The battle over the constitutionality of damage caps for “minor” injuries sustained in motor vehicle accidents is heating up.
Even as the Alberta Court of Appeal judgment in Morrow v. Zhang remained on reserve at press time, almost eight months after the hearing, Justice Walter Goodfellow of the Nova Scotia Supreme Court upheld the constitutionality of Nova Scotia’s $2,500 damage cap in Hartling v. Nova Scotia (Attorney General).
Zhang is an appeal from the decision of Associate Chief Justice Neil Wittmann of the Court of Queen’s Bench of Alberta striking the province’s $4,000 cap on damages for pain and suffering arising from minor injuries.
Hartling arose when several plaintiffs who suffered injuries in a motor vehicle accident challenged the definition of “minor injury” in the Insurance Act.
The act defines minor injury as a personal injury that does not result in permanent serious disfigurement, in permanent serious impairment of an important bodily function caused by a continuing injury which is physical in nature, and resolves within 12 months following the accident.
The plaintiffs alleged the definition discriminated against individuals with certain types of pain and discomfort and therefore constituted discrimination based on physical disability as defined in s. 15(1) of the Charter of Rights and Freedoms.
But Goodfellow ruled that the extensive evidence before him failed to establish that the limited stigmatization or
marginalization that did occur, resulted from the legislation.
“What limited stigmatization and marginalization exists is a by-product of the adversarial system which predates the legislation and which, through the process of education, etc., is ever-diminishing,” he wrote.
“Unfortunately, the nature of the tort recovery system which is adversarial requires patients to focus on their pain and disability which is counter to the best methods of treatment which focuses patients on their abilities.
I conclude that the evidence advanced by the applicants falls markedly short of meeting the onus that persons suffering soft tissue injuries, even those that result in chronic pain, are stereotyped, stigmatized, or disadvantaged by society.”
The case was different from Morrow v. Zhang, Goodfellow noted, where patients with soft tissue injuries “bore the entire impact of the Alberta legislation.” Indeed, Wittmann concluded the difficulty with Alberta’s Minor Injury Regulation was it did not apply equally to all minor injuries.
“I have found that soft tissue injury victims are subjected to prejudice and are stereotyped on the basis of the type of injury from which they suffer,” he wrote.
The key to Zhang, notes Fred Kozak, a partner at Reynolds Mirth Richards & Farmer LLP in Edmonton, who with colleagues Matt Woodley and Jeremy Taitinger successfully represented the plaintiffs, is that people with
injuries far less significant than victims with soft tissue injuries were not affected by the cap.
“The Alberta cap, for example, wouldn’t apply to someone who broke a finger or suffered a minor laceration or burn,” Kozak says. “In the end, the cap was designed to perpetuate the idea that whiplash sufferers and other soft tissue victims weren’t really suffering, and that notion is both wrong and discriminatory.”
Still, Kozak says the Nova Scotia cap may yet be subject to attack. “The 12-month limitation in the legislation may not ultimately survive, but that will depend on the kind of evidence other plaintiffs can put forward to establish that it perpetuates the pre-existing stereotype,” he says.
However that may be, the insurance industry has long touted caps and similar measures as essential to preserving affordable premiums for Canadian drivers.
“The insurance industry believes that the cap maintained limits on the cost of minor injuries and allowed the industry to provide affordable and competitive auto insurance,” says Rick Davison, a partner with Parlee McLaws LLP’s Calgary office, who with colleague David Rolf, represented the Insurance Bureau of Canada in Zhang. (The Bureau, represented by Jeff Galway, a partner with Blake Cassels & Graydon LLP’s Toronto office, also intervened in Hartling.)
But Tom Achtymichuk, a partner with McCuaig Desrochers LLP in Edmonton and past president of the Alberta branch of the Canadian Bar Association, has a different perspective.
“The initial judgment in Zhang is a victory for all Albertans and Canadians because it restores people’s access to justice by allowing the assessment of their injuries on an individual basis,” he says.
Still, Wittmann acknowledged that rising general damages were “a legitimate cause for concern” and that maintaining affordable mandatory automobile premiums was a “pressing and substantial objective” for the government.
“In sum, I find that it was reasonable for the Crown to perceive that an insurance crisis existed or was imminent and that mandatory automobile insurance was becoming inaccessible to many Albertans at the time that the Insurance Reforms were implemented,” he wrote.
The objective of the cap, then, was to reduce insurance premiums. Evidence at trial indicated the $4,000 cap reduced overall settlements 15.5 per cent while reducing minor injury settlements by 44.3 per cent. But these costs were not the only factor contributing to premium increases.
“This is evidenced by the fact, that although claims costs had been rising for some time, the insurance industry continued to be profitable,” Wittmann wrote.
While the IBC sought the cap to achieve what they believed was a reasonable return on equity of 12.5 per cent, the evidence showed that the sector’s profits had been increasing even before the imposition of the cap.
“These profits continued to increase in the years following the imposition of the cap to the point where some of the companies had returns in excess of 33 per cent,” Kozak says.
While the government was entitled to choose from a range of reasonable options to deal with the insurance crisis, the choice of a cap placed the burden of doing so primarily on the shoulders of minor injury victims.
“In assessing whether the MIR impairs the [equality] rights of the claimant group no more than was necessary, I must focus on whether the Crown could have pursued its purpose of making mandatory automobile insurance premiums more affordable without discriminating or in a manner that minimized the discrimination,”
Justice Wittmann wrote.
Here, the government had failed to demonstrate that the cap was a reasonable alternative.
“In other words, the MIR ‘plainly overshoots the mark’ in terms of the interference it entails in relation to the rights of the claimant group,” Wittmann wrote. The appropriate remedy was nullification of the MIR.
Alan D’Silva, a partner at Stikeman Elliott LLP Toronto office, who represented State Farm Mutual Automobile Insurance Co. on the Zhang appeal, argued s. 15 didn’t apply.
“Our position was that people who suffer from minor injuries are not a group covered by the discrimination provisions because the group is not one with immutable or permanent characteristics nor a historically disadvantaged group,” he said.
D’Silva also pointed out that individuals with injuries that affect their life skills and ability to function are not subject to the cap. “Put another way, the group that might qualify under s. 15 are not limited in damages under the Alberta scheme,” he said.
State Farm, the insurer involved in Zhang, also maintained the courts shouldn’t interfere with the cap because it represented part of a bargain following extensive consultation between the government and the insurance industry.
“In fact, [former Alberta premier] Ralph Klein ran for election while this legislation was being phased in, and his platform included a pledge that the legislation would reduce premiums, which in fact it did,” he said.
But the Ontario legislation, which imposes a $30,000 deductible on plaintiffs, may be safe from attack on grounds of discrimination. “Arguably, Ontario treats every victim similarly regardless of the type of injury suffered, Kozak says. “That’s something within the legislative purview of the province.”
Which is not to say that the Ontario legislation is safe from attack on other grounds. “I have a number of ways of going at an across-the-board deductible, but I’m not going to play my hand now,” Kozak says.
Even as the Alberta Court of Appeal judgment in Morrow v. Zhang remained on reserve at press time, almost eight months after the hearing, Justice Walter Goodfellow of the Nova Scotia Supreme Court upheld the constitutionality of Nova Scotia’s $2,500 damage cap in Hartling v. Nova Scotia (Attorney General). Zhang is an appeal from the decision of Associate Chief Justice Neil Wittmann of the Court of Queen’s Bench of Alberta striking the province’s $4,000 cap on damages for pain and suffering arising from minor injuries.
Hartling arose when several plaintiffs who suffered injuries in a motor vehicle accident challenged the definition of “minor injury” in the Insurance Act.
The act defines minor injury as a personal injury that does not result in permanent serious disfigurement, in permanent serious impairment of an important bodily function caused by a continuing injury which is physical in nature, and resolves within 12 months following the accident.
The plaintiffs alleged the definition discriminated against individuals with certain types of pain and discomfort and therefore constituted discrimination based on physical disability as defined in s. 15(1) of the Charter of Rights and Freedoms.
But Goodfellow ruled that the extensive evidence before him failed to establish that the limited stigmatization or
marginalization that did occur, resulted from the legislation.
“What limited stigmatization and marginalization exists is a by-product of the adversarial system which predates the legislation and which, through the process of education, etc., is ever-diminishing,” he wrote.
“Unfortunately, the nature of the tort recovery system which is adversarial requires patients to focus on their pain and disability which is counter to the best methods of treatment which focuses patients on their abilities.
I conclude that the evidence advanced by the applicants falls markedly short of meeting the onus that persons suffering soft tissue injuries, even those that result in chronic pain, are stereotyped, stigmatized, or disadvantaged by society.”
The case was different from Morrow v. Zhang, Goodfellow noted, where patients with soft tissue injuries “bore the entire impact of the Alberta legislation.” Indeed, Wittmann concluded the difficulty with Alberta’s Minor Injury Regulation was it did not apply equally to all minor injuries.
“I have found that soft tissue injury victims are subjected to prejudice and are stereotyped on the basis of the type of injury from which they suffer,” he wrote.
The key to Zhang, notes Fred Kozak, a partner at Reynolds Mirth Richards & Farmer LLP in Edmonton, who with colleagues Matt Woodley and Jeremy Taitinger successfully represented the plaintiffs, is that people with
injuries far less significant than victims with soft tissue injuries were not affected by the cap.
“The Alberta cap, for example, wouldn’t apply to someone who broke a finger or suffered a minor laceration or burn,” Kozak says. “In the end, the cap was designed to perpetuate the idea that whiplash sufferers and other soft tissue victims weren’t really suffering, and that notion is both wrong and discriminatory.”
Still, Kozak says the Nova Scotia cap may yet be subject to attack. “The 12-month limitation in the legislation may not ultimately survive, but that will depend on the kind of evidence other plaintiffs can put forward to establish that it perpetuates the pre-existing stereotype,” he says.
However that may be, the insurance industry has long touted caps and similar measures as essential to preserving affordable premiums for Canadian drivers.
“The insurance industry believes that the cap maintained limits on the cost of minor injuries and allowed the industry to provide affordable and competitive auto insurance,” says Rick Davison, a partner with Parlee McLaws LLP’s Calgary office, who with colleague David Rolf, represented the Insurance Bureau of Canada in Zhang. (The Bureau, represented by Jeff Galway, a partner with Blake Cassels & Graydon LLP’s Toronto office, also intervened in Hartling.)
But Tom Achtymichuk, a partner with McCuaig Desrochers LLP in Edmonton and past president of the Alberta branch of the Canadian Bar Association, has a different perspective.
“The initial judgment in Zhang is a victory for all Albertans and Canadians because it restores people’s access to justice by allowing the assessment of their injuries on an individual basis,” he says.
Still, Wittmann acknowledged that rising general damages were “a legitimate cause for concern” and that maintaining affordable mandatory automobile premiums was a “pressing and substantial objective” for the government.
“In sum, I find that it was reasonable for the Crown to perceive that an insurance crisis existed or was imminent and that mandatory automobile insurance was becoming inaccessible to many Albertans at the time that the Insurance Reforms were implemented,” he wrote.
The objective of the cap, then, was to reduce insurance premiums. Evidence at trial indicated the $4,000 cap reduced overall settlements 15.5 per cent while reducing minor injury settlements by 44.3 per cent. But these costs were not the only factor contributing to premium increases.
“This is evidenced by the fact, that although claims costs had been rising for some time, the insurance industry continued to be profitable,” Wittmann wrote.
While the IBC sought the cap to achieve what they believed was a reasonable return on equity of 12.5 per cent, the evidence showed that the sector’s profits had been increasing even before the imposition of the cap.
“These profits continued to increase in the years following the imposition of the cap to the point where some of the companies had returns in excess of 33 per cent,” Kozak says.
While the government was entitled to choose from a range of reasonable options to deal with the insurance crisis, the choice of a cap placed the burden of doing so primarily on the shoulders of minor injury victims.
“In assessing whether the MIR impairs the [equality] rights of the claimant group no more than was necessary, I must focus on whether the Crown could have pursued its purpose of making mandatory automobile insurance premiums more affordable without discriminating or in a manner that minimized the discrimination,”
Justice Wittmann wrote.
Here, the government had failed to demonstrate that the cap was a reasonable alternative.
“In other words, the MIR ‘plainly overshoots the mark’ in terms of the interference it entails in relation to the rights of the claimant group,” Wittmann wrote. The appropriate remedy was nullification of the MIR.
Alan D’Silva, a partner at Stikeman Elliott LLP Toronto office, who represented State Farm Mutual Automobile Insurance Co. on the Zhang appeal, argued s. 15 didn’t apply.
“Our position was that people who suffer from minor injuries are not a group covered by the discrimination provisions because the group is not one with immutable or permanent characteristics nor a historically disadvantaged group,” he said.
D’Silva also pointed out that individuals with injuries that affect their life skills and ability to function are not subject to the cap. “Put another way, the group that might qualify under s. 15 are not limited in damages under the Alberta scheme,” he said.
State Farm, the insurer involved in Zhang, also maintained the courts shouldn’t interfere with the cap because it represented part of a bargain following extensive consultation between the government and the insurance industry.
“In fact, [former Alberta premier] Ralph Klein ran for election while this legislation was being phased in, and his platform included a pledge that the legislation would reduce premiums, which in fact it did,” he said.
But the Ontario legislation, which imposes a $30,000 deductible on plaintiffs, may be safe from attack on grounds of discrimination. “Arguably, Ontario treats every victim similarly regardless of the type of injury suffered, Kozak says. “That’s something within the legislative purview of the province.”
Which is not to say that the Ontario legislation is safe from attack on other grounds. “I have a number of ways of going at an across-the-board deductible, but I’m not going to play my hand now,” Kozak says.
