Application of Ontario’s Loss Transfer Provisions to Alberta Insurer

By Kathryn Orydzuk

The case of Aviva Insurance Company v. Echelon Insurance, 2024 ONSC 5921, arises out of a motor vehicle accident that involved a motorcycle insured by Echelon under a policy issued in Ontario and a Chevy Silverado insured by Aviva under a policy issued in Alberta. The accident occurred in Alberta. The driver of the Silverado was at fault. The motorcyclist applied to his insurer, Echelon, for Accident Benefits. Echelon made payments to the motorcyclist under the policy.

Echelon later sought indemnity from Aviva based upon Ontario’s loss transfer provisions set out in s. 275 of the Ontario Insurance Act, which provides as follows:

Indemnification in certain cases

275 (1) The insurer responsible under subsection 268 (2) for the payment of statutory accident benefits to such classes of persons as may be named in the regulations is entitled, subject to such terms, conditions, provisions, exclusions and limits as may be prescribed, to indemnification in relation to such benefits paid by it from the insurers of such class or classes of automobiles as may be named in the regulations involved in the incident from which the responsibility to pay the statutory accident benefits arose.  R.S.O. 1990, c. I.8, s. 275 (1); 1993, c. 10, s. 1.

Idem

(2) Indemnification under subsection (1) shall be made according to the respective degree of fault of each insurer’s insured as determined under the fault determination rules.  R.S.O. 1990, c. I.8, s. 275 (2).

Deductible

(3) No indemnity is available under subsection (2) in respect of the first $2,000 of statutory accident benefits paid in respect of a person described in that subsection.  R.S.O. 1990, c. I.8, s. 275 (3); 1993, c. 10, s. 1.

Arbitration

(4) If the insurers are unable to agree with respect to indemnification under this section, the dispute shall be resolved through arbitration under the Arbitration Act, 1991.  R.S.O. 1990, c. I.8, s. 275 (4); 2015, c. 20, Sched. 17, s. 5.

Section 9(2)(a) of Reg. 664: AUTOMOBILE INSURANCE specifies that:

9(2) A second party insurer under a policy insuring any class of automobile other than motorcycles, off-road vehicles and motorized snow vehicles is obligated under section 275 of the Act to indemnify a first party insurer,

(a) if the person receiving statutory accident benefits from the first party insurer is claiming them under a policy insuring a motorcycle and,

(i) if the motorcycle was involved in the incident out of which the responsibility to pay statutory accident benefits arises, or

(ii) if motorcycles and motorized snow vehicles are the only types of vehicle insured under the policy…

In short, the insurer of a motorcyclist that pays Accident Benefits to its insured can seek indemnification for those Accident Benefits from the insurer of the at-fault motorist.

The issue in this case is whether the Ontario insurer is entitled to take advantage of this provision as against an Albertan insurer, given that the loss transfer provisions are creatures of Ontario statute.

Prior to this appeal decision, Echelon commenced the loss transfer arbitration proceeding against Aviva. The arbitrator found that she was bound by the decision of Primmum v. Allstate and as such, Ontario’s loss transfer scheme applies to Aviva in the circumstances such that Aviva was bound to indemnify Echelon pursuant to s. 275 of the Insurance Act. This decision is an appeal of the arbitrator’s decision.

This case mentions prior decisions in Primmum, Travelers and Unifund, and briefly reviews the interplay between these cases.

Primmum Insurance Company v. Allstate Insurance Company, 2010 ONSC 986 (CanLII), is an Ontario Superior Court decision arising out of a motor vehicle accident involving a motorcycle and a truck in North Carolina. Primmum insured the motorcyclist under an Ontario policy and Allstate insured the truck driver under a North Carolina policy. Primmum sought to have an arbitrator appointed pursuant to s. 275(4) of the Ontario Insurance Act. Allstate argued that the relevant policy was issued in North Carolina and had a much lower maximum limit and no accident benefits, which resulted in a much lower premium. Allstate argued that it therefore ought not to be subject to Ontario law, and that this would give Ontario statute impermissible extraterritorial effect (as found in Unifund).

Nonetheless, the Superior Court held that an arbitrator was to be appointed in respect of the loss transfer dispute. At paragraph 28, the Court wrote:

[28] In the Insurance Act, Allstate is an “insurer” under s. 1 and it issues “contracts” because it is licensed to sell insurance in Ontario under s. 224(1)(a). The premiums it charges for the insurance or the limits of coverage in North Carolina are of no concern to Ontario.

Under section 1 of the Insurance Act, “insurer” means the person who undertakes or agrees or offers to undertake a contract.

Under section 224 of the Insurance Act,  

“automobile” includes, a motor vehicle required under any [Ontario] Act to be insured under a motor vehicle liability policy[.]

“contract” means a contract of automobile insurance that,

(a) is undertaken by an insurer that is licensed to undertake automobile insurance in Ontario, or

(b) is evidenced by a policy issued in another province or territory of Canada, the United States of America or a jurisdiction designated in the Statutory Accident Benefits Schedule by an insurer that has filed an undertaking under section 226.1

It was also noted that Allstate had an office in Ontario and filed a Power of Attorney and Undertaking (“PAU”) in Ontario. Section 226.1 of the Insurance Act set out:

226.1 An insurer that issues motor vehicle liability policies in another province or territory of Canada, the United States of America or a jurisdiction designated in the Statutory Accident Benefits Schedule may file an undertaking with the Chief Executive Officer, in the form provided by the Chief Executive Officer, providing that the insurer’s motor vehicle liability policies will provide at least the coverage described in sections 251, 265 and 268 when the insured automobiles are operated in Ontario.

The Primmum decision was appealed to the Court of Appeal (Primmum Insurance Company v. Allstate Insurance Company, 2010 ONCA 756 (CanLII)) [Primmum]. The Superior Court decision was upheld, and the Court of Appeal’s brief decision stated:

[6] We do not accept this submission. We agree with the application judge that the issue here is resolved by the decision of the Supreme Court of Canada in Unifund Assurance Co. of Canada v. Insurance Corp. of British Columbia, 2003 SCC 40 (CanLII), [2003] 2 S.C.R. 63, [2003] S.C.J. No. 39 [Unifund], at para. 12, where Binnie J. said:

Section 275(4) of the Ontario Act provides that disputes about indemnification are to be resolved by arbitration, pursuant to the Ontario Arbitration Act, 1991, S.O. 1991, c. 17. There is no doubt that if the appellant were an Ontario insurer, it would be required to arbitrate Unifund’s claim.

[7] Allstate is an Ontario insurer. Accordingly, it must arbitrate Primmum’s claim.

There is no further discussion by the Court of Appeal in Primmum with respect to the definition of “insurer” for the purposes of loss transfer.

The extraterritorial application of the loss transfer provisions of the Insurance Act were at the heart of the 2003 Supreme Court of Canada case, Unifund Assurance Co. of Canada v. Insurance Corp. of British Columbia, 2003 SCC 40 (CanLII), [2003] 2 S.C.R. 63, [2003] S.C.J. No. 39, cited by the Court of Appeal in Primmum. The Unifund case arose out of a motor vehicle accident in British Columbia, where the SABS claimants were operating a rental car obtained in B.C., and claimed Accident Benefits under their policy of insurance issued by Unifund in Ontario. The at-fault truck was insured by Insurance Corporation of British Columbia (“I.C.B.C.”).

The Supreme Court considered whether the fact that the I.C.B.C. was a signatory to the Ontario PAU meant that Ontario’s loss transfer scheme applied to I.C.B.C. in this case. The Supreme Court found it did not. The Supreme Court also decided that there was insufficient “real and substantial connection” between I.C.B.C. and Ontario in this case to support the application of Ontario’s loss transfer scheme to this dispute. The definition of “insurer” pursuant to the Insurance Act, and the potential impact of such a finding,was not specifically addressed by the Supreme Court.

Interestingly, the decision in Unifund is central to the Court’s analysis in both Primmum and Travelers, which have opposite outcomes.

With respect to the recent decision in Aviva v. Echelon, the Court agreed with the arbitrator that the Primmum case was applicable and that this case was “on all fours” with the Primmum case. Although Aviva’s insured was in Alberta, Aviva is an “insurer” that issues “contracts” of insurance in Ontario pursuant to the Insurance Act and is therefore subject to the Ontario loss transfer scheme.

Aviva argued on appeal that the Court of Appeal case Travelers Insurance Company of Canada v. CAA Insurance Company, 2020 ONCA 382 [Travelers] overturned the Primmum decision. The Court rejected this argument.

The Travelers case arose out of a motor vehicle accident that occurred in Nunavut. When the accident occurred, the claimant was operating a Nunavut-plated vehicle, owned by the government of Nunavut and covered by a Travelers policy issued in Nunavut. The claimant had another vehicle in Ontario (where she was ordinarily resident), which was insured by CAA. The claimant could have accessed Nunavut no-fault benefits, but chose to claim Accident Benefits under her Ontario policy. CAA sought reimbursement from Travelers for the Accident Benefits and the dispute proceeded to arbitration. The arbitrator decided that Travelers was an Ontario “insurer” because it was licenced to undertake automobile insurance in Ontario and because of the PAU.

The Court of Appeal overturned the decision of the arbitrator, finding that the arbitrator erred in finding that Travelers was an “insurer”. The issue in Travelers was squarely whether Travelers was to be considered an Ontario “insurer” issuing a “contract” such that Accident Benefits were recoverable by CAA pursuant to section 268 of the Insurance Act.

The Court of Appeal in Travelers relied on Unifund to find that the arbitrator was incorrect to decide that the PAU meant that the Ontario loss transfer legislation would apply to Travelers.

With respect to whether Travelers was an “insurer”, the Court of Appeal commented:

[24] Binnie J. did not explain what he meant by the term “Ontario insurer”. This is not a term of art or a technical legal term. The arbitrator assumed that Travelers was an Ontario insurer on the evidence presented by CAA — that it was licensed to undertake automobile insurance in Ontario, as required by s. 224(1) of the Ontario Insurance Act and had offices in Ontario.

[25] In my view, the correct approach is not quite so simple. Like Travelers, many of Canada’s car insurers are licensed to write car insurance here and elsewhere in Canada. Mere licensing, or the presence of an office, does not convert these insurers into Ontario insurers for all purposes, nor does it make the Ontario Insurance Act the governing legislation for all of the automobile insurance policies they underwrite. Treating mere Ontario licensing as the sole reason to constitute an insurer as an “Ontario insurer” would give Ontario insurance legislation extraterritorial effect, which would be contrary to the essential holding in Unifund.

…

[30] Section 224(1) must be read together with ss. 226 and 226.1 of the Ontario Insurance Act. Section 226 addresses the application of Part VI and provides:

226(2) This Part does not apply to a contract providing insurance in respect of an automobile not required to be registered under the Highway Traffic Act unless it is insured under a contract evidenced by a form of policy approved under this Part.

…

[32] These provisions, properly interpreted, include policies that are issued in Ontario and policies that are issued in another province when vehicles from those jurisdictions are operated in Ontario. They make it plain that Part VI of the Ontario Insurance Act did not apply to the Nunavut vehicle operated by the claimant in Nunavut at the time of the accident because the vehicle was not then required to be insured in Ontario.

In Travelers, CAA submitted that Primmum was applicable with respect to finding that Travelers was an “insurer” in Ontario. However, the Court of Appeal rejected this argument:

[55] I conclude that Primmum is of no assistance in this case. It does not touch the earlier determination that the arbitrator in this case erred in his interpretation of s. 268 of the Ontario Insurance Act, which was not at issue in that case. Primmum dealt only with the application of s. 275 of the Ontario Insurance Act, the underlying purpose of which is distinct from the purpose underlying the priority rules in s. 268.3

[56] Moreover, neither the Primmum application judge nor this court explored what Binnie J. meant by “Ontario insurer”, which, as noted earlier, is not a defined term. That exploration remains open to the court and has been undertaken in this case.

[57] For these reasons, I conclude that Primmum is not applicable to the factual scenario presented in this appeal.

The Superior Court disagreed with Aviva that Travelers overturned Primmum. Although the Court of Appeal expressed concerns with the decision in Primmum, among other issues, the court in Travelers wrote at footnote 4, “I leave open the question of whether Primmum was correctly decided for another day.” 

The Superior Court appears to have agreed with the arbitrator that a key piece of this decision that Travelers is better characterized as a priority dispute (both insurers involved in the dispute insured the claimant) as opposed to loss transfer from the claimant’s insurer to the at-fault party’s insurer (paras 59 to 64).

Thus, the arbitrator’s decision was upheld and therefore the loss transfer issue was decided in Echelon’s favour.

Takeaways

The issue of what it means to be an “insurer” has been discussed by the Court of Appeal in the context of the facts of the Travelers case (s. 268), but not in the context of the facts of the Primmum case (s.275), which the Court of Appeal may still yet weigh in on. It is this author’s understanding that leave to appeal may be sought for this case.

Should the Court of Appeal comment on an “insurer” in the context of the Primmum case, there is the possibility that the Court of Appeal will make findings similar to those in the Travelers case, such that the Ontario loss transfer scheme would not apply to an extra-territorial insurer simply because that insurer is licenced to issue other policies of insurance in Ontario.

At present, for insurers responding to claims similar to those in this case, it may be prudent to refuse to accept loss transfer until the Court of Appeal has commented again.