Loss Transfer Actions

By Brian C. Atherton
Atherton Barristers

“Loss Transfer is a mechanism by which, under certain circumstances, automobile insurers who pay no fault benefits (the First-Party Insurer) may be reimbursed by another insurer (The Second-Party Insurer) for all or part of a claim.

The Loss Transfer only operates between insurers or different classes of vehicles and only applies when the policyholder of the Second-Party Insurer was wholly or partly at fault in an accident. The purpose of Loss Transfer is to balance the costs of no fault benefits between different classes of vehicle."

F.S.C.O. BULLETIN: No. A-9/92

Loss Transfer is a concept created by statute. It is not a right of subrogation. There are many differences between these two concepts, but essentially, an insurer, in a subrogated claim, stands in the shoes of the insured, to pursue the Third Party, for money paid to its insured as a result of the Third Parties’ negligence.

Loss Transfer is a right of one insurer to recover from another insurer the benefits that it is has paid to its insured.

As the quote above from Bulletin A-9/92 indicates, its intent is to provide for loss reallocation amongst different classes of insurers and different risks. With the introduction of the Ontario Motorist Production Plan, and Bill 164, there was a substantial increase in first party benefits.

Loss Transfer is the mechanism whereby the disproportional losses suffered by one insurer are borne by another. Strangely enough in this first party setting, Loss Transfer reintroduces the concept of “at fault” liability. An insurer, from whom Loss Transfer is requested, is only liable to reimburse the first insurer in accordance with the respective degree of fault of each of the insurers’ insured. The amounts being claimed are subject to a further $2000.00 deductible before the respective degree of fault has been determined.

Statutory Provisions
Loss Transfer is governed by Section 275 of the Insurance Act. The Regulations set out certain classes of insurer who are automatically entitled to Loss Transfer. It also defines certain classes of insurers who must pay Loss Transfer.

Put in its simplest form, insurers of motorcycles and motorized snow vehicles can claim Loss Transfer from any other class of insurer. If an insurer of a heavy commercial vehicle, as defined in the Regulations, causes an injury to another class of insured person, it is liable to reimburse that insurer for Statutory Accident Benefits paid to its insured.

The amount of Loss Transfer to the other insurer is based on the respective degree of fault of each insured person, as determined in the Fault Determination Rules.

If the parties cannot agree on whether Loss Transfer is applicable, or the degree of fault, or the amount of benefits paid to the insured person, the dispute is resolved through arbitration in accordance with the Arbitrations Act.

The First Insurer seeking Loss Transfer from the Second Insurer will “commence the process” by issuing a Notice of Loss Transfer’. Please note that the First Insurer has six years within which to commence the Loss Transfer Claim.

Upon receipt of the request, the Second Insurer has the option of either paying the request, or, more likely, asking for further information concerning the nature of the claim. However, at some point, the Second Party Insured would be compelled to either reimburse the First Insurer, or to confirm that it disputes either the respective degree of fault assigned by the First Insurer, or the quantum of the payment.

If the Second Party Insurer does not respond to the request for Loss Transfer, the First Party Insurer may make an Application to the Court to Appoint an Arbitrator pursuant to Section 10 of the Arbitration Act. The application can be made as early as seven days after submission of the Notice of Loss Transfer.

Please note that in order to protect the Limitation Period, an arbitration must be “commenced” within six-years. “Commencement of Arbitration” has not been judicially determined, but it is generally accepted to include either an agreement in writing by both parties, to arbitrate, an Agreement to Appoint an Arbitrator in writing, service of an Application to Appoint an Arbitrator, or service of a “Notice to Arbitrate." This last “Notice” is not part of the Regulations, and is simply a form, which is devised by legal counsel to advise the other party of their intentions.

Once the parties appoint an Arbitrator, they will agree on the procedure and the time line for arbitration. The nature of the arbitration is entirely up to the parties, and it can be as formal or informal as they wish. This is usually a matter left up to the discretion of counsel, but where there is a significant liability dispute, examinations for discovery and production exchange, as though this were a civil action would be in the best interest of both parties.

Once the Arbitrator has made his/her ruling, the matter can be appealed to a single judge of the Superior Court. However, the Notice of Appeal must be served within 30-days of the date of the order. A further appeal to the Court of Appeal is made with leave of that Court.

Nature of Dispute Liability
The Fault determination Rules are found in Regulation 666/90 and incorporate the “Inter company Settlement Fault Chart” used to determine fault in property damage cases. In accordance with Section 5 of the Rules, if the situation giving rise to the accident is not covered by the Fault Chart, or there is insufficient information concerning the incident to determine the degree of fault, then the matter is determined in accordance with the ordinary rules of negligence.

Please note that there must be at least one another insured person at fault, for Loss Transfer to apply.

Quantum
As previously noted, Loss Transfer was designed to have one insurer reimburse another for Statutory Accident Benefits paid to its insured. The Financial Services Commission has issued some guidelines with respect to what items are covered under Loss Transfer. Under O.M.P.P., only the actual benefits paid to the insured person could be recovered. It did not allow for reimbursement of the costs of independent medical assessments, DAC Reports, Case Managers Fees, or any other item used by the insured to assess its exposure. However, under Bill-164 these guidelines were changed, to include those expenses.

However, the guidelines also make it clear that the Second Insurer is not obliged to reimburse the First Insurer for interest on overdue payments, a Special Award or damages for Bad Faith. There is also no obligation to pay legal expenses, independent adjusting fees, or any other expenses incurred by the First Insurer in properly investigating or evaluating the claim.

Perhaps the most troublesome feature is with respect to the right of the Second Party Insurer to dispute the amount of benefit paid by the First Insurer to its insured. While there is a right of the Second Party Insurer to be satisfied that the payments are “reasonable” there is no right of the Second Party Insurer to “second guess” the First Party Insurer.

The onus is on the Second Party Insurer to prove that the payment made by the First Party Insurer was unreasonable. This is a very high standard of proof, and will be almost impossible to prove except in the most obvious of cases. The test is not whether the Second Party Insurer, in accordance with his own practices, would have made payments to the insured, but whether the payment made is “reasonable” under all the circumstances.

For example, payment of ongoing Income Replacement Benefits and medical expenses where there is some medical evidence supporting the expense will be paid notwithstanding the fact that the Second Party Insurer might have argued that the First Party Insurer should have taken a more aggressive approach to terminate benefits.

However, the Second Party Insurer is not obliged to reimburse the First Party Insurer for any mistake made by the First Party Insurer in either calculating the benefit, or making payment of items, which are not covered by the schedule. However, as noted, the Second Party Insurer must prove on the balance of probabilities that the payment was in error, or not covered by the schedule.

Many disputes arise between insurers over what information should be submitted to the Second Party Insurer to assess whether the First Party Insurers’ payment was “reasonable." The bulletins provided by F.S.C. O. indicate that the Second Party Insurer is entitled to have sufficient information from the First Party Insurer with which to assess whether the payment was “reasonable."

This is something of an open-ended question. Some insurers are content to accept medical and rehabilitation information without any further documentation. Other insurers are more aggressive and request a complete copy of the First Party Insurer’s file. However, it is unreasonable to make this request, as the Second Party Insurer is not entitled to “second guess” each and every adjuster’s decision on the file, which resulted in a payment.

The request for productions is not to be a “fishing expedition." Commercial Union Assurance Company of Canada and Boreal Property & Casualty Company (Private Arbitration Decision -December 21, 1998) At one point it was thought that lump sum payments, which were not broken down into categories of benefits could not be recoverable in Loss Transfer.

However, there have been many decisions on this point and it is now generally well accepted that a lump sum payment is recoverable provided the First Insurer has not included amounts for costs or expenses not covered by the Schedule.

Jurisdiction
Loss Transfer does not only apply to accidents involving two Ontario motorists. It also applies in the following situations:

1. Where one of the other insurers is licensed to transact business in Ontario even if it does not carry on business in the Province;
2. The extra-provincial insurer has signed a Power of Attorney and Undertaking with the Superintendent of British Columbia;
3. The extra-provincial insurer has a clause in its policy of insurance to pay its insured same benefits that are available to residents of the jurisdiction in which the accident occurred.

Licensed to transact business in Ontario
A list of those insurers can be found in the Appendices to the Insurance Act.

Power of Attorney and Undertaking
Many extra-provincial insurers, several years ago, filed a Power of Attorney and Undertaking with the Superintendent of Insurance in British Columbia. The Superintendent is essentially a repository for the undertakings and they apply nation wide. The purpose of the undertaking was to have insurers in both the United States and Canada to agree to recognize the rights and obligations of their policies when an accident occurred in the other parties’ jurisdiction. At the time the Power of Attorney Undertaking was first signed, (back in the 1960’s) Loss Transfer did not exist and was never ever contemplated. However, the Ontario Court of Appeal has held that any insurer who executed a Power of Attorney and Undertaking, and whose insured is involved in an accident in Ontario, is entitled to a rely upon the Loss Transfer Provisions even if they have no other connection to Ontario or Canada.

As the obligations are triggered by the payment of benefits under the Ontario Statutory Accident Benefit Schedule and Insurance Act, an Extra-Provincial Insurer who is obliged to pay those benefits to its insured can seek recovery from an Ontario Insurer. Similarly, an Ontario Insurer making payments to its Insured is entitled to seek Loss Transfer from an Extra-Provincial Insurer, subject of course to the respective degree of fault and the $2000 deductible.

Other Considerations
Loss Transfer will apply even if the Second Parties’ vehicle was being operated without the consent of the insured.

Even if the First Party Insured may have a right to claim compensation under the Workers Safety Insurance Board Act, the Second Party Insurer is obliged to pay the first party benefits until such time as the First Party Insured’s Right of Action has been taken away by the Workers Safety and Insurance Appeals Tribunal.

Disputes may arise as to whether a vehicle is a “heavy commercial vehicle” within the definition of the Regulations. Decisions are made on a case-by-case basis. However, a garbage truck has been classified as a “heavy commercial vehicle” within the meaning of the Regulations.

Interest may be awarded at arbitration to the Insurer claiming Loss Transfer; and the arbitrator has the power to award costs unless the Arbitrator Agreement states otherwise.

Case Citations

• Allstate Insurance Company of Canada v. CGU Group Canada Ltd. [2001] O.J. No. 2963.
• Dominion of Canada General Insurance Company and Royal & Sunalliance Insurance Company of Canada (Private Arbitration -August 20, 2001)
• Healey v. Interboro Mutual Indemnity Insurance Company et al [1999] O.J. No. 1667
• Insurance Corp. of British Columbia v Royal Insurance Co. of Canada [1999] O.J. No. 1668
• Jevco Insurance Company and Pilot Insurance Company [2000] O.J. No. 2259.
• Jevco Insurance v. Continental Insurance Company of Canada [1999] O.J. No. 2267
• Jevco Insurance v. Guardian Insurance of Canada (Private Arbitration Decision, August 28, 2000)
• Jevco Insurance v. Royal Insurance July 22,1992 Summary File No. 2046
• Jevco Insurance v. Wawanesa Insurance of Canada 42-O.R. (3d) 276
• Non-Marine Underwriters of Lloyd’s of London v. Guarantee Co. of North America (Re: Oppenhein) Oppenheim, in his Quality as Attorney in Canada for the Non-marine Underwriters of Lloyd’s of London, England and Guarantee Company of North America [1995] O.J. No. 2896
• York Fire and Casualty Company v. Co-operators General Insurance Company [1999] O.J. No. 4172.

For more information on how we can assist you, please contact us at Atherton Barristers at (416) 365-1030 or toll free at (866) 237-1030.

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