COURT FILE AND PARTIES

COURT FILE NO.: CV-13-473757

DATE: 20140212

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Co-operators General Insurance Company, Applicant/Respondent

AND:

Her Majesty the Queen in Right of Ontario as represented by the Minister of Finance (Motor Vehicle Accident Claims Fund), Respondent/Appellant

BEFORE: Pollak J.

COUNSEL: Stan J. Sokol, for the Appellant

Daniel Strigberger, for the Respondent

HEARD: January 17, 2014

ENDORSEMENT

[1] Section 268(1) of the Insurance Act, R.S.O. 1990, c. I.8 (the “Act”) provides that all motor vehicle liability policies are deemed to provide for certain statutory accident benefits. Sub-section 268(2) sets out priority rules for determining who is liable to pay the statutory benefits. The issue on this appeal is the interpretation of Regulation 283/95 s. 3 which states:

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. O. Reg. 283/95, s. 3 (1).

(1.1) If the dispute relates to an accident that occurred on or after September 1, 2010, a notice required under subsection (1) must also be given to the Fund if the insurer claims the Fund is required to pay benefits. O. Reg. 38/10, s. 4.

(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. O. Reg. 283/95, s. 3 (2).

(2.1) If the dispute relates to an accident that occurred on or after September 1, 2010, the Fund may give a notice under subsection (1) after the 90-day period and is not required to comply with subsection (2). O. Reg. 38/10, s. 4.

(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. O. Reg. 283/95, s. 3 (3).

3.1 (1) This section applies to disputes relating to accidents occurring on or after September 1, 2010. O. Reg. 38/10, s. 5.

(2) Before giving a notice to the Fund under section 3, an insurer must,

(a) complete a reasonable investigation to determine if any other insurer or insurers are liable to pay benefits in priority to the Fund; and

(b) provide particulars to the Fund of the investigation and the results of the investigation. O. Reg. 38/10, s. 5. [emphasis added]

[2] In order to resolve a dispute with respect to liability between insurers, Co-operators General Insurance Company (“Co-operators”) commenced an arbitration against the Her Majesty the Queen in Right of Ontario (“HMQ”) as represented by the Minister of Finance (Motor Vehicle Accident Claims Fund) (the “Fund”). At arbitration, the Fund raised a preliminary issue, submitting it had no obligation to pay benefits because other insurers, who had not been put on notice, had higher priority under section 268 of the Act. It was argued that TTC Insurance potentially had priority over the Fund for the relevant benefit claims, and that as Co-operators had not given it a priority dispute notice, Co-operators was in breach of s. 3(1) of the Regulation. The Fund submitted at arbitration therefore that it does not have to respond to Co-operators’ priority dispute.

[3] The Fund did not give TTC Insurance a priority dispute notice.

[4] This is an appeal of the preliminary arbitration award dealing with the Fund’s submission that Co-operators priority dispute against the Fund should be dismissed. The arbitrator rejected the Fund’s submission and held that Co-operators had complied with section 3(1) of the Regulation by giving the Fund a priority dispute notice.

[5] The Fund challenges the decision of the arbitrator on the grounds that the arbitrator erred in her interpretation and understanding of the law regarding sections 3 and 10 of the Regulation and in her application of this law to the facts of this case.

[6] Co-operators submits that the arbitrator’s decision was both reasonable and correct. Co-operators position is that it was not in breach of the Regulation. It also submits that as the Fund is in breach of its own obligation to give notice to TTC Insurance pursuant to s. 10 of the Regulation, it cannot dispute priority over Co-operators by alleging that another insurer, which it did not give notice to, has a higher priority.

[7] The arbitrator rejected the Fund’s argument that Co-operators was in breach of the Regulation for its failure to give notice to TTC Insurance. The Fund’s submission that Co-operators dispute should be dismissed on that basis was therefore rejected. It is not necessary in this Appeal to deal with Co-operators and additional argument with respect to the Fund’s obligation to give notice pursuant to s. 10 of the Regulation.

[8] The thrust of the Fund’s objections is that the Legislature cannot have intended the first insurer to have a discretion as to which insurer is to be served with the notice of dispute. It submits that that interpretation is not consistent with the role and function of the Fund, who is the “payor of last resort”. If such were the case, a first insurer, such as Co-operators, who denies liability to pay accident benefits, can avoid the expense of conducting an investigation to find a higher priority insurer, by giving notice to the Fund. Co-operators also therefore avoids being found liable for payment due to its failure to qualify for the saving provisions of section 3(2). That would render the provision of s. 3(2) of the Regulation meaningless. The effect of the arbitrator’s decision is to place the burden and cost of conducting a proper and thorough investigation on the Fund.

[9] The Regulation was amended on September 1, 2010 after the claim in consideration on appeal. That amendment includes addition of the following provision:

3.1 (1) This section applies to disputes relating to accidents occurring on or after September 1, 2010. O. Reg. 38/10, s. 5.

(2) Before giving a notice to the Fund under section 3, an insurer must,

(a) complete a reasonable investigation to determine if any other insurer or insurers are liable to pay benefits in priority to the Fund; and

(b) provide particulars to the Fund of the investigation and the results of the investigation. O. Reg. 38/10, s. 5. [emphasis added]

The Fund submits that this Court should not consider the wording of the amendment to determine the correctness of the arbitrator’s decision. In this case, the arbitrator and both parties based their interpretation of the Regulation on the wording of the Regulation in existence at the time of the accident.

[10] With respect to the interpretation of s. 3 of the Regulation, the key phrase is “who it claims is required to pay”. If Co-operators claims that only one other insurer has priority, it needs to give notice to that insurer only. It has no obligation to give a priority dispute notice to every insurer that might have priority over it.

[11] Both parties agree that the standard of review of the arbitrator’s decision is one of correctness as the issue in this case is a legal interpretation of the Regulation.

[12] The issue is whether the Regulation requires a first insurer to conduct a reasonable investigation in order to determine if another insurer is in priority and to give notice of a dispute to that insurer, or whether a first insurer, who denies coverage, can give a notice of dispute to the Fund without conducting a reasonable investigation and giving a notice of dispute to any other insurer in priority to it.

[13] The Fund submits s. 3(1) and (2) of the Regulation must be construed “conjunctively and harmoniously to make the provision meaningful”, within the context of the Regulation as a whole and within the scheme and object of the Act. The Fund submits that the obligation of Co-operators to conduct a reasonable investigation comes from a reading of these two sections. Section 3(2) obliges the first insurer to conduct a reasonable investigation within 90 days of receipt of a completed application in order to invoke the benefit of this saving provision. By doing so, the first insurer is thereby permitted to give valid notice beyond the 90 day period. The inference to be drawn from s. 3(2) is that the first insurer is obliged to conduct a reasonable investigation within 90 days of receipt of the completed application. [emphasis added]

[14] The Fund further submits that the phrase “every insurer who it claims is required to pay under that section” within s. 3 of the Regulation, was intended to ensure that the first insurer gave notice to those insurers who apparently had a “nexus” with the claim for accident benefits. The purpose of the words “who it claims” within this phrase is to discourage the first insurer from indiscriminately giving notice to any insurer, or the Fund, if there was no viable “link” or nexus with the claim for accident benefits. [emphasis added]

[15] HMQ submits that before Co-operators can deny coverage can validly give the Fund notice of dispute it must conduct a reasonable investigation to determine if any other insurer has priority over the Fund. If that investigation shows that there is no other insurer in higher priority to the Fund, then the “nexus” requirement in s. 2 and 3 of the Regulation having not been met, notice may then properly be given to the Fund.

[16] Co-operators did not conduct any investigation with respect to the involvement of the TTC and admitted that the TTC streetcar was “involved in the incident” within the meaning under s. 268(2) 2 (iii) of the Act.

[17] The arbitrator held that the inclusion of the words “who it claims” in s. (3) of the Regulation was meant to give the first insurer the right to choose which insurer, allegedly in higher priority, it gives notice to.

[18] The Fund argues that such finding is not consistent with the role and function of the Fund, who is the “payor of last resort”. It would undermine the intent and purpose of the Regulation and section 268 of the Insurance Act, if the first insurer, who denies coverage, could serve notice on the Fund and thereby avoid conducting a reasonable investigation into priority and also be absolved from giving notice to the insurer that may be liable in priority. The Fund submits that the Arbitrator has effectively redesigned the regulatory scheme.

[19] Co-operators submits that it has satisfied its s. 3 obligations under the Regulation.

[20] With respect to the interpretation of s. 3 of the Regulation, Co-operators submits that the key phrase is “who it claims” has priority. If Co-operators claims that only one other insurer has priority, it needs to give notice to that insurer only. It has no obligation to give a priority dispute notice to every insurer that might have priority over it.

[21] It is also submitted that the phrase “every insurer who it claims” does not create an obligation to conduct reasonable investigations before giving a priority dispute notice. The purpose of s. 3 is to ensure that responding insurers get timely notice of a priority dispute against them. They can then make appropriate decisions with respect to conducting investigations, establishing reserves, and maintaining records.

[22] Co-operators therefore argues that the Regulation does not create a statutory obligation on the first insurer to conduct a reasonable investigation before it can give another insurer a priority dispute notice.

[23] Co-operators further submits that the word “every” protects the insurers who do not receive a priority dispute notice within the 90-day window from liability.

[24] The Arbitrator discussed the merits of the Fund’s argument that the practical effect of Co-operators’ actions was to “dump” responsibility to investigate on the Fund as follows:

“… and “dump” claims on the Fund. … Insurers should never forego a proper investigation that may identify other priority insurers simply because they think there is an argument to be made that the Fund is responsible to pay benefits under section 268(2) of the Act. The Fund should be the “payor of last resort”, and insurers should not lazily direct DBI Notices to the Fund.

However, I am not persuaded that this is what occurred in this case. … If this accident had occurred on or after September 1, 2010, Co-operators’ may not have met the onus placed on insurers by section 3.1 of Regulation 283/95, which requires that a reasonable investigation be completed in order to determine whether any insurers are liable to pay benefits in priority to the Fund. I make no finding in this regard. As the incident took place in June 2010, the amendments to the regulation do not apply.” [emphasis added]

[25] I do not accept the Fund’s submission that the words of the Regulation impose a duty to investigate on Co-operators. There is no jurisprudence, on point, to support the Fund’s interpretation. The jurisprudence relied on by the Fund deals with the question of whether the time for giving notice to another insurer should be extended pursuant to s. 3(2) of the Regulation. It is not, in my view, reasonable to suggest that the legislature imposed a duty on the insurer to conduct an investigation through inference, as is suggested by the Fund. The Fund’s argument is not supported by and violates the basic rules of statutory interpretation. Section 3(2) specifically imposes such a duty to investigate in a specific situation - namely to determine whether more time should be granted to an insurer to give notice to another insurer. This view is consistent with the arbitrator’s findings. With respect to the issue of whether the arbitrator erred in law in interpreting the regulation and statute I agree with the arbitrator’s interpretation. I do not accept that the arbitrator erred as alleged by the Fund in this Appeal.

[26] The Appeal is therefore dismissed.

Costs

[27] If the parties are unable to agree on the issue of costs, they may make brief written submissions to me. As the rules provide, the submissions will be no longer than three pages in length. They will include a bill of costs, together with information on each lawyers’ year of call and actual billing rate. If there are any offers of settlement that bear on the issue of costs, these will be included as well. The Respondent’s costs submissions will be delivered within ten days of the date of release of these reasons, with the Appellant’s to be delivered within ten days of receiving the Respondent’s costs submissions.

Pollak J.

Date: February 12, 2014