Neutral Citation: 2001 ONFSCDRS 46

FSCO A97-000035

FINANCIAL SERVICES COMMISSION OF ONTARIO

BETWEEN:

EVAN GRIFFITHS

Applicant

and

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Judith Killoran

Heard:

December 18, 2000, in Niagara Falls, Ontario

Appearances:

Paul Barrafato for Mr. Griffiths

Joseph J. Sullivan for State Farm Mutual Automobile Insurance Company

Issues:

The Applicant, Evan Griffiths, was injured in a motor vehicle accident on November 11, 1990. He applied for and received from State Farm Mutual Automobile Insurance Company ("State Farm") a total of US $20,992.50 in New York State no-fault benefits. The parties were unable to resolve their disputes through mediation, and Mr. Griffiths applied for arbitration under the Schedule¹ at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The issues before the preliminary issue hearing are:

Is Evan Griffiths an insured person under the OPF 1 standard policy issued by State Farm to its insured, Ralph Packer?
Is State Farm required to pay statutory accident benefits to Mr. Griffiths on the basis of the Insurance Act, the applicable Schedule, or the OPF 1 standard policy or some combination thereof?

Result:

Evan Griffiths is an insured person under the OPF 1 standard policy issued by State Farm to its insured, Ralph Packer.
State Farm must pay statutory accident benefits to Mr. Griffiths on the basis of the Insurance Act, the applicable Schedule, and the OPF 1 standard policy.

EVIDENCE:

The parties filed an agreed statement of facts. The salient facts are:

Evan Griffiths was a passenger in a vehicle driven by Ralph Packer when it was involved in an automobile accident in 1990 in New York State.
The Packer vehicle was insured by State Farm under an Ontario policy issued by State Farm in Markham, Ontario.
Evan Griffiths was a resident of Colorado who was visiting his friend, Ralph Packer, in Ontario when they decided to go to New York State. Evan Griffiths was not living nor ordinarily present in Ontario.
Evan Griffiths did not own a vehicle nor was a named insured on any other automobile insurance policy nor was a spouse or dependant of any other named insured under any other automobile insurance policy.
As a result of the accident, Evan Griffiths suffered injuries which required hospitalization. He suffered a fracture of the pelvis, fracture of the urethra, fracture of the neck and urinary bladder and also cracked ribs and some leg injuries.
Mr. Griffiths suffered orthopaedic injuries as outlined in the report of Dr. M. E. Ashby dated March 25, 1996, which are as follows:
History of motor vehicle accident on November 11, 1990, with the history suggesting mild concussion of the brain with his indication that post accident he has required psychological and psychiatric care although there is a history of pre-motor vehicle accident psychological care for childhood problems and a suggestion of slow mentation probably antedating the motor vehicle accident.
Status post motor vehicle accident with rupture of the urinary bladder and urethra being described responsible for emergency surgery and then subsequent urethral reconstruction complicated by a complication of impotence.
Radiographic evidence for healed complex pelvic fracture. Malgaigne dislocation type, with obvious healed injury to the right sacroiliac joint and healed hemi-pelvic fractures on the right side and also a more benign fracture of the ischial tuberosity on the left.
Pre-existing severe degeneration of the lumbosacral disc without findings of a lumbar radiculopathy.
History suggesting severe contusion of the right lateral thigh with subsequent seroma, now representative of a large soft tissue mass, likely organized hematoma.
The report of Jim Brown dated September 15, 1999, indicates the following:

Evan has suffered physical and emotional consequences from this accident. His impotency has affected his self-esteem to a high degree, as he chooses to stay alone much of the time. His impotency is his basic reason for not seeking intimate relationships in the world. In my opinion he does not experience himself as a sexually capable male due to the impotency caused by the car accident. Evan has chronic anxiety from living in physical pain from the accident. He continues to be anxious, fearful with his back, and reports back pain when attempting physical activity. He reports pain and embarrassment from what he calls his "lump"on his leg from the 1990 accident, pain that he reports does not get better. The lump combined with Evan's impotency makes him very anxious about any sexual relationship. Consequently, he leads a solitary life, seeing few friends at times.

State Farm paid Evan Griffiths a total of US $20,992.50 in New York State no-fault benefits.²

EXPERT EVIDENCE:

Two expert witnesses testified at the hearing, one for State Farm and one for the Applicant. Both witnesses are attorneys licensed to practice in New York State.

Section 5107 of the applicable legislation in New York State reads:

Every Insurer authorized to transact or transacting business in this state, or controlling or controlled by or under common control by or with such an insurer, which sells a policy providing motor vehicle liability insurance coverage or any similar coverage in any state or Canadian province, shall include in each such policy coverage to satisfy the financial security requirements of article six or eight of the vehicle and traffic law and to provide for the payment of first party benefits pursuant to subsection (a) of section five thousand one hundred three of this article when a motor vehicle covered by such policy is used or operated in this state.

It appears that there has been no decided case under Section 5107 that is identical to the particular facts of this case.

Mr. Michael E. Maxwell testified for Mr. Griffiths. Mr. Maxwell has been licensed to practice law in New York State since 1989. He is presently employed at Hodgson Russ Andrews Woods & Goodyear as a general partner. Mr. Maxwell specializes in personal injury cases. In fact, 95 percent of his practice is personal injury with 20 percent in cross border issues involving Canadian businesses and 20 to 30 percent involving Canadian defendants in New York courts.

The following summarizes Mr. Maxwell's opinion about the applicability of Section 5107 to the facts of this case:

Mr. Maxwell defines Section 5107 as a catch-all provision which sets a minimum standard for insurance liability and no-fault benefits in New York State. Therefore, as Mr. Griffiths is covered under Ontario statutory accident benefits, Section 5107 does not apply as Ontario standards are beyond the minimum standard guaranteed by the New York legislation.

Section 5107 applies only to other sister states when they offer less in liability and no-fault benefits. Section 5107 sets a precondition which must be met by every insurer who wishes to transact business in New York State. However, if someone is in an uninsured vehicle, other legislation in New York State comes into play and sets minimum standards. Therefore, another precondition for the implementation of Section 5107 is that there is a motor vehicle liability policy on the vehicle.

If the existing motor vehicle liability policy is in excess of the minimum benefits set by Section 5107, New York State would not reduce the limits of the policy to meet New York State minimum standards. New York courts would decline j urisdiction and would defer to Ontario under the lex loci contractus doctrine or the negotiated loss allocation doctrine which examines whose interests are at heart.

Mr. Maxwell relied on the case of Allstate Insurance Company v. Stolarz³ where he claimed that the Court of Appeals applied all three "conflict of law" theories in its decision —the lex loci contractus theory, the "loss allocation rule" theory and the "group of contacts" theory. Ms. Stolarz was a New York resident who leased a car insured in New Jersey by her employer. She was paid $20,000 by Allstate and the New Jersey insurer sought to offset their $35,000 policy limit by that amount, as allowed by New Jersey law. The court found that New Jersey law should govern.

The court held:

Automobile insurance, highly regulated as it is, may implicate both the private economic interest of the parties and governmental interests in the enforcement of its regulatory scheme. Thus, we may properly consider state interest to determine whether to apply New York law and void the contract's express terms or apply New Jersey law and enforce the contract as written.

(The state interest of New York) is irrelevant where, as here, the policy is sold in New Jersey by a New Jersey insurance company to a New Jersey insured, and the clause was written to conform to a New Jersey statute. Indeed, while Stolarz, (by virtue of her use of the car) is an additional insured under the policy, she is not a party to the contract. Nor did she pay the premiums - her New Jersey employer did. Thus, New York has no governmental interest in applying its law to the dispute and New Jersey law must be applied.

According to Mr. Maxwell, the court even breathes new life into the lex loci contractus theory with these words: "Indisputably, New Jersey is the place where the contract was negotiated and made."

Mr. Maxwell admitted that although his written opinion dealt with the legal issue as one involving a conflict of laws, he testified that this was not a conflict of laws question.

Mr. Thomas F. Segalla testified for Allstate. He has practiced 26 of his 28 years in insurance defense work relating to auto insurance liability and coverage in New York State. He has contributed to the publication of a multi-volume series of textbooks on insurance and he has written on conflict of laws issues for the American Bar Association.

Mr. Segalla has represented State Farm in New York State and confirmed that State Farm does have authority to transact business in New York State. I do not accept Mr. Griffith's position that State Farm did not provide evidence that it is an authorized insurer in New York State. Based on Mr. Segalla's testimony, I find that State Farm qualifies as an authorized insurer in the state of New York.

Mr. Segalla's opinion about the applicability of Section 5107 to this case is as follows:

First party benefits in New York State mandate that the insurer reimburse the insured to a maximum of US $50,000. Subsection 65.5(a) of the Codes, Rules and Regulations of the State of New York Title 11 provides:

The automobile liability policies of every authorized insurer which are sold in any other state or Canadian province shall be deemed to satisfy the financial security requirements of article VI or VIII of the New York Vehicle and Traffic Law, and shall be deemed to provide for the payment of first-party benefits pursuant to section 672 (now Sections 5102 and 5103) of the New York Insurance Law when the insured motor vehicle is used or operated in this State.

Mr. Segalla referred to the ruling of the court in Allstate v. Ramos⁴ that an out-of-state policy that included liability coverage was required to conform to New York's minimum financial requirements for uninsured motorist's coverage. The court held that Insurance Law Section 5107(a) and 11 N.Y.C.R.R. 65.5 require that liability coverage underwritten in a sister state by insurers authorized to do business in New York conform to the New York minimum financial requirements. If the coverage does not conform, it is deemed to do so under Section 5107 and 11 N.Y.C.R.R. 65.5. Similar rulings were made in Midwest Mutual Insurance Company v. Pisani⁵ and Allstate Insurance Company v. Lopez.⁶

However, Mr. Segalla acknowledged that all the above-cited cases refer to coverage disputes relative to under or uninsured motorist coverage. No cases hold specifically that Section 5107 and 11 N.Y.C.R.R. 65.5 require out-of-state or Canadian policies to conform to New York's personal injury protection (no-fault) mandatory policy minimum provisions. Even so, Mr. Segalla asserts that by extension, the case law, as well as the statute itself, establishes that New York's no-fault law is applicable to Mr. Griffiths'claim. In Mr. Segalla's opinion, "the clear and unequivocal language of the statute provides the necessary authority to conform Canadian no-fault endorsements to New York's no-fault minimum."

When Mr. Segalla interprets section 2.2.3(g) of the standard auto policy, he concludes that Mr. Griffiths has recourse against State Farm under New York legislation and hence, does not meet the definition of an insured person.

Mr. Segalla factually distinguished the Stolarz case⁷ from this case by pointing out that the operator of the vehicle in Stolarz had received $25,000 in benefits. There was a conflict between the New York offset and the New Jersey offset. The court concluded that there was not a conflict of laws and applied the New Jersey offset of $35,000. The court in Stolarz was dealing with a specific registration issued by the insurance department and had no statutory mandate. New York State had no governmental interest to apply its law in that situation.

In Stolarz, Ms. Stolarz was the operator of the vehicle while Mr. Griffiths was an occupant. She was an additional insured while Mr. Griffiths was an eligible injured person. The comments in Stolarz were obiter dicta. Both lower courts ruled there was a conflict construing policy as written and the applicant had recourse because she had New York benefits.

Mr. Segalla testified that he did not see this case as involving a conflict of laws. Rather, this is a contractual interpretation case. Ontario allows insurers to issue standard policies. However, in interpreting the standard policy and section 2.2.3 of the policy, one has to look to recourse. In Mr. Segalla's opinion, Mr. Griffiths does not qualify as he has recourse to benefits under the New York legislation.

On cross-examination, Mr. Segalla was questioned about the case of David Smith v. National Wide Mutual Insurance Company.⁸ Mr. Smith was a New York resident with a New York policy who was injured in Ontario. This case deals with a different regulation when considering whether Ontario or New York law applied.

In the Smith case, when considering which limits should apply, the Supreme Court of New York found that Ontario limits apply to a New York insured with a New York policy in an accident outside New York in Ontario. This is in keeping with the public policy that New York law allows its residents to reap the benefits of higher coverage. In Mr. Segalla's opinion, this is a unique fact situation offering very little guidance. In Smith, one has to look at the location of the accident.

Mr. Segalla refuted Mr. Maxwell's suggestion that Section 5107 only applies if foreign coverage is less than New York legislation. That is not reasonable, according to Mr. Segalla, as this is not a conflicts case.

Both experts were extremely helpful. I agree with both Mr. Segalla and Mr. Maxwell that this is not a conflict of laws case. Rather, it is one of contractual interpretation. I prefer Mr. Maxwell's conclusion to that of Mr. Segalla about the applicability of New York legislation. My reasons for doing so are included in the next section.

ANALYSIS AND CONCLUSION:

The Applicant submitted that the Ontario automobile policy OPF 1 is a standard automobile policy issued by all auto insurers operating in Ontario to their own insured.⁹ A significant difference exists between the definition of insured person under the Schedule and the definition under the OPF 1 standard policy.

The applicable Schedule to the Insurance Act states in section 2 that: "in respect of accidents outside Ontario, a person living and ordinarily present in Ontario who is an occupant of the insured automobile" qualifies as an insured person. It is not disputed that Mr. Griffiths was not a person living and ordinarily present in Ontario. State Farm submitted that Mr. Griffiths was not only a US citizen resident in Colorado but was never a resident of Ontario. Mr. Griffiths did not own a vehicle anywhere and was not insured, nor was he a spouse or dependant of anyone insured under any automobile insurance policy.

State Farm's position is that Mr. Griffiths does not qualify as an insured under the Statutory Accident Benefits Schedule. The Schedule specifically deals with the scenario of accidents outside Ontario by requiring that the person must live and be ordinarily present in Ontario.

Section 2.2.3(g) of the OPF 1 standard policy defines an "insured person" as:

Any person who suffers injuries as a result of an accident involving the automobile who has no recourse against any other insurer under a contract evidenced by a motor vehicle liability policy in respect of which the person is a named insured or the spouse or dependant of a named insured; or against the insurer of the automobile in which the person was an occupant or which struck the person.

Mr. Griffiths submitted that section 227 of Part VI of the Insurance Act, together with provisions of section 268 of the Insurance Act guarantee that every motor vehicle liability policy should provide for statutory accident benefits as set out in the Schedule. However, the policy may provide extended benefits or coverage where approved by the Commission pursuant to section 227 of the Insurance Act.

Subsection 227(1) of the Insurance Act specifies that: "An insurer shall not use a form of any of the following documents in respect of automobile insurance unless the form has been approved by the Superintendent:

an application for insurance.
A policy, endorsement or renewal.
A claims form 4. A continuation certificate."

Subsection 227(3) states that: "The Superintendent may, if he or she considers it to be in the public interest, approve a form of motor vehicle liability policy or endorsement thereto that extends the insurance beyond that prescribed in this Part."

Subsection 268(1) specifies that:

Every contract evidenced by a motor vehicle liability policy, including every such contract in force when the Statutory Accident Benefits Schedule is made or amended, shall be deemed to provide for the statutory accident benefits set out in the Schedule and any amendments to the Schedule, subject to the terms, conditions, provisions, exclusions and limits set out in that Schedule.

The OPF 1 standard policy which contained the expanded definition of "insured person" found in section 2.2.3(g) was approved by the then Superintendent of Insurance. Therefore, the Applicant submits that State Farm should be bound by the terms and conditions of its own policy even when it differs from the Schedule. In other words, State Farm should be liable to pay accident benefits to those who would qualify as an insured person under the terms of its policy. State Farm does not accept that section 2.2.3 of the standard automobile policy with added paragraph (g) assists the insured. It is only relevant if the insured has no recourse against any other insured. However, Mr. Griffiths has recourse under New York State legislation for no-fault accident benefits. State Farm submitted that Evan Griffiths was a Colorado resident involved in a motor vehicle accident in New York State. His only tie to the accident was the vehicle. Therefore, there is no link between Mr. Griffiths and the defined terms in the Schedule.

The Applicant submitted that State Farm is obligated to pay Ontario statutory accident benefits pursuant to subsection 45(2) of the Insurance Act and pursuant to a "Power of Attorney and Undertaking" which was filed by State Farm with the Superintendent of Insurance for British Columbia. This document was filed in evidence.¹⁰ However, the parties agreed that this submission of Mr. Griffiths would only be considered if I did not find in favour of the Applicant in this arbitration hearing. In that event, State Farm reserved its right to call countervailing evidence, both documentary and vive voce, to oppose this submission.

The Applicant relied on Miron¹¹ which involved a motor vehicle accident in Ontario in a vehicle insured with Old Republic. Mr. Miron had no insurance and Mrs. Miron sought death benefits. The arbitrator referred to section 268 of the Insurance Act and to the cascading priorities among several possible insurers but argued that this did not create an entitlement to receive statutory accident benefits in and of itself. According to the definition of "insured person" in the Schedule, Mr. Miron did not qualify. However, Mr. Miron met the definition of an "insured person"under section 2.2.3(g) of the OPF 1 standard policy.

I agree with the arbitrator's ruling in Miron that the category of "insured person" can expand; this interpretation is not inconsistent with the Schedule; and the insurer should be bound by the terms and conditions of its own policy. I find that this is an appropriate case, in a similar fact situation, in which to apply the ruling in Miron.

I concur with Allan O'Donnell's observation in Automobile Insurance in Ontario¹² that:

It should be noted that the Ontario Automobile Policy, OPF 1 (Owner's Policy) contains a definition of "insured person" not found in the No-Fault Benefits Schedule, namely s.2.2.3(g) of the policy which reads as follows:

(g) any person who suffers injuries as a result of an accident involving the automobile who has no recourse against any other insurer under a contract evidenced by a motor vehicle liability in respect of which the person is a named insured or the spouse or dependant of a named insured, or against the insurer of the automobile in which the person was an occupant or which struck the person.

While the authority for this extra definition of "insured person" is suspect, it would appear to be a "catch-all" provision which enables a non-resident of Ontario involved in an accident outside Ontario involving the Ontario insured vehicle to collect Ontario No-Fault Benefits provided that person has no access to no-fault benefits under any other motor vehicle liability policy.

I find that Section 5107 of the New York legislation does not apply in this case. A policy exists which provides benefits to Mr. Griffiths. Section 5107 merely provides a statutory minimum for payment of benefits which must be complied with by every insurer authorized to transact business in New York State. However, the existence of Section 5107 is not sufficient to disallow Mr. Griffiths from qualifying for benefits under the OPF 1 standard policy.

I find that reading sections 227 and 268 of the Insurance Act together give authority for the automobile liability policy to provide extended coverage as approved by the then Superintendent of Insurance, which was done in this case.

Mr. Griffiths meets the definition found in section 2.2.3(g) of the OPF 1 standard policy for an insured person. He is a person who has suffered injuries as a result of an accident involving an automobile who "has no recourse against any other insurer under a contract evidenced by a motor vehicle liability policy...or against the insurer of the automobile in which the person was an occupant..."

State Farm is bound by the terms and conditions of its own policy. Mr. Griffiths has no recourse against any other insurer under a contract evidenced by a motor vehicle liability policy and therefore qualifies as an insured person under section 2.2.3(g). Therefore, State Farm is liable to pay statutory accident benefits to Mr. Griffiths under the applicable Schedule.

I find that Mr. Griffiths is an insured person under the OPF 1 standard policy issued by State Farm to its insured, Ralph Packer. Therefore, I find that State Farm is required to pay accident benefits to Mr. Griffiths on the basis of the Insurance Act, the applicable Schedule, and the OPF 1 standard policy

EXPENSES:

The parties are encouraged to resolve the issue of expenses. If unable to do so, they may make submissions to me on this issue.

March 28, 2001

Judith Killoran Arbitrator

Date