August 8, 1994, before me, Susan Naylor, Senior Arbitrator.

Mr. John Gibson represented the Applicants. Aetna and Zurich were represented by Mr. Todd McCarthy and Mr. R. Allan O'Donnell, respectively. Three exhibits were filed: an affidavit, with attachments, sworn on July 27, 1994 by Mr. Randy Hamilton, Claims Consultant of the Canadian Claims Unit for Aetna, and a medical and death certificate. No judicial authorities were cited to me at the hearing.

1. Aetna's liability to pay optional benefits

Statutory accident benefits are included in every Ontario automobile insurance policy. Subsection 268(1) of the Insurance Act states:

268.- (1) Every contract evidenced by a motor vehicle liability policy shall provide for the no-fault benefits set out in the No-Fault Benefits Schedule, subject to the terms, conditions, provisions, exclusions and limits set out in that Schedule.

Subsections 268(2) to (5) sets out the order of priority for payment of accident benefits as between insurers. These subsections are set out below on page 9. These rules require the Applicants to have recourse first to the deceased's own policy issued by Aetna in New York.

Subsection 45(1) of the Insurance Act deals with accidents in Ontario involving non-resident insureds, whose automobile policies are issued elsewhere.

45.-(1) A licence to carry on automobile insurance in Ontario is subject to the following conditions:

In any action in Ontario against the licensed insurer or its insured arising out of an automobile accident in Ontario, the insurer shall appear and shall not set up any defence to a claim under a contract made outside Ontario, including any defence as to the limit or limits of liability under the contract, that might not be set up if the contract were evidenced by a motor vehicle liability policy issued in Ontario and such contract made outside Ontario shall be deemed to include the no-fault benefits required by subsection 268 (1).

Under subsection 45(1), any insurance policy issued outside of Ontario by a company licensed to carry on automobile insurance in Ontario is deemed to include Ontario accident benefits in the event of an accident in Ontario.

A provision similar to section 45 has been in effect for many years. Its interpretation was considered in Schrader v. U.S. Fidelity & Guarantee Co. (1990), 1987 CanLII 4150 (ON HCJ), 59 O.R. (2d) 178, additional reasons, 59 O.R. (2d) 797. The Divisional Court agreed with the trial judge in stating that:

..the intent of s. 25(1) is to require insurers who carry on automobile insurance in Ontario to extend to their United States policy holders, and incidentally, to Ontario residents, the same benefits as if the insurer had written this policy in Ontario...

A reciprocal scheme based on a power of attorney and undertaking, with similar wording, governs signatory insurers who are not licensed in Ontario.

Aetna does not dispute its liability to pay standard Ontario accident benefits under the New York policy in accordance with the requirements of subsection 45(1). These include funeral expenses and death benefits under sections 10 and 11(1) of the Schedule.

However, the Applicants submit that Aetna is liable to pay funeral expenses and death benefits at the higher amount set out in sections 10 and 11(2) of the Schedule as if Optional Benefit 1 had been purchased.

Subsection 19(1) of the Schedule requires that insurers provide insureds with the opportunity of purchasing increased benefits in respect of certain accident benefits, including funeral expenses and death benefits. The relevant parts of the section state:

19.--(1) Every insurer shall offer the following optional benefits:

Optional Benefit 1:Increased Funeral Expenses and Death Benefits If this option is purchased,

(a) the maximum amount payable under section 10 (Funeral Expenses) will be $7,500; and

(b) the maximum amount payable under section 11 (Death Benefits) will be the amounts set out in subsection 11(2).

Subsection 19(2) provides that the option may be exercised at any time before the accident.

Counsel for the Applicants submits that the obligation to offer optional benefits extends to insureds who purchase out-of-province policies from an insurer who is licensed to carry on insurance in Ontario. He submits that, by failing to offer optional coverage, Aetna is in breach of its duty under Ontario law. The consequence of this, he argues, is that the deceased should be deemed to have elected Ontario benefits at the highest rate, under the terms of section 45 of the Insurance Act.

In response, Aetna's counsel submits that Ontario law cannot interfere with contractual relations entered into in New York between a New York resident and an insurer, so as to require an inquiry into whether equivalent optional benefits could be purchased there. He submits that, at most, the consequences of failing to offer optional benefits may be characterised as an unfair business practice.

Optional benefits are payable only "if they are purchased". They are not part of the mandatory insurance coverage necessary to drive in Ontario.

Section 45 of the Insurance Act recognises the interprovincial and international nature of present day motor vehicle travel (see Schrader (supra). It ensures that out-of-province insureds travelling in Ontario have the insurance coverage required by law to drive in the province, and provides them with the same protection as if they had purchased their automobile insurance in Ontario.

The policy of the legislation is principally concerned with mandatory insurance coverage in Ontario. While insurers are under an obligation to offer insureds the opportunity to purchase increased benefits under section 19 of the Schedule, insureds are not required to purchase them. I find therefore that the deceased is not deemed to have purchased Optional Benefit 1. I do not interpret subsection 45(1) of the Insurance Act in this way.

The result may be different in circumstances in which the insured has purchased equivalent optional benefits under the rules of the jurisdiction in which he or she resides. In this case, however, the insured purchased the mandatory standard benefits available under the New York plan. Counsel agreed that insurers are not required, by New York law, to provide more than the compulsory endorsement, and the insured's policy was limited to the minimum mandated. It is solely for that jurisdiction to determine the rules of the automobile insurance scheme that govern its residents.

Counsel for the Applicants submitted that the result is unfair and anomalous. He argues that the deceased's family would have been entitled to benefits at the higher rate under the Zurich policy, had the insured not purchased any insurance of his own.

However, this result is not inconsistent with the Ontario rules governing which insurers are responsible for paying accident benefits. Only policyholders have the choice of purchasing increased benefits under section 19 of the Ontario scheme; yet the choice they make affects the amount of benefits available not only to their families, but also to entirely unrelated accident victims: vehicle occupants or other individuals involved in the accident, who do not hold their own policies. The election of the policyholder dictates the level of recovery for anyone entitled to claim statutory accident benefits against that policy. This principle governs regardless of whether the accident victim is an Ontario resident or a resident of another jurisdiction.

In this case, the deceased purchased standard benefits under his New York policy, and he is entitled to receive standard Ontario benefits. There is nothing inherently unfair or contrary to the policy of the legislation in this result.

1. Zurich's liability to pay optional benefits

Counsel for the Applicants submits that, if the Applicants cannot recover optional benefits from Aetna, they are entitled to have recourse against the Zurich policy. He submits that a literal interpretation of subsection 268(2) of the Insurance Act supports this result.

Section 268, in part, deals with the order of priority as between insurers. The relevant parts of section 268 state:

(2) The following rules apply for determining who is liable to pay no-fault benefits:

In respect of an occupant of an automobile,

i. the occupant has recourse against the insurer of an automobile in respect of which the occupant is an insured,

ii. if recovery is unavailable under subparagraph i, the occupant has recourse against the insurer of the automobile in which he or she was an occupant,

iii. if recovery is unavailable under subparagraph i or ii, the occupant has recourse against the insurer of any other automobile involved in the incident from which the entitlement to no-fault benefits arose.

iv. if recovery is unavailable under subparagraph i, ii, or iii, the occupant has recourse against the Motor Vehicle Accident Claims Fund.

There are similar provisions in respect of non-occupants.

Section 268(3) states:

An insurer against whom a person has recourse for the payment of no-fault benefits is liable to pay the benefits.

Subsections (4) and (5) address the circumstances in which applicants may chose the insurer who is to pay. They state:

(4) If, under subparagraph i or iii of paragraph 1, or subparagraph i or iii of paragraph 2 of subsection (2), a person has recourse against more than one insurer for the payment of no-fault benefits, the person, in his or her absolute discretion, may decide the insurer from which he or she will claim the benefits.

(5) Despite subsection (4), if a person is a named insured under a contract evidenced by a motor vehicle liability policy or the person is the spouse or a dependant, as defined in the No-Fault Benefits Schedule, of a named insured, the person shall claim no-fault benefits against the insurer under the policy and, if there is more than one such policy, the person, in his or her discretion, may decide the insurer from which he or she will claim the benefits.

"insured person", in respect of a particular motor vehicle liability policy, is defined in section 2 of the Schedule, to include:

(a) in respect of accidents in Ontario, an occupant of the insured vehicle

Under section 268, insurers assume responsibility for the payment of accident benefits in descending order: in "cascading priority" (see Alice M.E. Miron and Old Republic Insurance Company. Nov. 23/94, OIC File No. A-007825.

Insureds may look to recover against another insurer down the statutory order, if "recovery is unavailable" against an insurer further up. An applicant is given a choice of insurer only where two or more insurers are at the same level in the statutory order. An applicant's first recourse is to the insurer of an automobile in respect of which he or she is an "insured". In this case, the deceased was a named insured under the Aetna policy. Under subsection 268(5), if the applicant is a named insured, or his or her spouse or dependant, they must claim accident benefits under that policy; they have no choice about it. However, if they are covered by more than one such policy, they are entitled to chose which insurer they wish to claim against. (Subsections 268(4) and (5)).

If recovery is unavailable under this head, the applicant then looks to the insurer of the automobile in respect of which he or she was an occupant.

Failing that, recourse is against the insurer of any vehicle involved in the accident; the applicant can chose as between the insurers of such vehicles, if there is more than one (subsection 268(4). Lastly, the Motor Vehicle Accident Claims Fund is "on the hook" for payment of accident benefits.

Applicants' counsel submits that "recovery is unavailable" as against Aetna because optional benefits are denied the Applicants under the Aetna policy. Therefore, the argument goes, they may seek recourse against Zurich under section 268(2)

I do not accept this interpretation of the section. The wording "if recovery is unavailable" must be read in context. It relates to an insurer against whom the insured has "recourse", ie. "the right to recover against a party secondarily liable", (Dictionary of Canadian Law, Carswell, 1991). The recovery is in relation to the provision of statutory accident benefits under the Schedule "subject to the terms, conditions, provisions, exclusions, and limits set out in that Schedule" (section 268(1)). The deceased has recourse against Aetna for the payment of statutory accident benefits under subsection 268(3). However, the provision of optional benefits under section 19 of the Schedule is subject to the requirement that they be purchased.

This interpretation is supported by the policy underlying section 268: to help in the assessment of risk in automobile insurance, by requiring insureds to look first to their own policies. If insureds are freely entitled to select the policy which is most advantageous to them, as counsel's suggestion leads, the priorities set out in section 268 become meaningless and the provisions of subsections 268(4) and (5), providing insureds with a right to choose between insurers in limited circumstances, become largely redundant.

I therefore find that the Applicants have recourse to Aetna under subsection 268(2) and may not seek benefits from Zurich.

Expenses

Under subsection 282(11) of the Insurance Act, I have discretion to award an applicant his or her expenses in respect of the arbitration. Arbitrators have exercised the discretion in favour of an applicant, for example, where the dispute between the parties raises a novel issue of interpretation. This is such a case, and I award the Applicants their expenses on this basis, to be paid by Aetna. This award is limited to expenses incurred in respect to adjudication of the issues argued before me.

Order

The deceased is not deemed to have elected Optional Benefit 1. Aetna is liable to pay benefits to the Applicants at the standard Ontario rate but not optional benefits.
Zurich is not liable for the payment of accident benefits, including optional benefits, to the Applicants. Aetna is the proper insurer under subsection 268(2) 1 .i of the Insurance Act.
The Applicants are entitled to their expenses incurred in respect of the arbitration, payable by Aetna.

June 15, 1995

Susan Naylor

Arbitrator

Date

Footnotes

Prior to January 1, 1994, Ontario Regulation 672 was called the No-Fault Benefits Schedule. After that date it became the Statutory Accident Benefits Schedule - Accidents Before January 1, 1994. In this decision, the term "Schedule" will be used to refer to Regulation 672.
R.S.O. 1990, chap. I.8. This Act was amended by the Insurance Statue Law Amendment Act,1993 S.O. 1993, chap. 10, as of January 1, 1994. The amendments do not bear materially on the substance of the arguments before me.

Mensah et al. v. Aetna Casualty & Surety Company and Zurich Insurance Company, 1995 ONICDRG 71

Case Summary

1. Aetna's liability to pay optional benefits

1. Zurich's liability to pay optional benefits

Expenses

Order

Footnotes