Schmitz et al. v. Lombard General Insurance Company of Canada

[Indexed as: Schmitz v. Lombard General Insurance Co. of Canada]

Ontario Reports

Court of Appeal for Ontario,

Hoy A.C.J.O., Cronk and Epstein JJ.A.

February 4, 2014

118 O.R. (3d) 694 | 2014 ONCA 88

Case Summary

Insurance — Automobile insurance — Underinsured motorist endorsement — Limitation period applicable to claim under underinsured motorist coverage provided by the OPCF 44R starting to run one day after demand is made for indemnification under OPCF 44R.

The plaintiff brought an action against his automobile insurer for indemnity under the underinsured motorist coverage provided by the OPCF 44R for any amounts found owing to him in an action against the tortfeasor that were in excess of the tortfeasor's coverage. The defendant pleaded that the action was [page695] commenced after the expiry of the 12-month limitation period in s. 17 of the OPCF 44R. On a motion by the plaintiff for a determination of the limitations issue, the motion judge found that the limitation period applicable to claims under the OPCF 44R started to run upon a request being made for indemnification under the OPCF 44R. The defendant appealed.

Held, the appeal should be dismissed.

The definition of discoverability set out in s. 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B applied, rather than that set out in s. 17 of the OPCF 44R. The limitation period applicable to a claim for indemnity under the OPCF 44R does not start to run when the demand for indemnity is made. Rather, default must first occur. Thus, the limitation period starts to run the day after the demand for indemnity is made. The motion judge's order should be amended accordingly. Subject to that minor amendment, the order should be affirmed.

Markel Insurance Co. of Canada v. ING Insurance Co. of Canada (2012), 109 O.R. (3d) 652, [2012] O.J. No. 1505, 2012 ONCA 218, 290 O.A.C. 75, [2012] I.L.R. I-5264, 348 D.L.R. (4th) 744, 8 C.C.L.I. (5th) 210, 214 A.C.W.S. (3d) 249, apld

Statutes referred to

Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, ss. 4, 5 [as am.], (1)(a)(ii), (iii), (iv) [as am.], 22 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 21

APPEAL from the order of M.S. James J. of the Superior Court of Justice dated August 16, 2013 on a motion for the determination of a limitations issue.

William S. Chalmers and Roseanna R. Ansell-Vaughan, for appellant.

William S. Zener, for respondents.

Endorsement BY THE COURT: --

Introduction

[1] The sole issue in this appeal is when the limitation period begins to run for an indemnity claim under the underinsured motorist coverage provided by the OPCF 44R, an optional endorsement to the standard form automobile insurance policy in Ontario. The determination of this question requires consideration of the discoverability provisions in s. 17 of the OPCF 44R and s. 5 of the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B (the "Act").

Background

[2] The facts are straightforward. [page696]

[3] On July 19, 2006, the respondent Eckhart Schmitz was hit by a car driven by Ervin Bakonyi. At the time, Mr. Schmitz had a policy of automobile insurance with the appellant, the Lombard General Insurance Company of Canada. This policy included an optional endorsement, known as the OPCF 44R. The endorsement provided underinsured motorist coverage to a maximum of $2 million, against the risk that the limits of a tortfeasor's automobile insurance may not be sufficient to indemnify Mr. Schmitz for his losses arising out of an automobile accident.

[4] In June 2007, Mr. Schmitz and members of his family sued Mr. Bakonyi for damages in excess of $1 million arising out of the injuries Mr. Schmitz sustained in the accident. In June 2010, Mr. Bakonyi's automobile insurance coverage was limited to $1 million. The respondents therefore brought this action against Lombard for indemnity under the OPCF 44R for any amounts found owing to them that were in excess of that amount.

[5] In its statement of defence, Lombard pleaded that the action was commenced after the expiry of the 12-month limitation period in s. 17 of the OPCF 44R. The respondents relied on the two-year limitation period set out in s. 4 of the Act.

[6] The respondents moved under Rule 21 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194] for a determination of the limitations issue. The questions before the motion judge were (1) whether the 12-month limitation period in s. 17 of the OPCF 44R was displaced by s. 4 of the Act, and (2) when the limitation period began to run in respect of claims for underinsurance coverage pursuant to the OPCF 44R.

[7] Relying on this court's decision in Markel Insurance Co. of Canada v. ING Insurance Co. of Canada (2012), 109 O.R. (3d) 652, [2012] O.J. No. 1505, 2012 ONCA 218, involving the commencement of the limitation period applicable to a loss transfer claim between insurers regarding statutory accident benefits, the motion judge concluded that the limitation period applicable to claims under the OPCF 44R started to run upon a request being made for indemnification under the OPCF 44R. He reasoned that this commencement date met the requirement in s. 5(1)(a)(ii)-(iii) of the Act that the loss be "caused" by the "omission" of Lombard.

[8] Lombard's appeal, advanced during oral argument, is limited to its challenge of the motion judge's ruling that the two-year limitation period under s. 4 of the Act "commences to run when the claimant makes a request for compensation provided by OPCF 44R".

[9] For the reasons that follow, subject to a minor amendment to the order, the appeal is dismissed. [page697]

Relevant Provisions of the OPCF 44R and the Act

[10] Section 17 of the OPCF 44R, the section dealing with the limitation period, provides:

17. Every action or proceeding against the insurer for recovery under this change form shall be commenced within 12 months of the date that the eligible claimant or his or her representative knew or ought to have known that the quantum of claims with respect to an insured person exceeded the minimum limits for motor vehicle liability insurance in the jurisdiction in which the accident occurred, but this requirement is not a bar to an action which is commenced within 2 years of the date of the accident.

[11] Section 14 of the OPCF 44R, one of the provisions that deals with the determination of the amount recoverable, is relevant to the issues Lombard raises. Section 14 provides that "the findings of a court with respect to issues of quantum or liability are not binding on the insurer unless the insurer was provided with a reasonable opportunity to participate in those proceedings as a party".

[12] The relevant sections of the Act relate to the basic limitation period, discoverability and agreements to vary or exclude the statutory limitation period. They are:

Basic Limitation Period

4. Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

Discovery

5(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

Agreements

22(1) A limitation period under this Act applies despite any agreement to vary or exclude it, subject only to the exceptions in subsections (2) to (6). [page698]

Exception

(2) A limitation period under this Act may be varied or excluded by an agreement made before January 1, 2004.

Analysis

[13] Lombard advances two arguments in support of its position that the limitation period started to run when the respondents knew or ought to have known that the quantum of their claims against Mr. Bakonyi exceeded $1 million. First, Lombard contends that the definition of discoverability in s. 17 of the OPCF 44R applies rather than that set out in s. 5 of the Act, notwithstanding Lombard's acknowledgment that the applicable limitation period is governed by s. 4 of the Act. Second, Lombard argues that even if s. 5 of the Act is the operative discoverability provision, on proper application of s. 5 to the unique circumstances involving claims under the OPCF 44R, the limitation period started to run when the respondents first knew or ought to have known that their claims against Mr. Bakonyi exceeded $1 million.

[14] We do not agree.

[15] With respect to its first argument, Lombard submits that s. 22 of the Act renders invalid only agreements that vary or exclude the length of the limitation period. The section makes no mention of agreements that deal with when the limitation period starts to run. It follows, argues Lombard, that the discoverability provisions in s. 17 of the OPCF 44R remain an enforceable part of the endorsement. To hold otherwise, Lombard submits, would sanction prejudice to insurers' rights to participate in the underlying action in which issues of liability and damages are determined.

[16] This argument must be rejected. As a matter of statutory interpretation, once it is acknowledged that s. 4 of the Act applies, so too does s. 5. The two provisions must be read together to determine the commencement date of the limitation period provided for under s. 4.

[17] In our view, this court's recent decision in Markel is dispositive of the issue when the s. 5 limitation period begins to run in respect of a claim under the OPCF 44R. In Markel, the court was concerned with when the two-year limitation period under the Act begins to run for a loss transfer claim made by one insurer against another for indemnification for statutory accident benefits paid to an insured. The parties in Markel accepted that the s. 4 limitation period starts to run on the day the claim is "discovered", within the meaning of s. 5 of the Act, by the first party insurer. [page699]

[18] This court agreed, observing, at para. 22, "the limitation period must be determined by interpreting 'discovered' as defined by the Act". The issue before the court, therefore, was "[w]hen does the first party insurer 'discover' a loss transfer claim against the second party insurer within the meaning of s. 5 of the [Act]"? (Markel, at para. 19).

[19] The court considered the provisions of s. 5 of the Act, in particular, s. 5(a)(ii), (iii) and (iv), quoted above, to determine when the first party insurer may be said to know that there is a loss "caused" by an "omission" of the second party insurer. Justice Sharpe, writing for a unanimous court, held [at paras. 24-27]:

Items (ii) and (iii) [of s. 5 of the Act] require that the second party insurer must have done or omitted to do something that can be said to have caused a loss. The second party insurer cannot be said to have omitted to indemnify if there was no request for indemnification. It follows that items (ii) and (iii) cannot be satisfied until the first party insurer has asserted the loss transfer claim against the second party insurer to trigger a legally enforceable claim or obligation.

Once the loss transfer claim has been asserted, when does the first party insurer know that [the] second party insurer's "omission" to pay the claim caused a loss to the first party insurer?

Once a legally valid (i.e., apart from any issue as to limitations) claim is asserted by the first party insurer's Request for Indemnification, the second party insurer is under a legal obligation to satisfy it. All the facts are present to trigger the legal obligation [on] the part of the second party insurer to indemnify the first party insurer for the loss. The situation has crystallized into [a] complete and valid legal claim that is immediately enforceable against the second party insurer. There is nothing more that must happen to create the legal obligation of the second party insurer to pay the claim.

In my view, it must follow that the first party insurer suffers a loss from the moment the second party insurer can be said to have failed to satisfy its legal obligation to satisfy the loss transfer claim. I agree with the arbitrator in Federation v. Kingsway that the first party insurer suffers a loss caused by the second party insurer's omission in failing to satisfy the claim the day after the Request for Indemnification is made.

(Emphasis added)

[20] In our view, this reasoning applies with equal force to the issue raised on this appeal. Once a legally valid claim for indemnification under the OPCF 44R is asserted, the underinsured coverage insurer is under a legal obligation to respond to it. To paraphrase and adapt Sharpe J.A.'s observations, at para. 27 of Markel, the claimant for indemnity under the OPCF 44R "suffers a loss from the moment [the insurer] can be said to have failed to satisfy its legal obligation [under the OPCF 44R]". Thus, the claimant suffers a loss "caused by" the underinsured [page700] coverage insurer's omission in failing to satisfy the claim for indemnity the day after the demand for indemnification is made.

[21] Furthermore, we do not agree with Lombard's submission that this interpretation prejudices underinsurers facing claims under the OPCF 44R. There are a number of ways in which underinsurers can protect their interests including those provided in s. 14 of the OPCF 44R and through a provision requiring the insured to provide timely notice to the insurer when he knew or ought to have known he was underinsured.

[22] Lombard's second argument is that even if s. 5 of the Act does apply, the section must be interpreted in the light of the unique circumstances of the OPCF 44R. A proper interpretation of s. 5 in this context leads to the conclusion that the limitation period concerning claims against underinsurers under the OPCF 44R starts to run when a claimant "accumulate[s] a body of evidence" that would permit the claimant "a reasonable chance" of persuading a judge that his or her claims will exceed the limits of their policy. Lombard submits that, in these circumstances, it makes no sense for a limitation period to run from the time a demand for indemnification under the OPCF 44R is made. It says that a claim for indemnification cannot be made before completion of the underlying trial, as prior to the final resolution of the issues at trial, the necessity and quantum of underinsurance will not be established. Section 14 of the OPCF 44R could operate to bar a claimant from making such a demand following trial and result in unfairness to the insured.

[23] We reject Lombard's second argument.

[24] Starting the limitation period with reference to when the demand for indemnification is made does not limit when that demand can or should be made. If, as Lombard argues, the limitation period should begin to run when the claimant knew or ought to have known that he was underinsured, then surely a claimant can, at that point, make a demand for indemnification and need not wait until the outcome of the trial is known.

[25] And, s. 14 of the OPCF 44R applies regardless of when the limitation period begins to run.

[26] Finally, as in Markel, the limitation period applicable to a claim for indemnity under the OPCF 44R does not start to run when the demand for indemnity is made. Rather, as held in Markel, default must first occur. Thus, following Markel, the limitation period starts to run the day after the demand for indemnity was made and para. 2 of the motion judge's order should be amended accordingly. [page701]

Disposition

[27] Subject to the minor amendment to the motion judge's order set out above, the appeal is dismissed with costs to the respondents in the agreed-upon amount of $10,000, including disbursements and applicable taxes.

Appeal dismissed.

End of Document