DECISION WITH RESPECT TO PRELIMINARY ISSUE

Transcription

1 IN THE MATTER OF SECTION 275 OF THE INSURANCE ACT, R.S.O. 1990, c. I. 8 AND IN THE MATTER OF THE ARBITRATION ACT, S.O. 1991, c.17 AND IN THE MATTER OF CLAIMS FOR ACCIDENT BENEFITS BY BRITTANY STUCKLESS AND AIDEN JOSEPH D AMICO RESULTING FROM INJURIES SUSTAINED BY THEM IN A MOTOR VEHICLE ACCIDENT WHICH OCCURRED ON MARCH 7, 2013 B E T W E E N : AND IN THE MATTER OF AN ARBITRATION CERTAS DIRECT INSURANCE COMPANY Applicant - and ACE INA INSURANCE COMPANY and THE CITY OF TORONTO Respondent DECISION WITH RESPECT TO PRELIMINARY ISSUE COUNSEL Conor Wyche Desjardins General Insurance Group Counsel for the Applicant, Certas Direct Insurance Company (hereinafter referred to as Certas ) Tamara Tomomitsu Borden, Ladner, Gervais LLP Counsel for the Respondents, ACE INA Insurance Company & City of Toronto (hereinafter referred to as ACE INA ) ISSUE In the context of a loss transfer dispute pursuant to s. 275 of the Insurance Act, R.S.O c. I.8, the preliminary issue before me is whether ACE INA is subject to loss transfer given that its insured, the City of Toronto, had a $5,000,000 deductible applicable to accident benefits and that the loss transfer claims presented would be payable by the City of Toronto as opposed to an insurer by reason of a Side Agreement governing the relationship between the City of Toronto and ACE INA.

2 2 PROCEEDINGS The arbitration proceeded on the basis of an Agreed Statement of Facts, written submissions, books of authority and oral submissions which took place on December 14, AGREED FACTS 1. On March 7, 2013, the Claimants Brittany Stuckless and Aiden Joseph D Amico (the Claimants ) were involved in a motor vehicle accident (the accident ) involving a loaded truck (the Truck ) owned by the City of Toronto ( the City ). 2. The Claimants were pedestrians at the time of this accident. 3. The Truck was a heavy commercial vehicle within the meaning of that term as defined in section 9 of Ontario Regulation The Truck was insured at the time of the accident under a policy of automobile insurance issued by ACE INA Insurance Company ( ACE INA ) to the City, with policy number CAC (the Policy ). 5. The Certificate of Automobile Insurance for the policy with number CAC was issued on June 1, 2012, and expired on June 1, The Certificate indicates the following: a. The City is the named insured; b. The Described Automobiles are ALL VEHICLES OWNED, REGISTERED LICENSED, LEASED TO OR OPERATED ON BEHALF OF THE NAMED INSURED; and c. A premium was owed and was paid for statutory accident benefits coverage, third party liability coverage, and uninsured automobile coverage;

3 3 6. A Deductible and Claims Handling Side Agreement (the Side Agreement ) was entered into by the City and ACE INA, dated June 1, This Side Agreement was in effect on the date of the accident. 7. The Side Agreement includes the following terms and provisions: a. A deductible of $5 million per occurrence applies to all damages including Bodily Injury, Tort-Property Damage, Direct Compensation- Property Damage, Uninsured Motorist, Accident Benefits and All Perils losses/claims resulting from any one occurrence and all costs incurred by [the City] ; b. The City shall use due diligence and prudence to settle all claims and suits which in the exercise of sound judgment should be settled, provided, however, that [the City] shall make no settlement in excess of the Deductible Amount without the approval of [ACE INA] ; c. ACE INA is not responsible for settling any loss within the Deductible Amount, however has the right but not the duty to assume control of any claim/loss at any time subject to written notice [to the City]. Should ACE INA exercise this right [the City] will promptly reimburse [ACE INA] 100% for all outlays for claims/losses and associated expenses within the deductible amount. d. ACE INA retains the right at its sole discretion to retain and instruct adjusting and investigative assistance, and legal counsel, as it deems expedient, and to conduct or authorize the negotiation, defense, settlement, or payment of any claim or action for which coverage is provided by the policy, and to authorize or incur any expenses for which reimbursement is provided by the Side Agreement; e. The City shall be subject to the requirements of any law or statute governing claims made under this policy. Nothing in [the Side] Agreement relieves the parties of their obligations under the Contract of Insurance, and/or under the Insurance Act. f. A mutually agreed Adjusting Firm has been appointed to adjust all claims/losses.

4 4 8. The Claimants allegedly sustained injuries as a result of the accident. 9. Claims for statutory accident benefits were made on behalf of the Claimants to the Applicant Certas Direct Insurance Company ( Certas ), with respect to the injuries allegedly sustained by the Claimants. Statutory accident benefits in excess of $2,000 were paid by Certas to each of the Claimants further to these claims, under a policy of automobile insurance issued by Certas. The Certas policy was not a policy insuring a heavy commercial vehicle within the meaning of section 9 of Ontario Regulation Certas was and is responsible for the purposes of s. 268(2) of the Insurance Act to pay statutory accident benefits to the Claimants. 11. ACE INA is licensed to undertake and sell automobile insurance in the Province of Ontario. ANALYSIS AND FINDINGS In the context of a loss transfer dispute pursuant to s. 275 of the Insurance Act, R.S.O c. I.8, Certas seeks indemnity for the statutory accident benefits it has paid to the claimants Brittany Stuckless and Aiden Joseph D Amico from ACE INA the insurer of a heavy commercial vehicle involved in the subject motor vehicle accident. Loss transfer is a creature of statute that emerged in 1990 at a time when there was an expansion of the availability of statutory accident benefits and a restriction of compensation available in tort with the introduction of a verbal threshold and deductible. This shift of compensation toward first party or no-fault benefits and away from the fault based tort system created an imbalance of payment with respect to insurers providing coverage to certain classes of vehicles such as motorcycles and heavy commercial vehicles. For example, the operator or passenger of a motorcycle was more likely to sustain significant personal injury whereas a heavy commercial vehicle was more likely to cause significant personal injury when involved in a collision. The loss transfer legislation created a scheme to balance or re-allocate the obligation to pay statutory accident benefits. It essentially enabled

5 5 insurers of motorcycles to seek indemnity from a second party automobile insurer to the extent of liability on the part of the operator of the automobile as determined by application of the Fault Determination Rules Ontario Regulation 283/95. It essentially enabled automobile insurers to seek indemnity from a second party insurer of a heavy commercial vehicle to the extent of liability on the part of the operator of the heavy commercial vehicle as determined by application of the Fault Determination Rules. The obvious purpose of this legislation was to re-allocate the losses between insurers of certain classes of vehicles so that the losses sustained by the insurers were similar to the losses that would have been paid by the insurers in a traditional tort system and in the absence of statutory accident benefits. Loss transfer legislation was created with the enactment of Section 275(1) of the Insurance Act R.S.O c.i.8 (the Act ) which provides that the Insurer responsible under subsection 268(2) for the payment of statutory accident benefits is entitled to indemnification from the insurers of such class of automobiles as may be named in the regulations involved in the incident from which responsibility to pay the statutory accident benefits arose. Section 275(1) specifically states: 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. The Regulation identifying the class of vehicles to be subject to loss transfer was Ontario Regulation 664. Section 9 of the Regulation provides as follows: INDEMNIFICATION FOR STATUTORY ACCIDENT BENEFITS (SECTION 275 OF THE ACT) 9. (1) In this section, first party insurer means the insurer responsible under subsection 268 (2) of the Act for the payment of statutory accident benefits; ( assureur de première part ) heavy commercial vehicle means a commercial vehicle with a gross vehicle weight greater than 4,500 kilograms; ( véhicule utilitaire lourd ) motorcycle means a self-propelled vehicle with a seat or saddle for the use of the driver, steered by handlebars and designed to travel on not more than three wheels in

6 6 contact with the ground, and includes a motor scooter and a motor assisted bicycle as defined in the Highway Traffic Act; ( motocyclette ) motorized snow vehicle means a motorized snow vehicle as defined in the Motorized Snow Vehicles Act; ( motoneige ) off-road vehicle means an off-road vehicle as defined in the Off-Road Vehicles Act; ( véhicule tout terrain ) second party insurer means an insurer required under section 275 of the Act to indemnify the first party insurer. ( assureur de deuxième part ) R.R.O. 1990, Reg. 664, s. 9 (1); O. Reg. 780/93, ss. 1, 6. (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; or (b) if the person receiving statutory accident benefits from the first party insurer is claiming them under a policy insuring a motorized snow vehicle and, (i) if the motorized snow vehicle 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. R.R.O. 1990, Reg. 664, s. 9 (2); O. Reg. 780/93, s. 1. (3) A second party insurer under a policy insuring a heavy commercial vehicle is obligated under section 275 of the Act to indemnify a first party insurer unless the person receiving statutory accident benefits from the first party insurer is claiming them under a policy insuring a heavy commercial vehicle. R.R.O. 1990, Reg. 664, s. 9 (3); O. Reg. 780/93, s. 1. So in the case here Certas seeks to be indemnified by ACE INA for payment of statutory accident benefits paid to the claimants Brittany Stuckless and Aiden Joseph D Amico to the extent of liability imposed upon the operator of the heavy commercial vehicle by the Fault Determination Rules provided it is determined that ACE INA was the insurer of the heavy commercial vehicle given the fact that there exists a large deductible whereby the City of Toronto is responsible for the payment of statutory accident benefits to the extent of the per occurrence limit of $5,000,000. It was conceded by the parties that the Applicant Certas was the insurer responsible under s.268(2) for payment of statutory accident benefits to the claimants and that such payments have been made.

7 7 Furthermore, it is agreed by the parties that the truck involved in the accident was owned by the City and is a heavy commercial vehicle within the meaning of s.9(3) of Ontario Regulation 664. Accordingly, the narrow issue is whether ACE INA was the insurer of the heavy commercial vehicle owned by the City of Toronto and involved in the subject collision within the meaning of s. 275 of the Act with respect to benefits paid within the stipulated deductible. Certas maintained that on a plain language interpretation of the governing statute ACE INA was the insurer of the heavy commercial vehicle involved in the subject accident. Accordingly, Certas is entitled to indemnification from ACE INA (subject to determination of respective degree of fault) as all the requirements of s. 275(1) have been satisfied, namely: a. Certas is the insurer responsible under subsection 268 (2) for the payment of statutory accident benefits, and it made such payments; b. ACE INA was the insurer of such class of automobiles as may be named in the regulations involved in the incident from which responsibility to pay the statutory accident benefits arose, namely a heavy commercial vehicle within the meaning of s. 9 of Reg. 664, as: i. ACE INA was an insurer within the meaning of s.275(1) as it is licensed to undertake automobile insurance in Ontario; ii. The ACE INA issued a policy of automobile insurance that insured the truck which was involved in the incident, on the date of the incident; and iii. This truck was a part of the class of automobiles named in the regulations, specifically, a heavy commercial vehicle within the meaning of s. 9 of Reg Certas submitted that ACE INA remained a second party insurer under the loss transfer provisions of the Act, including s. 275(1) and s. 9 of Reg. 664, regardless of the existence of the Side Agreement. They claim that this is evident from the clear and unambiguous language of the Insurance Act and Reg. 664, and has been confirmed by Superior Court decisions interpreting the loss transfer legislation. Certas maintained that once ACE INA falls

8 8 into the loss transfer scheme, it cannot remove itself from that regime (and the resulting obligation to indemnify as a second party insurer) by any private side agreement with its own insured, including, an agreement with its insured that the insured will pay claims for statutory accident benefits (as is the case here due to the effect of a large deductible). In response, ACE INA maintained that looking at the plain language is only the first step in interpreting the statutory provisions in question. Following the purposive approach to statutory interpretation as outlined in the Ontario Court of Appeal decision in Wawanesa Mutual Insurance Company v. Axa Insurance (Canada), 2012 ONCA 592 (CanLii), a just and reasonable result must be arrived at through consideration of not only the plain language, but also the history of the provision at issue, its place in the overall scheme of the Act, the object of the Act itself, and the legislature s intent in enacting the Act. ACE INA took the position that when those things were considered, it would be unfair to conclude that ACE INA was the insurer of the City of Toronto for those payments made within the deductible or self-insured retention. They claim that it would not be just and reasonable for an insurer, where there is a large deductible or self-insured retention, to be subject to loss transfer yet not be in a position to claim loss transfer if the situation were reversed and they were seeking indemnity pursuant to the loss transfer legislation. At risk of oversimplification, this purported unfairness stems from the recent March 21, 2014 decision dated in St. Paul Fire and Marine Insurance Company v. Intact Insurance Company, where Arbitrator Densem relied on what he termed a Side Agreement in coming to his ultimate decision that St. Paul could not seek loss transfer against Intact. That Side Agreement, similar to the Agreement in this case, stipulated that the City of Mississauga was responsible for paying statutory accident benefits up to $1 million. As the City of Mississauga s insurer, St. Paul, had not actually paid the accident benefits, Arbitrator Densem found that it could not seek loss transfer. He did not accept the arguments advanced that the payment of accident benefits by the municipality were actually on behalf of the insurer ultimately responsible for such payments in the absence of payment by the City of Mississauga. The decision was upheld on appeal by Justice Whitaker (St. Paul Fire & Marine Insurance Company v. Intact Insurance, 2014 ONSC 6039 (CanLII). In St. Paul Fire & Marine Insurance Company v. Intact Insurance, a City of Mississauga vehicle was involved in a motor vehicle accident with a cube van that was insured by Intact. The cube van was a heavy commercial vehicle as defined in the Regulation. The claimants

9 9 submitted claims for SABS to the City of Mississauga. St. Paul, which insured the City of Mississauga vehicle, sought loss transfer against Intact. Mississauga had a self-insured retention agreement in place of $1M per accident, much like the City has in place with its insurer, ACE INA. As a result, it was actually the City that paid the benefits rather than the insurer, although the insurer would have been ultimately responsible to the claimants for the payment of statutory accident benefits in the event the City was unable to pay them. Intact argued in St. Paul Fire & Marine Insurance Company v. Intact Insurance that: (a) as it was the City of Mississauga that actually paid the benefits to the claimants involved, and (b) because the City of Mississauga was not an insurer, it could not seek loss transfer against Intact. St. Paul argued that it should not matter which party cut the cheque, (i.e. the City of Mississauga), as this would not give proper weight to the purposive approach to statutory interpretation and the legislative context of s. 275, which was to adjust the inequities created by the no-fault automobile legislation with respect to an insurers responsibility for the payment of SABS. Arbitrator Densem did not adopt the purposive approach of statutory interpretation urged upon him by St. Paul nor the argument that it would be unjust and unfair if St. Paul or its insured was unable to seek loss transfer yet still be exposed to a loss transfer claim where it was the owner/insurer of the heavy commercial vehicle. Arbitrator Densem concluded that St. Paul was not permitted to seek loss transfer against Intact, as it was the City of Mississauga, and not St. Paul, that had made SABS payments to the claimants in the underlying AB claims. In his reasoning, Arbitrator Densem placed heavy emphasis on the party that actually paid the accident benefits (i.e. the City of Mississauga and not St. Paul), and downplayed the fact that the City of Mississauga had suffered a loss, which it was thus unable to recover by way of loss transfer rather than placing emphasis on the general purpose of the loss transfer scheme to balance the payment of statutory accident benefits more in line with tort exposures when heavy commercial vehicles and motorcycles were involved. Arbitrator Densem determined that the City of Mississauga was not entitled to advance a claim for loss transfer, as it was not an insurer for the purposes of s. 268(2), and that s. 275 did not give the City of Mississauga the necessary status to advance such a claim.

10 10 In response to St. Paul s argument that permitting it to recover loss transfer indemnity from Intact promoted the purposes of the loss transfer legislation, Arbitrator Densem stated as follows: In my opinion this analysis looks at only one side of the equation. The purpose of the loss transfer legislation is not simply to require the insurers of heavy commercial vehicles to pay a greater share of SABS than might otherwise be the case without the loss transfer legislation. The purpose of the loss transfer legislation is to balance amongst all of the Ontario licensed insurers the cost of paying SABS under the nofault automobile legislation This balancing only becomes necessary if non-heavy commercial vehicle insurers have paid a greater amount for SABS by operation of the no-fault automobile legislation than they would have been required to pay, because of incidents involving heavy commercial vehicles. (emphasis added) Effectively, the decisions of Arbitrator Densem and Justice Whitaker prohibit municipalities and other self-insured entities, such as the City, from seeking loss transfer where payments of the underlying accident benefits claims are made directly by it rather than its motor vehicle liability insurer. Indeed, the result of St. Paul Fire & Marine Insurance Company v. Intact Insurance according to ACE INA was that the City of Mississauga was burdened with a cost that ought to have been passed along to Intact, which unfairly escaped from paying its fair share through the redistribution of the loss transfer regime. Thus, ACE INA claims the loss transfer regime has now become skewed and no longer balances the costs under Ontario s no-fault automobile regime. ACE INA maintained that to avoid a similarly unfair result to the City in the within matter, the proper analysis to deploy ought to return to the remedial purposes of the loss transfer regime to balance the costs of no-fault benefits between different classes of vehicles so that a self-insured entity cannot claim loss transfer indemnity it should not be exposed to a loss transfer claim. In consideration of the position advanced by ACE INA, I have reviewed the jurisprudence brought to my attention by Certas dealing with the impact of extraneous factors on the application of the loss transfer provisions of s. 275 of the Insurance Act. The jurisprudence would suggest that extraneous factors affecting the relationship between the insurer and its insured have no bearing on the application of the loss transfer provisions. Certas has maintained that the Side Agreement herein is merely an extraneous factor affecting the relationship between the insurer and its insured and should have no impact on the entitlement of loss transfer indemnity in the present case.

11 11 In the following paragraphs I will deal with the jurisprudence which has emerged dealing with such extraneous factors and their impact on loss transfer indemnity. The decision in ING Insurance Co. of Canada v. Non-Marine Underwriters, Members of Lloyds of London England (Arbitrator Samis February 23, 2005) dealt with the impact of a misrepresentation in the obtaining of the insurance on the loss transfer process. In that case the claimant s automobile, insured by ING, was involved in an accident involving a heavy commercial vehicle insured by Lloyds. ING paid statutory accident benefits to the claimant and sought loss transfer from Lloyds pursuant to s. 275 of the Insurance Act. Lloyds took the position that loss transfer was not available as the policy had been obtained through material misrepresentations in the application for insurance. Lloyds had subsequently returned all insurance premiums and treated the policy as void ab initio. Arbitrator Samis held that even if the contract of insurance was induced by misrepresentation or non-disclosure, it did not negate its obligations arising from s. 275 of the Insurance Act. The decision was upheld on appeal. Arbitrator Samis wrote at paragraph 9: The obligation created by section 275 of the Insurance Act is not an obligation to the policyholder, for which the insurer is obliged to provide indemnity. It is an obligation imposed directly on the insurer of the involved automobiles described in the regulations. Neither the entitlement, nor the obligation, to indemnify a first party insurer arises from the policy terms and conditions. Indeed the policyholder cannot be held liable for loss transfer. It is solely the obligation of the insurer I conclude that section 275 of the Act and the Regulations thereunder represent an independent statutory liability imposed upon insurance companies On appeal, this conclusion was upheld in an unreported decision by Justice Little of the Ontario Superior Court of Justice on, where he held, at paragraph 11, that: the appellant remained an insurer according to the revised legislation and if the appellant Lloyd s was induced into the contract of insurance by misrepresentations or non-disclosures, it does not negate its obligations arising under section 275 of the Insurance Act. Indemnification is a liability imposed by law upon the second party insurer. The appellant remains the second party insurer, according to the statute, irrespective of its efforts to void the contract by returning its premiums. In the joint appeal decision of Jevco v. Wawanesa and Jevco v. Pilot Insurance (1998) O.J. No. 5037, Justice Spiegel held that an insurer s obligation to indemnify is imposed by the plain language of the loss transfer legislation and arises out of the insurer having a policy in force for a class of automobiles specified in the regulations. In Jevco loss transfer was

12 12 being sought but Pilot denied any obligation on the basis that the vehicle that it insured was being operated by an individual without the consent of the owner. Justice Spiegel held that this obligation is independent, and exists regardless, of whether there is enforceable third party liability coverage provided to its insured. Justice Spiegel stated: the second party insurer's obligation to indemnify derives from it having a policy in force on a class of automobile specified by the regulations that was involved in the incident from which the responsibility to pay SABs arose. The wording of s. 275(1) focuses on the "insurers" of automobiles. Section 9(2) of Reg. 664 says that a second party insurer "under a policy insuring any class of automobile... is obligated to indemnify a first party insurer". This supports the conclusion that if the second party insurer's policy insures the automobile in the circumstances described in s. 275(1), the second party insurer has an obligation for loss transfer indemnity. There is nothing in s. 275(1) or the regulation to suggest that the second party insurer's obligation is dependent on the existence of enforceable third-party liability coverage in its policy. Section 275 creates a statutory obligation, imposed on one insurer to indemnify another that has nothing to do with the obligation of an insurer to indemnify its own insured for third-party liability. Third party liability is liability imposed by law on an insured. Loss transfer indemnity is liability imposed by law on an insurer Further court decisions have applied this principle and confirmed that a second party insurer is subject to the loss transfer provisions of the Insurance Act regardless of any extraneous factors that are not addressed in the loss transfer legislation (arguably such as a side agreement providing that all accident benefits are paid by the insured, not the insurer). The court in Royal & Sun Alliance v. Wawanesa (2006) CanLii 42663, 84 O.R. (3d) 449 held that the second party insurer was bound by the loss transfer provisions of s.275 regardless of the fact that the motor vehicle accident occurred in a non-loss transfer jurisdiction, such as Vermont. In Primmum v. Allstate (2010) O.J. No. 600, the court concluded that the second party insurer Allstate was subject to the loss transfer legislation, and bound by that legislation to participate in the arbitration of a loss transfer claim, i) regardless of the fact that it issued its responding automobile policy in North Carolina, (outside of Ontario in a non loss transfer jurisdiction), and ii) regardless of the fact that the motor vehicle accident occurred in North Carolina. Allstate was subject to the loss transfer regime as a second party insurer because it was licensed to undertake the sale of automobile insurance in Ontario, in light of the plain language of the loss transfer legislation.

13 13 The court in Primmum v. Allstate also confirmed that factors extraneous to the loss transfer legislation are irrelevant to a second party insurer s obligations under that legislation. This includes whether or not second party insurer is obligated to pay statutory accident benefits under its own auto policy. The court in Primmum v. Allstate dismissed Allstate s argument that it ought not to be subject to the Ontario loss transfer regime because its North Carolina auto policy was issued by a United States insurer in the United States, with lower limits and without any statutory accident benefits, which result in lower premiums paid. The court held that the premiums charged by Allstate and the limits of its coverage were irrelevant to the application of the loss transfer legislation to it. If Allstate wished to avoid being subject to the loss transfer regime for its United States-issued policies, it would have to de-register as an Ontario Insurance company or incorporate a subsidiary to sell insurance in North Carolina (in other words, it would have to cease to undertake auto insurance in Ontario). After a review of the jurisprudence, I am satisfied that insurance companies licensed to undertake and sell automobile insurance in Ontario are obligated to indemnify a first party insurer under the loss transfer provisions in s.275(1) and Section 9 of Regulation 664 (the loss transfer legislation), if that insurance company insured a class of automobiles described in the Regulation. In my view this obligation is clear from a plain language reading of s.275(1) and Section 9 of Regulation 664. It is also clear from the plain language of the loss transfer legislation that this obligation is imposed on the second party insurer and is independent of that second party insurer s rights and obligations vis a vis its own insured (or lack thereof). The jurisprudence that I have outlined above supports such conclusion. Accordingly, I find that there is no validity to an argument by ACE INA that it has no obligation under the loss transfer legislation because it would never actually pay any accident benefits to claimants due to the effect of the Side Agreement. Primmum v. Allstate confirms that the obligation to make loss transfer indemnification exists regardless of whether the auto

14 14 policy of the second party insurer has an obligation to pay benefits under its policy, and exists even if the policy of the second insurer provides no accident benefits coverage whatsoever. Accordingly, I am satisfied that it is clear from the decisions discussed above that once an insurance company s obligation to indemnify under the loss transfer provisions is triggered by having a policy in force on a class of automobile specified in Ont Reg. 664, it cannot remove itself from this obligation through any means that are not provided for in the loss transfer legislation. This includes through any private claims handling side agreements made with its insured. In further support of my finding is the fact that the Side Agreement itself contemplates and acknowledges that the it does not have the effect of relieving ACE INA from its obligations under the Act, including its obligations under s.275(1), as it states: Nothing in [the Side] Agreement relieves the parties of their obligations under the Contract of Insurance, and/or under the Insurance Act. The City has taken the position that if Certas is correct in its interpretation of the preliminary issue, it will result in unfairness and an injustice to the City of Toronto as it will be subject to paying loss transfer indemnification to first party insurers, but precluded from claiming loss transfer indemnification from second party insurers due to the effect of the ruling in St. Paul Fire and Marine Insurance v. Intact, supra, and the effect of its Side Agreement. There is no doubt that a certain unfairness does result. It is unclear to me whether the decision in St. Paul properly considered the overall purpose of the loss transfer scheme in balancing the payment of accident benefits while considering the vast number of situations where large entities (municipalities and corporations) have significant deductibles or self-insured retentions. However the appellate decision stands and I must address the entitlement of an automobile insurer to claim loss transfer against the insurer of the City of Toronto and in particular the insurer of its heavy commercial vehicles. On the issue before me, I cannot help but find that Certas meets all the requirements of s. 275 of the Act and is entitled to loss transfer. In my view any unfairness stems from the fact that the present state of the law prevents the City from recovering loss transfer where it has paid the accident benefits by reason of a Side Agreement on behalf of the insurer ultimately responsible for payment of those benefits under the Insurance Act and is trying to recover from another insurer of a

15 15 heavy commercial vehicle as opposed to the situation here where the City s insurer is exposed to a loss transfer claim. It is not corrected by denying an automobile insurer its statutory entitlement to loss transfer from the insurer of the City s heavy commercial vehicles. That unfairness created if one were to deny the automobile insurers right to loss transfer must equally be considered when looking at the application of the purposive approach to statutory interpretation as outlined in by the Ontario Court of Appeal in Wawanesa (supra). There are three ways that this unfairness can be addressed. It can be addressed by the Ontario Court of Appeal in another case involving facts similar to St. Paul s, an amendment to the wording of the Side Agreement or there can be an amendment to the legislation. If the City wanted to be able to access the loss transfer provisions so as to be able to claim loss transfer indemnification, it could easily have done so by structuring its contractual arrangement with ACE INA through its Side Agreement in a way that would not defeat access to loss transfer. Specifically, the Side Agreement could simply provide that ACE INA pay accident benefits claims to claimants directly from its own funds in situations where loss transfer indemnity may be available, to be later reimbursed by the City. ACE INA would then be able to claim for accident benefits paid by it, thereby bringing itself within the scope of s.275(1) and taking it outside of the ruling in St. Paul Fire and Marine Insurance v. Intact. In fact, such an arrangement was contemplated by Arbitrator Densem in St. Paul v. Intact, supra, where he states: In any event, if what I believe to be the correct interpretation of the loss transfer legislation does have an impact on how insurers negotiate commercial side agreements to automobile insurance contracts with insureds such as the City, I am sure with the capable counsel both parties have available to them they can undoubtedly restructure, if necessary, their commercial agreements to their mutual satisfaction with a minimum of difficulty. As I have indicated, another way of avoiding any unfairness would be an amendment to the legislation. That too was contemplated by Arbitrator Densem in St. Paul where he wrote at page 18 of his decision: The wording of section 275 (1) does not provide for the indemnification of another entity other than a section 268 insurer in relation to the payment of SABS benefits. Had the legislature intended to permit entities other than section 268 (2) insurers to be indemnified for SABS paid, the section could have been worded something like, the insurer responsible under subsection 268(2) for the payment of (SABS), its agent,

16 16 assignee or guarantor is entitled to indemnification in relation to such benefits paid by it.. However such wording does not presently exist in the legislation so as to prevent the purported unfairness with respect to indemnity in cases involving a large deductible or self - insured retention. In the final analysis, I am satisfied that interpreting the wording of the loss transfer legislation in their ordinary and grammatical sense as contemplated by Wawanesa Mutual Insurance Company v. Axa Insurance 2012 ONCA 592 results in a finding that ACE INA, as insurer of the heavy commercial vehicle herein, is responsible for indemnifying Certas as per the loss transfer provisions. The extraneous factor of the Side Agreement should have no bearing on its obligations pursuant to the loss transfer provisions and that any unfairness created by the St. Paul decision could be avoided by way of an amendment to the side agreement. I realize that having to amend the Side Agreements where large deductibles or self-insured retentions exist creates a heavy commercial burden, but unless the Ontario Court of Appeal has an opportunity to address the issue of whether a self-insured entity by way of Side Agreement can claim loss transfer or the legislation is amended, I see no alternative. In the final analysis, I find that ACE INA is subject to loss transfer as it was the insurer of the heavy commercial vehicle involved in the accident with the claimants despite the Side Agreement governing the relationship between ACE INA and the City of Toronto. ORDER On the basis of the findings aforesaid, I order that the loss transfer provisions contained in section 275 of the Insurance Act and Ontario Regulation 664 apply to the Respondent ACE INA with respect to accident benefits paid to and on behalf of Brittany Stuckless and Aiden Joseph D Amico, such that the Respondent ACE INA is liable to indemnify the Applicant Certas Direct for benefits paid to or on behalf of Brittany Stuckless and Aiden Joseph D Amico by the Applicant which are the subject of loss transfer. I further order that ACE INA pay to Certas the costs of the arbitration to date which costs I have been advised have been agreed upon.

17 17 I further order that ACE INA pay the arbitrator s costs to date. DATED at TORONTO this 22nd ) day of December, ) KENNETH J. BIALKOWSKI Arbitrator