The topic of onus and burden of proof in loss transfer cases was reviewed in the recent decision of Arbitrator Bialkowski in The Personal v. Zurich, released October 28, 2016.

The basic facts of the loss include that the truck driver (insured by Zurich) was not aware that an incident had occurred. The occupants of the car (insured by The Personal) say they had to flag down the truck driver to get him to stop. The “accident” was investigated by the police at the scene. There was no apparent damage to the truck. There was damage to the rear of the car, but the car was also damaged from previous accidents. The occupants of the car alleged that their vehicle had been rear-ended by the truck. The truck driver was charged with careless driving, but the result of the charge was unknown at the time of the arbitration hearing.

Following the loss, The Personal and Zurich jointly hired an accident reconstruction engineer to render an opinion as to whether a collision had occurred as described by the occupants of the car. The engineer concluded that the accident had not occurred “as reported”. The result was that The Personal, which would be responsible as the first party insurer for payment of accident benefits to four claimants, had to decide whether to accept this opinion. Noting deficiencies in the report, The Personal decided to reject it, and to instead pursue loss transfer against Zurich pursuant to Rule 6(2) of the Fault Determination Rules where the facts appeared to support the conclusion that a straightforward rear-end collision had occurred.

Zurich’s position was that The Personal could not prove that an “accident” had occurred based on the available evidence, such that The Personal’s loss transfer indemnity claim could not proceed. Alternatively, Zurich argued that the same result applied because The Personal could not establish the circumstances of the accident, thereby making it impossible to determine which Fault Determination Rule applied.

As part of the arbitration, counsel provided cases dealing with the onus on the second party insurer to prove “unreasonableness of payments”. The Personal argued that Zurich could not meet this heavy onus, requiring proof of gross negligence or bad faith. After reviewing the decision of Arbitrator Samworth in Commercial Union Assurance Co. of Canada v. Boreal Property & Casualty Co. (December 21, 1998), and the decisions of Arbitrator Malach in Jevco Insurance Co. v. Guardian Insurance of Canada, (August 28, 2000), and Dominion of Canada General Insurance Co. v. Royal and SunAlliance Insurance Company of Canada (August 20, 2001), Arbitrator Bialkowski commented that although he accepted the principles outlined in those cases, Zurich was not claiming that The Personal’s payments were unreasonable, but instead that the claimants were not entitled to any benefits whatsoever because there was no “accident” from which a loss transfer obligation could flow from Zurich to the Personal.

Arbitrator Bialkowski noted that the engineer’s opinion was not conclusive that there had not been any contact between the two vehicles, and particularly an “accident” more in keeping with the two vehicles travelling in the same direction, but with a minimal speed differential between them. In particular, he noted that two gouge marks in the rear bumper of the car matched up with the leading edge of the truck in this scenario, namely the bolts affixing the license plate to the front end of the truck.

Arbitrator Bialkowski held that The Personal had discharged the onus of proof to demonstrate that there was contact between the two vehicles. His conclusion was supported by a finding that he could not ignore the uncontested evidence of the car’s four occupants that a collision had occurred, where the contrary finding would effectively mean that the four claimants had conspired to make fraudulent accident benefit claims. In this respect, he agreed with a legal opinion that formed part of The Personal’s decision not to rely on the engineer’s report, to the effect that the claim did not have the hallmarks of a “staged accident”. Moreover, Zurich was asking him to ignore that the investigating police officer found the occupants to be credible enough that truck driver was charged with careless driving in circumstances where Zurich had not adduced evidence that the charge was withdrawn or dismissed, and neither the occupants nor the police officer were cross-examined as part of the arbitration process.

Arbitrator Bialkowski therefore concluded that an “accident” in the form of a straightforward rear-end collision had occurred, and that Rule 6(2) of the Fault Determination Rules would apply making Zurich fully responsible to indemnify The Personal in respect of accident benefits reasonably paid to or on behalf of the claimants.

Although not cited by Arbitrator Bialkowski, his reasoning with respect to the “reasonableness of payments” issue is consistent with the appeal decision in Jevco Ins. Co. v. Gore Mutual Ins. Co., 2014 ONSC 3741 (CanLII), leave to appeal dismissed (M44323, January 23, 2015), where Justice Stewart upheld the decision of Arbitrator Novick that the onus was on the at-fault (second party) insurer to prove that accident benefit payments made to a claimant by the first party insurer were unreasonable. In that case, Justice Stewart noted that both parties were in agreement that the following principles applied:

When a second party insurer from whom reimbursement is sought under the Loss Transfer provisions alleges that the payments made to a claimant by the first insurer were unreasonable, the onus is on the second party insurer to prove that is so. The onus is a strict one, and the second party insurer must demonstrate that the first insurer either acted in bad faith or grossly mishandled the claim such that the amounts paid out that it is seeking to recover are grossly unreasonable (see: Progressive Casualty Insurance v. Market Insurance (Arbitrator Malach, May 13, 1997); Jevco Insurance v. Guardian Insurance (Arbitrator Malach, August 28, 2000); Dominion of Canada v. Royal and Sunalliance (Arbitrator Malach, August 20, 2001); Jevco v. AXA Insurance (Arbitrator Malach, March 9, 2004); Primmum v. Aviva (Arbitrator Jones, March 24, 2008)). It is clear that this situation is to be very much the exception to the normal operation of the reimbursement provision of the Act.

Based on the cases reviewed by Arbitrator Bialkowski on this issue, the principles to be applied in such cases can be summarized as follows:

  • A first party insurer is presumed to be acting reasonably when rendering accident benefit payments: Jevco Insurance Co. v. Guardian Insurance (Arbitrator Malach).
  • there is a very high onus on the second party insurer to demonstrate that any settlement (or payment) by the first party insurer was not reasonable: Dominion of Canada. v. Royal and SunAlliance (Arbitrator Malach).
  • that any such inquiry is restricted to whether the first party insurer: (1) acted in bad faith; (2) made payments not covered by the Statutory Accident Benefits Schedule in force at the time; or (3) so negligently handled the claim in general that the payments made were greatly in excess of the amount to which the insured would be entitled had the file been managed by a reasonable claims handler: Commercial Union Assurance Co. of Canada v. Boreal Property & Casualty Co. (Arbitrator Samworth).

Therefore, when read in context with Justice Stewart’s appeal decision in Jevco v. Gore Mutual, Arbitrator Bialkowski’s decision in The Personal v. Zurich provides a useful summary of the law as to the burden of proof on a second party insurer which seeks to contest accident benefit payments made to, or settlements with, an insured by the first party insurer in the loss transfer context. It also helps to distinguish the circumstances in which the onus of proof is on the first party insurer, or the second party insurer.