SABS Priority Disputes 101: Notice in 90

Years ago, I had a file where my client received a priority dispute notice. It was for a catastrophic accident benefits claim involving a 26-year-old who had suffered severe brain injuries. There was little doubt that my client had priority over this claim because he was married to our named insured.

While I was looking at the claim, I noticed that the other insurer had sent its priority dispute notice to my client on Day 89. They used a courier service. Unfortunately for them, the notice arrived at my client’s offices on Day 91. I brough this to the attention of opposing counsel, and his client dropped the claim against us.

In our second article in the Priority Dispute Series, I provided a discussion on deflection and the “pay now, dispute later” provisions of section 2.1 of O. Reg 283/95. To recap:

1. Section 2.1 of the Regulation codifies some of the case law principles flowing from section 2.
2. Insurers must follow the steps in section 2.1 and cannot take any steps to deflect an application that is otherwise earmarked for them.
3. The first insurer to receive a completed and signed application for accident benefits (OCF-1) must adjust and pay any claims, as per the SABS. An insurer cannot refuse to pay benefits on the basis that another insurer might have priority.
4. An insurer that breaches section 2.1 of the Regulation might have to reimburse insurer(s) for various expenses and handling costs. They might also be subject to a special award.

In this article, I review the insurer’s obligations to provide timely notice of a priority dispute, pursuant to section 3 and 3.1 of O. Reg 283/95, and the consequences of failing to do so.

Section 3(1): 90-Day Notice or Bust

Section 3(1) of O. Reg 283/95 prescribes a 90-day priority dispute notice deadline:

3. (1) No insurer may dispute its obligation to pay benefits under section 268 of the Act unless it gives written notice within 90 days of receipt of a completed application for benefits to every insurer who it claims is required to pay under that section. O. Reg. 283/95, s. 3 (1).

In the seminal case of Kingsway General Insurance Co. v. West Wawanosh Insurance Co.,[1] the Ontario Court of Appeal reviewed section 3(1) and said:

The Regulation sets out in precise and specific terms a scheme for resolving disputes between insurers. Insurers are entitled to assume and rely upon the requirement for compliance with those provisions. Insurers subject to this Regulation are sophisticated litigants who deal with these disputes on a daily basis. The scheme applies to a specific type of dispute involving a limited number of parties who find themselves regularly involved in disputes with each other. In this context, it seems to me that clarity and certainty of application are of primary concern. Insurers need to make appropriate decisions with respect to conducting investigations, establishing reserves and maintaining records. Given this regulatory setting, there is little room for creative interpretations or for carving out judicial exceptions designed to deal with the equities of particular cases.[2]

Arbitrators have accepted that the purpose of section 3(1) is to encourage insurers to investigate priority issues in an expedient manner and to be proactive about these disputes. Section 3(1) allows the priority insurer to take the file early once it is satisfied that it has priority (plus, it facilitates an earlier arbitration if there is a dispute).

Over the years, many meritorious priority disputes have imploded because of untimely notices under section 3(1). The obligations under section 3 are very unforgiving. For this reason, it is very important that insurers comply with section 3(1).

It is helpful to break down the various components in the section and then review some of the cases that have examined section 3(1):

1. The notice must be given by the insurer claiming priority.
2. A notice under section 3 must be in writing. It cannot be verbal.
3. The 90-day notice clock starts on the day the insurer giving notice first received a completed application.
4. The notice must be given to every insurer who the paying insurer claims has priority.

Let’s look at each component more closely.

1. Here’s My Notice

Section 3(1) specifies that the insurer must give written notice of its intention to dispute priority. An insurer cannot rely on a third party to provide the notice (unless of course the third party is an agent of the insurer, like an independent adjuster or lawyer).^[3]

In West Wawanosh[4], the insurer giving notice tried to rely on a notice from the claimant’s lawyer to the other insurer about a priority issue. The Court of Appeal rejected this argument, finding:

A second-hand statement from a third party is plainly not the same as the formal notice from the insurer that is contemplated by the Regulation. In any event, an unauthorized letter from a third party would not have bound the insurer. Given the specific language of the Regulation, I cannot accept the submission that a letter from a third party indicating the insurer’s intentions is sufficient to meet the requirement of formal notice from the insurer.[5]

For the purpose of section 3(1), notice is “given” under section 3(1) when the other insurer receives the notice.[6]

2.Verbal Notice Isn’t Worth the Paper It’s Written On

Section 3(1) specifies that the notice must be in writing. This means a verbal notice does not stop the 90-day clock.

There is also nothing in section 3(1) that requires a notice to be given on a specific form.^[7] A notice can be given by letter, email, and likely text message! Furthermore, the applicable regulation need not be referenced so long as what is disputed is clear.

3. Starts When the Insurer Receives a Completed Application

It is impossible to redline Day 90 without knowing when Day 1 was. Section 3(1) is clear that the 90-day notice period starts on the day the insurer giving notice first received a completed application for benefits.

In our second article, we looked at the meaning of “completed application” for the purpose of section 2.1. For the most part, prior to September 2010, the Regulation did not define “completed application”. Arbitrators had determined that an application was complete when it contained enough information to allow the insurer to adjust the claim.

Having enough information to adjust a claim makes sense because it allows the insurer to pay benefits to a claimant. However, that means very little to an insurer that is investigating priority. An insurer’s best source of information for starting a priority investigation is almost always contained in a completed Application for Accident Benefits (OCF-1).

In ING v. State Farm, the Superior Court held that a “completed application” in section 3(1) meant an application in the OCF-1 form. The Superior Court carved out an exception in those relatively rare cases where an insurer, that had not received the form, had been treated as being the “first insurer” for the purposes of section 2. For example, where there was evidence of a waiver, estoppel, delay or deflection, an insurer could be deemed to have received a “completed application” even if it hadn’t received a completed OCF-1. [8]

The Court of Appeal elaborated this reasoning in Ontario (Finance) v. Pilot Insurance Company.[9] In Pilot, a cyclist was injured by an unidentified motorist on November 30, 2006. He had no insurance of his own, so he submitted a signed OCF-1 to the Fund on December 19, 2006. However, he was unable to attach a police report to his application (as required if applying to the Fund) because he was unable to obtain one. The Fund investigated and determined that it needed to obtain 911 call information from the accident. It tried to obtain the information via FOI applications, but its requests were denied. The latest denial was in January 2008. The Fund eventually received the information in September 2008 and gave Pilot a priority notice in October 2008.

The Court of Appeal held, for the purpose of section 3, a completed application is one that is (1) genuinely complete; (2) functionally adequate for its legislated purpose; or (3) treated as complete based on the conduct of the first insurer.

In Pilot, the evidence was that the Fund had sufficient information to give written notice to Pilot for the purpose of section 3(1) when it obtained 911 call information in September 2008. However, the Fund’s delay in pursuing the 911 call information meant that the Fund should be treated as if it had received a completed application in February 2008. It was a “functionally adequate application”. The Court of Appeal held that as soon as the insurer has sufficient information to notify another insurer that it is disputing liability to pay benefits, the 90-day notice period in section 3 starts to run.[10]

As of September 1, 2010, the Regulation now defines “completed application” in section 3 to mean a completed and signed OCF-1. However, the principles in Pilot would likely still apply to determine whether an OCF-1 is “complete”.[11]

4. I claim It’s You

In our first article, we briefly touched on section 10 of O. Reg 283/95, which mandates that if Insurer A gives a priority dispute notice to Insurer B (under section 3), and Insurer B wants to dispute priority on the basis that another insurer (Insurer C) has priority over it, Insurer B must give its own priority dispute notice to Insurer C. There is no obligation on Insurer A to give a priority dispute notice under section 3 to Insurer C.

In Co-operators General Insurance Company v. Ontario (Minister of Finance),[12] Co-operators gave the Fund a priority dispute notice within the 90-day notice window. The Fund refused to accept priority, in part on the basis that Co-operators had failed to give a section 3 notice to another insurer (TTC Insurance). The Fund argued TTC Insurance would have had priority over the Fund. Co-operators argued that it discharged its obligations under section 3 by giving a bona fide notice to the Fund under section 3, and if the Fund wanted to “point the finger” at TTC Insurance it could have given that insurer a priority dispute notice under section 10.[13]

The arbitrator agreed with Co-operators, finding that the insurer giving notice under section 3 does not need to give a priority dispute notice to every insurer that might have priority. The section 3 obligations are discharged if the insurer giving notice claims the insurer receiving notice has priority. The Fund’s appeal was dismissed.[14]

5. Section 3.1: Notice to The Fund

Prior to September 2010, the 90-day notice provision under section 3(1) of the Regulation applied equally to the Fund. Section 3.1 of the Regulation applies to accidents that occurred on or after September 1, 2010 and applies only when an insurer is giving a priority dispute notice to the Fund:

3.1(1) This section applies to disputes relating to accidents occurring on or after September 1, 2010.

(2) Before giving a notice to the Fund under section 3, an insurer must,

(a) complete a reasonable investigation to determine if any other insurer or insurers are liable to pay benefits in priority to the Fund; and

(b) provide particulars to the Fund of the investigation and the results of the investigation.

Pursuant to section 3.1, an insurer seeking to send the Fund a priority dispute notice must first comply with both requirements in section 3.1(2). Failure to do so will nullify the notice.[15]

In RSA v. State Farm, RSA received an OCF-1 and sent a section 3 priority dispute notice to State Farm and Guarantee Insurance. During the arbitration proceedings, State Farm sent the Fund a priority dispute notice under section 10. RSA never sent the Fund a priority dispute notice under section 3 and did not comply with section 3.1 of the Regulation. The arbitrator held that section 3.1 of the Regulation also protects the Fund from a notice it receives under section 10 of the Regulation. It followed that RSA could not pursue the claim against the Fund.[16]

Section 3 (2): Save our Souls

Once the 90-day notice window closes, an insurer cannot dispute priority unless it can convince an arbitrator that it satisfied the two preconditions under section 3(2) of the Regulation:

3. (2) An insurer may give notice after the 90-day period if,

(a) 90 days was not a sufficient period of time to make a determination that another insurer or insurers is liable under section 268 of the Act; and

(b) the insurer made the reasonable investigations necessary to determine if another insurer was liable within the 90-day period.  O. Reg. 283/95, s. 3 (2).

After the 90-day period passes, the date the insurer eventually gives notice to the other insurer is irrelevant. In other words, there is no difference if the notice is given on Day 91 or Day 181.[17] In either case, the insurer can still be “saved” if it can get past the two conditions in subsection 3(2).

The insurer trying to rely on the saving provisions faces two hurdles. It must prove:

1. Ninety days was not a sufficient period of time for the insurer to make a determination that another insurer or insurers was priority; and
2. The insurer made the reasonable investigations necessary to determine if another insurer was liable within the 90-day period.

Arbitrators and judges have consistently and strictly enforced the 90-day rule. The 90-day rule is meant to encourage insurers to properly investigate priority issues in an expedient manner and to be pro-active about these disputes. This requirement also allows the insurer ultimately responsible to pay benefits to take carriage earlier rather than later. The following are some key points from the jurisprudence about how section 3(2) operates:[18]

• There is little room for creative interpretations or for carving out judicial exceptions designed to deal with the equities of particular cases.
• Section 3(2) is to operate strictly, because an insurer is entitled to know at an early stage that it will be managing and be responsible for the payment of benefits.
• It is important to determine the significance of the facts from the perspective of the insurer; because it is its predicament or circumstances that is the measure of whether there was sufficient time.
• While factually interrelated and connected by the general principles that govern section 3(2), the two pre-conditions of that section are mutually exclusive. The onus on the insurer seeking to give notice after 90 days is to establish both preconditions. In other words, the conclusion that the insurer undertook reasonable investigations and did not make a determination within 90 days does not by itself lead to the conclusion that 90 days is not a sufficient time. Similarly, a conclusion that 90 days would not have been sufficient for a determination does not relieve the onus on the insurer to show that it made reasonable investigations.
• The circumstances of each case must be examined to determine whether 90 days was not a sufficient time for the determination.
• Evidence that there was an available means by which the insurer could have made a determination within the 90-day period is relevant but not in itself determinative of whether 90 days was a sufficient time. The means available to make a determination is just one factor among others to be considered about the sufficiency of the 90-day period.
• Even if an insurer were shown within the 90-day period to have had access to the information needed to make a determination that another was obliged to pay the benefits, the insurer might still be able to show that in all the particular circumstances, the 90-day period was not sufficient time. While proven impossibility of finding the information within 90 days may justify a longer period, the identification with hindsight of an overlooked or unused possibility of finding the information within 90 days does not categorically preclude a longer period being justified.
• An insurer seeking to deliver a notice after 90 days must show both that it exercised due diligence and also that there was something in all the circumstances that would justify requiring more than 90 days to make a determination about whether to issue a notice to a particular insurer.
• Section 3(2)(a) is directed toward the ability of the insurer to gather the necessary facts to make a determination within 90 days.
• The cooperation or non-cooperation of the accident victim or the insured and any advertent or inadvertent misrepresentations of information are relevant but not in themselves determinative of whether the insurer had sufficient time.
• There may be other factors that are relevant to determine whether the 90-day period was a sufficient time, but the issue remains whether those factors make the 90-day period insufficient in any particular case.
• What the insurer knew and did not know, what the insurer did and did not do, and what the insurer could and could not do in the particular circumstances are all relevant factors to the determination of whether the insurer had sufficient time to make a determination that another insurer is obliged to pay the benefits.
• Some factors arbitrators consider are the completeness and accuracy of the application form, the cooperation provided by the interested parties, the number of potential insurers, and the press of other demands on the adjuster’s time.
• If the insurer shows that it actually was impossible to make a determination within 90 days, then it will have satisfied the onus of showing that 90 days was not a sufficient time for a determination.
• The insurer is required to make a reasonable investigation, but perfection is not required and there should be recognition that adjusters are extremely busy handling more than one complex matter at the same time.
• An insurer may have greater difficulty meeting the onus of justifying an extension when it did not employ obvious or readily available means that had a reasonable likelihood of finding the information it needed, even when the insurer satisfies the onus of showing that it made reasonable inquiries.

In short, to benefit from the subsection 3(2) exceptions, the insurer must show that 90 days was an insufficient time to make a reasonable determination, but not a correct determination. The 90-day period is about whether the insurer had sufficient time to collect the necessary information and facts in order to make a determination that another insurer is liable. The insurer must conduct an investigation that would reasonably suggest that there is another insurer that may be responsible to pay the accident benefits in question. It is neither necessary to be absolutely certain that another insurer is liable before sending a notice nor necessary to send out such a notice on a mere suspicion. The applicant insurer must investigate and determine that another insurer may reasonably be liable to pay accident benefits.

In Liberty Mutual, Perell J. made the following observation and conclusion:

It seems to me that what the insurer knew and did not know, what the insurer did and did not do, and what the insurer could and could not do in the particular circumstances are all relevant factors to the determination of whether the insurer had sufficient time to make a determination that another insurer is obliged to pay the benefits. In State Farm Mutual Automobile Insurance Company v. Lloyd’s of London Insurance Co., supra, without intending to be exhaustive, Arbitrator Jones identified the completeness and accuracy of the application form, the cooperation provided by the interested parties, the number of potential insurers, and the press of other demands on the adjuster’s time as relevant factors.[19]

It is not impossible to get relief from the saving provisions under section 3(2) of the Regulation, but it is very difficult to do so. Insurers relying on the saving provisions always face an uphill battle. This is why it is so very important to investigate and give a notice within those 90 days.

Conclusion and Investigation Tips

The first 90 days of a claim is usually very busy for a claims handler. Not only does the adjuster need to learn the claim and gather information as it rapidly develops, they also need to investigate priority and give the appropriate notices within those 90 days. Failure to do so can bar an otherwise meritorious (catastrophic) claim.

Before investigating priority, it helps to identify any red flags. For example, an application from a named insured under a policy may not necessarily trigger any priority cues, but an application from an occupant of a different vehicle in the accident should alert the insurer to investigate priority. Other red flags include:

1. Claimant is only an occupant of insured automobile and otherwise a “stranger” to insurer.
2. Claimant is a stranger to the policy and indicated they are married or separated or divorced.
3. Claimant was a pedestrian struck by insured vehicle.
4. Claimant applies as a dependant but appears to be within an age range suitable to work and/or earn income.
5. Claimant works for a transportation company or works as a driver (Regular Use).

There are many ways to investigate priority. Section 6 of O. Reg 283/95 allows the insurer paying benefits to conduct an examination under oath of the claimant. Insurers can also ask many questions during the first few weeks of the claim to try and identify other possible priority insurers. Police reports are often very useful.

Claims handlers should start their investigations as early as possible. Ninety days often feels like 90 seconds.

[1] 2002 CanLII 14202 (ON CA), http://canlii.ca/t/1dth1. This case was heard together with the appeal in State Farm Mutual Automobile Insurance Co. v. Ontario, 2001 CanLII 28051 (ON SC), http://canlii.ca/t/1w198.

[2] This is likely the most quoted paragraph in the priority dispute jurisprudence.

[3] See CGU v. Canada Life Casualty Insurance Company, (Guy Jones, February 2004).

[4] Kingsway General Insurance Co. v. West Wawanosh Insurance Co., 2002 CanLII 14202 (ON CA), http://canlii.ca/t/1dth1

[5] Kingsway General Insurance Co. v. West Wawanosh Insurance Co., 2002 CanLII 14202 (ON CA), http://canlii.ca/t/1dth1 at para 11.

[6] Economical v. Belair, (Lee Samis, May 2006).

[7]State v. Ontario http://canlii.ca/t/1w198 at para 16.

[8] ING Insurance Company of Canada v. State Farm Insurance Companies, 2009 CanLII 45850 (ON SC), http://canlii.ca/t/25gj4.

[9] 2012 ONCA 33 (CanLII), http://canlii.ca/t/fpp37

[10] See also Waterloo Insurance v. Wawanesa, 2014 ONSC 533 (CanLII), http://canlii.ca/t/g3619; Allstate Insurance Company of Canada v. The Wawanesa Mutual Insurance Company, 2020 ONSC 6275 (CanLII), https://canlii.ca/t/jbk0p

[11] See for example RBC v ACE INA (Arbitrator Shari Novick, April 2018).

[12] 2014 ONSC 515 (CanLII), http://canlii.ca/t/g32v4

[13] The subject accident happened before September 1, 2010, so subsection 3.1 of O, Reg 283/95 did not apply

[14] 2014 ONSC 515 (CanLII), http://canlii.ca/t/g32v4. See also Northbridge v Intact Insurance., 2018 ONSC 7131 (CanLII), https://canlii.ca/t/hwfkr

[15] Ontario (Minister of Finance) v. Echelon General Insurance Company, 2018 ONSC 4550 (CanLII), https://canlii.ca/t/htppk at para. 40, aff’d on other grounds Ontario (Finance) v. Echelon General Insurance Company, 2019 ONCA 629 (CanLII), https://canlii.ca/t/j1n7b

[16] Royal & Sun Alliance Insurance Co. v. State Farm Mutual Automobile Insurance Co., 2016 CarswellOnt 13322 (Arb K Bialkowski).

[17] Dominion of Canada General Insurance Company v. Certas Direct Insurance Company, 2009 CanLII 37348 (ON SC), http://canlii.ca/t/24m41

[18] For an excellent review of the jurisprudence, see Liberty Mutual Insurance Company v. Zurich Insurance Company 2007 CanLII 54080 (ON SC), http://canlii.ca/t/1v5d2

[19] Liberty Mutual Insurance Company v. Zurich Insurance Company 2007 CanLII 54080 (ON SC), http://canlii.ca/t/1v5d2 at para 28.