“I’ll See You In Court… Maybe”
In its fight against high premiums and auto fraud, Ontario is moving dispute resolution out of the courtroom.
It’s January, your windshield wipers are furiously swiping the snow away, and you’ve cranked the defroster as high as it will go. You come to a four-way stop, look both ways and when it’s your turn to proceed, you gently step on the accelerator— yes, it’s pretty scary on the roads, but you’ve got this covered. You’re in control. And then, out of the corner of your eye, you see it coming. Bam, you’ve been “T-boned.”
When it comes time to apply for accident benefits, you expect your insurer will provide coverage. But when your claim is processed, you don’t think your accident benefits are sufficient. That doesn’t sit right with you—your back still aches, you’re still in physiotherapy and you’ve missed work—so, you apply for mediation at the Financial Services Commission of Ontario (FSCO). But after discussions with your insurer and the mediator, you’re still not satisfied. So now you have a choice: you can either proceed to arbitration at FSCO or you can hire a lawyer and take that insurer to court. It’s up to you.
That’s how the dispute resolution process has worked recently. But on November 20, 2014, the Government of Ontario passed Bill 15, the Fighting Fraud and Reducing Automobile Insurance Rates Act, which will make important changes to how disputes are settled. The insurance industry has supported the bill, saying it will help reduce costs for motorists. Other stakeholders, however, argue that Bill 15 will do the exact opposite.
The Problem with the DRS
Bill 15 was introduced in July 2014 as part of the Liberal government’s mandate to cut auto insurance rates by 15 percent by next August. As its name suggests, the bill aims to tackle insurance fraud, which will reduce costs for insurers, and so the theory goes, will ultimately lead to lower rates for drivers.
Industry stakeholders are largely supportive of the bill. There are two provisions, however, that are proving to be quite divisive. The first has to do with changes to the dispute resolution system (DRS).
The DRS is in bad shape. Most everyone can agree on this. In 2012, there was a backlog of nearly 30,000 applications for mediation. The backlog was eliminated in August 2013, but as a result, applications for arbitration skyrocketed, and in the 2012-2013 year, FSCO received more than 10,500. So in August 2013, the Government of Ontario appointed former Superior Court justice Douglas Cunningham to conduct a review of the DRS. In February, he presented his final report, which made 28 recommendations on how to fix the system.
One of these recommendations was to create a new DRS at an administrative tribunal. He also recommended that the option to initiate a court proceeding instead of arbitration “should be eliminated” when the insurer and insured fail to reach a settlement.
In accordance with Cunningham’s recommendations, Bill 15 will move the dispute resolution system from FSCO to the License Appeal Tribunal (LAT), an existing tribunal run by the Attorney General’s office. It will also take away an insured’s right to sue his or her insurer in regular court. And therein lies the rub.
Access to the courts
Remember how you, the cautious, responsible driver, were T-boned at a four-way stop and didn’t get the benefits you thought you deserved? Well, under the bill, your claim will proceed to arbitration at the LAT. If you don’t like the tribunal’s decision, only then can you take your appeal to the Divisional Court. And the Ontario Trial Lawyers Association (OTLA) isn’t too impressed with this.
“What people need to remember is that an appeal process is very different than having the case heard by a judge,” warns Sivan Tumarkin, a partner at Samfiru Tumarkin LLP and a member of OTLA. “Right now, an injured claimant can litigate his or her benefits dispute in court and have his/her day before a trial judge. With Bill 15, the claimant has no recourse to a trial judge, only to the [Divisional] Court by way of an appeal of an LAT decision. It’s much more restrictive and takes away a claimant’s fundamental right to have his/her dispute decided on by a judge in Superior Court.” Now, anyone even remotely skeptical of lawyers will assume that they’re ambulance chasers causing a fuss because Bill 15 reduces the number of cases they’ll be able to take to court and, ultimately, the fees they can collect. But Tumarkin says lawyers are often hired by insureds for the arbitration process, so these clients are technically still available to them. So it’s not an issue of money, but what’s in the best interest of the client.
The government says this new process will be speedier and more cost-effective. But OTLA argues that rather than saving drivers time and money, it will cost them much more.
“You’re already going to have a tort claim if I T-bone you,” says Steve Rastin, president of OTLA. “You’re already going to be in the courts, suing me for hitting you.” Until now, rather than starting a separate proceeding, lawyers for a plaintiff would typically join the action against their client’s insurance company together with the action against the at-fault driver. But under Bill 15, lawyers can no longer do this.
“Now, instead of having your own accident benefits claim be part of [the tort claim], you’re going to have to apply to the LAT. [Drivers are] going to have to go to court twice. They’re going to have to spend twice as much money, they’re going to have to have two matters, and because the two matters are related, it’s going to be harder to settle. Why that’s more efficient..? And we repeatedly said to the government, ‘This makes no sense.’ This change is going to cost money, not save money.”
“I think that’s a false analysis,” says Ralph Palumbo, Insurance Bureau of Canada’s vice-president for Ontario. He says that the majority of cases proceed to arbitration rather than court anyway. (FSCO reports that approximately 72 percent of failed mediations proceed to arbitration.) “Most cases never make it to trial. So this idea that somehow you’re going to increase costs this way is bogus. Secondly, the tribunal process will be a lot faster. Think of all the transaction costs that go on in the courts with lawyers and expert witnesses and the like. It will be cheaper, faster in front of a tribunal.” The cost issue aside, OTLA points out that the cases that did go to trial at least alleviated a little pressure on an already stressed arbitration system.
“What’s going to happen,” says Tumarkin, “once you basically delineate the two and say, ‘you cannot pull any of those cases into the court system?’ How much of a backlog [are] you now going to create on the other track? Up until now, you didn’t have every case going there. In fact, many cases did not go through the Financial Services Commission to the end, they were added to the court system. That’s another huge concern.”
Counterpoint: the courts are clogged, too. “When you consider how backed up the courts are, why would you maintain that process when you can actually establish a tribunal with new processes that are a lot faster so that people can get through the system a lot quicker?” argues Palumbo. “That’s what [the bill is] going to do, assuming the regulations do what they’re supposed to do.”
The tennis match continues.
The other issue of major concern to OTLA is the reduction of prejudgment interest (PJI). The way it works today is that if you’re T-boned at that four-way stop and a court awards you money for pain and suffering, you’ll get five percent interest on that award for every year it takes to settle your case. So with the clock running to five years and an award of $100,000, you’ll get an additional $25,000.
Bill 15 reduces the prejudgment interest on pain and suffering awards to 1.3 percent, and OTLA says that doesn’t encourage insurers to settle. Instead, it argues that if insurers were to invest the settlement money, they’d make a greater rate of return than if they paid a settlement quickly.
Rastin says that if an insurer is making three, four, or five percent interest on its investments (he says OTLA thinks insurance companies are actually making more), and if it is only required to pay 1.3 percent interest on your settlement, “they’re making money on your money by not settling.”
Palumbo vehemently disagrees. “The problem with the trial lawyers is they make up an argument about how companies are going to delay, delay, delay so that they can take the difference between five percent and 1.3 percent, invest it, and make all kinds of money. Do you know what the interest rates are out there? These companies are not making a killing.”
Further, he argues that prejudgment rates under other pieces of legislation are based on prevailing interest rates, and rates for pain and suffering awards should be too.
“That five percent was legislated in June of 1990, when the prevailing rates were 13 percent. That’s not what we have now. Now they’re a lot lower and all [the bill] does is align the PJI with the interest rates that prevail now on economic losses.” As a final point, he adds, “If OTLA truly believed in what they were saying, and they were sincere about their clients economic/ financial interests then the first thing they should be doing is looking at their own contingency fees.”
There is agreement on the bill over one thing. Both the Insurance Bureau of Canada and the Insurance Brokers Association of Ontario support the bill for its measures to tackle fraud.
IBAO president-elect Michael Brattman is laudatory. “It is a vital fraud-fighting piece of legislation that will help achieve the government’s promised rate reduction targets. Consumers need this bill implemented properly if there is going to be any chance of getting rates down responsibly.”
Even OTLA has voiced its support for the majority of Bill 15.
The bill targets fraud in the towing and vehicle storage industries, requiring them to make their rates publicly available, accept methods of payment other than cash and provide invoices with itemized lists of services—all things you expect of a legit business. The bill will also allow the Province to change how vehicle storage facilities operate. Until now, vehicles damaged in accidents have been held at storage facilities for up to 60 days, accruing costs, before its owner had to be notified.
These changes will help “protect the consumer from fraud and abuse,” says Palumbo. “With properly drafted regulations and enforcement, I think you’re going to see claims costs go down and then hopefully premiums will follow, depending on how far costs come down.”
The government says it has cut auto insurance rates by an average of six percent to date. Whether the Fighting Fraud and Reducing Automobile Insurance Rates Act will further reduce rates remains to be seen. Until then, be extra careful at fourway stops.
Copyright 2014 Rogers Publishing Ltd. This article first appeared in the November 2014 edition of Canadian Insurance Top Broker magazine