A recent Superior Court decision highlights the ongoing struggle automobile insurers face with privacy issues and firewalls. In De Sousa v. Aviva Insurance1, the plaintiff was injured in a motor vehicle accident. The plaintiff claimed and received first party statutory accident benefits from Aviva and later brought a tort action against the insurer for inadequate insurance coverage.2
The issue was whether the plaintiff could compel an accident benefit representative from Aviva to attend an examination for discovery in the tort action. Aviva refused to produce the representative. It argued among other things that producing the accident benefit representative would breach the company’s firewall between the accident benefit and bodily injury departments.
Master Muir heard the motion and ruled against the insurer. He found that the purpose of the firewall is so that an insurer is not advantaged by the fact that it is responding to both accident benefit and tort claims. However, the consent of the insured obviates this concern and the master found that the plaintiff had clearly and unequivocally provided his consent to the transfer of information (by asking for the discovery). In view of this consent, the defendant was no longer required to maintain the firewall.
The De Sousa decision is a perfect example of just how out of control the firewall concept has become in motor vehicle accident claims handling. The issue is compounded by the increase of privacy obligations over the past several years, coupled with internal confusion on how the auto insurance firewall is supposed to work.
Let us start at the beginning.
Igniting the Firewall
Ontario’s automobile insurance scheme guarantees statutory accident benefits coverage to any person involved in a motor vehicle accident in Ontario. Section 268 (2) of the Insurance Act creates a priority “pecking order” that determines which insurer is responsible to pay accident benefits. If the claimant does not have their own insurance coverage, they have recourse against the insurer of the vehicle in which they were an occupant (or which stuck them). If there is no coverage there, they have recourse against the insurer of any other vehicle involved in the accident, followed by recourse against the Motor Vehicle Accident Claims Fund.3
Because the priority scheme affords coverage to claimants who do not have access to their own polices, frequently an insurer can become responsible for handling a plaintiff’s accident benefits file, while offering its own insured a defence to the same plaintiff’s tort claims. In other words, the same insurance company ends up insuring both the tortfeasor for liability coverage and the plaintiff for accident benefits. Consequently, the company’s accident benefits department obtains a wealth of medical information and records early in the claim while the bodily injury department receives only those records that the plaintiff agrees to produce.
You can see why a bodily injury adjuster would be tempted to take a peek at the accident benefits file, just a peek.
The industry can trace the origins of the accident benefits/tort firewall to the Insurance Bureau of Canada’s Bulletin 184, called “Internal Transfer of Information from Accident Benefits Adjuster to Tort Adjuster”4. The Bulletin’s preamble explains that the IBC received complaints (presumably from tort plaintiffs) that some automobile insurance companies, who were handling both accident benefits and tort claims, were facilitating a process whereby bodily injury adjusters were obtaining copies of medical records directly from the accident benefits department, without the plaintiff’s consent.
Bulletin 184 reminded insurers of Rule 13 of the All Industry Claims Agreement, which states:
Insurers agree, as a matter of corporate policy, that they shall not gather medical information from doctors or their employees, without the written consent of the patient, subject only to any right to such information under law or rules of practice.5
Through the Bulletin, the IBC cautioned that liability insurers are not to seek this medical information indirectly from the accident benefits department. Where the same insurer is handling both the accident benefits and tort claims, the IBC advised that companies:
should set-up "Chinese walls"6 so that information gathered by it regarding the accident benefits claim does not become available to the tort adjuster, unless the insured so authorizes.
As noted above, Master Muir appreciated the purpose of the firewall in De Sousa. He also referenced several prior firewall decisions that followed similar reasoning.7
So what’s the issue (and why should you care)?
The Firewall Spreads like Wildfire
If we accept that the firewall’s purpose is to protect a plaintiff’s accident benefits file from the same company’s bodily injury adjuster, why are firewalls being lit in so many other situations? Take the following real life war stories I have seen on numerous files over the years (I have anonymized the insurers’ names to protect the innocent):
- 123 Insurance’s bodily injury department suspected that the plaintiff was not involved in the subject accident. It obtained some statements, which conflicted with the plaintiff’s version of how the accident happened. It also obtained an engineering report that brought the circumstances of the accident into question. But because of the company’s firewall procedures, this information never made it to the accident benefits department, which was still paying the same plaintiff claimant benefits, unaware of a potentially fraudulent claim.
- ABC Insurance was responding to a loss transfer claim. Its accident benefits department was handling the loss transfer response and, in doing so, was trying to prove that its insured (also the tort defendant) was not at fault for the accident. Meanwhile, the bodily injury department was responding to the tort claim and was also denying liability. The BI department interviewed witnesses and had obtained an engineering report that helped its insured defend the liability claim. Because of the company’s firewall, the BI department refused to share any of the investigation fruits with the accident benefits department, resulting in duplicative investigative efforts and inconsistent findings.
- Same scenario as above but this time the accident benefits department had a wealth of information that would help the insured defend his tort claim. Because of the company’s firewall policies the BI department never saw this information, resulting in overpayment for the loss.8
- Same scenario again, but this time the accident benefits department settled the loss transfer dispute on the basis that its insured was 75% at-fault for the accident, without considering that this could prejudice the bodily injury department’s position on liability in the tort action.9
- KW Insurance’s bodily injury department had great surveillance on the plaintiff, but would not share it with the accident benefits adjuster.
In all these scenarios, internal firewall procedures (or fears) hampered vital communications between the bodily injury and accident benefits departments, to the detriment of insurers and tort defendants (insureds) alike. This continues to happen. For lack of a better expression, “the right hand has no idea what the left hand is doing”. Successful claims investigation and fraud prevention usually depend on early discovery and coordinated efforts between departments with different resources. Yet somehow the two departments10 in an insurance company that are most involved in the accident claims handling process are not talking to each other because of a firewall.
Fight the Firewall with Fire
Insurers need to return to the basic purpose of the auto insurance firewall, namely, to ensure that an accident benefits claimant isn’t prejudiced by having their claims handled by the tortfeasors’ insurer.11
Clearly there is an interest in protecting medial information and the Rules of Civil Procedure provide mechanisms to disclose that information. That said, liability information (including fraud investigations) do not deserve the same level of deference or protection. That information was not intended to be shielded from disclosure.
With that in mind, insurers need to be practical when deciding whether information should be exchanged between departments. Only you can prevent unruly firewalls.