Chomos et al. v. Economical Mutual Insurance Company [Indexed as: Chomos v. Economical Mutual Insurance Co.]

61 O.R. (3d) 28

[2002] O.J. No. 3164

2002 45021

Docket No. C36573

Court of Appeal for Ontario,

Catzman, Sharpe and Cronk JJ.A.

August 18, 2002

Insurance -- Automobile insurance -- No-fault provisions -- Ontario insured commenced action against tortfeasor in California and settled lawsuit for amount of policy limit under tortfeasor's automobile insurance policy -- Insured then brought action in Ontario against her own automobile insurer for losses which exceeded tortfeasor's policy limits pursuant to OPCF 44 Family Protection Coverage endorsement of insured's policy -- OPCF 44 provides that issues of quantum are to be decided in accordance with laws of Ontario and issues of liability are to be decided in accordance with place where accident occurred -- Action not governed by no-fault provisions contained in ss. 267.1 and 267.2 of Insurance Act as those provisions relate to liability rather than quantum -- Insured not required to meet no-fault threshold before she could maintain action in Ontario -- Insurance Act, R.S.O. 1990, c. I.8, ss. 267.1, 267.2.

The plaintiff was injured in a motor vehicle accident in California. She commenced an action in California against the tortfeasor and eventually settled that lawsuit for U.S. $100,000, the policy limits available under the tortfeasor's policy. At the time of the accident, the plaintiff was insured under a standard Ontario automobile liability insurance policy, issued by the defendant, which included underinsured motorist protection coverage in the form of the OPCF 44 Family [page29] Protection Coverage endorsement (the "OPCF 44"). The plaintiff brought an action in Ontario against the defendant pursuant to the OPCF 44 claiming compensation for her losses which exceeded the policy limits of the tortfeasor's policy. Section 10 of the OPCF 44 provides that issues of "quantum" are to be decided in accordance with the law of Ontario and that issues of "liability" are to be decided in accordance with the law of the place where the accident occurred. The defendant took the position that the no-fault provisions contained in ss. 267.1 and 267.2 of the Insurance Act applied to the plaintiff's action and that her right to sue in Ontario for damages sustained in the motor vehicle accident was precluded by operation of law unless her injuries met the injury threshold under the Act. On a motion under rule 21.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to determine the issue, the motions judge held that the action was not governed by ss. 267.1 and 267.2 as those sections concern issues of liability rather than issues of quantum. The defendant appealed.

Held, the appeal should be dismissed.

The defendant's argument that ss. 267.1 and 267.2 of the Act applied under the OPCF 44 was misconceived. By s. 10 of the OPCF 44, the parties agreed to a contractual term which mirrored the conflict of laws rule established by the Supreme Court of Canada in Tolofson v. Jensen for the choice of law in tort cases. Under Tolofson, the law to be applied to the substantive rights of parties in actions concerning automobile accidents involving residents of different jurisdictions is the law of the place where the action occurred. Section 10 of the OPCF 44 adopts the Tolofson rule. The defendant sought to avoid application of the Tolofson choice of law rule for tortious conduct by contending that the approach to resolving conflict of law issues under the OPCF 44 should proceed from principles of contract law, rather than tort law. That approach did not result in the application of ss. 267.1 and 267.2 to the action. It was the contract between the parties itself that adopted the Tolofson choice of law rule. Moreover, the interpretation urged by the defendant was inconsistent with established conflict of laws jurisprudence and with the legal character and purpose of ss. 267.1 and 267.2 of the Act. Ontario courts, in a number of decisions, have held in motor vehicle actions against tortfeasors that the no-fault provisions of the Act are matters of substantive law. The parties made an express contractual choice that the lex loci delicti was to govern decisions regarding issues of liability. Section 267.1 of the Act is concerned with legal obligations for loss or damage, which may be enforced by action in Ontario. Its purpose is to relieve against liability in defined circumstances. Ontario's comprehensive system of no-fault tort compensation, in part established by ss. 267.1 and 267.2 of the Act, is fundamentally designed to preclude tort claims by injured motorists in deference to, and support of, an alternative tort compensation scheme. Although some provisions of the scheme also address a methodology for the quantification of damages payable for non- pecuniary loss, those provisions are integrally related to ss. 267.1(1) and 267.1(2), which are primarily directed to liability issues.

APPEAL from an order of Speyer J. (2001), 2001 62760 (ON SC), 32 C.C.L.I. (3d) 236 on a motion for a determination of a question of law.

Orfanakos v. Ingoglia (1995), 1995 7149 (ON SC), 22 O.R. (3d) 167 (Gen. Div.); Tolofson v. Jensen, 1994 44 (SCC), [1994] 3 S.C.R. 1022, 100 B.C.L.R. (2d) 1, 120 D.L.R. (4th) 289, 175 N.R. 161, [1995] 1 W.W.R. 609, 22 C.C.L.T. (2d) 173, 32 C.P.C. (3d) 141, 7 M.V.R. (3d) 202; Wong v. Lee (2002), 2002 44916 (ON CA), 58 O.R. (3d) 398, 211 D.L.R. (4th) 69 (C.A.), affg (2000), 2000 22693 (ON SC), 50 O.R. (3d) 419 (S.C.J.), consd Other cases referred to Brissette Estate v. Westbury Life Insurance Co., 1992 32 (SCC), [1992] 3 S.C.R. 87, 96 D.L.R. (4th) 609, 142 N.R. 104, [1992] I.L.R. 1-2888, 47 E.T.R. 109 (sub nom. Brissette Estate v. Crown Life Insurance Co.); [page30] Craig v. Allstate Insurance Co. of Canada, 2002 44956 (ON CA), [2002] O.J. No. 2124 (C.A.); Despotopoulos v. Jackson, [1992] I.L.R. 1-2793 (Ont. Gen. Div.); George v. Gubernowicz (1999), 1999 14795 (ON SC), 44 O.R. (3d) 247, 35 C.P.C. (4th) 359 (Gen. Div.); Gignac v. Neufeld (1999), 1999 2182 (ON CA), 43 O.R. (3d) 741, 41 M.V.R. (3d) 230 (C.A.); Hurst v. Leimer (1995), 1995 7249 (ON SC), 26 O.R. (3d) 760, 130 D.L.R. (4th) 166, 20 M.V.R. (3d) 246 (Gen. Div.); Meyer v. Bright (1993), 1993 3389 (ON CA), 15 O.R. (3d) 129, 110 D.L.R. (4th) 354, 48 M.V.R. (2d) 1 (C.A.) [Leave to appeal to S.C.C. refused (1994), 17 O.R. (3d) xvi, 172 N.R. 160n], affg (1992), 1992 7648 (ON SC), 9 O.R. (3d) 225, 94 D.L.R. (4th) 648, 38 M.V.R. (2d) 138 (Gen. Div.); Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 150 (SCC), [1993] 1 S.C.R. 252, 83 Man. R. (2d) 81, 99 D.L.R. (4th) 741, 147 N.R. 44, 36 W.A.C. 81, [1993] 2 W.W.R. 433, [1993] I.L.R. 1-2914; Salminen (Litigation Guardian of) v. Emerald Taxi Ltd., 50 C.C.L.T. (2d) 180 (S.C.J.); Schneider v. Maahs Estate (2001), 2001 3018 (ON CA), 56 O.R. (3d) 321, 206 D.L.R. (4th) 566, 21 M.V.R. (4th) 24 (C.A.), revg (2000), 2000 22705 (ON SC), 51 O.R. (3d) 90, 8 M.V.R. (4th) 156 (S.C.J.); Schultz v. Panorama Transportation Inc. (2001), 2001 62752 (ON SC), 31 C.C.L.I. (3d) 84 (S.C.J.); Somersall v. Friedman (2002), 2002 SCC 59; Thai v. Dao (1998), 1998 14839 (ON SC), 39 O.R. (3d) 791, [1998] I.L.R. 1-3604, 37 M.V.R. (3d) 301, 5 C.C.L.I. (3d) 96 (Gen. Div.) Statutes referred to Family Law Act, R.S.O. 1990, c. F.3 Insurance Act, R.S.O. 1990, c. I.8, ss. 122, 267.1, 267.2 [as am.] Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01 Statutory Accident Benefits Schedule -- Accidents After December 31, 1993 and Before November 1, 1996, O. Reg. 776/93 Authorities referred to Samis, L., "S.E.F. Family Protection Coverage", [1987] L.S.U.C. Spec. Lect., Insurance Law, 175

Randall B. Carter and Patricia J. Forte, for appellant. M. Claire Wilkinson and Stephen E. Firestone, for respondents.

The judgment of the court was delivered by

[1] CRONK J.A.: -- Marjorie Chomos was injured in a motor vehicle accident in California on September 3, 1996, while she was a passenger in a vehicle being driven by Leonard Willsie. At the time of the accident, Mrs. Chomos was insured under a standard Ontario automobile liability insurance policy issued by Economical Mutual Insurance Company ("Economical"), which included underinsured motorist protection coverage in the form of the OPCF 44 Family Protection Coverage endorsement (the "OPCF 44"). The Willsie vehicle was registered in California and insured by State Farm Mutual Insurance Company. [page31]

[2] Mrs. Chomos and her husband, Leslie Chomos, are residents of Ontario. They commenced and eventually settled a lawsuit commenced in California for U.S. $100,000, the policy limits available under the Willsie policy. The Chomos allege that the settlement did not encompass any wage losses suffered by them, or other pecuniary losses. As a result, they commenced an action in Ontario against Economical, claiming compensation for all losses sustained by them which exceed the policy limits of the Willsie policy, pursuant to the OPCF 44.

[3] The OPCF 44 provides that issues of "quantum" are to be decided in accordance with the law of Ontario and that issues of "liability" are to be decided in accordance with the law of the place where the accident occurred. The issue on this appeal is whether the Chomos' claims against Economical are governed by Ontario's statutory "no-fault" provisions contained in ss. 267.1 and 267.2 of the Insurance Act, R.S.O. 1990, c. I.8 [the "Act"], as am. by S.O. 1993, c. 10 (Bill 164). If those provisions relate to "quantum", they will apply to preclude or limit the Chomos' right to sue their own insurer for damages under the OPCF 44. However, if ss. 267.1 and 267.2 relate to "liability", they will not apply and the Chomos' claims will be governed by the law of California.

[4] On a motion under rule 21.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to determine the question, Speyer J. held that this action is not governed by ss. 267.1 and 267.2 as those sections concern issues of liability, rather than issues of quantum. Economical appeals that decision. I agree with the motions judge. Accordingly, for the reasons that follow, I would dismiss the appeal.

I. ADDITIONAL FACTS

[5] The rule 21.01 motion proceeded on an agreed statement of facts. The additional key facts relevant to this appeal are as follows.

[6] In her Statement of Claim against Economical, Mrs. Chomos alleges that she sustained injuries, losses and damages as a result of the motor vehicle accident. She claims for wage losses and other pecuniary damages.

[7] Mrs. Chomos claimed and received accident benefits from Economical pursuant to O. Reg. 776/93, the Statutory Accident Benefits Schedule -- Accidents After December 31, 1993 and Before November 1, 1996.

[8] The relevant provisions of the OPCF 44 provide:

3. Insuring Agreement -- In consideration of a premium of $ . . . or as stated in the Certificate of Automobile Insurance to which this change form is attached, the insurer shall indemnify an eligible claimant for the amount that he or she is legally entitled to recover from an inadequately insured [page32] motorist as compensatory damages in respect of bodily injury to or death of an insured person arising directly or indirectly from the use or operation of an automobile.

4. Determination of the Amount Recoverable - The amount that an eligible claimant is entitled to recover shall be determined in accordance with the procedures set forth for determination of the issues of quantum and liability under Section 5 of the Policy "Uninsured Automobile Coverage".

5. In determining the amount that an eligible claimant is entitled to recover from the inadequately insured motorist, issues of quantum shall be decided in accordance with the law of Ontario, and issues of liability shall be decided in accordance with the law of the place where the accident occurred.

[9] In accordance with s. 10 of the OPCF 44, the parties agree that issues of liability are to be decided in accordance with the law of California, the place where the accident occurred, and issues of quantum are to be decided in accordance with the law of Ontario.

[10] By Order dated June 8, 2001, the motions judge held that this action is not governed by ss. 267.1 and 267.2 of the Act and that those sections concern issues of liability, within the meaning of s. 10 of the OPCF 44.

II. ISSUES

[11] The issue on this appeal is whether ss. 267.1 and 267.2 of the Act pertain to issues of quantum or liability, for the purpose of s. 10 of the OPCF 44.

III. ANALYSIS

[12] In Ontario, different tort compensation regimes apply for personal injuries occasioned by automobile accidents, depending on when the accident occurred. In this case, the relevant Ontario statutory regime is embodied in ss. 267.1 and 267.2 of the Act. Those provisions, set out in Appendix "A" to these reasons, are part of Ontario's no-fault legislative scheme which, subject to defined exceptions, eliminates the right to advance tort claims for personal injuries sustained in motor vehicle accidents, while enhancing available accident benefits, regardless of fault. (Meyer v. Bright (1993), 1993 3389 (ON CA), 15 O.R. (3d) 129, 110 D.L.R. (4th) 354 (C.A.)).

[13] If ss. 267.1 and 267.2 of the Act apply to their action against Economical, the Chomos' right to sue in Ontario for damages for losses sustained in the motor vehicle accident is precluded by operation of law unless the injuries which they suffered meet an injury "threshold" set out under the Act. Further, if that injury threshold applies and is met, the Chomos' claims will be [page33] limited to claims for non- pecuniary damages, and will be subject to monetary deductibles established by the Act.

[14] In contrast, the law of California does not limit or eliminate claims by injured motorists for damages for pecuniary and non-pecuniary losses arising from motor vehicle accidents. Accordingly, if the law of California applies to this action, the Chomos' enjoy an unrestricted right to claim against Economical for the shortfall between their damages for pecuniary and non-pecuniary losses and the settlement amount of U.S. $100,000 agreed to by them in the California litigation, subject to the policy limits and other provisions of their underinsured motorist coverage with Economical.

(1) The Statutory Provisions and the Relevant Terms of the OPCF 44

(a) The statutory provisions

[15] Section 267.1(1) of the Act provides immunity from actions in Ontario for loss or damage from bodily injury or death arising out of motor vehicle accidents in Canada, the United States and other designated countries for a defined class of persons. The protected class of persons is comprised of the owners and occupants of motor vehicles and "persons present at the incident". The relief from liability afforded by s. 267.1(1) applies only to those persons (s. 267.1(6)). Section 267.1(1), by its terms, is not confined to damages claims for pecuniary loss.

[16] Two exceptions to the general immunity rule established by s. 267.1(1) are recognized under s. 267.1. The first exception, created by s. 267.1(2), applies only to damages for non-pecuniary losses which meet an injury threshold specified in that section. Section 267.1(8) provides rules for determining the amount of damages for non-pecuniary loss and establishes statutory deductibles. In turn, s. 267.2(2) provides rules for the determination of non-pecuniary loss deductibles and deductibles under the Family Law Act, R.S.O. 1990, c. F.3. Thus, by the combined operation of ss. 267.1(2), 267.1(8) and 267.2(2), the general rule of immunity from suit for tort claims arising from motor vehicle accidents is relaxed for some types of non-pecuniary loss claims, but the extent of the potential recovery for such claims is limited.

[17] The second exception to the general immunity from suit rule, created by s. 267.1(7) of the Act, applies to damages for pecuniary loss. Under that section, persons other than the protected class of persons identified in s. 267.1(1) may be held liable for damages for pecuniary loss "to the extent that they are at fault or negligent in respect of those damages". [page34]

[18] The exception created by s. 267.1(7) is limited. It applies only to persons other than the owner or occupant of an automobile, or a person present at the incident, who are otherwise jointly and severally liable for damages for pecuniary loss. It does not affect or diminish the immunity afforded by s. 267.1(1) to the class of protected persons identified in that section. Thus, only the owner or occupier of an automobile, or a person present at the incident, enjoy absolute relief from liability for damages for pecuniary loss.

[19] Overall, the effect of ss. 267.1 and 267.2 is to eliminate the right to sue in Ontario for many tort claims, including claims for damages for pecuniary loss and for non- pecuniary loss which do not meet the injury threshold specified under s. 267.1(2).

(b) The relevant terms of the OPCF 44

[20] The OPCF 44 is optional insurance coverage available to Ontario drivers on payment of an additional premium. Its purpose is to provide coverage where a person is injured by an underinsured or inadequately insured motorist. (Somersall v. Friedman, 2002 SCC 59, File No. 27851; Schneider v. Maahs Estate (2001), 2001 3018 (ON CA), 56 O.R. (3d) 321, 206 D.L.R. (4th) 566 (C.A.); Craig v. Allstate Insurance Co. of Canada, 2002 44956 (ON CA), [2002] O.J. No. 2124 (C.A.): see also L. Samis, "S.E.F. 44 Family Protection Coverage", [1987] L.S.U.C. Spec. Lect., Insurance Law, 175). As observed by Rutherford J. in Despotopoulos v. Jackson, [1992] I.L.R. 1-2793 (Ont. Gen. Div.), at p. 1646:

[U]nderinsured coverage was conceived to provide financial relief for insureds and their families from the hardships and inequities of any shortfalls in insurance compensation. If an insured person with underinsurance protection became the victim of the negligence of a person insured with third party liability limits lower than his own limits, the insured could expect to be indemnified for the shortfall . . . .

[21] Section 3 of the OPCF 44 contains the "Insuring Agreement" between the parties. The indemnification commitment of the insurer under that section is triggered when an "eligible claimant" exists who is "legally entitled to recover" compensatory damages from a motorist who is "inadequately insured". For the purpose of the rule 21.01 motion, the parties agreed that the Chomos are "eligible claimants" and that Willsie is an "inadequately insured" motorist. Further, Economical does not argue on this appeal that the Chomos are not "legally entitled to recover" damages from Willsie.

[22] When an Ontario motorist, insured under the OPCF 44, is injured by an inadequately insured motorist, s. 3 of the OPCF 44 [page35] entitles the injured motorist to claim against his or her own insurer for the compensatory damages that the injured motorist is "legally entitled to recover" from the inadequately insured, at-fault driver. The OPCF 44 requires that the amount payable to the injured motorist by his or her own insurer first be calculated by determining the amount of damages that the injured motorist is "legally entitled to recover" from the at-fault driver. Once that amount is ascertained, the OPCF 44 provides for various deductions, including deduction of any amount available to the injured motorist from the insurers of the inadequately insured, at- fault driver.

[23] Section 10 of the OPCF 44 is directed at the determination of the amount that the injured motorist is "entitled to recover" from the inadequately insured, at- fault driver. For the purpose of that determination, which is required to calculate the amount payable under the OPCF 44 to the injured motorist, s. 10 stipulates that issues of "quantum" are to be decided in accordance with the law of Ontario and issues of "liability" are to be decided "in accordance with the law of the place where the accident occurred".

[24] The issue in this case is whether ss. 267.1 and 267.2 of the Act apply to the Chomos' action against Economical so as to eliminate or reduce the extent of Economical's indemnification obligation under the OPCF 44. Application of those statutory provisions is dependent upon whether they relate to issues of "quantum" or issues of "liability", within the meaning of s. 10 of the OPCF 44.

(2) Discussion

[25] Economical submits that the law of Ontario regarding the recovery of damages for losses arising from a motor vehicle accident, including ss. 267.1 and 267.2 of the Act, should apply when an Ontario insured sues an Ontario insurer. In support of that central submission, Economical makes two arguments: i) the OPCF 44, interpreted in accordance with the applicable principles for the interpretation of insurance contracts, requires that Ontario law, including ss. 267.1 and 267.2 of the Act, govern this action; and ii) as the Chomos' entitlement to underinsured motorist coverage arises by contract, the approach to resolving conflict of laws issues under the OPCF 44 should flow from the law of contract, rather than from the law of tort.

(a) Interpretation of the OPCF 44

[26] In my view, Economical's argument that ss. 267.1 and 267.2 of the Act apply under the OPCF 44 is misconceived for several reasons. [page36]

[27] Economical relies upon s. 122 of the Act. That section provides:

122. Application of Part -- Except where otherwise provided and where not inconsistent with other provisions of this Act, this Part applies to every contract of insurance made in Ontario, other than contracts of,

(a) accident and sickness insurance;

(b) life insurance; and

(c) marine insurance.

(Emphasis added)

Section 122 applies to Part III of the Act, which deals generally with insurance contracts in Ontario. Section 122 does not apply to ss. 267.1 and 267.2, which appear in Part VI, concerning automobile insurance. Accordingly, s. 122 does not operate to render ss. 267.1 and 267.2 of the Act automatically applicable to all actions based on insurance contracts made in Ontario involving claims for damages arising from motor vehicle accidents.

[28] Second, Economical's argument is inconsistent with the parties' contractual agreement that laws other than those of Ontario could apply to the coverage afforded by the OPCF 44. Section 10 of the OPCF 44 provides that issues of liability are to be decided "in accordance with the law of the place where the accident occurred". That language recognizes that the law of the place of the tort (the lex loci delicti) governs decisions on issues of liability for the purpose of determining an insured motorist's recovery under the OPCF 44. It holds open the possibility, frequently realized, that the place of the tort may be other than Ontario.

[29] Economical challenges the motions judge's conclusion that s. 10 of the OPCF 44 is a codification of the conflict of laws rules involving tortious conduct. That challenge, in my view, is unsustainable.

[30] By s. 10 of the OPCF 44, the parties agreed to a contractual term which mirrors the conflict of laws rule established by the Supreme Court of Canada in Tolofson v. Jensen, 1994 44 (SCC), [1994] 3 S.C.R. 1022, 120 D.L.R. (4th) 289 for the choice of law in tort cases. Under Tolofson, the law to be applied to the substantive rights of parties in actions concerning automobile accidents involving residents of different jurisdictions, both within Canada and internationally, is the law of the place where the tort occurred. Ontario courts retain a discretion in international cases to apply Ontario substantive law to avoid injustice, but only in exceptional circumstances. The lex fori, the law of the forum, applies to procedural matters. [page37 ]

[31] Section 10 of the OPCF 44 adopts the Tolofson rule. The substantive law of California, the place where the accident occurred, applies to issues of liability. The procedural law of Ontario, the forum, applies to issues of quantum. Any argument that there is a basis here on which to depart from the general choice of law rule recognized in Tolofson, to avoid injustice, is defeated by the reasoning of a majority of this court in Wong v. Lee (2002), 2002 44916 (ON CA), 58 O.R. (3d) 398, 211 D.L.R. (4th) 69 (C.A.).

[32] In my view, Economical's argument that ss. 267.1 and 267.2 of the Act apply to this action as a consequence of the OPCF 44 also fails for a third reason.

[33] In reliance on established interpretative principles governing the construction of insurance contracts (as enunciated in Brissette Estate v. Westbury Life Insurance Co., 1992 32 (SCC), [1992] 3 S.C.R. 87, 96 D.L.R. (4th) 609 and Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 150 (SCC), [1993] 1 S.C.R. 252, 99 D.L.R. (4th) 741), Economical asserts that the wording of the Economical policy as a whole, including that of the OPCF 44, supports the conclusion that "issues of quantum" include the non-pecuniary loss injury threshold and monetary deductibles set out in ss. 267.1 and 267.2 of the Act. It contends that this case is similar to Orfanakos v. Ingoglia (1995), 1995 7149 (ON SC), 22 O.R. (3d) 167 (Gen. Div.) and that the motions judge erred in declining to follow the interpretative reasoning in that case. I disagree.

[34] In Orfanakos, the plaintiffs, four of whom were Ontario residents, who had been injured in a motor vehicle accident in Maryland caused by an uninsured resident of that jurisdiction, sought to pursue a claim for damages in Ontario against their own insurer. The plaintiffs acknowledged that their injuries did not meet the injury threshold then stipulated under Ontario's no-fault regime, a predecessor scheme to the regime envisaged by ss. 267.1 and 267.2 of the Act. O'Brien J. concluded that the uninsured automobile coverage provisions of the plaintiffs' Ontario insurance policy evidenced a clear intention that damages be determined by Ontario law, including by the no-fault provisions of the Act then in force. He also held that the choice of law rule established in Tolofson was inapplicable because it related to tort claims and not to claims deriving from contract. Accordingly, he held that the plaintiffs were precluded from pursuing a damages claim against their Ontario insurer.

[35] The motions judge in this case, correctly in my view, distinguished Orfanakos on the basis that it concerned uninsured motorist coverage, which is mandatory under the Act, rather than optional underinsured motorist coverage. That distinction is significant. Underinsured motorist coverage is different, and [page38] separate, from Ontario's compulsory uninsured motorist coverage. It is available only at additional premium cost, on election by the consumer. It is concerned with an insured motorist's shortfall in damages recovery, not recovery in the first instance.

[36] Economical argues that, as in Orfanakos, this case involves consideration of the uninsured automobile coverage provisions of the standard Ontario automobile liability insurance policy. It points to s. 9 of the OPCF 44, which requires that the amount that an insured motorist is entitled to recover be determined in accordance with the uninsured automobile coverage provisions of the Economical policy, and asserts that those provisions are engaged in this case as their predecessor policy provisions were in Orfanakos.

[37] In my view, Orfanakos is of little assistance. Orfanakos did not include analysis of s. 10 of the OPCF 44, or interpretation of the choice of law rule embodied in that section. As I have concluded that s. 10 of the OPCF 44 mirrors the choice of law rule enunciated in Tolofson, the principles established in that case are relevant here. Moreover, the decision in Orfanakos was predicated, in part, on the fact that any judgment obtained by the plaintiffs in the foreign jurisdiction would not be relevant to the determination of damages under Ontario law, or to the plaintiffs' claims for recovery under their own insurance policy. Here, the provisions of the OPCF 44 expressly implicate any recovery by the injured motorist from the inadequately insured motorist, or from his or her insurer, as directly relevant to the amount payable to the injured motorist under the underinsured motorist cover.

[38] Finally, to the extent that they are relevant, the uninsured motorist provisions of the Economical policy contemplate application of the lex loci delicti choice of law rule in some circumstances. Section 5.7.1 of the policy, which forms part of the uninsured automobile coverage provisions, establishes payment limits. It reads: "[w]e will not pay more than the minimum limits for automobile liability insurance in the jurisdiction in which the accident happens" (emphasis added). Section 5.2.1 of the policy, also part of the uninsured automobile coverage provisions, reads:

We will pay any amounts you or other insured persons have a legal right to recover as damages from the owner or driver of an uninsured or unidentified automobile for bodily injury resulting from an accident involving an automobile, up to the limits in this section.

(Emphasis added)

Sections 5.2.1 and 5.7.1 of the Economical policy thus contractually require that resort be had to the law of the place of the tort to determine available and maximum recovery by an insured from [page39] his or her own insurer. (See Thai v. Dao (1998), 1998 14839 (ON SC), 39 O.R. (3d) 791, 5 C.C.L.I. (3d) 96 (Gen. Div.).)

[39] Accordingly, I conclude that, when viewed as a whole, the Economical policy, including the OPCF 44, does not compel the conclusion that issues of "quantum" within the meaning of s. 10 of the OPCF 44 are governed by ss. 267.1 and 267.2 of the Act.

(b) The approach to resolving conflict of laws issues under the OPCF 44

[40] Economical seeks to avoid application of the Tolofson choice of law rule for tortious conduct by contending that the approach to resolving conflict of laws issues under the OPCF 44 should proceed from principles of contract law, rather than tort law. In my view, the approach asserted by Economical does not result in application of ss. 267.1 and 267.2 of the Act. I reach that conclusion for the following reasons.

[41] First, it is the contract between the parties itself that adopts the Tolofson choice of law rule.

[42] Second, the interpretation urged upon us by Economical is inconsistent with established conflict of laws jurisprudence and with the legal character and purpose of ss. 267.1 and 267.2 of the Act.

[43] In Tolofson, La Forest J. stressed the importance of classifying a rule or legal requirement as substantive or procedural (at paras. 76, 77 and 85 [p. 1067 and pp. 1071-72 S.C.R.]):

In any action involving the application of a foreign law the characterization of rules of law as substantive or procedural is crucial for, as Cheshire and North, Cheshire and North's Private International Law, (12th ed. 1992), at pp. 74-75 state:

One of the eternal truths of every system of private international law is that a distinction must be made between substance and procedure, between right and remedy. The substantive rights of the parties to an action may be governed by a foreign law, but all matters appertaining to procedure are governed exclusively by the law of the forum.

The reason for the distinction is that the forum court cannot be expected to apply every procedural rule of the foreign state whose law it wishes to apply. The forum's procedural rules exist for the convenience of the court, and forum judges understand them. They aid the forum court to "administer [its] machinery as distinguished from its product". . . .

[I]n the conflicts of law field . . . the purpose of substantive/procedural classification is to determine which rules will make the machinery of the forum court run smoothly as distinguished from those determinative of the rights of both parties.

(Emphasis added and citations omitted) [page40]

[44] Ontario courts, in a number of decisions, have held in motor vehicle actions against tortfeasors that the no-fault provisions of the Act are matters of substantive law. For example, in Salminen (Litigation Guardian of) v. Emerald Taxi Ltd. (1999), 50 C.C.L.T. (2d) 180 (Ont. S.C.J.), Kozak J. held that s. 267.1 of the Act, including the statutory deductible provision contained in s. 267.1(8) and the non-pecuniary loss provision contained in s. 267.1(2), was a matter of substantive, rather than procedural, law. Accordingly, it did not apply to preclude a damages claim in Ontario by an Ontario resident against a tortfeasor concerning injuries sustained in a motor vehicle accident which occurred in British Columbia. Rather, based on Tolofson, the substantive law of British Columbia, the law of the place where the tort was committed, governed the action.

[45] Similarly, in Schultz v. Panorama Transportation Inc. (2001), 2001 62752 (ON SC), 31 C.C.L.I. (3d) 84 (Ont. S.C.J.), Bellamy J. concluded that the substantive law of British Columbia should apply in an Ontario negligence action arising from a motor vehicle accident which occurred in British Columbia and, further, that the provisions of ss. 267.1(1) and 267.1(2) of the Act, in their current form, are substantive in nature. In reaching those conclusions, Bellamy J. rejected the argument, also inferentially made here by Economical, that the remedial nature of s. 267.1 suggests that s. 267.1 merely addresses the right to sue in Ontario, thereby affecting only a remedy and not a substantive right. (See also George v. Gubernowicz (1999), 1999 14795 (ON SC), 44 O.R. (3d) 247, 35 C.P.C. (4th) 359 (Gen. Div.) and, in the context of predecessor sections to ss. 267.1 and 267.2, Hurst v. Leimer (1995), 1995 7249 (ON SC), 26 O.R. (3d) 760, 130 D.L.R. (4th) 166 (Gen. Div.).)

[46] The character of s. 267.1, as substantive or procedural in nature, has also been directly considered by this court. In Wong v. Lee, the issue was the proper substantive law to be applied in an Ontario motor vehicle accident action arising out of an accident which occurred in New York state. It was argued that s. 267.1 of the Act was a procedural rule, barring a claim for damages for pecuniary loss available under the substantive law of New York state. In rejecting that argument, Feldman J.A., writing for a majority of this court, stated (at paras. 20 and 21):

That issue is answered as well by the Tolofson case where the court held that a limitation period and a bar to actions by gratuitous passengers were substantive provisions of the Saskatchewan law and therefore applied as part of the lex loci delicti to the action brought in British Columbia.

I therefore conclude that similarly, the bar in s. 267.1 is a substantive as opposed to procedural law and applies only if the substantive law of Ontario applies to the action. [page41]

[47] If, as established in Wong v. Lee, s. 267.1 of the Act is a substantive law provision for the purpose of an Ontario motor vehicle action against a tortfeasor, its character can be no different when the action is brought by an injured Ontario motorist against his or her own insurer for recovery under an underinsured motorist coverage contract of insurance.

[48] The parties here made an express contractual choice that the lex loci delicti is to govern decisions regarding issues of liability. The motions judge concluded concerning s. 10 of the OPCF 44 (at paras. 22 and 24):

I am of the view that the words "issues of liability" mean issues of liability to pay damages according to the law of California in this case. As previous jurisprudence has indicated, it is important to distinguish between heads of damages on the one hand and the quantification or measurement of damages on the other.

I find that issues of liability to pay damages, which includes heads of damages, are matters to be determined by California law. On the other hand, the issue of quantum of damages or "how much", are procedural in nature and to be determined by the law of Ontario.

I agree.

[49] The word "liability" is defined in Blacks Law Dictionary, 7th ed. (St. Paul, Minn.: West Group, 1983) as:

n.1 The quality or state of being legally obligated or accountable; legal responsibility to another or to society, enforceable by civil remedy or criminal punishment . -- Also termed legal liability.

(Emphasis in original)

In contrast, the word "quantum" is defined by the same dictionary as "the required, desired or allowed amount; portion or share"; by The Oxford English Reference Dictionary, 2nd ed. (Oxford University Press, 1996) as "a required or allowed amount"; and by Webster's Seventh New Collegiate Dictionary (Springfield: Merriam, 1967) as a "quantity" or "amount".

[50] Section 267.1 of the Act is concerned with legal obligations for loss or damage, which may be enforced by action in Ontario. As suggested by the sub-heading to the section, described as "protection from liability", its purpose is to relieve against liability in defined circumstances. As indicated by this court in Gignac v. Neufeld (1999), 1999 2182 (ON CA), 43 O.R. (3d) 741, 41 M.V.R. (3d) 230 (C.A.), at p. 748 O.R., per Charron J.A.:

[U]nder Bill 164, a comprehensive system of enriched accident benefits was made available to all accident victims to protect against pecuniary losses, regardless of fault. This comprehensive system of structured benefit compensation was [page42] intended to eliminate the need to sue for pecuniary losses in all cases. Therefore, the Act specifically limited the right to sue for non-pecuniary loss only. At the same time, it allowed for greater access to the tort system for recovery of non-pecuniary losses for the seriously injured by redefining the threshold which had to be met. . . .

(Emphasis added)

[51] Ontario's comprehensive system of no-fault tort compensation, in part established by ss. 267.1 and 267.2 of the Act, is fundamentally designed to preclude tort claims by injured motorists in deference to, and support of, an alternative tort compensation scheme. It removes liability for a protected class of persons for pecuniary loss and for non- pecuniary loss save in limited circumstances. (See Craig v. Allstate Insurance Co. of Canada.) Although some provisions of the scheme also address a methodology for the quantification of damages payable for non-pecuniary loss, and statutory deductibles which form part of that calculation, those provisions are integrally related to ss. 267.1(1) and 267.1(2) which are primarily directed to liability issues.

[52] I conclude, therefore, that ss. 267.1 and 267.2 are directed to issues of "liability" and not issues of "quantum" within the meaning of s. 10 of the OPCF 44. They do not govern this action. In my view, that conclusion fosters a consistent interpretation and application of ss. 267.1 and 267.2 of the Act in actions arising from motor vehicle accidents. The character of those statutory provisions is not altered by the fact that an injured motorist elects to sue his or her own insurer rather than, or in addition to, an inadequately insured at-fault driver.

IV. DISPOSITION

[53] Accordingly, for the reasons given, I would dismiss the appeal. The respondents are entitled to their costs of the appeal, on a partial indemnity basis, fixed in the amount of $11,052.62 inclusive of disbursements, plus GST. They are also entitled to their costs of the rule 21.01 motion, as fixed by the motions judge, in the sum of $2,500.

Appeal dismissed.

APPENDIX "A"

Insurance Act, R.S.O. 1990, c. I.8, as am. by S.O. 1993, c. 10.

267.1(1) Protection from liability -- Despite any other Act and subject to subsections (2) and (6), the owner of an automobile, the occupants of an automobile and any person present at the incident are not liable in a proceeding in Ontario for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of the automobile in Canada, the United [page43] States of America or any other country designated in the Statutory Accident Benefits Schedule.

(2) Non-pecuniary loss -- Subsection (1) does not relieve a person from liability for damages for non-pecuniary loss, including damages for non-pecuniary loss under clause 61(2) (e) of the Family Law Act, if as a result of the use or operation of the automobile the injured person has died or has sustained,

(a) serious disfigurement; or

(b) serious impairment of an important physical, mental or psychological function.

(3) Motion to determine if non-pecuniary loss threshold met -- In an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, a judge shall, on motion made before trial with the consent of the parties or in accordance with an order of a judge who conducts a pre-trial conference, determine if, as a result of the use or operation of the automobile, the injured person has died or has sustained,

(a) serious disfigurement; or

(b) serious impairment of an important physical, mental or psychological function.

(4) Determination binding -- The determination of a judge on a motion under subsection (3) is binding on the parties at the trial.

(5) Determination at trial -- If no motion is made under subsection (3), the trial judge shall determine if, as a result of the use or operation of the automobile, the injured person has died or has sustained,

(a) serious disfigurement; or

(b) serious impairment of an important physical, mental or psychological function.

(6) Liability of other persons -- Subsection (1) does not relieve any person from liability other than the owner of the automobile, the occupants of the automobile and the persons present at the incident.

(7) Joint and several liability, pecuniary loss -- If, in the absence of subsection (1), the owner of an automobile, an occupant of an automobile or a person present at the incident would have been jointly and severally liable for damages for pecuniary loss with one or more other persons who are not relieved of liability by subsection (1), the other persons are liable for those damages only to the extent that they are at fault or negligent in respect of those damages.

(8) Non-pecuniary loss, amount of damages -- Subject to subsections (2) to (5), in a proceeding for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the court shall determine the amount of damages for non-pecuniary loss to be awarded against the owner of the automobile, an occupant of the automobile or a person present at the incident in accordance with the following rules:

1. The court shall first determine the amount of damages for non-pecuniary loss for which the owner of the automobile, the occupant of the automobile or the person present at the incident would be liable without regard to this Part. [page44]

2. The determination under paragraph 1 shall be made in the same manner as a determination of the amount of damages for non-pecuniary loss in a proceeding to which this section does not apply and, in particular, without regard to,

i. the statutory accident benefits provided for under subsection 268(1),

ii. the provisions of this section that protect the owner of the automobile, the occupants of the automobile and the persons present at the incident from liability for damages for pecuniary loss, and

iii. the provisions of paragraph 3.

3. The amount of damages for non-pecuniary loss to be awarded against the owner of the automobile, the occupant of the automobile or the person present at the incident shall be determined by reducing the amount determined under paragraph 1 by,

i. in the case of damages for non-pecuniary loss other than damages for non-pecuniary loss under clause 61(2) (e) of the Family Law Act,

A. $10,000, if the award of damages is made in 1993 or 1994, or

B. the non-pecuniary loss deductible published under clause 267.2(1)(a) for the year in which the court makes the award of damages, if the award of damages is made in a year after 1994, and

ii. in the case of damages for non-pecuniary loss under clause 61(2) (e) of the Family Law Act,

A. $5,000, if the award of damages is made in 1993 or 1994, or

B. the Family Law Act deductible published under clause 267.2(1)(b) for the year in which the court makes the award of damages, if the award of damages is made in a year after 1994.

(9) Same -- Subsection (8) applies in respect of each person who is entitled to damages for non-pecuniary loss.

(10) Non-pecuniary loss, other tortfeasors -- If, in a proceeding for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, one or more persons other than the owner of the automobile, the occupants of the automobile and the persons present at the incident are found to be liable for damages for non-pecuniary loss,

(a) the other persons,

(i) are jointly and severally liable with the owner, occupants and persons present at the incident for the damages for which the owner, occupants and persons present at the incident are liable under subsection (8), and

(ii) are solely liable for any amount by which the amount mentioned in subclause (i) is less than the amount that the other [page45] persons would have been liable to make contribution and indemnify the owner, occupants and persons present at the incident in respect of non- pecuniary loss in the absence of this section;

(b) the other persons are liable to make contribution and indemnify the owner, occupants and persons present at the incident in respect of non-pecuniary loss to the same extent as if this section did not apply, up to the amount for which the owner, occupants and persons present at the incident are liable under subsection (8); and

(c) the owner, occupants and persons present at the incident are liable to make contribution and indemnify the other persons for the amount that the owner, occupants and persons present at the incident are liable under subsection (8), reduced by the amount that the other persons are liable to make contribution and indemnify the owner, occupants and persons present at the incident under clause (b).

(11) Determination of liability -- For the purposes of subsections (7) to (10), the liability of all persons involved in the incident from which the proceeding arose shall be determined as though all persons wholly or partly responsible for the damages were parties to the proceeding even though any of those persons is not actually a party.

(12) Costs -- In a proceeding for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the determination of a party's entitlement to costs shall be made without regard to the effect of paragraph 3 of subsection (8) on the amount of damages, if any, awarded for non-pecuniary loss.

(13) Repealed: 1996, c. 21, s. 28(1).

(14) Definition -- For the purposes of this section, "owner" includes an operator as defined in subsection 16(1) of the Highway Traffic Act. 1993, c. 10, s. 25.

(15) Application -- This section applies only to a proceeding for loss or damage arising from the use or operation, after December 31, 1993 and before section 29 of the Automobile Insurance Rate Stability Act, 1996 comes into force, of an automobile. 1996, c. 21, s. 28(2).

267.2(1) Publication of deductible amounts -- Before the 1st day of January in each year after 1994, the Superintendent shall determine in accordance with this section and publish in The Ontario Gazette,

(a) the non-pecuniary loss deductible to be used under subparagraph i of paragraph 3 of subsection 267.1(8) in respect of awards of damages made in the year that begins on the 1st day of January; and

(b) the Family Law Act deductible to be used under subparagraph ii of paragraph 3 of subsection 267.1(8) in respect of awards of damages made in the year that begins on the 1st day of January. 1993, c. 10, s. 25; 1997, c. 28, s. 115.

(2) Rules for determination -- The following rules apply to the determination of the non-pecuniary loss deductible and the Family Law Act deductible:

1. The non-pecuniary loss deductible for 1993 and 1994 is $10,000. [page46]

2. The Family Law Act deductible for 1993 and 1994 is $5,000.

3. The non-pecuniary loss deductible and the Family Law Act deductible for a year after 1994 shall be determined by adjusting the deductible for the previous year by the percentage change in the Consumer Price Index for Canada (All Items), as published by Statistics Canada under the authority of the Statistics Act (Canada), for the period from September in the year immediately preceding the previous year to September of the previous year.

4. Despite paragraph 3, if the Consumer Price Index information required by paragraph 3 to determine the deductibles for a year is not available by the 1st day of November in the previous year, or if in the Superintendent's opinion the information published by Statistics Canada does not provide a reasonable reflection of changes in consumer prices, the Superintendent may determine the deductibles in a manner that the Superintendent considers will provide a reasonable reflection of changes in consumer prices. 1993, c. 10, s. 25; 1997, c. 28, s. 115.