Kingsway General Insurance Co. v. West Wawanosh Insurance Co.

[Indexed as: Kingway General Insurance Co. v. West Wawanosh Insurance Co.]

58 O.R. (3d) 251

[2002] O.J. No. 528

Docket No. C36235

Court of Appeal for Ontario

Goudge, Sharpe and Cronk JJ.A.

February 15, 2002

Insurance -- Automobile insurance -- Statutory accident benefits -- Liability for payment -- Disputing liability -- Letter from insured's counsel informing Insurer B of Insurer A's intention to dispute liability for payment of statutory accident benefits does not constitute notice on behalf of Insurer A within meaning of s. 3(1) of Ontario Regulation 283/ 95 -- Changing case law does not constitute factor preventing insurer from making determination that it was primarily liable and thus justifying extension of 90-day notice period under s. 3(2) of Regulation -- Court should not exercise general discretion to grant relief from forfeiture for failure to comply with 90-day notice period -- O. Reg. 283/95, s. 3.

The insured was insured under automobile policies issued by both the appellant and the respondent. Both policies provided identical statutory accident benefits. The insured submitted written applications for statutory accident benefits first to the appellant and then to the respondent. The appellant did not give notice to the respondent within the 90 days required by s. 3 of O. Reg. 283/95 of an intention to dispute its liability for the payment of statutory accident benefits. However, shortly after the accident, counsel for the insured wrote to the respondent indicating that the appellant's position was that the respondent's policy was primary. Within the one-year period prescribed for the commencement of an arbitration, the appellant was advised that recent rulings suggested that it was not primarily liable. The appellant then gave notice and initiated arbitration proceedings to dispute liability. The arbitrator ruled that the appellant was justified in giving notice after the 90-day notice period as s. 3(2)(a) of the Regulation applied and 90 days was not a sufficient period of time for the appellant to make a determination that the respondent was primarily liable given the changing jurisprudence interpreting primary liability. The respondent's appeal was allowed and the award was set aside. The appellant appealed.

Held, the appeal should be dismissed.

The Regulation sets out in precise and specific terms a scheme for resolving disputes between insurers. Insurers are entitled to assume and rely upon the requirement for compliance with those provisions. Insurers subject to the Regulation are sophisticated litigants who deal with these disputes on a daily basis. The scheme applies to a specific type of dispute involving a limited number of parties who find themselves regularly involved in disputes with one another. In this context, clarity and certainty of application are of primary concern. Insurers need to make appropriate decisions with respect to conducting investigations, establishing reserves and maintaining records. Given this regulatory setting, there is little room for creative interpretations or for carving out judicial exceptions designed to deal with the equities of particular cases.

The letter from counsel for the insured to the respondent did not satisfy the requirements of s. 3(1) of the Regulation. The Regulation clearly specifies that the insurer must give written notice of its intention to dispute liability. A second-hand statement from a third party is plainly not the same as the formal notice from the insurer that is contemplated by the Regulation.

The court should not exercise any general discretion it might have to grant the appellant relief from forfeiture for its failure to provide the required 90-day notice. The Regulation provides a scheme that contemplates extensions of the 90-day notice period in certain circumstances. By implication, any general discretion a court might have to grant extensions in other circumstances is excluded.

A change in the case law interpreting the liability of insurers does not constitute a factor justifying extension of the 90-day notice period under s. 3(2). The appellant was able to conduct an investigation and make a determination that it was primarily liable within the notice period. Having made that determination, it decided not to dispute liability. The appellant could not now argue that 90 days was not a sufficient period of time to make its determination.

APPEAL from an order of Nordheimer J. (2001), 2001 ONSC 28051, 53 O.R. (3d) 436, [2001] I.L.R. 1-3942 (S.C.J.) setting aside an arbitration award.

Statutes referred to Insurance Act, R.S.O. 1990, c. I.8 Rules and regulations O. Reg. 283/95 ("Insurance Act"), ss. 2, 3, 7(2)

Lee Samis, for appellant. Elizabeth Iwata and Martha Drassinower, for respondent.

The judgment of the court was delivered by

[1] SHARPE J.A.: -- This appeal concerns the time limits that apply to an insurer who wishes to dispute with another insurer liability for the payment of no-fault benefits to an injured motorist. Under s. 3(1) of Ontario Regulation 283/95 of the Insurance Act, R.S.O. 1990, c. I.8, an insurer who wishes to dispute its liability must give written notice to the other insurer within 90 days of receipt of a completed application for benefits. The appellant, West Wawanosh Insurance Company, did not give the respondent, Kingsway General Insurance Company, the required notice within the 90-day period, but sought to dispute its liability in light of a subsequent change in jurisprudence interpreting the relevant statutory provisions. The appellant relies on the fact that, within the 90-day period, counsel for the injured motorist indicated to the respondent that the appellant would dispute its liability. The arbitrator found that the appellant was entitled to proceed with the dispute despite its failure to give the required notice. That decision was appealed to the Superior Court. Nordheimer J. held that the arbitrator erred and that, since the appellant had failed to give the required notice, it could not dispute liability. The appellant seeks leave to appeal and, if leave is granted, appeals to this court.

Facts

[2] The motorist, Herman Verdonk, was injured in a motor vehicle accident on July 2, 1998. Verdonk was an insured person under policies issued by both the appellant and the respondent. Both policies provided identical statutory accident benefits. Verdonk submitted written applications for statutory accident benefits first to the appellant and then to the respondent.

[3] Section 2 of Regulation 283/95 (the "Regulation") provides that the first insurer to receive a completed application for benefits is responsible for paying the benefits pending the resolution of any dispute as to which insurer is primarily liable. The appellant reviewed its position with legal counsel and was advised that it should assume liability as the insurer primarily responsible for the benefits. The appellant did not give the 90-day notice required by s. 3 of the Regulation, which provides as follows:

3(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.

(3) The issue of whether an insurer who has not given notice within 90 days has complied with subsection (2) shall be resolved in an arbitration under section 7.

[4] However, shortly after the accident, Verdonk's counsel wrote to the respondent indicating that the appellant's position was that the respondent's policy was primary. The respondent opened a file on the matter, investigated and considered its position and, after concluding that it was not primarily liable, closed its file.

[5] Within the one year prescribed by s. 7(2) of the Regulation for the commencement of an arbitration, the appellant was advised that recent rulings suggested that it was not primarily liable. The appellant then gave notice and initiated arbitration proceedings to dispute liability.

[6] The arbitrator rejected the respondent's contention that the appellant had failed to give the required notice of its intention to dispute liability. The arbitrator ruled that s. 3(2)(a) of the Regulation applied and that 90 days "was not a sufficient period of time for [the appellant] to make a determination that [the respondent] was liable" given the changing jurisprudence interpreting primary liability.

[7] That award was set aside on appeal. The Superior Court judge found that the arbitrator had erred in his interpretation of s. 3(2)(a). The Superior Court judge held that s. 3 was not intended to afford an insurer the opportunity to make a correct determination but, rather, simply to make a determination. He held that, since the law is frequently in a state of flux, evolving over time, legal uncertainty is not relevant in deciding whether the notice period is sufficient to make a determination that another insurer is liable.

[8] The Superior Court judge noted that the arbitrator had not dealt with the appellant's submission that the letter from the injured motorist's counsel constituted notice under s. 3(1) and that the appellant had not cross-appealed that aspect of the arbitrator's decision. In any event, the Superior Court judge found that, as the letter did not come from the appellant but from Verdonk's counsel, it did not comply with the requirements of s. 3(1).

[9] Finally, the Superior Court judge refused to grant relief from forfeiture or otherwise exercise his discretion to extend the 90-day period. He found that any jurisdiction to relieve from forfeiture had been ousted by the provisions of s. 3(2) of the Regulation. In his words, "[t]he government has "occupied the field" by including a provision which allows for relief from the imposition of the 90-day notice period in the particular circumstances set out in section 3(2)." He doubted the jurisdiction of a court to relieve against a penalty or forfeiture decreed by statute, but found that, even if there was such a discretion, it could not arise where the statute itself had already stipulated for relief being given in certain defined conditions.

Issues

1. Did the letter from Verdonk's counsel constitute notice on behalf of the appellant within the meaning of s. 3(1)?

2. Should the court exercise its discretion to grant the appellant relief from forfeiture for failure to comply with the 90-day notice period?

3. Does a change in the law constitute a basis for extending the 90-day notice period within the meaning of s. 3(2)(a)?

Analysis

[10] The Regulation sets out in precise and specific terms a scheme for resolving disputes between insurers. Insurers are entitled to assume and rely upon the requirement for compliance with those provisions. Insurers subject to this Regulation are sophisticated litigants who deal with these disputes on a daily basis. The scheme applies to a specific type of dispute involving a limited number of parties who find themselves regularly involved in disputes with each other. In this context, it seems to me that clarity and certainty of application are of primary concern. Insurers need to make appropriate decisions with respect to conducting investigations, establishing reserves and maintaining records. Given this regulatory setting, there is little room for creative interpretations or for carving out judicial exceptions designed to deal with the equities of particular cases.

Issue 1: Did the letter from Verdonk's counsel constitute notice on behalf of the appellant within the meaning of s. 3(1)?

[11] In my view, the letter from Verdonk's counsel did not satisfy the requirements of s. 3(1). The Regulation clearly specifies that the insurer must give written notice of its intention to dispute liability. A second-hand statement from a third party is plainly not the same as the formal notice from the insurer that is contemplated by the Regulation. In any event, an unauthorized letter from a third party would not have bound the insurer. Given the specific language of the Regulation, I cannot accept the submission that a letter from a third party indicating the insurer's intentions is sufficient to meet the requirement of formal notice from the insurer.

[12] Accordingly, I would reject the submission that we should effectively ignore the specific language of s. 3(1) that requires that the insurer or its authorized agent provide the requisite notice.

Issue 2: Should the court exercise its discretion to grant the appellant relief from forfeiture for failure to comply with the 90-day notice period?

[13] I would also reject the submission that a court should exercise any general discretion it might have to grant the appellant relief from forfeiture for its failure to provide the required 90-day notice. Despite Mr. Samis' skilful and forceful argument that the respondent was aware of the appellant's intention to dispute liability, had conducted the required investigation and would suffer no prejudice if required to engage in the arbitration, I do not think that this is a case in which the court's discretion comes into play. I agree with the conclusion of the Superior Court judge that the Regulation provides a scheme that contemplates extensions of the 90-day notice period in certain circumstances, and that, by implication, any general discretion a court might have to grant extensions in other circumstances is excluded.

Issue 3: Does a change in the law constitute a basis for extending the 90-day notice period within the meaning of s. 3(2)(a)?

[14] I also agree with the Superior Court judge that a change in the case law interpreting the liability of insurers does not constitute a factor justifying extension of the 90-day notice period under s. 3(2). As the Superior Court judge observed, this is an area in which there is a constant and steady flow of case law and arbitral decisions interpreting the law. Given the nature of these disputes and the disputants, as I have said, the dominant consideration must be clarity and certainty to ensure a predictable and efficient scheme of dispute resolution. In the present case, the appellant was able to conduct an investigation and make the determination that it was primarily liable. Having made that determination, it decided not to dispute liability. It follows, in my view, that the appellant cannot now argue that 90 days was not a sufficient period of time to make its determination.

Conclusion

[15] Accordingly, I would grant leave to appeal but dismiss the appeal with costs.

Appeal dismissed.