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September 2013

Unraveling the Mystery of Priority Disputes

Since 1995, and the enactment of Ontario Regulation 283/95—Disputes Between Insurers (the “Regulation”), insurers have been obliged to continue payment of Statutory Accident Benefits (“SABs”) to injured persons even where entitlement to these benefits is disputed. However, priority disputes also present insurers with an opportunity to shift payment of SABs, which may end up saving a savvy insurer a significant amount of money.

Section 268(2) of the Ontario Insurance Act sets out the hierarchy of insurers obligated to pay SABs with respect to occupants of vehicles, as follows:

  1. insurer of an automobile in respect of which the claimant is an insured;
  2. insurer of the automobile in which claimant is an occupant;
  3. insurer of any other automobile involved in the subject accident;
  4. the Motor Vehicle Accident Claims Fund.

With respect to non-occupant claimants, the hierarchy is largely the same, but for the second recourse, which, for non-occupants, is the insurer of the automobile that struck the non-occupant.

Priority disputes between insurers are exactly that – insurers arguing that they are not obliged to pay SABs because there is another insurer in higher priority under s. 268(2).

How to Recognize a Priority Dispute

Priority disputes tend to arise from ambiguous policy definitions, and so any time there is some question as to whether, for example, a claimant is “Dependent” on a named insured or “a Spouse” of a named insured, an insurer should consider whether there may be another insurer with a higher priority.

Another situation wherein priority disputes frequently arise is where there is some question as to whether the claimant had “regular use of an automobile” during the course of their employment.

When a Potential Priority Dispute Arises

1. Pay the piper

Insurers are statutory obliged to adjust any accident benefits claim that they receive, and they cannot advise a claimant that they should also apply to another insurer. Where an insurer attempts to deflect an Application for Benefits, s. 2.1(7) of the Regulation provides that the deflecting first insurer shall reimburse the second insurer for any fees (legal and administrative) and disbursements that are incurred as a result of this deflection.

2. Ensure that the Application is complete

The Regulation defines “completed application” as a “completed and signed application” (emphasis added). As such, upon receipt of an Application for Benefits, an insurer should ensure that it is completely filled out and executed by the claimant.

3. Carefully consider whether the Motor Vehicle Claims Fund (the “Fund”) is involved

Pursuant to s. 3.1(1) of the Regulations, insurers must exercise a certain degree of due diligence prior to serving the Fund with a Notice. In particular, insurers are statutorily obliged to (a) complete a reasonable investigation to determine if any other insurer is liable to pay benefits in priority to the Fund, and (b) provide particulars to the Fund of the investigation, including the results of same.

4. Keep in time

For accidents prior to September 1, 2010, a first insurer must (a) give Notice, within 90 days of the receipt of a completed Application for Benefits, to every insurer that it argues is required to pay1, and (b) commence an Arbitration by sending a Notice of Arbitration to the second insurer no later than one year after the day the insurer paying benefits serves its Notice.

These timelines continue to apply for motor vehicle accidents that occur after September 1, 2010, along with the following additional timelines:

  • A Notice of Arbitration must include a proposed arbitrator. If the insurer that receives the Notice of Arbitration does not respond with 30 days, it is deemed to have acquiesced to the jurisdiction of the arbitrator proposed.
  • First pre-arbitration hearing is to take place no later than 120 days after the appointment of the arbitrator.
  • Arbitration hearing must be completed within two years after the commencement of the arbitration.

Conclusion

Although the arbitration process can be an arduous one, a favourable result at the arbitration hearing can mean that an insurer can shift payment of a claimant’s SABs to another insurer, thus saving the insurer a significant amount of money. As such, insurers should always be on lookout for the indicia of a priority dispute, and consult legal counsel when in doubt.


1 However, the 90 day timeline does not apply where a second insurer believes that a third insurer may be obliged to pay SABs


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