ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO: CV-12-00451697

DATE: 20121113

B E T W E E N:

Zurich Insurance Company Applicant - and - Chubb Insurance Company Respondent

Kevin S. Adams, for the Applicant
George Kanellakos , for the Respondent

HEARD : September 18, 2012

GOLDSTEIN J.:

[ 1 ] Zurich Insurance Company (“ Zurich ”) appeals from the ruling of Arbitrator Stanley Tessis that Chubb Insurance Company of Canada (“ Chubb ”) is not an insurer for the purposes of a priority dispute under Ontario’s automobile insurance regime. The crux of the Arbitrator’s ruling was that there was no nexus between Chubb and Susan Singh, an accident victim. For the reasons that follow, the application is granted and the matter is referred back to the Arbitrator.

FACTS

[ 2 ] On September 23, 2006 Ms. Singh was driving a Ford Windstar that she had rented from Wheels4Rent, a car rental agency. She had an accident and was injured. No other vehicle was involved. Ms. Singh did not contact the police.

[ 3 ] Wheels4Rent offered an optional accident policy providing coverage in the event of accidental loss of life and injury (“ the optional policy ”). The Respondent Chubb was the insurer of the optional policy. Ms. Singh declined the optional policy.

[ 4 ] After the accident, Ms. Singh applied for benefits under the optional policy. Chubb declined to provide benefits on the basis that the optional policy was not a motor vehicle policy, but rather was a commercial policy. Furthermore, Ms. Singh had declined the optional policy. Thus, according to Chubb, the statutory accident benefits scheme set up under Ontario’s Insurance Act , R.S.O. 1990, c. I.8 (“ the Act ”) did not apply because Chubb was not an “insurer” under the Act.

[ 5 ] Eventually, Ms. Singh obtained benefits from the applicant Zurich. Wheels4Rent was insured under a policy issued by Zurich. Zurich administered the claim on a “without prejudice” basis. Zurich took the position that Chubb was the first insurer under Ontario’s statutory accident benefits scheme and should have paid first. Chubb disputed the claim. Zurich and Chubb agreed to have the dispute arbitrated by Stanley C. Tessis, a very experienced and knowledgeable arbitrator, pursuant to an Arbitration Agreement under the Arbitration Act, 1991 , S.O. 1991, c. 17 (“ the Arbitration Act ”).

[ 6 ] The questions for the Arbitrator set out in the Arbitration Agreement were as follows:

1. Is Chubb an insurer for under s. 268 of the Act and Ontario Regulation 283/95 (“ the Regulation ”)?

2. If Chubb is an insurer, did it comply with the dispute settlement mechanism in the Regulation ?

3. What amounts, if any, is Chubb responsible for indemnifying Zurich?

[ 7 ] The Arbitrator determined, based on the facts agreed upon between Chubb and Zurich, that Chubb was not an insurer for the purposes of the Act and the Regulation. Accordingly, he found that Zurich was responsible for the payment of benefits to Ms. Singh. Zurich now appeals that finding.

ANALYSIS

What is the standard of review?

[ 8 ] The arbitration agreement between the parties provides for an appeal to a judge of the Superior Court of Justice on a question of law or a question of mixed fact and law. The arbitration agreement itself sets out that the standard of review on a question of law is correctness. On a question of mixed fact and law, the standard of review is reasonableness. This hierarchy accords with the case law: Lombard Canada Limited v. Royal and Sun Alliance Insurance (2008), 94 O.R. (3d) 62 (Sup.Ct.).

[ 9 ] The question of the appropriate standard of review of an arbitrator under the automobile insurance regulatory scheme has been the standard of much judicial commentary. The parties have engaged in a debate about whether the correctness standard or the reasonableness standard applies in this case. The weight of case law suggests that judges of this Court have usually come down on the side of the correctness: see Zurich Insurance Co. v. Personal Insurance Co., [2009] O.J. No. 2157 (Sup.Ct.) where D. Brown J. engaged in a helpful and detailed review of the authorities.

[ 10 ] Whether or not Chubb is an “insurer” under the Act and the Regulation turns on whether or not there was a sufficient nexus between Ms. Singh and Chubb. In a similar case where the issue was whether a sufficient nexus existed between an accident victim and an insurance company, Strathy J. adopted a standard of correctness: Lombard Canada Limited v. Royal and Sun Alliance Insurance, supra. Strathy J. also conducted a detailed review of the standard of review in the so-called nexus cases in light of the Supreme Court of Canada’s decision in Dunsmuir v. New Brunswick , 2008 SCC 9. In Dunsmuir , the Court determined that there were only two standards of review in judicial review of administrative tribunals: correctness and reasonableness. At paragraph 42 of Lombard , Strathy J. observed that a “long line of generally consistent authority” has applied the standard of correctness in cases of this nature.

[ 11 ] I adopt a standard of review of correctness, not only on the basis of precedent, but also because, as a practical matter, the parties in this case agreed on the salient facts informing the nexus issue. Realistically, the Arbitrator was only required to decide a matter of law.

Did the Arbitrator err?

[ 12 ] In order to determine whether the Arbitrator erred it is necessary to briefly consider the nature and purpose of Ontario’s scheme for regulating motor vehicle insurance and accident benefits.

[ 13 ] The automobile insurance industry in Ontario is highly regulated. The regulatory scheme set out in the Act and the Regulation is designed to ensure that victims receive the appropriate accident benefits in a timely way while the insurance companies sort out disputes about who should pay among themselves.

[ 14 ] The background and policy behind the regulatory scheme was summarized by Doherty J.A. in Ontario (Minister of Finance) v. Progressive Casualty Insurance Co. of Canada (2009), 2009 ONCA 258, 95 O.R. (3d) 219, 309 D.L.R. (4 th ) 490, [2009] O.J. No. 1216 (C.A.):

38 The Dispute Regulation targets a very specific kind of dispute that arises where insurers or the Fund have competing views as to who should bear the responsibility of paying those benefits. The injured person's entitlement to the benefits is not in issue in these disputes. The insurers and the Fund, the usual participants in a s. 268 dispute, are members of a small community of well-informed, sophisticated entities. These entities routinely interact on a variety of automobile insurance matters and regularly address the kinds of problems that give rise to s. 268 disputes. When a s. 268 dispute arises, the insurers and the Fund are not parties engaged in a one-off piece of litigation. Rather, they are stakeholders in the ongoing operation of the multi-million dollar automobile insurance industry. That industry is carefully regulated. Insurers and the Fund play a significant and ongoing role in formulating those regulations. The interest of the Fund and the insurers goes well beyond success or failure in a specific dispute. Their interest is in maintaining the ongoing effective operation of the regulatory scheme which they have played a significant role in organizing. That scheme includes the resolution of priority disputes under s. 268. As described above, the ultimate goal of s. 268 and the Dispute Regulation is to distribute the cost of paying the benefits among insurers and the Fund according to the priorities established in s. 268 and elsewhere in the Act : see, for example, s. 275 . The Fund and the insurers have a common interest in seeing that goal achieved.

[ 15 ] Section 268 of the Act deems that the benefits set out in the Statutory Accident Benefits Schedule form part of every insurance contract and sets out a priority scheme for determining who should pay the benefits. The Regulation then sets out the mechanism for determining which insurer should pay.

[ 16 ] Section 2 of the Act defines an insurer as follows:

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

[ 17 ] Section 2 of the Regulation states:

2. (1) The first insurer that receives a completed application for benefits is responsible for paying benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits under section 268 of the Act .

[ 18 ] The Regulation goes on to deal with the mechanism for resolving disputes as to who should pay first, but the threshold question for an arbitration is whether one of the insurance companies is an “insurer” for the purposes of s. 268 of the Act . If an insurance company is not an “insurer”, the scheme does not apply. If an insurance company is an “insurer”, then an arbitrator must then determine which of the insurance companies will be responsible for paying the benefits.

[ 19 ] In Kingsway General v. Ontario , 2007 ONCA 62, 84 O.R. (3d) 507 (C.A.) the question was whether the provincial Motor Vehicle Accident Fund was an “insurer” for the purposes of the dispute settlement mechanism. Laskin J.A. for the Court set out the purpose of s. 2 of the Regulation and developed a view of the “nexus” test:

[20] Insurers cannot avoid their obligation under s. 2 by claiming that another insurer should pay or that an insurance policy was cancelled shortly before the accident. If they could deny an application for accident benefits on either of these grounds, s. 2 would be rendered meaningless. Thus, arbitrators and the courts have developed a nexus test for triggering an insurer's obligation under s. 2. As long as there is some nexus -- some connection -- between the insurer receiving an application for benefits and the insured, the insurer must pay pending the determination of its obligation to do so. In addition to the arbitrator's ruling in this case, see for example Allstate Insurance Co. of Canada v. Brown (1998), 40 O.R. (3d) 610 , [1998] O.J. No. 2318 (Div. Ct.); and Ontario (Minister of Finance) v. Royal & Sun Alliance , unreported (January 2003, Arbitrator M. Guy Jones).

[21] The nature of the nexus or connection required to trigger the insurer's obligation under s. 2 will vary from case to case. Although I am inclined to agree with Arbitrator Jones in Royal & Sun Alliance, supra -- "[o]nly in the most extreme cases, where the connection with the insurers is totally arbitrary should the insurer refuse to pay" -- to address the case before us I need not be precise about the extent of the connection required. Here, the arbitrator found a significant connection, and there can be no doubt that this connection was sufficient to require Kingsway to pay Irene Legarde's accident benefits. Indeed, Kingsway's hardball tactics in refusing to pay undermine the very purpose of s. 2. The appeal court judge put it this way [at para. 22]:

In my view it makes perfect sense to require Kingsway to pay the benefits in the first instance in circumstances such as these despite the fact that it says that it is not an insurer. If an insurance company is permitted to refuse to pay benefits simply because it decides that it is not an insurer despite the existence of some connection between the company and the driver, it would undermine the purpose of the regulation -- that accident victims not be denied statutory accident benefits simply because the first insurer applied to for benefits thinks another insurer should pay.

I agree with these comments.

[ 20 ] Subsequent cases have dealt with the question of nexus. For example, In Ontario (Minister of Finance) v. Progressive Casualty Insurance Company of Canada, [2007] O.J. No. 1769 (Sup.Ct.) the accident victim’s policy with Progressive had been cancelled just prior to the accident due to non-payment of the premiums. The policy had been in force for less than two months. D. Brown J. found that this connection was sufficient to create a nexus for the purposes of s. 2 of the Regulation . In that case, D. Brown J. also referenced the decision of Arbitrator Brown in Royal & Sun Alliance , a decision relied on by Laskin J.A. in Kingsway, supra :

53 In Royal & Sun Alliance, supra , Arbitrator Jones considered a priority dispute where the only connection between the claimant and the insurer was that the police officer investigating the accident had been given by the other driver a certificate of insurance issued by Royal which had expired some four years before the accident and covered a different motor vehicle. Those facts provided a sufficient nexus in the view of the arbitrator to place an obligation on Royal to respond to an application filed with it.

[ 21 ] The Court of Appeal dismissed an appeal but did not deal with this particular finding: 2009 ONCA 258, 95 O.R. (3d) 219 (C.A.).

[ 22 ] In Lombard Canada Limited v. Royal and Sun Alliance Insurance , supra, the claimant was injured while driving a vehicle owned by someone else when he veered off the road and hit a tree. Lombard had cancelled the policy two months earlier for failure to pay the premium. The claimant had never been listed on the policy. Lombard refused the application for benefits on the grounds that it was not an insurer. Arbitrator Jones found that there was a sufficient nexus to trigger an obligation to pay on behalf of Lombard. Strathy J. upheld the finding. In doing so, he commented:

[47] The requisite "nexus" has been defined in different ways. In Allstate v. Brown, the Divisional Court spoke of a "sufficient nexus". In the case before me, the Arbitrator found that there was a "sufficient nexus" but suggested that "any nexus at all" should trigger the payment of benefits. In Kingsway General v. Ontario, Mr. Justice Laskin referred to the need for "some nexus" and suggested that the nexus would vary from case to case. Although he was inclined to the view that only in the extreme case of a "totally arbitrary" connection would a refusal be justified, he declined to be more precise.

[ 23 ] Strathy J. then analyzed the comments of Laskin J.A. in Kingsway and further stated:

[49] Mr. Justice Laskin agreed with the arbitrator's conclusion that the purpose of the legislation would be undermined if an insurer could refuse to pay benefits simply because it decides that it is not an insurer, in spite of some connection between the insurer and the injured claimant.

[50] The statutory scheme of "pay first, arbitrate later if necessary" would be frustrated if an insurer could dispute its liability at the outset, no matter how well-founded its dispute may ultimately prove to be.

[ 24 ] With those observations in mind, I turn now to the positions of the parties and the Arbitrator’s decision.

[ 25 ] Chubb argued before the Arbitrator and in this Court that because the optional policy did not specifically insure a motor vehicle, it could not be an insurer for the purposes of s. 2 of the Regulation . Chubb argued that the policy was not a “motor vehicle liability policy” as defined by the Act , and was actually a commercial policy. The Arbitrator appears to have accepted Chubb’s argument without analysis. He simply stated as follows:

“Based on the facts agreed upon by the parties, and as set out in the documentary evidence, that at no time did Chubb ever issue a motor vehicle liability policy to either Wheels4Rent or Ms. Singh, I am of the opinion that there was no nexus or connection between Chubb and Ms. Singh, such that Chubb was obligated under Regulation 283/95 to pay statutory accident benefits to Ms. Singh as a result of the September 23, 2006 accident.”

[ 26 ] To simply call the policy a commercial policy rather than a motor vehicle policy does not make it so: Reid Crowther & Partners Ltd v. Simcoe & Erie General Insurance Co., 1993 SCC 150. Section 2 of the Act defines “motor vehicle liability policy” as follows:

“motor vehicle liability policy” means a policy or part of a policy evidencing a contract insuring,

(a) the owner or driver of an automobile, or

(b) a person who is not the owner or driver thereof where the automobile is being used or operated by that person’s employee or agent or any other person on that person’s behalf,

against liability arising out of bodily injury to or the death of a person or loss or damage to property caused by an automobile or the use or operation thereof.

[ 27 ] Chubb offered the optional policy to persons renting motor vehicles from Wheels4Rent. A summary of the relevant parts of the optional policy indicates the following:

• Section I defines the policyholder as a participating rental car company or franchisee and insured persons.

• Section II.1 covers losses to the insured arising out of hazards. For the renter of the vehicle hazards are not limited to hazards encountered while driving. Passengers are only covered while in the vehicle, or alighting in or out of the vehicle.

• Section III insures drivers and passengers.

• Section IV describes the benefits to be paid to those who are injured. This section speaks of renters as “primary drivers” even if they are not driving at the time of the accident, and “secondary drivers” even if they are driving at the time of the accident. A renter receives higher benefits regardless of who is at the wheel.

[ 28 ] Wheels4Rent was very obviously a participating rental car company or franchisee as defined by the optional policy.

[ 29 ] Although the renter of a vehicle is insured against all hazards during the currency of the policy, the policy is in force during the period of the rental car lease. It was a policy specifically intended for car rental companies and their customers. The obvious intent was to provide extra insurance for renters.

[ 30 ] The insurance offered by Chubb is wider than that defined in the Act . Counsel did not refer me to any Ontario cases examining the definition of “motor vehicle liability policy” but in Alberta v. Edmonton (City) , [2009] A.J. No. 86 (Q.B.) the Court examined the identical definition in Alberta’s Insurance Act, RSA 2000, c. I-3. Burroughs J. commented:

39 The Province submits that the Commonwealth policy is not a "motor vehicle liability policy" because: a) it is a commercial general liability policy, and b) it is excess insurance. Both of these observations may be true, but they are irrelevant to the determination of whether or not the policy is a motor vehicle liability policy.

40 That the comprehensive liability policy issued to the City contains coverages in addition to motor vehicle liability coverage does not make it any less a motor vehicle liability policy. The Insurance Act definition of motor vehicle liability policy quoted in paragraph above itself contemplates that the policy might cover risks in addition to motor vehicle liability risks: "a policy or part of a policy." There is no definition of either "commercial general liability policy" or "comprehensive liability policy" in the Insurance Act . There is nothing to suggest that if either contains coverage within the definition of "motor vehicle liability policy," it cannot be recognized as being that type of insurance, whatever else it might also be.

[ 31 ] The definition itself does not act as a limiting provision. In my view, Chubb’s position would create a distinction without a difference. I have little difficulty in finding that the optional policy was a “motor vehicle liability policy” as defined by the Act .

[ 32 ] Chubb further argues that the Arbitrator was correct in finding that it is not an “insurer” because there was an insufficient nexus created by the simple fact that Wheels4Rent offered an optional policy and Ms. Singh refused it. Zurich’s position is that even though it is ultimately responsible for the payment of benefits, Chubb should have administered the claim, given notice to Zurich under the Regulation , and then either let Zurich pay, or, if Zurich contested its obligation, proceed to arbitration.

[ 33 ] In my respectful view, the Arbitrator erred by simply distinguishing the facts in the nexus cases from the facts in this case rather than determining whether Ms. Singh’s choice of Chubb was arbitrary. The Arbitrator did not apply the advice set out by Laskin J.A. in Kingsway.

[ 34 ] I think it is helpful to distinguish between the concept of remoteness and the concept of arbitrariness. The connection must not be arbitrary to establish a nexus. The connection may well be very remote. Remoteness vs. arbitrariness is also consistent with the twin policy objectives of providing benefits now and paying later, and of encouraging certainty and predictability in the dispute resolution system. Insurers should be encouraged to pay benefits immediately to victims and then determine, through the dispute settlement mechanism, which of them bears the ultimate cost. In effect, what the Arbitrator did was to apply a remoteness test rather than an arbitrariness test, and in doing so he erred. The connection between Ms. Singh and Chubb may have been remote, but it was not arbitrary. Ms. Singh rented a vehicle from Wheels4Rent. Wheels4Rent was insured by Chubb. Chubb made the optional policy available to Ms. Singh through Wheels4Rent. Although Ms. Singh did not take up the optional policy, the obvious inference that the parties agree can be drawn is that she learned of it through Wheels4Rent when she rented the vehicle.

DISPOSITION

[ 35 ] The Application is allowed and the Arbitrator’s decision is set aside. The matter is remitted back to the Arbitrator to determine the remaining issues on the priority dispute arbitration. In accordance with the prior agreement of counsel, costs in the amount of $10,000 are awarded to Zurich.

GOLDSTEIN, J.

DATE: November 13, 2012

COURT FILE NO: CV-12-00451697

DATE: 20121113

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N:

Zurich Insurance Company Applicant - and - Chubb Insurance Company Respondent

JUDGMENT
GOLDSTEIN J.

Released: November 13, 2012