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OCA clarifies Insurance Act amendments

|Written By Alex Robinson
OCA clarifies Insurance Act amendments
Barry Percival says a recent Ontario Court of Appeal decision will discourage plaintiffs’ counsel from delaying the commencement of actions.

The Ontario Court of Appeal has clarified that 2015 amendments to the Insurance Act could apply to actions that were brought forward before changes came into force.

In complimenting decisions of two cases heard together on appeal — El-Khodr v. Lackie and Cobb v. Long Estate — the court found that a new prejudgment interest rate applied to actions brought over motor vehicle accidents that predated the legislation.

In 2015, amendments to the Insurance Act came into effect, which reduced the default rate of prejudgment interest for non-pecuniary losses for bodily injury or death from five per cent to the bank rate at the time the proceeding is started. There, however, has been much debate as to whether this had retrospective effect or only applied to new actions.

Lawyers say the Court of Appeal’s decision could settle this argument and bring greater certainty to the issue.

Barry Percival, one of the lawyers who represented the defendants in El-Khodr, says the decision is quite impactful as the lower prejudgment interest rate eradicates an incentive for plaintiffs to delay proceedings.

“In my view, this decision will now discourage plaintiffs counsel from delaying the commencement of actions and will accelerate the litigation process, all to the benefit of the injured plaintiff,” he says.

Plaintiffs lawyers, however, say the decision is troubling as it makes it more difficult for injured plaintiffs to settle their accident benefits before the tort case gets resolved.

Kris Bonn, one of the lawyers representing the plaintiff in Cobb, says the decision shows the courts are interpreting the legislation in favour of insurance companies.

“So I think it really is making practising lawyers in this field take a hard look at their cases before they know they can take on a case anymore in these motor vehicle crash cases,” he says.

In Cobb v. Long Estate, a jury awarded $220,000 in compensatory damages to a plaintiff who had brought a claim against the estate of a man who collided with him in a 2008 car crash. The trial judge awarded just a final amount of $34,000 after deducting the rest for collateral benefits the plaintiff had already received from his insurer as well as for the statutory deductible for general damages.  

The plaintiff appealed the decision, arguing the judge had erred by deducting amounts allocated to income replacement benefits in a statutory accident benefits settlement from the jury awards.

The plaintiff also contended that the judge’s determination of a three-per-cent prejudgment interest rate was not correct, and that it should be five per cent,  which was the rate in effect before the beginning of 2015, when the Insurance Act was amended.

On the issue of whether the statutory accident benefits settlement should be deducted, the plaintiff argued that amounts for past income loss and future income loss should be treated separately. An award can only be reduced by a corresponding statutory accident benefit on a benefit-by-benefit basis under the Insurance Act, the plaintiff submitted.

The Court of Appeal, however, found the legislation does not distinguish between amounts that relate to past or future income loss, and that it only refers to amounts received before trial.

“The claims are still claims for income loss,” wrote Justice Jean MacFarland on behalf of a three-judge panel.

“The Insurance Act does not differentiate between past and future losses — it simply refers to ‘all payments . . . that the plaintiff has received . . . before the trial of the action for statutory accident benefits in respect of the income loss and loss of earning capacity.’”

The Court of Appeal upheld the judge’s decision to exercise his discretion on a three-per-cent rate for prejudgment interest, but it also clarified that the applicable default prejudgment insurance rate on non-pecuniary damages is 0.5 per cent, regardless of when an accident happened. The decision reduced the plaintiff’s award to $22,136.

Chris Paliare, one of the lawyers who represented the defendant in Cobb, says this was the first time these new Insurance Act provisions were being considered by the Court of Appeal.

“It clarifies them and is of great assistance to anybody who wants to analyze statutory pre-trial benefits because the impact of the deductibility of those can have profound effects on what it is you’re going to get at the end of the day regardless of what verdict the jury comes back with,” he says.

Insurance defence lawyers say the decisions also bring greater certainty to statutory deductibles.

In the El-Khodr case, a jury awarded $2.9 million to a plaintiff after a 2007 car crash in which he was rear-ended and suffered catastrophic injuries.

Joseph Obagi, who acted for the plaintiffs in El-Khodr, says his client was disappointed by the court’s ruling that the government meant for the legislation to apply to accidents that happened prior to the amendment.

“If you apply that retroactively, then, effectively, the reduction in premiums is coming at the expense of accident victims that were injured in motor vehicle accidents that occurred entirely prior to the date of the amendment,” he says. “So that’s a little disappointing and troubling.”

Obagi and Bonn say their clients have not decided yet whether they will seek leave to appeal the decision from the Supreme Court of Canada.        

  • What are insurance premiums for?

    Katrina Prystupa
    This is illogical to me. The premiums I paid were for a certain contract of insurance. Sure the provisions in the legislation inform the contract. But the insurer is supposed to have set aside a reserve for anticipated claims from the premiums I and others paid on their policies in the past. They aren't supposed to fund future reductions in premiums. Do I get a premium rebate because of this retroactive effect?

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