Neutral Citation: 2002 ONFSCDRS 110

FSCO A01-000579

BETWEEN:

VALENTIN ROZMERETS

and

ELMIRA GONCERNECO

Applicants

and

WAWANESA MUTUAL INSURANCE COMPANY

Insurer

DECISION ON A PRELIMINARY ISSUE

Before:

Anne Sone

Heard:

February 19, 2002, at the offices of the Financial Services Commission of Ontario in Toronto. Written submissions were received on April 24, 2002.

Appearances:

Phil Bouranov for Mr. Rozmerets Stephen B. Macaulay for Wawanesa Mutual Insurance Company

The Applicants, Valentin Rozmerets and Elmira Goncerneco, were injured in a motor vehicle accident on June 24, 2000. They applied for, but did not receive statutory accident benefits from Wawanesa Mutual Insurance Company ("Wawanesa"), payable under the Schedule.¹ Mr. Rozmerets and Ms. Goncerneco claimed they were entitled to statutory accident benefits from Wawanesa. Wawanesa disagreed. It took the position that the Applicants were not insured with Wawanesa. The parties were unable to resolve their disputes through mediation, and the Applicants applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended. The issues in this preliminary issue hearing are:

Does an arbitrator at the Financial Services Commission of Ontario have jurisdiction to determine whether Wawanesa is an insurer with an obligation to pay benefits to the Applicants under the Schedule?
Is Wawanesa obligated to respond to the Applicants' claim for accident benefits pending resolution of the Disputes Between Insurers² process?

An arbitrator at the Financial Services Commission of Ontario has jurisdiction to determine whether Wawanesa is an insurer with an obligation to pay benefits to the Applicants under the Schedule.
Wawanesa is obligated to respond to the Applicants' claim for accident benefits pending resolution of any dispute under the Disputes Between Insurers process.

Background

The Applicants, Mr. Rozmerets and Ms. Goncerneco, immigrated from Russia to Canada on May 18, 2000. They are a married couple and had arranged through a mutual acquaintance for a Mr. Valeriu Sivert to pick them up at Lester B. Pearson International Airport. On June 1, 2000, after they had stayed at Mr. Sivert's home for 13 days, he presented them with a bill in the amount of $500 US for rent and the use of his appliances and furniture. The Applicants felt that Mr. Sivert had taken advantage of them.

In the meantime, Ms. Goncerneco got a job as a waitress at the establishment where Mr. Sivert's wife worked near Highway 7, north of Toronto. Since they were living on Steeles Avenue, there was no bus service from where they were living to the restaurant on weekends. As a result, the Applicants decided they needed a car. Initially they were interested in Mr. Sivert's car. However, the high price, $3,500 US for a 1988 Plymouth Voyager, and the fact that they heard from others that Mr. Sivert was constantly having to repair the car, dissuaded them from purchasing his vehicle.

Early one morning in June 2000, Mr. Sivert woke up the Applicants at approximately 5:00 or 6:00 a.m. and demanded that they loan him $1,500 US, so that he could put a down payment on a newer car, a 1997 Chevrolet Venture. Groggily, and feeling a sense of obligation to their host, they complied. Although Mr. Sivert wanted to characterize this as a down payment from them on his Plymouth Voyager, they said they could not afford such an expensive car.

On June 16, 2000, the Applicants were aware that Mr. Sivert was throwing a party in honour of his new car. However, they never saw the new car. In order to prepare for the party, Mr. Sivert asked Mr. Rozmerets to drive his wife home from work in the Plymouth Voyager. Mr. Rozmerets had a conversation with Mr. Sivert prior to driving it. Mr. Rozmerets testified that Mr. Sivert showed him the insurance policy, and told him that the Plymouth Voyager was covered. Mr. Sivert then gave Mr. Rozmerets all the documents for that car including the insurance slip.

Both Applicants recalled a conversation with Mr. Sivert on the morning of Saturday, June 24, 2000, the day of the motor vehicle accident. They wanted to use the Plymouth Voyager because Ms. Goncerneco was working that evening at the restaurant. Mr. Sivert told them he would be deleting the insurance coverage on the Plymouth Voyager. The Applicants asked him to wait until Monday, and also asked him to calculate the insurance coverage cost per day so that they could take it for two extra days. He said it was $3.00 per day, but he said that there was no need to pay him, that he would wait until Monday. Ms. Goncerneco was particularly insistent that she asked Mr. Sivert about the insurance coverage three times, because at driving school she had learnt about the importance of car insurance. At the scene of the accident, they handed the insurance slip to the police. After the accident, Mr. Sivert removed the insurance slip, and because of insurance concerns, the Applicants did not drive the Plymouth Voyager until they later arranged for their own coverage after they completed the purchase. They felt that if they did not purchase the Plymouth, Mr. Sivert would not repay the money that they had lent to him until he sold it. Mr. Sivert, on the other hand testified that he never said there was coverage on the Plymouth Voyager when there was not any.

At the request of Wawanesa, the Applicants were not present for each other's testimony. However, their evidence was consistent and credible. I accept their testimony that they knew about the importance of insurance coverage, and would not have driven the car had they known it was not covered. I also accept their testimony that they did not drive once the insurance slip was removed after the accident.

Mr. Sivert testified on behalf of Wawanesa. He also was not present when the Applicants testified. Mr. Sivert testified that when he purchased the 1997 Chevrolet Venture, the insurance was automatically taken off the Plymouth Voyager, but that he asked to extend the coverage on the Plymouth for a few days. He could not recall the exact dates his broker carried out his instructions. He stated that the Applicants were aware after June 9, 2000 that there was no coverage on the Plymouth Voyager. He also testified that he never said there was coverage on this vehicle when there was not coverage. However, he admitted that he drove in the Plymouth Voyager with Mr. Rozmerets to a couple of safety tests, and also let Mr. Rozmerets test drive the car sometime between June 11 and 20, 2000. At that time, he knew that he had instructed his broker to transfer the insurance on the Plymouth Voyager to his newer car, the 1997 Chevrolet Venture. Despite Mr. Sivert's testimony, I find that he deliberately misled the Applicants as to whether there was insurance on the Plymouth Voyager. Where there is a conflict between the Applicants' evidence and the evidence of Mr. Sivert, I accept the evidence of the Applicants.

Ms. Susan Maltman testified on behalf of Wawanesa regarding the transfer of the insurance coverage. Ms. Maltman is the Automobile Department Supervisor in the underwriting department. She received a memo from Young's Alltrade Insurance dated June 9, 2000.³ It was addressed to Young's Alltrade Insurance and pertained to Valeriu Sivert. It stated:

Effective June 9, 2000, please delete the 1988 Plymouth and replace it with the following:

1997 Chev Venture...

It also had an initialled date stamp of June 23, 2000 and another initialled "ENTERED" date stamp of June 30, 2000. Ms. Maltman testified that she received the request from Young's Alltrade on June 12, 2000 and looked at it on June 23, 2000. It was entered on June 30, 2000. She also stated that the amended declaration effective June 9, 2000 would have been sent approximately July 2, 2000.

Statutory Framework

Wawanesa argued that the Applicants were not insured under a policy with them at the time of the accident. It suggested that they should seek recourse against the insurer of the other motor vehicle in the motor vehicle accident.

It is necessary to establish that the Applicants are insured persons before an insurer is required to pay benefits. Section 1 of the Insurance Act provides in part:

"insurer" means the person who undertakes or agrees or offers to undertake a contract;

"contract" means a contract of insurance, and includes a policy, certificate, interim receipt, renewal receipt, or writing evidencing the contract, whether sealed or not, and a binding oral agreement;

Subsection 224(1) of the Insurance Act defines "insured" to mean "a person insured by a contract whether named or not and includes every person who is entitled to statutory accident benefits under the contract whether or not described therein as an insured person."

The rules in subsection 268(2) of the Insurance Act set out who is liable to pay statutory accident benefits. For example, occupants of automobiles may have recourse against the insurer of the automobile in which they were occupants. If recovery is unavailable from this insurer, occupants may have recourse against the insurer of any other automobile involved in the accident.

In addition, occupants of automobiles may have a choice of insurers. In this case, the Applicants were not named insureds, nor were either of them the spouse or dependent of a named insured. Subsections 268(4) and (5.1) state that in certain instances if a person has recourse against more than one insurer for the payment of statutory accident benefits, the person, in his or her absolute discretion, may decide the insurer from which he or she will claim the benefits.

Section 268(8) of the Insurance Act also requires an insured to pay pending the resolution of a dispute. It states as follows:

Payments pending dispute resolution. Where the Statutory Accident Benefits Schedule provides that the insurer will pay a particular statutory accident benefit pending resolution of any dispute between the insurer and an insured, the insurer shall pay the benefit until the dispute is resolved.

The relevant parts of Ontario Regulation 283/95 of the Insurance Act, pertaining to Disputes between Insurers state as follows:

All disputes as to which insurer is required to pay benefits under section 268 of the Act shall be settled in accordance with this Regulation.
The first insurer that receives a completed application for benefits is responsible for paying benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits under section 268 of the Act.
(1) No insurer may dispute its obligation to pay benefits under section 268 of the Act unless it gives written notice within 90 days of receipt of a completed application for benefits to every insurer who it claims is required to pay under that section.

(2) An insurer may give notice after the 90-day period if,

(a) 90 days was not a sufficient period of time to make a determination that another insurer or insurers is liable under section 268 of the Act; and

(b) the insurer made the reasonable investigations necessary to determine if another insurer was liable within the 90-day period.

(1) If the insurers cannot agree as to who is required to pay benefits or if the insured person disagrees with an agreement among insurers that an insurer other than the insurer selected by the insured person should pay the benefits, the dispute shall be resolved through an arbitration under the Arbitration Act, 1991.

Case Law

In Mariona and Canadian General Insurance Company, Arbitrator Alves was asked to determine whether she had jurisdiction to determine a question of coverage, and if so, was Mr. Mariona covered under the policy with Canadian General. In that particular case, she was not persuaded that the issue before her was a priority dispute within the scope of section 1 of the Priority Dispute Regulation, and found that she had jurisdiction to determine the coverage issue. She also concluded that by providing a copy of a policy with an effective time prior to the time of the accident, Mr. Mariona discharged the onus on him to establish coverage.

In Brown and Allstate Insurance Company of Canada,⁴ the applicant was a quadriplegic as a result of a motor vehicle accident on September 2, 1996. At the time of the preliminary issue hearing, he had not received any statutory accident benefits. Allstate argued that since its policy had expired on May 18, 1996, some four months prior to the accident, it was not an insurer either under the Insurance Act or for the purposes of Ontario Regulation 283/95 - Disputes Between Insurers. Mr. Brown subsequently applied for statutory accident benefits to two other insurers and to the Motor Vehicle Accident Claims Fund.

Allstate claimed that it was in the same position as it would be if an applicant arbitrarily chose to apply to it for accident benefits in the absence of any contract of insurance. Allstate took the position that the applicant first had the onus of establishing that Allstate is an "insurer" within the meaning of the Insurance Act, before any statutory duty or obligation to respond to the application can be invoked.

Arbitrator Rotter responded as follows:

Allstate's argument may have some merit in a situation where an applicant candidly admits that he or she has simply applied for accident benefits from a randomly selected insurance company, without asserting any contractual relationship or nexus. In that situation, it may be that the company need not respond to the application. However, this is not the fact situation in the present case.

In the present case, Mr. Brown is asserting that a valid contract exists. Allstate concedes that it provided coverage on the vehicle up to four months before the accident in question. In my view, these facts, prima facie, create enough of a connection between the parties to generate an obligation, on the part of Allstate, to respond to this application. Allstate should invoke the process set out in Ontario Regulation 283/95 - Disputes Between Insurers, if it feels that it is not the insurer who is ultimately responsible for paying benefits in this case.

Insurers may dispute the liability to pay statutory accident benefits on numerous grounds. A policy may be void or voidable, for various reasons. Whether or not a valid policy exists in a particular case is a question fact and law, which can only be determined after a full hearing on the merits.

Since the forum for determining whether a particular insurance company is liable to pay benefits is now a private arbitration under the Arbitrations Act, 1991, Arbitrator Rotter found that the question of whether Allstate had a valid policy in effect on the vehicle must be decided by a private arbitrator. She also found that she need not decide, as a preliminary matter, whether Allstate was an "insurer" for the purposes of the Regulation, since that is integral to the question which the arbitrator appointed under the Arbitrations Act, 1991 must determine.

She concluded that Allstate was responsible for paying benefits to Mr. Brown on an interim basis, since the first insurer that receives a completed application for benefits is responsible for paying benefits to an insured person.

This case was appealed to Divisional Court. The majority referred to the arbitrator's statement that she need not decide whether Allstate was an insurer "for the purposes of the Regulation, since that is integral to the question which the arbitrator appointed under the Arbitration Act, 1991 must determine." The court stated that, "If this statement is taken to mean that the arbitrator need not decide as a preliminary matter whether Allstate is an "insurer" for the purposes of the Act, then the arbitrator erred in law." It stated that this preliminary determination was within her jurisdiction pursuant to section 282 of the Act. It also stated that arbitrator's statement may also be taken to mean that she need not determine the issue in the context of O. Reg. 283/95 as opposed to the Act.

In addition, the Divisional Court found that it was not unreasonable to require Allstate to pay interim benefits, because there was "a sufficient nexus between the claimant and Allstate."⁵ It also referred to the practice note entitled Process for Settling Disputes Between Auto Insurance Companies in the Dispute Resolution Practice Code as it relates to section 268 of the Insurance Act.

The section is used to determine which insurer is liable to pay benefits when the claimant does not have an auto insurance policy of his or her own,...

This Regulation (...) ensures that accident victims will not be denied statutory accident benefits simply because the first insurer applied to for benefits thinks another insurer should pay....

In Chen and Kingsway General Insurance Company,⁶ Arbitrator Blackman dealt with a case where the applicant had first applied to Kingsway for payment of statutory accident benefits. When Kingsway declined payment on the basis that the applicant had cancelled his automobile insurance policy five days prior to the accident, the applicant applied to Pafco Insurance Company for payment of statutory accident benefits. The arbitrator found that under these circumstances, he had no jurisdiction to decide the priority dispute between the insurers. It had to be decided in a private arbitration, pursuant to O. Reg. 283/95, Disputes Between Insurers. He also stated:

I do not find that all "coverage" questions have been removed from the jurisdiction of this Commission by O. Reg. 283/95. The determining factor as to whether this Commission has jurisdiction to determine such a question is the context in which the issue is raised.

In State Farm Mutual Automobile Insurance Company and Mohamed and /American Home Assurance Company,⁷ Director's Delegate Draper made the following observations:

The Priorities Regulation creates a distinction between "the first insurer to receive a completed application for benefits" ("the first insurer") and the insurer with priority under s.268 of the Act ("the priority insurer").
The first insurer must pay accident benefits under the SABS-1994 even if it believes it is not the priority insurer.
To contest its obligation to continue paying benefits, the first insurer must give written notice, according to the procedures established in the Priorities Regulation, that it is not the priority insurer. If it does not give notice, it cannot argue that another insurer is the priority insurer, subject to getting an extension under section 4 of the Priorities Regulation.
The first insurer is only obliged to pay benefits if the insured person has established his or her entitlement. If it refuses any part of the claim, however, the insured person has a right under the Act to contest that decision through the dispute resolution system. It would defeat the purpose of the Priorities Regulation if that process had to wait for the outcome of the priorities in dispute.
The first insurer, or any other insurer, cannot defend a claim in the dispute resolution system by arguing that it is not the priority insurer. The Priorities Regulation has moved that jurisdiction to arbitrators acting under the Arbitrations Act, 1991.

In spite of the fact that arbitrators can no longer decide the priority issue, the question still remains as to whether the company being pursued was the first insurer to receive a completed application. Director's Delegate Draper stated:

Anything that diverts attention from the insured person's claim for benefits has the potential of delaying access to those benefits... In my view, the purpose of the Priorities Regulation is better achieved by requiring the first insurer to receive a completed application, namely American Home, to pay interim benefits and let it contest its obligations through private arbitration under the Priorities Regulation.

In Moore and KingswayGeneral Insurance Company,⁸ the applicant's employer borrowed a vehicle for her to use while the vehicle they normally used was in for repair. The employer testified that he spoke to someone at Kingsway who told him that the borrowed vehicle would be covered. When Kingsway found no record of coverage for the borrowed vehicle, it denied coverage for an accident that took place with the borrowed vehicle.

Arbitrator Killoran stated that she had not been asked to determine a priorities dispute among insurers, but rather, a dispute about coverage between an insurer and an applicant claiming to be an insured. Accordingly, she found that she had jurisdiction to decide this issue.

Although, unlike Mariona, there was no certificate of insurance for the vehicle involved in the accident, she also found, as in Brown, that there was a "sufficient nexus" between the applicant and Kingsway and "sufficient evidence" before her for a preliminary finding that Kingsway was an "insurer." Since the first insurer that receives a completed application is responsible for paying benefits to an insured person, and the applicant had not made an application to another insurer, she found that Kingsway was responsible for paying benefits to the applicant, provided she is able to establish entitlement.

ANALYSIS AND CONCLUSION

As in the Mariona and Moore cases discussed above, I am of the view that this is not a priorities dispute. The Applicants did not claim against any other insurer. Nor did Wawanesa invoke the provisions of O. Reg. 283/95, Disputes Between Insurers to involve any other potential insurer.

Since this case is not a priorities dispute and, as under subsection 282(3) of the Act, it is within my jurisdiction to determine all issues in dispute, including my own jurisdiction,⁹ I find that an arbitrator at the Financial Services Commission of Ontario has the jurisdiction to hear a dispute as to whether Wawanesa is an insurer with an obligation to pay benefits to the Applicants under the Schedule.

The next question is therefore, whether Wawanesa is obligated, as insurer for the purpose of responding, to respond to the Applicants' claim for accident benefits. Wawanesa argued that the Applicants have failed to establish insurance coverage, and that in the absence of establishing the fact that Wawanesa is an "insurer" within the meaning of the Act, there is no statutory duty or obligation on the part of Wawanesa to respond to the Applicants' claims.

Mr. Sivert instructed his broker to transfer his insurance on the 1988 Plymouth to the 1997 Chevrolet Venture effective June 9, 2000, which is 15 days prior to the accident. However, there are other dates on the memorandum regarding transfer, and Ms. Maltman on behalf of Wawanesa admitted that the transfer was not entered until June 30, 2000, which is six days after the accident.

In addition, when the Applicants drove the Plymouth Voyager, they had an insurance slip, which they gave to the police when the accident occurred. I also accepted their testimony that after driving lessons in Canada they were well aware of the importance of driving with insurance, and that they had received assurances from Mr. Sivert that he was leaving the insurance in effect on the day the accident occurred. After Mr. Sivert took back the insurance slip they no longer drove the vehicle. Wawanesa submitted that the issue of whether the Applicants thought that the 1988 Plymouth Voyager was insured by Wawanesa is largely irrelevant. I disagree. It is relevant as to whether there was evidence of a "sufficient nexus" between the Applicants and Wawanesa. In addition, I believe that had the Applicants been aware that the Plymouth was no longer insured with Wawanesa, they would have taken steps to insure it themselves, if they wished to drive it. This would have avoided the predicament they now face.

Under all these circumstances, I find that, as in Moore and Brown, there is a "sufficient nexus" between the Applicants and Wawanesa and "sufficient evidence" before me for a preliminary finding that Wawanesa was an "insurer." In support of this finding, I note that in Moore, the applicant did not have an insurance slip, and was only relying upon an alleged oral agreement, whereas in this case, the Applicants had an insurance slip, and were told by the owner that the car was insured. I also find that the instruction to delete the insurance against the Plymouth was not entered until June 30, 2000, six days after the accident. In Brown, the applicant had not been insured for some four months prior to the accident, whereas at most in this case the insurance had been transferred 15 days prior to the accident. In addition, there was no suggestion that the Applicants had chosen Wawanesa randomly. For these reasons and for these purposes, I find that Wawanesa meets the definition of "insurer" and the Applicants meet the definition of "insured" under the Act.

Wawanesa did not file a Notice of Dispute between Insurers to every insurer which it claims was required to pay, within 90 days of receiving the Applicants' claim, as it was required to do under the Regulation. Until an arbitrator appointed under the Arbitrations Act, 1991 determines that Wawanesa is not required to pay benefits under section 268 of the Insurance Act, I find that Wawanesa, as the first Insurer to receive a completed application for benefits, is obligated to respond to the Applicants' claim for accident benefits pending resolution of the Disputes Between Insurers (O. Reg. 283/95) process, if any.

EXPENSES

the issue of expenses to the discretion of the hearing arbitrator.

July 22, 2002

Anne Sone Arbitrator

Date