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Insurance - Auto - Coverage Dispute

. Chubb Insurance Company of Canada v. Zurich Insurance Company

In Chubb Insurance Company of Canada v. Zurich Insurance Company (Ont CA, 2026) the Ontario Court of Appeal allowed an appeal, here brought against an earlier Superior Court appeal order that "decided that Chubb and Zurich were both insurers and that they should therefore share responsibility for paying benefits", and that from an arbitration that held that "Chubb was responsible for paying all benefits".

Here the court extensively considers the auto insurance 'coverage dispute' provisions [under IA s.268 and Reg 283/95 Disputes Between Insurers]:

[45] Section 268(1) of the Insurance Act stipulates that every motor vehicle liability policy is deemed to provide for statutory accident benefits under the SABS. Section 268(2) sets out the order of priority for determining which insurer is required to pay statutory accident benefits to the occupant of an automobile involved in an accident:

(2) The following rules apply for determining who is liable to pay statutory accident benefits:

1. In respect of an occupant of an automobile,

i. the occupant has recourse against the insurer of an automobile in respect of which the occupant is an insured,

ii. if recovery is unavailable under subparagraph i, the occupant has recourse against the insurer of the automobile in which he or she was an occupant,

iii. if recovery is unavailable under subparagraph i or ii, the occupant has recourse against the insurer of any other automobile involved in the incident from which the entitlement to statutory accident benefits arose,

iv. if recovery is unavailable under subparagraph i, ii or iii, the occupant has recourse against the Motor Vehicle Accident Claims Fund.

[46] Section 268(3) requires an insurer against which a person has recourse to pay statutory accident benefits. Section 268(4) provides that, if a person has recourse against more than one insurer for the payment of statutory accident benefits, “the person, in his or her absolute discretion, may decide the insurer from which he or she will claim the benefits.”

[47] The Regulation addresses disputes between insurers.

[48] Section 1 of the Regulation states that “[a]ll disputes as to which insurer is required to pay benefits under section 268 of the Act shall be settled in accordance with this Regulation.”

[49] Section 2(1) applies to accidents that occurred prior to September 1, 2010, and it requires that the first insurer who receives an application for statutory accident benefits pay “benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits under section 268 of the Act.”

[50] In Kingsway General Insurance Company v. Ontario, 2007 ONCA 62, 84 O.R. (3d) 507, at paras. 19-20 (“Kingsway #2”), Laskin J.A. explained that the purpose of s. 2 of the Regulation is to avoid a situation where people injured in a car accident are left without benefits because of a dispute between insurers:

Section 2 of regulation 283 is critically important in the timely delivery of benefits to victims of car accidents. The principle that underlies section 2 is that the first insurer to receive an application for benefits must pay now and dispute later. The rationale for this principle is obvious: persons injured in car accidents should receive statutorily mandated benefits promptly; they should not be prejudiced by being caught in the middle of a dispute between insurers over who should pay, or as in this case, by an insurer’s claim that no policy of insurance existed at the time.

Insurers cannot avoid their obligation under section 2 by claiming that another insurer should pay or that an insurance policy was cancelled shortly before the accident. If they could deny an application for accident benefits on either of these grounds, section 2 would be rendered meaningless.

[51] Section 3(1) sets out a 90-day notice requirement for insurers that dispute their obligation to pay benefits:

3. (1) No insurer may dispute its obligation to pay benefits under section 268 of the Act unless it gives written notice within 90 days of receipt of a completed application for benefits to every insurer who it claims is required to pay under that section.

[52] Section 3(2) provides that the 90-day period can be extended in specified circumstances:

(2) An insurer may give notice after the 90-day period if,

(a) 90 days was not a sufficient period of time to make a determination that another insurer or insurers is liable under section 268 of the Act; and

(b) the insurer made the reasonable investigations necessary to determine if another insurer was liable within the 90-day period.

[53] Disputes between insurers arising from the Regulation are to be resolved by arbitration: ss. 3(3) and 7 of the Regulation.

c. Previous case law dealing with ss. 2 and 3 of the Regulation

[54] This case raises an unusual situation. There is no dispute that Chubb was not the priority insurer under s. 268(2) of the Insurance Act at the time of Ms. Singh’s accident in 2006. However, because Ms. Singh made a claim to Chubb and because, as the Supreme Court found, there was a sufficient nexus between Ms. Singh and Chubb, Chubb was an insurer for the purpose of s. 2 of the Regulation. Chubb failed to meet its obligation under s. 2 of the Regulation to pay benefits to Ms. Singh, and also failed to meet its obligation to notify Zurich of the dispute in accordance with s. 3 of the Regulation.

[55] The issue in this case is what consequences should flow from Chubb’s failure to meet its obligations under ss. 2 and 3 of the Regulation. The second arbitrator determined that Chubb should be responsible for paying the full amount of benefits paid to Ms. Singh. The appeal judge disagreed and decided that Chubb and Zurich should pay equal amounts, subject to each party paying any 2% compound interest for the delay it caused when it handled the claim.

[56] The broader issue engaged by this case is the principles to be applied in determining the consequences that flow from an insurer’s failure to meet its obligations under ss. 2 and 3 of the Regulation, particularly for accidents that occurred prior to September 1, 2010.

[57] The Regulation does not explicitly set out the sanctions to be imposed where an insurer fails to meet its obligations under ss. 2 and 3 for accidents that occur prior to September 1, 2010, as in this case.[5] However, a number of decisions from this court and the Superior Court suggest that it can be appropriate, although not inevitable, to require that the first insurer that receives a claim to pay benefits permanently where that insurer fails to give the required notice to other insurers, even where the first insurer does not fall within s. 268(2) of the Insurance Act.

[58] Arguably, as a matter of statutory interpretation, where the first insurer who receives an application for benefits fails to meet its obligation to give notice under s. 3 of the Regulation, it should be required to continue paying benefits permanently. This would flow logically from the wording of s. 3(1) to the effect that “[n]o insurer may dispute its obligation to pay benefits under section 268 of the Act unless it gives written notice within 90 days of receipt of a completed application for benefits to every insurer who it claims is required to pay under that section” (emphasis added). However, this court has suggested that permanent payment is not inevitable.

[59] In Kingsway General Insurance Co. v. West Wawanosh Insurance Co. (2002), 2002 CanLII 14202 (ON CA), 58 O.R. (3d) 251 (C.A.) (“Kingsway #1”), the issue was whether the 90-day notice period should be extended pursuant to s. 3(2) of the Regulation. In that context, and while the court was dealing with different factual circumstances than arise here, the court explained, at para. 10, that the Regulation is meant to bring certainty to the resolution of disputes between insurers:

The Regulation sets out in precise and specific terms a scheme for resolving disputes between insurers. Insurers are entitled to assume and rely upon the requirement for compliance with those provisions. Insurers subject to this Regulation are sophisticated litigants who deal with these disputes on a daily basis. The scheme applies to a specific type of dispute involving a limited number of parties who find themselves regularly involved in disputes with each other. In this context, it seems to me that clarity and certainty of application are of primary concern. Insurers need to make appropriate decisions with respect to conducting investigations, establishing reserves and maintaining records. Given this regulatory setting, there is little room for creative interpretations or for carving out judicial exceptions designed to deal with the equities of particular cases.

[60] In Kingsway #2, the court dealt with a situation where an insurance policy issued by Kingsway General Insurance Company (“Kingsway”) was cancelled two days before an accident. The injured person made a claim for benefits to Kingsway. Kingsway refused to pay on the basis that the injured person was not insured on the date of the accident because the insurance policy was cancelled for non-payment of premiums. The Motor Vehicle Accident Claims Fund (the “Fund”) paid the benefits and sought reimbursement from Kingsway at an arbitration. The arbitrator found that there was a sufficient nexus between Kingsway and the claimant, and that Kingsway was therefore required to pay benefits and then dispute the claim in accordance with the Regulation. Because Kingsway did not follow this process, the arbitrator ordered Kingsway to pay accident benefits to the claimant on a permanent basis.

[61] On appeal, this court noted that Kingsway may have improperly terminated the insurance policy because the record suggested that Kingsway overcharged the insured by including amounts it was not entitled to charge. If Kingsway was not entitled to cancel the policy, the injured person was still insured at the time of the accident. The court agreed with the arbitrator that, even if Kingsway was entitled to cancel the insurance, there was a sufficient nexus between Kingsway and the claimant for Kingsway to be obligated to pay first and dispute later as required by ss. 2 and 3 of the Regulation.

[62] In this context, the court remitted the matter back to the arbitrator to first determine whether Kingsway improperly cancelled the insurance, in which case it would have an obligation to pay benefits permanently. Alternatively, even if Kingsway was entitled to terminate the policy, the arbitrator was to decide what sanction should be imposed for Kingsway’s breach of s. 2 of the Regulation. The court directed that, in doing so, the arbitrator was to consider “not only the effect of Kingsway’s breach of section 2 of regulation 283, but as well the effect of Kingsway’s failure to give timely notice of its intent to dispute its obligation to pay in accordance with section 3 of the regulation.”

[63] In Wawanesa Mutual Insurance Company v. Lombard Canada, 2010 ONCA 383, 267 O.A.C. 32, the court dealt with circumstances similar to those in Kingsway #2. In that case, the passenger in a van was injured in an accident involving a taxi. The passenger made a claim for benefits to Wawanesa Mutual Insurance Company (“Wawanesa”), on the understanding that Wawanesa insured the van. Wawanesa refused to pay, taking the position that the insurance coverage had lapsed. The passenger then made a claim to Lombard Canada, which insured the taxi. Lombard began paying benefits. Four years later, Lombard notified Wawanesa that it should be responsible for paying the claim and initiated arbitration. The arbitrator found, in two preliminary decisions, that Wawanesa was not precluded from disputing who the priority insurer was, despite having breached ss. 2 and 3(1) of the Regulation. The parties brought applications to set aside both preliminary decisions, which were dismissed. The arbitrator and application judge found they were bound by Kingsway #2 to first determine whether Wawanesa was an insurer at the time of the accident. On appeal, Lombard took the position that Wawanesa could not contest its obligation to pay because it was the first insurer to receive a claim for benefits, and because it had failed to pay and give notice as required by ss. 2 and 3 of the Regulation. This court upheld the arbitrator’s ruling. Again, this decision stands for the proposition that when the first insurer who receives a claim breaches ss. 2 and 3 of the Regulation, it is not automatically required to pay benefits to the injured person on a permanent basis.

[64] In Lombard Canada Ltd. v. Royal & SunAlliance Insurance Co. (2008), 2007 CanLII 82792 (ON SC), 94 O.R. (3d) 62 (S.C.), Strathy J., as he then was, dealt with a situation that is closest to the circumstances of this case. In Lombard, the claimant was catastrophically injured in a car accident in October 2002. Lombard Canada Limited (“Lombard”) had insured the vehicle, but cancelled the policy two months before the accident. The claimant submitted a claim for benefits to Lombard, but it denied the claim on the basis that it had cancelled the policy. The Fund then denied the claim for benefits on the basis that Lombard should have paid pursuant to s. 2 of the Regulation. In October 2003, Lombard discovered that the claimant was listed as a driver under a policy issued to his employer by Royal and SunAlliance Insurance Co. (“RSA”). Lombard gave notice to RSA, which refused to pay because Lombard failed to give notice to RSA within 90 days of receiving the claim contrary to s. 3 of the Regulation.

[65] The matter went to arbitration. The arbitrator found that there was a sufficient nexus between Lombard and the claimant such that Lombard was required to pay benefits in accordance with s. 2 of the Regulation as the first insurer that received a claim. The arbitrator refused to extend the 90-day period under s. 3(2)(b) of the Regulation because Lombard did little, if anything, during the first 90 days to determine if there was another insurer responsible for payment. The arbitrator thereby held Lombard responsible for paying benefits to the claimant on a permanent basis.

[66] Lombard appealed to the Superior Court. Strathy J. upheld the arbitration award and dismissed the appeal. In reaching his conclusion, Strathy J. reviewed this court’s decisions dealing with the interpretation of ss. 2 and 3 of the Regulation.[6] He noted this court’s direction in Kingsway #2 that, when deciding on the appropriate remedy for a breach of s. 2 of the Regulation, the arbitrator should consider the effect of Kingsway’s breaches of ss. 2 and 3 of the Regulation. Strathy J. then held, at para. 61, that the effect of the breaches in the circumstances of the case before him justified requiring Lombard to pay:

In this case, the obvious consequence of Lombard’s breach of s. 2 was to leave the Claimant without benefits, at a time when those benefits were most needed, for a substantial time, a result that offends the very purpose of the legislation. The obvious effect of the failure to give prompt notice to RSA was to deprive that insurer of any opportunity to make timely investigation of the claim and to take appropriate and early claim management measures. While we have no specific evidence of the direct results of these breaches, it is a reasonable inference that it was highly prejudicial to the Claimant and caused at least some prejudice to RSA. Indeed, as Lombard did not take ownership of the claim, no insurer was taking steps, in the crucial early stages, to come to grips with, investigate and manage the claim.

[67] Strathy J. further commented, at para. 62, that there would be a benefit to imposing an inflexible rule that insurers who fail to meet their obligations under ss. 2 and 3 of the Regulation should be required to pay benefits permanently but that he was not required to make that determination in the case before him:

In my view, there is much to be said for an inflexible rule that an insurer who fails to pay benefits and fails to put other insurers on notice on receipt of an application, with which there is some nexus, should be found permanently responsible for the claimant’s benefits. This promotes compliance with the statutory scheme. It is no more inequitable than fixing permanent responsibility on the first insurer, who initially pays the claim but fails to give timely notice to the other insurer under s. 3(2). It is not necessary, in this case, to decide whether the rule should be inflexible. It is sufficient to say that I agree with the Arbitrator’s decision on the facts of this particular case.

[68] I too agree that there would be a benefit to having an inflexible rule. As Sharpe J.A. stated in Kingsway #1, at para. 10, when addressing notice provisions in s. 3 of the Regulation and the circumstances where the 90-day deadline can be extended, “[i]nsurers are entitled to assume and rely upon the requirement for compliance with those provisions.” In addition, the wording of s. 3 of the Regulation would support such a rule.

[69] However, in the absence of a five-judge panel, this court, courts below and arbitrators are bound by the approach set out in Kingsway #2, which I would describe as the following three-part inquiry:

(a) If there is a live issue regarding whether the insurer who received the claim first is the priority insurer, this should first be determined because it puts an end to the dispute.

(b) If the first insurer who received a claim is not the priority insurer, the next step is to determine whether the first insurer who received a claim breached ss. 2 and/or 3 of the Regulation. This includes determining whether there is a sufficient nexus between the insurer and the claimant to trigger the insurer’s obligation to pay under s. 2, and, if the insurer did not provide the 90-day notice to other insurers it claims should pay, whether the notice period should be extended pursuant to s. 3(2) of the Regulation.

(c) If it is determined that the first insurer who received a claim breached ss. 2 and 3 of the Regulation, the arbitrator has the discretion to determine whether the insurer should be required to pay benefits permanently, having regard to factors such as the effects of the ss. 2 and/or 3 breaches.

....

[80] Section 2 of the Regulation is designed to guard against the type of harm Ms. Singh experienced; the provision is meant to ensure that disputes between insurers do not interfere with the prompt payment of claims to people who were injured in motor vehicle accidents. Section 3 is designed to guard against the prejudice Chubb’s delay in notifying Zurich caused; the insurer who is ultimately responsible for paying a claim should have a chance to investigate as soon as possible after the accident to adjust the claim and assess its risk.

[81] Given the circumstances of this case, the second arbitrator made no errors in exercising his discretion to require Chubb to pay the full amount of benefits owed to Ms. Singh permanently. As indicated above, there is no inflexible rule requiring Chubb to pay all amounts owed to Ms. Singh permanently but his decision was factually grounded, reasonable and consistent with the law.