Insurance Corporation of British Columbia
v.

Unifund Assurance Company

By Brian C. Atherton
Atherton Barristers

The Supreme Court of Canada has determined that there are situations where an extra-provincial insurer will not be required to pay loss transfer to an Ontario insurer.

The facts of the case are somewhat unique and the Supreme Court took pains to emphasize this fact.

The Case

Ontario residents travelled by airplane to British Columbia where they rented a vehicle. Their vehicle was struck by a tractor-trailer insured by the Insurance Corporation of British Columbia. They returned to Ontario after the accident and claimed Statutory Accident Benefits from Unifund.

Unifund paid approximately $750,000.00 and sought loss transfer from the Insurance Corporation of British Columbia. They applied to the Court for the appointment of an arbitrator. ICBC resisted the application on two grounds:

1. Ontario was not the most convenient forum to determine the action; and
2. The loss transfer process was unconstitutional.

The Motion Judge of first instance agreed that Ontario was not the most convenient forum, but declined to rule on the issue of constitutionality. The Court of Appeal disagreed somewhat and held that the Ontario Arbitrations Act gave to the arbitrator the power to determine all issues including whether Ontario was the most convenient form, and whether Section 275 of the Insurance Act could constitutionally be applied to ICBC. The matter was appealed to the Supreme Court of Canada. By a four-to-three majority, the Supreme Court held the following:

1. Where, on the facts of this case, one provincial insurer challenged the jurisdiction of another province's legislation, the constitutional challenge should have been heard by a judge and could not be determined by an arbitrator;
2. Section 275 of the Insurance Act cannot constitutionally bind an extra-provincial insurer where it is not licensed or does not transact business on Ontario, and the accident does not occur in Ontario;
3. The Power of Attorney and Undertaking (PAU) is limited in its application and was not intended to require an extra-provincial insurer to be bound by legislative provisions requiring indemnification between two insurers.

Much of the Court's decision, including that of the dissent, deals with the question of the constitutionality of Section 275 and the principle of enforcement of extra-provincial legislation. The latter principle stems from the 1990 decision of the Supreme Court of Canada in Morguard Investments Ltd. v. DeSavoye. The majority recognized the principle underlying Morguard — that is, one Province's legislation can be enforced against another Province if there is a real and substantial connection between the parties. However, the majority distinguished Morguard on the grounds that they did not find a real and substantial connection between Ontario and British Columbia.

The minority of the Court disagreed and felt that a real and substantial connection was created by the following factors:

1. British Columbia signed the PAU which recognizes the interrelationship of insurance regimes across Canada;
2. The ICBC implicitly undertook insurance in Ontario as a result of the PAU;
3. The ICBC received the benefit of a reduction of the accident benefits paid by the Ontario insurer in the tort action and as such benefited by Ontario law.

The Analysis

It is important to emphasize that this case does not have universal application to claims for loss transfer involving extra-provincial insurers. The Supreme Court has made it clear that its decision may be confined to the facts of this particular case. However, from a review of the decision, it would appear that loss transfer will apply in the following circumstances:

1. The accident occurs in Ontario with Ontario residents and both insurers are licensed to transact business in Ontario;
2. The accident occurs in Ontario and the “at fault” third party is insured by an extra-provincial insurer licensed to transact business in Ontario;
3. The accident occurs outside of Ontario involving a motor vehicle owned by an Ontario resident and insured by an Ontario insurer, and the third party is insured by an extra-provincial insurer who is licensed to transact business in Ontario;
4. The accident occurs in Ontario, and the injured party resides out of province but is insured by an extra-provincial insurer who undertakes to write business in Ontario and/or has filed a Power of Attorney and Undertaking.

Loss transfer will not be available in the following circumstances:

1. The accident occurs outside of Ontario involving non-Ontario residents and neither insurer agrees to underwrite insurance in Ontario;
2. The accident occurs outside of Ontario involving an Ontario resident who is not operating his own motor vehicle and the insurer of the at-fault party does not undertake or is not licensed to transact business in Ontario and has not signed a PAU.

The majority decision may seem unreasonable in light of the fact that the ICBC, in a previous decision (Insurance Corporation of British Columbia v. Royal) successfully used Section 275 to recover indemnification from an Ontario insurer.

However, the Supreme Court of Canada noted that decision and felt that it was appropriate given the fact that the accident occurred in Ontario. The Supreme Court felt that by “attorning” to the law of Ontario, in accordance with the PAU (not to set up any defence against its insured which cannot be set up by an Ontario insurer) they were entitled to take advantage of the provision of Section 275 of the Insurance Act. As stated, this may seem something of an unreasonable result. However, the key to the Court's decision is based upon a rejection of the “jurisdiction simpliciter” argument in favour of upholding the right of each province to govern its own affairs without extending that jurisdiction to other provinces.

It is suspected that this decision is more about defining the nature of legislated relations between provinces than a determination of a point of insurance law.

Aside from the constitutional arguments, the Court has clarified the effect of the “troublesome” PAU which has vexed many extra-provincial insurers who sign it decades earlier and do not undertake business in Ontario. In light of the Court's comments, it cannot be used as a springboard to attack extra-provincial insurers if the accident occurs outside Ontario and those extra-provincial insurers do not undertake insurance in Ontario.

It is recommended that all cases involving loss transfer with an extra-provincial insurer be reviewed to determine whether they meet the criteria formulated by the Supreme Court of Canada.

Full reasons for this case can be read here.

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