Insurers Must Prioritise Priority

November 11, 2013

A new Superior Court case looks at the interesting interplay between accident benefits priority disputes, estoppel, and extra-provincial accidents.

A pedestrian was struck by a truck on a highway in Alberta on September 21, 2007.  He suffered catastrophic injuries as a result of the accident. He then claimed Ontario’s statutory accident benefits from State Farm, who insured his mother in Ontario under a standard auto policy. He claimed recourse against State Farm on the basis that he was a “dependant” of his mother at the time of the accident.

State Farm began to pay the claimant’s SABS claim in December 2007 and continued paying him benefits for roughly five years. In 2008, State Farm accepted that his injuries were “catastrophic” for the purpose of SABS benefits.

State Farm then brought an Application in court, seeking an Order that the claimant was not insured under his mother’s policy because he was not a “dependant” within the meaning of the policy. If successful, the company also sought an Order allowing it to terminate payment of benefits to the claimant. To its credit, State Farm did not seek repayment of benefits it had paid already.

The claimant opposed State Farm’s application on two issues: Firstly, he argued that the claimant was a “dependant” of his mother at the time of the accident. Secondly, he argued that the company was estopped from denying benefits after paying them for five years.

The judge agreed with the claimant on both issues. The dependency analysis followed the jurisprudence on financial dependency and I won’t get into it here because it is far less interesting than the estoppel analysis.

On estoppel, the judge first noted that the issue involved the law of three jurisdictions:  The accident happened in Alberta and was governed by Alberta law.  The State Farm policy was written in Ontario and was governed by Ontario law. The vehicle that struck the claimant was licensed and insured in Manitoba.

With respect to Ontario, the judge found that the Disputes Between Insurers regulation (O. Reg. 283/95) provides a code for dealing with disputes as to which insurer will be responsible to pay SABS. He referenced section 2 of the regulation, which requires the first insurer that receives a completed application for benefits to pay those benefits pending the outcome of any priority dispute. He found that State Farm received the claimant’s completed application around December 19, 2007 and that the insurer was aware that the striking truck was insured by Manitoba Public Insurance Corporation.

The judge then referred to the Supreme Court of Canada’s three-part test on estoppel by convention:

  1. The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption.  Nevertheless, estoppel can arise out of silence (impliedly).
  2. A party must have conducted itself, i.e. acted, in reliance on such a shared assumption, its actions resulting in a change of its legal position.
  3. It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption.  The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position.

He found:

Here, the “shared assumption” concerns the process pursued by State Farm.  In simple terms, if State Farm wished to pursue a position, as against [the claimant], that it was not liable because he was not a dependant, it was incumbent on State Farm to do so while it was still open to [the claimant] to pursue a claim for SABS against MPIC.  It is not sufficient that State Farm took this position, as against MPIC.  Nor is this made sufficient because [the claimant] knew that this was State Farm’s position as against MPIC.  Under the legislation, State Farm was obligated to pay pending resolution of the priority dispute between itself and MPIC.  [the claimant] was entitled to take no position as between the two insurers.  He was entitled to participate in the fact-finding process, as between the two insurers, and “let the chips fall where they may”.  In the absence of a clear indication from State Farm that it would take the position, with him, that it should not be required to pay, even if MPIC did not have to pay, there was no reason for [the claimant] to take steps against MPIC.

The judge concluded that the “shared assumption” was that State Farm would accept coverage (manifest by paying benefits for five years) without later refusing coverage on the basis of dependency outside a priority dispute between itself and MPIC. He also found that the claimant had changed his legal position by not pursuing an accident benefits claim against MPIC. Finally, he found that it would be unjust to allow State Farm to resile now from the shared assumption.

This case reminds Ontario insurers to investigate priority disputes early and, if they want to dispute priority, they must do so pursuant to the strict procedures contained in O. Reg. 283/95.

One of the issues that came up in the case (but was not decided) was whether State Farm would have been able to sustain an Ontario priority dispute against MPIC as a result of the accident, which occurred in Alberta. There is no question that MPIC would have been bound by Ontario law had the accident happened in Ontario. But would State Farm have been able to dispute priority against MPIC in Ontario where the accident happened in Alberta? And if MPIC would have been subject to our arbitration process, would it have been bound to pay Ontario accident benefits to a claimant as a result of an accident in Alberta? I will save this discussion for a future blog.

See State Farm v. Bunyan, 2013 ONSC 6670 (CanLII)


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