The Supreme Court of Canada has reversed the Ontario Court of Appeal's decision in Zurich v. Chubb.
The claimant was driving a Ford Windstar that she had rented from Wheels4Rent, a car rental agency. On September 23, 2006, she had an accident and was injured. No other vehicle was involved.
Wheels4Rent offered an optional accident policy providing coverage in the event of accidental loss of life and injury. Chubb was the insurer of the optional policy. The claimant declined the optional policy. After the accident, the claimant applied for benefits under the optional policy. Chubb declined to provide benefits on the basis that the optional policy was not a motor vehicle policy, but rather was a commercial policy. In other words, Chubb refused to accept her application on the basis that it was not an automobile insurer with respect to her claims.
The claimant then applied for accident benefits to Zurich, which insured Wheels4Rent. Zurich administered the claim on a “without prejudice” basis. Zurich took the position that Chubb was the first insurer under Ontario’s statutory accident benefits scheme and should have paid first, pursuant to section 2 of O. Reg. 283/95.
Arbitrator - No Nexus
At arbitration, the arbitrator found that that Chubb was not an insurer for the purposes of the Insurance Act and O. Reg. 283/95, because at no time did it issue a motor vehicle liability policy to Wheels4Rent or the claimant. Accordingly, he held that there was no nexus or connection between Chubb and the claimant.
Appeal - Nexus
On appeal, the judge disagreed with the arbitrator’s finding that Chubb was not an insurer or that there was no nexus/connection between Chubb and the claimant. The judge found that the arbitrator erred in finding that the optional policy was not a “motor vehicle liability policy” under the Insurance Act. He found that the policy was specifically intended for car rental companies and their customers. The obvious intent was to provide extra insurance for renters.
With respect to the nexus argument, the judge held that the arbitrator erred buy applying a “remoteness” test instead of an “arbitrariness” test. He held that the connection between the claimant and Chubb may have been remote, but it was not arbitrary.
Court of Appeal (Majority) - No Nexus
Two Court of Appeal judges held that the appeal judge erred in concluding that the Chubb policy was a “motor vehicle liability policy”. There was no element of that accidental death and dismemberment policy that insured against liability to others arising out of property damage or injury caused by an automobile or the use or operation thereof:
Ms. Singh’s choice to send her application to Chubb was not random or arbitrary, but was based on the optional coverage provided to Wheels 4 Rent customers. Nonetheless Chubb was not required to respond as it was not a “motor vehicle liability insurer”, nor had it held out or represented to have ever provided such coverage at any relevant time.
Both the plain meaning of s. 268 of the Insurance Act and O. Reg. 283/95, and the underlying policy behind the legislation, favour excluding non-motor vehicle liability insurers from the obligation to pay first and dispute later. [emphasis added]
Court of Appeal (Dissent) - Nexus
Juriansz J.A. disagreed with the majority. In his dissenting reasons, he took issue with the new concept of a “non-motor vehicle liability insurer”, noting that Chubb does regularly write motor vehicle liability policies in Ontario. In other words, Chubb is not a “non-motor vehicle liability insurer” in the broad sense:
The policy that Chubb offered to Ms. Singh in this case was not a motor vehicle liability policy as it did not provide liability coverage. However, it is also apparent that Pardu J.A. does not use the term “non-motor vehicle liability insurer” in the narrow sense to denote an insurer who, as a matter of fact, has not issued a motor vehicle liability policy that provides coverage to the applicant. To apply this narrow sense of the term would effectively overturn existing case law under the Regulation. Instead, Pardu J.A. avoids overruling the earlier case law by suggesting that the Regulation will continue to apply to an insurance company that has not issued a policy to any relevant person so long as there was “purported” or “represented” coverage.
I expect that adjudicators in future cases will struggle with determining whether an insurer is a “non-motor vehicle liability insurer”. They will have difficulty reconciling the conclusion that the plain meaning of the Regulation excludes “non-motor vehicle liability insurers” with the proposition that the pay first obligation will continue to apply in cases where there is no actual coverage, but only “purported” or “represented” coverage.
Supreme Court of Canada - Nexus
The Supreme Court allowed Zurich's appeal "for the reasons of Juriansz J.A.".
The “nexus test” has been the subject of much debate over the past several years, primarily because insurers who did not have valid auto policies in play at the time of a loss were being forced to pay accident benefits (and incur loss control expenses) at the outset. Some of those insurers became saddled with claims indefinitely, having taken an off-coverage position initially without pursuing a priority dispute.
In Danilov v. Unifund (FSCO Arb., 2009), there was never an objective connection between the claimant and the insurer because the insurer never issued a policy that insured the claimant or the vehicle he was in at the time of the accident. However, the arbitrator found that the claimant had “turned his mind” to his choice of insurer when he applied to the insurer. He held that the claimant had reason to believe that there was coverage, which was enough to trigger the insurer’s obligations to pay now and dispute later.
Danilov was the first nexus decision emphasizing that the nexus test was subjective, based on the claimant’s belief that there was coverage. In Zurich, there was no question that the claimant believed that there was coverage with Chubb when she applied there. This alone would have satisfied the test from Danilov, and also was enough to satisfy the appeal judge and Juriansz J.A. that her application to Chubb was not arbitrary.
The Court of Appeal apparently modified the nexus test to include an objective component: Whether the claimant believed that there was coverage and, if so, whether the impuned policy was a “motor vehicle liability policy”.
The Supreme Court of Canada has restored the subjective-only component to the nexus test: As long as the claimant turned their mind to their choice of insurer, there will be a nexus. However, in all likelihood the chosen insurer would have to be one that writes and sells automobile insurance in Ontario.
Insurers need to be aware of the huge (and sometimes very costly) risk of relying on the (no) nexus test to refuse an application for accident benefits, especially in light of the new requirements under section 2.1 of O. Reg. 283/95 for accidents on or after September 1, 2010.
Supreme Court of Canada: Zurich v. Chubb, (2015 SCC 20)
Court of Appeal: Zurich Insurance Company v. Chubb Insurance Company of Canada, 2014 ONCA 400 (CanLII).