EVELYN
TEN CATE
After years of confusion, the
Ontario Court of Appeal has clarified the limitation period with
respect to loss transfer claims.
In Ontario, loss transfer is a
mechanism by which, under certain circumstances, automobile
insurers who pay no-fault benefits
(the first party insurer) may be
reimbursed by another insurer
(the second party insurer) for all or
part of a claim.
These loss transfer claims,
brought under s. 275 of the
Insurance Act, are fault-based claims
available as between insurers for
different classes of vehicles as
defined by regulation.
Where a motorcycle, motorized snow vehicle, or heavy commercial vehicle is involved, and
no-fault benefits are paid, the
insurer that pays the benefits is
entitled to transfer the bulk of the
loss to the insurer of the tortfea-sor. This loss transfer scheme was
introduced as part of the no-fault
scheme to balance the cost of no-fault benefits between different
classes of vehicles.
Prior to the Limitations Act,
2002, there was a six-year rolling
limitation period — see State
Farm v. Dominion (2005), 79
O.R. (3d) 78 (C.A.). In other
words, with the payment of each
accident benefit payment, the limitation rolled forward.
All of that changed with the
introduction of the Limitations
Act, 2002, for claims arising on or
after Jan. 1, 2004. Under the new
legislation, the limitation is two
years from the date the claim is
discovered pursuant to s. 5(1)(a).
However, arbitrators at the
Financial Services Commission
of Ontario (FSCO) had difficulty
interpreting the “discoverability
principle” as it applied to loss
transfer applications.
The FSCO bulletin on the topic
stated: “The legislation does not
directly address when payments
by second party insurers are due or
the consequences of slow pay-
ment. It was expected that insur-
ers would act in a business-like
manner and pay each request for
indemnification promptly.”
Where the two insurers cannot
agree on a loss transfer claim,
s. 275( 4) of the Insurance Act pro-
vides for arbitration proceedings
to be resolved through the Arbi-
tration Act, 1991.
The issue came to the forefront
in two cases that were argued
together at the Court of Appeal:
Federation v. Kingsway and ING
v. Markel (cited as Markel Insurance Co. of Canada v. ING Insurance Company of Canada, 2012
ONCA 218).
In Federation v. Kingsway, a
car insured by Federation was
involved in a collision with a trac-
tor-trailer insured by Kingsway.
The driver of the car received no-
fault benefits from Federation.
Federation then submitted a
request for payment to Kingsway
by way of loss transfer. However,
Kingsway either partly paid or did
not pay five of Federation’s
requests between April, 2004, and
May, 2006. On Nov. 5, 2008, Fed-
eration initiated arbitration
against Kingsway, which resisted
the application based upon the
missed limitation period under
the Limitations Act, 2002.
is “a certain amount of artificiality”
in the use of the word “discovered”
in the context of these cases. A first
party insurer will be fully aware of
the claim for loss transfer well
before it can be said that it “
discovered” the claim within the meaning of s. 5(1)(a).
However, the second party
insurer cannot be said to have
omitted to indemnify if there was
no request for indemnification.
Once the request is received, the
second party insurer is under a
legal obligation to pay it. Each
day that the first party insurer is
out of pocket for the no-fault payments made to its insured, it suffers a loss.
As the Court of Appeal stated,
at that point, “all the facts are
present to trigger the legal obliga-
tion 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 obliga-
tion of the second party insurer to
pay the claim.”
The court therefore concluded
that for any loss transfer claims
arising after Jan. 1, 2004, the first
party insurer has two years from
the date it sends a loss transfer
request for indemnification to the
second party insurer to commence
an arbitration.
Loss transfer claims are often
large because of the nature of the
vehicles involved and the injuries
often associated with those
vehicles. Counsel should advise
their clients to diarize carefully the
limitation period once the request
for indemnification is served. n
Evelyn ten Cate is a partner at
Foster Townsend Graham & Associates LLP in London, Ont., practising in both insurance defence
and plaintiff personal injury.
Two-tiered insurance approach raises concerns
Genetic
Continued From Page 10
The two-tiered approach recognizes the importance of insurance as a social good and promotes access to basic coverage
regardless of one’s genetic
makeup. It also entails the socialization of risks, as everyone in the
insurance pool bears some of the
burden of those otherwise characterized as substandard risks.
This reflects a shared sense of
social responsibility consistent
with Rawls’ conception of the
social contract. It strikes a balance
between insurance as a social
good and the commercial nature
of insurance, actuarial fairness
and the overall viability of the
insurance system. Policyholders
are likely to support access to
basic insurance without reference
to factors affecting insurability
including genetic characteristics if
they don’t know who may be
adversely affected by such factors,
since potentially anyone may be
classified as substandard risk
based on their genetic makeup.
This may be justifiable given the
increasing number of conditions
believed to have genetic origins.
Elizabeth Adjin-Tettey is a professor and associate dean of
administration and research at
the University of Victoria’s Faculty of Law.
