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November 10, 2011

Recent Developments in Loss Transfer:

The Ontario Court of Appeal's Decision in
Primmum Insurance Company v. Allstate Insurance Company

 

Introduction

In May the Supreme Court of Canada dismissed the application for leave to appeal in Primmum Insurance Company v. Allstate Insurance Company.1 doing so it left standing the Ontario Court of Appeal decision confirming that the loss transfer provisions of the Ontario's Insurance Act will apply to all insurers, who are licensed to sell insurance in Ontario, regardless of where the policy was issued.

The Factual Background

An Ontario resident was injured in a car accident while driving in North Carolina. He was insured by Primmum Insurance Company, an Ontario insurer. Primmum paid statutory accident benefits as required by its policy. Primmum sought to recover what it paid in accident benefits from the insurer for the at-fault driver pursuant to the loss transfer provisions of Ontario's Insurance Act.2

The at-fault driver was insured by Allstate, an insurer headquartered in Illinois, under a policy issued in North Carolina. In addition to carrying on business in the United States, Allstate is also licensed to sell insurance, including automobile insurance, in Ontario. Allstate maintains its Ontario head office in Markham.

Loss transfer is a scheme whereby automobile insurers, who pay no-fault accident benefits, may be reimbursed by the insurer of a motor vehicle for all or part of a claim where their insured is found to be partly or wholly at fault. The second party insurer is entitled to dispute the reasonableness of payments by the first party insurer. When disputes occur over reimbursement under the loss transfer provisions, the Insurance Act stipulates that an arbitrator must be appointed to address the dispute.

Allstate refused to reimburse Primmum for the accident benefits payments. Primmum served Allstate with a Notice to Participate and a Demand for Arbitration. It also served a Notice to Submit to Arbitration. Allstate refused to comply with Primmum's requests, arguing that it was not an Ontario insurer as defined by the Insurance Act and denied that the loss transfer provisions applied to it. Allstate relied on the fact that the accident did not occur in Ontario and stated that it should not be subject to Ontario law as the policy in question was issued by a U.S. insurer with lower maximum limits and without statutory benefits.

Primmum applied to the Superior Court of Justice for a determination of whether the loss transfer scheme was applicable and if so, whether an arbitrator should be appointed. The Court's analysis turned on whether Allstate was an “insurer” according to section 1 of the Insurance Act.

The Initial Decision: Allstate must arbitrate:

At the trial-level, Justice Cameron held in favour of Primmum and ordered that an arbitrator be appointed. He held that Allstate was an insurer under s. 1 of the Insurance Act and could be subjected to a statutory cause of action in Ontario even though the accident occurred in North Carolina.

Justice Cameron's decision hinged on the fact that Allstate was licensed to sell automobile insurance in Ontario and that it was registered with a Chief Agent in Markham. Allstate's argument that Ontario law should not apply due to the fact that the policy was issued in the U.S. and had different coverages than those policies issued in Ontario was not persuasive. Justice Cameron stated that if Allstate did not want to be identified as an Ontario insurer and made subject to the loss transfer scheme, it should de-register as an Ontario licensed insurer (or incorporate a subsidiary to sell insurance in North Carolina).

In reaching his decision, Justice Cameron relied on the decision of the Supreme Court of Canada in Unifund Insurance Company of Canada v. Insurance Company of British Columbia. In that case, an Ontario-insured driver was injured in British Columbia. The at-fault driver was insured by a British Columbia insurer, ICBC, who had signed a Power of Attorney and Undertaking (“PAU”) but was not an Ontario licensed insurer. Unifund applied to the Court to have an arbitrator appointed, arguing that the loss transfer scheme applied. Unifund's application was rejected. Binnie J. of the Supreme Court held that the loss transfer scheme did not apply because ICBC was not an Ontario licensed insurer. He went on to state that if ICBC were an Ontario licensed insurer, it would be required to arbitrate Unifund's claim.

Justice Cameron ordered that Allstate was required to arbitrate Primmum's claim. Allstate appealed.

The Court of Appeal Decision: Allstate still must arbitrate:

In a brief decision, a unanimous three-judge panel of the Ontario Court of Appeal dismissed Allstate's appeal. They relied on the principle from the Unifund case discussed above and agreed that Allstate was an Ontario insurer for the purposes of the Insurance Act and therefore was required to arbitrate any dispute.

The Supreme Court of Canada: No need to hear appeal:

As previously mentioned, leave to appeal to the Supreme Court of Canada was dismissed with costs on May 19, 2011.

Discussion:

While the Primmum decision may appear to extend Ontario courts' power over extraterritorial insurers, it merely affirms a principle that had been alluded to previously by the courts. In fact the comments of Justice Binnie of the Supreme Court in Unifund anticipated a case like Primmum and guided the Court's decision.

The implications of the Primmum case are threefold.

  1. The loss transfer provisions of Ontario's Insurance Act have been expanded, at least geographically, in that they will apply where an insurer is licensed to sell automobile insurance in Ontario, even if the accident occurred outside of Ontario. This will be true even if the insurer's Ontario branch had no involvement in issuing the policy or even if the at-fault driver's policy did not have accident benefits coverage.

  2. Extra-territorial insurers who have filed PAU's in Ontario but are not Ontario-licensed insurers are not impacted by the Primmum decision. In the case of Gore Mutual Insurance Co. v. John Deere Insurance Company,3 Justice Hoy of the Ontario Superior Court of Justice confirmed that insurers not licensed to sell insurance in Ontario will not be bound by the loss transfer provisions of the Insurance Act even if they filed a PAU in Ontario. This principle has not been changed by Primmum.

  3. The only option available to those extraterritorial insurers who also sell insurance in Ontario seeking to avoid the loss transfer provisions is to deregister as an Ontario-licensed insurer (or specifically re-configure their corporate structure so as not the Ontario insurer is unique to Ontario).

The Primmum decision should not been seen as extra-territorial exercise of Ontario jurisdiction. As Justice Cameron noted in his decision, Allstate can be made subject to the statutory cause of action in Ontario even though the accident occurred in North Carolina because it was a case of enforced arbitration of a statutory cause of action between two Ontario insurers. In effect, by deciding to do insurance business in Ontario, both insurers agreed that should they have a disagreement over the loss transfer provisions then it would be arbitrated.  


1 (2010), ONCA 756 (Ont. C.A.).

2 Incidentally, Primmum's injured driver commenced a tort action in North Carolina against the at-fault driver, which eventually settled.

3 2008 CanLII 32318 (Ont. S.C.).


 

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