Insurance coverage for injuries caused by at-fault uninsured, inadequately insured and unidentified motorists

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November 10, 2011

Presented at McCague Borlack LLP's Transportation Law Practice Group Seminar

The Uninsured / Unidentified Motorist—S. 265 of the Insurance Act

In Ontario an injured person may commence a tort claim against an at fault-motorist, subject to the statutory threshold and deductible. In the normal course the at-fault motorist's own insurance company will defend him or her under the third party liability provisions of the policy.

The statutory minimum limit for third party liability in Ontario is $200,000 but most policies typically have in place at least $1,000,000. This ensures that in the large majority of cases there are adequate policy limits in place to ensure that injured parties are made whole, even where the at fault motorist himself may be impecunious.

However, there are scenarios where an at-fault party has no insurance or may be inadequately insured. Further, where an unidentified motorist is at-fault (as in the case of a hit-and-run) there may be no practical means of securing compensation for an injury as the at-fault party and his insurer may never be identified.

The system in Ontario has two mechanisms for dealing with such scenarios. The first layer of protection is s. 265 of the Insurance Act. By virtue of this section, all policies have in place coverage for injuries caused by uninsured and unidentified motorists. This is a mandatory form of coverage. It is not possible to purchase an automobile insurance policy in Ontario without this form of protection. Further, U.S. insurers that have filed a Power of Attorney and Undertaking with the superintendent of insurance in British Columbia to be bound by the Ontario automobile insurance regime, are also required to furnish this type of coverage to their insureds while they are operating motor vehicles within Ontario.

In the event that a person is injured in a motor vehicle accident involving an at-fault motorist who is uninsured or unidentified, the injured party may commence an action against his own insurance company claiming compensation under s. 265. In such an action, the insurance company essentially steps into the shoes of the uninsured or unidentified motorist. The injured party is obligated to prove liability on a balance of probabilities, and any award may be subject to contributory negligence. The usual rules applicable in any motor vehicle accident case, such as the threshold, statutory deductible and deductibility of collateral benefits are in effect.

There are two key limitations on uninsured coverage provided in s. 265. The first is that it is subject to a maximum limit of $200,000. In no circumstance will an insurer be liable to pay more than the statutory maximum of $200,000.

The second key limitation is found at s. 2(1)(c) of Regulation 676 to the Insurance Act. This section states that the insurer shall not be liable to make a payment under s. 265 where the insured "is entitled to recover money under the third party liability section of a motor vehicle liability policy".

...the 1% rule... if an insured is injured in a mva involving an at-fault motorist with $200,000 in third party liability limits, and this motorist is found to be at least 1% responsible for the accident, then the insured's entitlement ... is nil...

This has come to be known as the 1% rule. In essence, s. 265 coverage is limited to situations where no other motor vehicle liability policies are available to compensate the insured.¹

For example, if an insured is injured in a motor vehicle accident involving an at-fault motorist with $200,000 in third party liability limits, and this motorist is found to be at least 1% responsible for the accident, then the insured's entitlement to claim under s. 265 of the Insurance Act is nil, even if the at-fault party's limits are inadequate to compensate the insured and an unidentified or uninsured motorist's fault caused or contributed substantially to the injury. In this scenario, if the insured's damages were $400,000, it would make no difference if the at-fault motorist only had available $200,000 to compensate the insured—the insurer would have no obligation to pay anything under s. 265 so long as the insured was entitled to collect a single dollar from the insurer of an at-fault motorist.

Thus we see that s. 265 is designed to compensate for injuries caused by uninsured motorists or by unidentified motorists. It is not, however, a form of coverage for inadequately insured motorists. This type of coverage is of no assistance where there are at-fault parties with valid and collectible motor vehicle insurance policies, even where those policies are inadequate to cover the insured's actual damages.

The Inadequately Insured Motorist—OPCF 44R Family Protection Coverage

The second type of insurance available in Ontario is the OPCF 44R—Family Protection Coverage. Unlike s. 265 the OPCF 44R is not mandatory. Rather, it is an optional form of coverage purchased by the insured as an endorsement to the policy of motor vehicle insurance.

The OPCF 44R is designed to take over where s. 265 coverage leaves off. The face value of this endorsement, typically $1,000,000, determines the amount of available coverage. This coverage is calculated by deducting the maximum available coverage under motor vehicle liability insurance policies belonging to at fault drivers from the face value of the OPCF 44R.²

For example, if an insured is injured by an at-fault party with third party liability limits of $200,000, where the face value of the OPCF 44R is $1,000,000, the maximum entitlement under this endorsement would be $800,000. If the third party liability limits of the at-fault motorist are $1,000,000 then the entitlement under the OPCF 44R would be $0, as $1,000,000 - $1,000,000 is of course $0.

The OPCF 44R is considered excess to any other valid motor vehicle policy. So if the limits of the at-fault motorist's policy are $200,000 and the OPCF 44R has a face value of $1,000,000, the at-fault motorist's insurer would pay the first $200,000 of the claim and the OPCF 44R insurer would cover whatever is left over, up to a maximum of $800,000.

The OPCF 44R does not stack with the $200,000 available under s. 265, so if the insured is injured by an at-fault uninsured motorist and no motor vehicle liability policies are available to pay the claim, then the maximum entitlement under the OPCF 44R would factor in the $200,000 available under s. 265 as if it were another motor vehicle liability policy, and accordingly the aggregate limit available under both forms of coverage would be $1,000,000.³

The OPCF 44R provides coverage to any "eligible claimant". An "eligible claimant" is defined as an "insured person" or any other person with a derivative cause of action related to injuries suffered from an "insured person" (such as FLA claimants). The "insured person" is defined as the "named insured" or the spouse / dependant relative of the named insured. If the named insured is a corporation or sole proprietorship then there are provisions covering employees and other related individuals. It is important to note that only individuals that meet the above criteria qualify as "eligible claimants". Accordingly, while a passenger who is the husband of the named insured may advance a claim under the OPCF 44R, a mere boyfriend or close friend would not have this right.⁴

In the case of unidentified motorist coverage, the OPCF 44R requires the insured to corroborate the existence of an at-fault unidentified motorist with "other material evidence". This must take the form of either independent witness evidence from someone other than a spouse or dependant relative⁵ or physical evidence indicating the involvement of an unidentified motorist.

The limitation period for issuing a claim under the OPCF 44R is 12 months from the date the claimant knew or ought to have known that the quantum of claims exceeded the minimum limits in the jurisdiction,⁶

¹Not just any policy of insurance will qualify as a "motor vehicle liability policy" in this context. For example, a municipality accused of failing to plough a roadway during a snow storm may take the position that the policy of insurance responding to the loss is not a "motor vehicle liability policy". Accordingly, if there is a claim against an insurer under s. 265 with respect to an at-fault unidentified or uninsured motorist, the municipality could argue that the insurer is liable to contribute up to $200,000 even if the municipality has exposure for the same loss. A bar or tavern in a commercial host case may make a similar argument that the 1% rule would not apply to its insurance policy.

² Motor vehicle liability insurance is, once again, a narrowly defined term of art. For example, the Court of Appeal in Heuvelman v. White found that the Personal Liability Umbrella Policy (PLUP) in use by some insurers does not qualify as "motor vehicle liability insurance". Thus, if an at-fault insured has $200,000 in primary coverage and $800,000 in coverage under a PLUP, the PLUP coverage is not factored into the calculation of entitlement under the OPCF 44R. In the latter case, the maximum limit of the OPCF 44R would be $800,000.

Further, as confirmed by the Court of Appeal in the recent Maccaroni v. Kelly decision, in cases where an at-fault defendant's insurer is taking an off-coverage position and seeking to reduce the liability limits to the statutory minimum of $200,000, the OPCF 44R insurer may argue against the defendant insurer's coverage position. Indeed, in that case the plaintiff and defendant insurer settled for $200,000 even though the policy limits were $1,000,000. The court of appeal concluded that this settlement could not bind the OPCF 44R insurer for the purposes of calculating the maximum entitlement under the OPCF 44R as there had been no legal determination of the coverage issue. Whether or not the limits were properly $1,000,000 or reduced "by operation of law" to $200,000 was an issue for trial.

³ While the OPCF 44R expressly precludes stacking with s. 265 coverage where the insured is injured by an uninsured motorist, there is some ambiguity in the OPCF 44R on the question of whether or not the two forms of coverage are stackable where the injury is caused by an unidentified motorist. There appears to have been an oversight or omission in the drafting of the OPCF 44R which does not seem to extend the no-stacking rule to unidentified motorist coverage. This may have to do with the fact that coverage for unidentified motorists is a more recent addition introduced only in 1998 and the wording of the endorsement may not have been properly updated.

In any event, there has been no case law commenting on this specific point, but it may be open to a party injured by an unidentified motorist to argue that the maximum entitlement under the OPCF 44R should be $1,000,000 even where $200,000 is available under s. 265. In this case the aggregate amount available under both forms of coverage could be as high as $1,200,000.

⁴ As the Court of Appeal determined in Schneider v. Maahs, unlike previous incarnations of the Family Protection Coverage, the OPCF 44R coverage follows the named insured and his / her family, not the vehicle itself. This form of coverage is therefore portable and may be invoked even where the insured are passengers in a stranger's motor vehicle. However, only the named insured and defined family members / dependant relatives are covered.

⁵ There has been some controversy over the definition of "independent witness" in this context. For example, if a driver and his girlfriend who is a passenger both testify to the involvement of an unidentified motorist, can the two of them point to one another as "independent witness" evidence for the purpose of advancing their respective tort claims? This very scenario occurred in Pepe v. State Farm Mutual Automobile Insurance Co. and the court sided with the insured and his girlfriend, finding that any witness will qualify provided he/she is not a spouse or dependant relative.

⁶ In Sandu v. Driver the court clarified that the relevant time of discovery for the purposes of the running of the limitation period is when the insured knew or ought to have known that the claims would exceed $200,000, as opposed to the damages. Thus if the insured claims more than the statutory limits of $200,000, the one year limitation period begins to run from that date, even if it is not known at that time that the actual damages will exceed $200,000.

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