The standard of review applicable of SABS arbitral decisions — arising from the statutory accident benefits regime under the Insurance Act — is reasonableness. That is what the Ontario Court of Appeal ruled in its recent decision in The Dominion of Canada General Insurance Company v. State Farm Mutual Automobile Insurance Company.

The standard of review applicable of SABS arbitral decisions — arising from the statutory accident benefits regime under the Insurance Act — is reasonableness. That is what the Ontario Court of Appeal ruled in its recent decision in The Dominion of Canada General Insurance Company v. State Farm Mutual Automobile Insurance Company.

The ruling addressed two appeals, heard together, involving arbitral decisions about the interpretation of "insured person" under s. 3(1) of the Statutory Accident Benefits Schedule (SABS), in the claimants' respective insurance policies.

The question was whether the claimants — both listed as excluded drivers on their parents' automobile policies — were covered for SABs when not driving the vehicles to which their driving exclusions applied. The determination of which insurers had priority in responding to the SABS claims depended on the interpretation of "insured person" and whether the drivers met the applicable criteria.

In the proceedings of the first appeal before the court (the State Farm arbitration), an arbitrator had found that an excluded driver could be an "insured person" under the SABS. Upon review, an appeal judge applied a standard of correctness and overturned the decision. The arbitrator in the second proceeding (the Dominion arbitration) also found that an excluded driver could be an "insured person" under the SABS. However, the arbitrator concluded that he was bound by the appeal decision in the State Farm arbitration and held that the excluded driver was not an "insured person." On appeal, the judge applied a reasonableness standard to the arbitrator's reasoning and found that his original interpretation of the driver as an "insured person" had been reasonable.

Decision

State Farm argued that the Court of Appeal's decision in a 2016 ruling, Intact Insurance Company v. Allstate Insurance Company of Canada, had settled the question before the court and that the applicable standard of review for an insurance arbitral decision was reasonableness. In Intact, an arbitrator considered a priority dispute regarding the payment of SABs. She had to make factual findings about the relationship between the claimants and insured in accordance with her interpretation of the relevant insurance policy and statutory provisions.

In response, Dominion submitted that Intact could be distinguished on the basis that it was a dependency case where the factual matrix dominated. Dominion argued that Intact had been overtaken by the Supreme Court of Canada's 2016 judgment in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. In Ledcor, the top court held that the interpretation of a standard form contract that has precedential value and does not require engagement with any meaningful factual matrix is a question of law that should be reviewed for correctness. Dominion argued that the arbitrator in the Dominion arbitration had also been faced with a pure question of law, ie the interpretation of a standard form contract in the absence of any meaningful factual matrix.

The court decided that Dominion's characterization of Intact as a fact-driven dependency case was too narrow. In its view, the decision in Intact focused on the nature of a decision-maker and on the question of whether the decision at issue required the application of the specialized expertise of the decision-maker. The Intact court had found that SABS arbitrations occur within a distinct regime that efficiently resolves priority disputes between insurers while ensuring that beneficiaries receive their benefits promptly. The decision of a SABS arbitrator was similar to that of a specialized administrative tribunal where the standard of review must be determined on the basis of administrative law principles.

The appeal court also found that the Supreme Court in Ledcor had not been assessing a specialized arbitrator's interpretation of the home statute giving rise to a deferential standard of review. The Supreme Court had instead considered assessing a question of law relative to the interpretation of a standard form contract in the context of appeals from trial and appellate courts. The appeal court held that existing jurisprudence had settled on a reasonableness standard of review for questions of law within the specialized experience and expertise of insurance arbitrators. Even questions of law regarding the SABS will generally involve that standard because they require the application of the specialized insurance arbitrator's expertise.

The arbitrators in the State Farm and Dominion arbitrations had to determine whether the drivers were qualified as "insured drivers" under the SABS to resolve priority disputes. This was more than the interpretation of a standard form contract – the decisions involved the interpretation of provisions from both the SABS and Insurance Act and a question of how the policies would interact with the legislative framework. The appeal judges should have reviewed the arbitral decisions from a deferential posture considering whether each decision fell within a range of reasonable outcomes.

The court concluded that the appeal judge in the State Farm arbitration had erred in reviewing the arbitrator's decision for correctness. There was no reason to displace the deference owed to the arbitrator who applied his home statute and specialized expertise to the policy language. The decision had been reasonable because it fell within a range of possible acceptable outcomes defensible in respect of the facts and law. The appeal judge's decision in the State Farm arbitration was set aside and the arbitrator's decision restored. The appeal judge's decision in the Dominion arbitration was upheld.

Moving forward, parties to insurance arbitral decisions resolving priority disputes arising from the SABS regime should be aware that attempting to appeal and overturn arbitration decisions will be difficult. Such decisions will be treated with deference given that arbitrators are applying their home statute and specialized expertise to particular policy language.