Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2009 ONFSCDRS 12

Appeal P07–00023 (Valauskas) Appeal P07–00021 (Wawanesa)

OFFICE OF THE DIRECTOR OF ARBITRATIONS

KAROLIS VALAUSKAS and WAWANESA MUTUAL INSURANCE COMPANY Appellants

and

MOTOR VEHICLE ACCIDENT CLAIMS FUND Respondent

BEFORE: David Evans

REPRESENTATIVES: Shanna Mittleman for Mr. Valauskas Robert W. Kerkmann for MVAC Fund Daniel Strigberger and Lee Samis for Wawanesa

HEARING DATE: April 17, 2008

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

The appeals of the arbitrator’s order dated June 20, 2007, are denied and paragraph 1 thereof is confirmed.
If the parties are unable to agree about the expenses of these appeals, a hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code, Fourth Edition.

February 3, 2009

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Mr. Valauskas was in a car accident and claimed accident benefits under the SABS–1996,¹ first from the Motor Vehicle Accident Claims Fund and then from Wawanesa Mutual Insurance Company. Mr. Valauskas and Wawanesa appeal the arbitrator’s decision that, although the Fund received Mr. Valauskas’ Application before Wawanesa, the Fund was not in fact the first insurer that received a completed Application, so Wawanesa had to respond.

II. BACKGROUND

Mr. Valauskas was a passenger in a Jeep that collided with another car on September 14, 2004. The police accident report identified Wawanesa as the Jeep’s insurer. The priority rule of s. 268(2)1 of the Insurance Act indicates that if occupants of a vehicle do not have their own car insurance² – like Mr. Valauskas – they have recourse for accident benefits against the insurer of the automobile in which they were occupants.³ In this case, that would be Wawanesa.

Instead, on October 4, 2004, Mr. Valauskas applied to the Fund – the insurer of last resort under s. 268(2)1.i.⁴ As noted by the arbitrator, the Fund is a statutory body that provides recovery where an injured person has no recourse to a policy. Subsection 6(1) of the Motor Vehicle Accident Claims Act, R.S.O. 1990, c. M.4, provides that any person who has recourse against the Fund for statutory accident benefits under s. 268 may apply in an approved form for the payment of benefits out of the Fund. Subsection 28(1) provides that the forms may provide for the information to be furnished that the Fund’s Director requires. Form 3, the approved form, requires the applicant to attach a copy of the police report. Accordingly, the Fund advised Mr. Valauskas that his application was incomplete and requested a Form 3 application and a copy of the police report. The police report, as already noted, would have shown that Mr. Valauskas had recourse against Wawanesa.

However, Mr. Valauskas only provided the Fund with Form 3 and a statutory declaration. His Form 3 identified the Jeep and its driver but not the insurer, with “I don’t know” filled in where the insurer’s name should be; the statutory declaration indicated that Mr. Valauskas did not have any automobile insurance of his own and was not insured under any policy. By letter dated November 17, 2004, the Fund informed Mr. Valauskas that the claim had been assigned for “adjusting and payment of accident benefits” to CGI Adjusters Inc. In a second statutory declaration dated February 14, 2005, Mr. Valauskas indicated that while the police came to the scene he was not given the police report. He never did provide that report, despite the Fund’s adjusters advising him that the application was incomplete without it.

The Fund never paid Mr. Valauskas statutory accident benefits. Mr. Valauskas applied for arbitration against the Fund in August 2005. At the pre-hearing in March 2006, the Fund raised as a preliminary issue Mr. Valauskas’ failure to provide the police report. On April 10, 2006, the Fund itself requested a copy of the report, receiving it on May 17, 2006. In June 2006, the two parties agreed to withdraw the preliminary issue about the police report because they thought Wawanesa would agree to act as the insurer in this arbitration. Wawanesa received Mr. Valauskas’ Application on July 14, 2006, which did not indicate that he had previously submitted a claim to the Fund. It was only in November 2006 that Mr. Valauskas’ counsel advised Wawanesa of the earlier application. At a subsequent pre-hearing in December 2006, the arbitrator declined the Fund’s request to address whether Wawanesa had agreed to act as the primary insurer because it was not a party to the ongoing proceeding. In a motion decision dated April 3, 2007, the arbitrator ruled that he also had no jurisdiction to add Wawanesa as a party.

However, all the parties agreed to a preliminary issue hearing with Wawanesa as intervenor on whether the Fund was the first insurer to receive a completed application. Disputes about who is the priority insurer under s. 268 of the Insurance Act are resolved by arbitration under the Arbitration Act, 1991, but s. 2 of O.Reg. 283/95, Disputes Between Insurers, the Priority Regulation, provides that the first insurer to receive a completed application must pay benefits pending the resolution of a priority dispute. The arbitrator noted that, although the Commission lacks jurisdiction to resolve the priority issue, an arbitrator does have jurisdiction to resolve the issue of whether the Fund was an insurer under section 268 of the Act in the context of this arbitration.

Mr. Valauskas maintained that in the circumstances the Fund had to pay benefits until any dispute between it and Wawanesa was resolved. The Fund submitted that Mr. Valauskas’ application was incomplete due to the lack of a police report and that there was insufficient nexus between them for the Fund to be considered an insurer within the meaning of s. 2 of the Priority Regulation and s. 268 of the Insurance Act.

The Fund failed on the incompleteness issue. The arbitrator considered the application was at least complete after the Fund received the police report. Although it was not necessary for him to decide if an application to the Fund can be complete without a report, he rejected the Fund’s submission that strict enforcement of its policy regarding the police report was required to prevent unnecessary applications to the Fund. He found it has no special status among insurers and so may equally incur expenses responding to a misdirected application. He also rejected its submission that the applicant must provide information relevant to another insurer’s liability, as s. 3(2)(b) of the Priority Regulation requires an insurer to make its own “reasonable investigations necessary to determine if another insurer was liable” to pay the benefits.

The Fund succeeded on the insufficient nexus issue. As noted by the arbitrator, the principle that there must be a sufficient nexus between the applicant and the insurer to trigger the obligation to pay was first expressed by Senior Arbitrator Rotter in Brown and Allstate Insurance Company of Canada.⁵ Her approach was upheld and endorsed by the Divisional Court.⁶ She noted there could be a lack of nexus if an applicant randomly selected an insurer from whom to claim benefits. The arbitrator also referred to the Director of Arbitration’s decision in Vieira and Royal & SunAlliance Insurance Co. of Canada,⁷ in which the Director noted that the threshold for establishing nexus is not a high one, so an Ontario insurer must respond if an applicant claims a specific policy of that insurer was in force at the time of the accident.

However, the arbitrator disagreed with the position of Wawanesa and Mr. Valauskas that an applicant cannot go wrong by naming the Fund on the basis that it is potentially an insurer whenever there has been an accident. Instead, he found that although the threshold is not high, the choice of insurer cannot be arbitrary, that there must be some basis for the applicant believing that the insurer to which the application is submitted is required to pay benefits, and that similarly “[w]here the application is submitted to the Fund, there must be some basis for the applicant’s belief that coverage is not available under an insurance policy.” He concluded there was no nexus in the following paragraph:

As noted above, except for the information provided in his application for benefits, Mr. Valauskas has been completely silent on the issue of insurance coverage. He has provided no information at all on how he concluded that recovery was not available to him against the insurer of the vehicle in which he was a passenger. He has provided no information at all, on how he concluded that recovery was not available to him against the insurer of the other vehicle involved in the accident. He was required to consider those sources of recovery before he could turn to the Fund. Although the information on insurance coverage was readily available by obtaining the police report, he has provided no explanation for his failure to obtain the report. We do not even know whether he took the simple step of asking the driver or any of his fellow passengers whether there was insurance coverage. There is no evidence that he turned his mind to the question of whether the insurer to which he submitted his application might be required to pay him accident benefits. I find that the inescapable inference is that Mr. Valauskas’ choice to submit his application to the Fund was arbitrary. In these circumstances, the Fund is not an “insurer” within the meaning of section 268 and it is not required to respond to his application.

The effect of the order is to make Wawanesa responsible for Mr. Valauskas’ claims, as it was the only – and hence the first – insurer to receive his completed application for benefits.

Mr. Valauskas and Wawanesa appeal the arbitrator’s order, with the majority of the submissions provided by Wawanesa.

III. ANALYSIS

The parties agree that the Fund is subject to s. 2 of the Regulation, which provides that “[t]he 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.” [Emphasis added.]

Wawanesa submits that the arbitrator erred in law by deciding that there was an insufficient nexus between Mr. Valauskas and the Fund and by taking too narrow a view as to what constitutes a completed application for benefits to the Fund. Conversely, even though it was successful, the Fund submits that the arbitrator erred in finding that the application was complete when the Fund obtained its own copy of the police report.

I am not prepared to deal with the completeness issue. As was stated, for instance, by the Director’s Delegate in Saliba and Allstate Insurance Company of Canada, (FSCO P00-00052, July 19, 2002), and recently by the Divisional Court in Mamaca v. Coseco Insurance Company, 238 O.A.C. 56, 2008 CanLII 30312, [2008] O.J. No. 2508, appeals are taken against decisions rather than reasons. The Fund was successful in the decision, so there is nothing for it to appeal. As for Wawanesa and Mr. Valauskas, the arbitrator himself did not address the issue of whether or not an application is complete without the police report. In the circumstances, I fail to see how any decision on the point would be useful.

Turning to the nexus issue, Wawanesa submits that as the Fund is listed in s. 268(2) it is always an insurer and so the nexus test is irrelevant, and in any event the arbitrator applied too strict a test if nexus is still relevant.

However, I agree with the arbitrator that the Fund is not automatically an insurer in every potential case simply because it is listed in s. 268(2). That subsection provides that the Fund is the insurer of last resort only “if recovery is unavailable” against the other possible insurers. This places at least a minimal burden on an applicant, a burden that the arbitrator found Mr. Valauskas failed to meet. The sufficient nexus test, in this instance, requires more than simply asserting the possibility that there is no other insurer. Otherwise, as the arbitrator noted, the claim is simply arbitrary.

Wawanesa submits that the arbitrator placed too high a burden on Mr. Valauskas in finding his claim was arbitrary since the arbitrator also found that Mr. Valauskas did not know the name of the insurer of the vehicle he was in. However, that was precisely the arbitrator’s point: Mr. Valauskas did not know the name because there was no evidence he had taken any steps to determine that name, not even “the simple step of asking the driver or any of his fellow passengers whether there was insurance coverage,” as the arbitrator put it. I agree with the arbitrator that it is not enough to simply assert that coverage is unavailable under another policy. While it was not necessary for the arbitrator to decide if an application is “complete” without the police report, in its absence an applicant will have to provide something other than a bald assertion that there is no other insurer in order to establish a nexus with the Fund.

It may be that the Priority Regulation seeks to balance the concern that insured persons do not get caught between warring insurers and the concern that they in turn not abuse the system. In any event, this was a case where the arbitrator found that the insured failed to take any steps to determine if there was another policy of insurance available. While the arbitrator recognized that the nexus threshold is low, I agree with him that it is difficult to see how it could be any lower than this case, which would mean there was effectively no threshold at all.

Accordingly, the appeals are dismissed.

IV. EXPENSES

If the parties are unable to agree about expenses of these appeals, an expense hearing may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.