In a decision released on April 15, 2015, the Ontario Superior Court of Justice addressed the impact of a recent amendment to the Insurance Act for the first time. The amendment provides that the 5% prejudgment interest rate for non-pecuniary losses in actions arising from motor vehicle accidents no longer applies. Rather, prejudgment interest for non-pecuniary losses is to be calculated using the rate applicable to pecuniary losses. The amendment came into force on January 1, 2015, and the Court has now held that the new rates apply retroactively.
In Cirillo v. Rizzo, the plaintiff sought damages for injuries sustained on October 1, 2005 when he was hit by a motor vehicle operated by the defendant. He served the Statement of Claim on January 29, 2007. On March 24, 2014, the defendant made an offer to settle for $50,000 for all claims, plus prejudgment interest. On January 26, 2015, some three weeks after the amendment to the Insurance Act came into force, the plaintiff accepted the offer to settle. The parties agreed that the $50,000 represented non-pecuniary losses.
The plaintiff moved for judgment. The issue in the motion was what rate should be used for calculating prejudgment interest. The plaintiff argued that the amendment to the Insurance Act did not have retroactive effect, and accordingly prejudgment interest should be calculated using a rate of 5%. The defendant argued that the correct prejudgment interest rate was 4.5%, the prejudgment interest rate for pecuniary losses as set out in the Courts of Justice Act.
The Court held that, as the amendment addresses the manner in which prejudgment interest is calculated, it is a procedural amendment and would apply retroactively to motor vehicle accidents which occurred before January 1, 2015. Therefore, the correct prejudgment interest rate was 4.5%.
In Cirillo v. Rizzo, the difference between the two potential prejudgment interest rates was only 0.5%. In actions arising from more recent motor vehicle accidents, the impact of this amendment could be much greater. For instance, in any motor vehicle accident claim commenced on or after April 2009, the prejudgment interest rate would be 1.3% or less. This could potentially represent a significant reduction in the amount paid for prejudgment interest by insurers and other defendants, including unprotected defendants such as road authorities.
There is an issue regarding how the Court determined the correct prejudgment interest rate in Cirillo v. Rizzo. Section 127 of the Courts of Justice Act provides that the prejudgment interest rate is the bank rate “in the quarter preceding the quarter in which the proceeding was commenced.” These rates are contained in the Courts of Justice Act. It appears that in Cirillo v. Rizzo, the Court applied the rate from the quarter preceding the date the Statement of Claim was served, as opposed to the date it was issued. Given that the prejudgment interest rate was 4.5% for five consecutive quarters in 2006 and 2007, this issue made no difference in the circumstances. Clearly, however, care will have to be taken when identifying the correct prejudgment interest rate in the future.