In a 2-1 split, the Court of Appeal for Ontario has held that the provincial loss transfer scheme does not allow a first party insurer to recover from the second party insurer any insurer examination expenses relating to accident benefits.
Ontario’s loss transfer scheme is solely a creature of section 275 of the Insurance Act. Section 275 (1) sets out the obligation to indemnify:
275. (1) The insurer responsible under subsection 268 (2) for the payment of statutory accident benefits to such classes of persons as may be named in the regulations is entitled, subject to such terms, conditions, provisions, exclusions and limits as may be prescribed, to indemnification in relation to such benefits paid by it from the insurers of such class or classes of automobiles as may be named in the regulations involved in the incident from which the responsibility to pay the statutory accident benefits arose. [emphasis added]
Section 275 (2) provides that indemnification under subsection (1) is based on the degree of fault of each insurer’s insured. Section 275 (4) states that if the insurers are unable to agree on the amount of indemnification, the issues in dispute are decided in a private arbitration.
The issue in Wawanesa v. Axa was whether Wawanesa could recover from Axa loss transfer indemnification for multiple medical assessments Wawanesa had paid while adjusting accident benefit claims arising from two motor vehicle accidents involving their respective insureds. Fault for accidents was not at issue and Axa had already reimbursed Wawanesa for benefits paid under the SABS. However, Axa refused to reimburse Wawanesa for the cost of any insurer examinations. Axa’s position was based on a 1995 General Division decision in Jevco v. Prudential, wherein the arbitrator and appeal judge held that insurer examinations are not recoverable under loss transfer.
At arbitration, Wawanesa made several compelling arguments as to why insurer examination costs should be recoverable. On statutory interpretation principles alone, Wawanesa argued that the phrase “in relation to such benefits” meant that insurer exam costs were recoverable because those expenses were incurred in relation to deciding whether a certain benefit was payable.
Wawanesa also took the position that, as a result of the 2006 amendments to the 1996 SABS, insurer generated medical assessments were now mandatory because the first party insurer was required to pay accident benefits within a limited time or request a medical examination of the insured. Thus, the assessments are now part of a comprehensive scheme dealing with benefit entitlement. They became a different class of expense when the DAC assessment process was abolished and should be recoverable under s. 275(1) of the Insurance Act.
At arbitration, the arbitrator agreed with Wawanesa’s position on the issue but held that she was bound by Jevco. Accordingly, she ruled that Wawanesa could not recover any insurer examination expenses from Axa. The appeal judge agreed with Jevco and dismissed Wawanesa’s appeal.
The Court of Appeal dismissed Wawanesa’s further appeal, with a dissent by Mr. Justice Blair. Writing for the majority, Mr. Justice Weiler outlined the history and contours of Ontario’s accident benefits and loss transfer scheme over the past 22 years. He agreed that the ordinary meaning of the words “in relation to” in s. 275 (1) encompasses more than the accident benefits paid by an insurer to its insured. However, he was not satisfied that those words were necessarily broad enough in scope to include insurer generated medical assessments.
He also found that the remedial nature of the accident benefit scheme would be undermined if a first party insurer could recover insurer exam costs from the second party insurer. The concern was that the first party insurer -- knowing that it could recover the cost of assessments from the second party insurer -- would be more likely to seek a medical assessment of the insured, even in situations where it would not currently be considered necessary.
As noted above, Justice Blair disagreed with the majority and wrote a good dissent. He disagreed with Jevco. He held that the view that the legislation encompasses indemnification only for benefits actually paid is incorrect, based on the clear language of s. 275 (1):
Had the legislature intended the loss transfer provisions to embrace only benefits actually paid, the section would provide for “indemnification for such benefits” and not for indemnification “in relation to” such benefits paid.
. . .
The purpose of those provisions is simply to spread the cost of the payment of no-fault benefits between the insurers of different classes of vehicles in a more even-handed manner, and to do so in a way that does not interfere with the expeditious payment of statutory benefits to the injured insured. I am satisfied that indemnifying the first insurer for the cost of an insurer generated medical assessment is completely consistent with the purpose of the loss transfer scheme.
Personally I agree with Wawanesa’s position in this matter for a simple reason: Nothing frustrates me more than when a second party insurer challenges a paid benefit on the basis that it shouldn’t have been paid (i.e., because in its opinion the claimant wasn’t disabled), but then refuses to pay for the cost of an assessment that could support paying less benefits. Wawanesa's position promotes some otherwise non-existant colaboration between the two insurers when it comes to paying benefits that the second party insurer will eventually have to reimburse.
So barring a successful leave application/appeal to the Supreme Court of Canada (if Wawanesa pushes further), the current law in Ontario is that the costs of insurer exams (section 42/44 of the Old/New SABS) are not recoverable in loss transfer.
On a final note, Justice Weiler suggested that:
“there is an incentive for Wawanesa to enter co-operative agreements with Axa to share the cost of insurer generated medical assessments and ensure that Satutory (sic)Benefits are paid appropriately.”
In practice, the likelihood of any such co-operative agreement ever happening between two insurers on this issue is very remote. But it will be interesting to see whether this decision might make it harder for second party insurers to challenge the reasonableness of benefit payments if they also refuse to help pay for the cost of insurer examinations.