A claim an insurer breached its good faith duty was dismissed
The Ontario Court of Appeal confirmed the exclusive jurisdiction of the Licence Appeal Tribunal for claims about statutory accident benefits, tossing an appeal from an injured person pursuing her insurer for breaching duty of good faith.
Stegenga v. Economical Mutual Insurance Company is a significant milestone in the move of accident benefit claims from the courts to the LAT system, says Kevin Adams, a partner at Rogers Partners LLP.
“This was an attempt by the personal injury plaintiff’s lawyers to try to preserve that bad faith cause of action and pursue it in court,” he says. “This just firmly shuts the door on the potential to recover for bad faith in a standalone action.”
In 2011, Morgan Stegenga was seriously injured in a car accident at 15 years old. The next year, her mother applied for statutory accident benefits. Until 2015, their insurer, Economical Mutual Insurance Company, neglected to inform the Stegengas that Morgan’s injury may qualify as a catastrophic impairment; nor did it investigate Stegenga’s condition, have her medically assessed, assign a case manager for her care and rehabilitation or respond to their requests for authorization of a neurologic psychoeducational assessment. Stegenga included “56 particulars” of Economical’s alleged breaches in her statement of claim, states the Court of Appeal decision by Justice Benjamin Zarnett.
At the Superior Court stage, Economical moved under rule 21 to strike Stegenga’s statement of claim, asking the court to determine if it was barred by s. 280.
Section 280(1) of the Insurance Act says: “This section applies with respect to the resolution of disputes in respect of an insured person’s entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled.” Section 280(2) says these disputes are in the LAT’s jurisdiction.
Superior Court Justice James Ramsay framed the question as “whether a claim for negligent, fraudulent or bad faith administration of accident benefits is a claim falling within s. 280(1).” Ramsay found Stengenga’s case was essentially about the accident benefits, fell within s. 280 and should be dealt with in the LAT system.
Stegenga’s appeal focused on Economical’s bad faith and argued that the duty of good faith “is independent of and in addition” to its duty to pay the benefits, the decision states. Stegenga said the LAT is unable to award aggravated, exemplary or punitive damages and argued that giving the LAT exclusive jurisdiction “effectively insulates” insurance companies from accountability when they breach their good faith duty.
Zarnett ruled the Superior Court had made the correct decision that “at their core” the facts of Stegenga’s claim were essentially about providing, withholding and the administration of Stegenga’s accident benefits, putting the dispute squarely in the LAT’s jurisdiction.
Writing in the decision, Zarnett said the purpose of s. 280 is to reduce insurance rates by expediting personal injury disputes and this would not be helped by an “overly restrictive reading” of the LAT’s jurisdiction and that the legislature must have seen the cost reduction would outweigh the access to the full range of remedies available in the courts.
“So, the plaintiffs or claimants are now restricted to only what LAT can award as a punitive measure — so, 50 per cent of whatever they are awarded in actual benefit entitlement and an increased or more generous percentage of interest on those overdue benefits,” says Adams. “So, it's quite limiting.”
Although claims for bad faith were “pretty rare,” Adams says, this decision eliminates a risk for insurers, who now only have to worry about a 50-per-cent special award, which is “quantifiable” and “much lower than the potential risk for a bad faith claim,” he says.