Canadian provinces have no legislative competence to regulate automobile insurance beyond their own borders. Nevertheless, tractor-trailers rumble across the country to deliver goods, families pack into hatchback sedans to vacation in distant destinations, and business teams disembark airports into rental cars to attend their next meeting. Borders are ever-increasingly transient.
In this globalized context, it is important for Ontario insurers to understand their exposure both within the heartland province and beyond. This article briefly considers Ontario’s loss transfer scheme as it applies to accidents outside of Ontario.
The no-fault scheme
Ontario’s current loss transfer scheme is a legislative response to “no-fault” automobile insurance. In the 1980s, the Ontario legislature migrated towards a no-fault system to expedite compensation and benefits to those injured in car accidents. Under a no-fault scheme, each driver is entitled to accident benefits from his or her own insurer, regardless of who caused an accident.
Initially, the trade-off to this scheme meant imbalanced insurance rates across different classes of vehicles. For instance, those insuring motorcycles required higher premiums because motorcyclists are more likely to suffer injury in an accident. Conversely, those insuring heavy commercial vehicles required lower premiums since a heavy commercial vehicle operator would be less likely to suffer injury.
Ontario’s loss transfer solution
The loss transfer scheme attempts to reset this balance by requiring second-party insurers of certain classes of vehicles (i.e. heavy commercial vehicles) to indemnify first-party insurers for accident benefits that the first-party insurer paid to its insured. This indemnity is only triggered if the second vehicle is at least partially at fault for the accident.[1]
If all Ontario insurers are subject to these rules, then rates amongst various classes of vehicles would find a relative equilibrium; each insurer would be able to reasonably anticipate its risk, and this risk would be shared amongst the insurers of various classes of vehicles.
A non-Ontario insurer, which is subject to a separate and distinct set of insurance rules, cannot reasonably anticipate the risk of indemnifying an Ontario first-party insurer. Consequently, section 275 of the Insurance Act states that the loss transfer scheme only applies to an “Ontario insurer”.
The limits of the loss transfer scheme
Canadian courts and arbitrators have adopted a common sense approach to determining an “Ontario insurer”.
In Primmum Insurance Company v. Allstate Insurance Company,[2] an Ontario motorcyclist was involved in a car accident in in North Carolina and was insured by a Primmum, an Ontario insurer. Primmum paid statutory accident benefits to its insured and requested indemnity from Allstate, which insured the other vehicle involved in the accident. There was little dispute in this case that Allstate was licensed in Ontario to undertake and sell automobile insurance.[3] The Ontario Superior Court affirmed that “if both of the insurers are registered in and carry on business in Ontario, they may claim loss transfer, even if the accident occurred in a non-loss-transfer jurisdiction such as Vermont.”[4]
Importantly, Justice Cameron provided the following guidance to insurers in Allstate’s circumstances:
This was not an impermissible extraterritorial exercise of Ontario jurisdiction. It was a case of enforced arbitration of a statutory cause of action between two Ontario insurers. If Allstate wishes to avoid such a result because North Carolina has a different insurance regime, it should deregister as an Ontario insurance company or incorporate a subsidiary to sell insurance in North Carolina.[5]
Subsequent Ontario courts have yet to apply this guidance, but Ontario arbitrators have. In Personal Insurance Co. and Zurich Insurance Co., Re,[6] an Ontario resident was involved in an accident with a tractor-trailer in Illinois. The Ontario resident was insured by Personal Insurance, an Ontario insurer, and the truck was insured by Zurich American Insurance Company (“Zurich America”).
Member Shari Novick considered but distinguished the Superior Court’s decision in Primmum Insurance (set out above), citing evidence (a corporation organization chart) that Zurich America was a subsidiary of Zurich Insurance Company Ltd. (“Zurich Parent”). In this case, the “target insurer” for loss transfer indemnification, Zurich America, was not an Ontario insurer. In this regard, Member Novick concluded as follows:
While it is not clear what the exact relationship is between the Zurich Insurance Company shown on the Organisational chart filed (which owns Zurich American through a holding company), and the Canadian branch of the company with same name, it is clear there are two separate entities in North America, Zurich American Insurance Company in the United States, and the Canadian branch of Zurich Insurance Company with a head office in Toronto. Zurich American is clearly a separate company, operating only in the United States. The fact that it is wholly owned by the parent company, that also has a Canadian branch, does not result in a finding that they are an “Ontario insurer”.[7]
Conclusion
Considering the purpose of the loss transfer
scheme, the clear statutory language, and the court’s treatment of the
definition of an “Ontario insurer”, it is reasonable to conclude that the Loss Transfer
scheme will only apply to insurer entities that are themselves licensed with
the Ontario regulator to provide automobile insurance in Ontario.
[1] Insurance Act, RSO 1990, c 1.8, s 275 (2) (“Indemnification under subsection (1) shall be made according to the respective degree of fault of each insurer’s insured as determined under the fault determination rules”).
[2] 2010 ONSC 986 affirmed by Primmum Insurance Company v. Allstate Insurance Company,2010 ONCA 756 leave to appeal to SCC refused (10 January 2011) 34036 [Primmum].
[3] Ibid at para 17.
[4] Ibid at para 20.
[5] Ibid at para 29 [emphasis added].
[6] Personal Insurance Co. and Zurich Insurance Co., Re, 2018 CarswellOnt 10656.
[7] Ibid at para 65.
