Bad Faith by Accident Benefits Insurer?

On July 19, 2019, the Ontario Court of Appeal released Stegenga v Economical Mutual Insurance Company 201 ONCA 615). The central question on appeal concerned the jurisdiction of the Licence Appeal Tribunal to hear a bad faith claim against Economical for its handling of the plaintiff, Morgan Stegenga’s accident benefits claim under the Statutory Accident Benefits Schedule [SABS] in light of the 2016 amendments to the SABS.

The plaintiff was seriously injured in a car accident as a 15-year old passenger. She applied for accident benefits from Economical through her father’s policy. She suffered multiple fractures and a head injury. Her Glasgow Coma Score was recorded as 6, which should have automatically qualified her as catastrophically impaired [catastrophic] under the SABS.

Although it was in possession of the necessary medical information, Economical did not inform the plaintiff or her parents that she could qualify for enhanced catastrophic benefits under the SABS. It took no steps to make the catastrophic determination, have her assessed or discuss the nature and extent of her impairments. Although she demonstrated extensive and varied rehabilitation needs, Economical did not assign a case manager on her behalf to coordinate her care. It also refused to fund a neurologic psychoeducational assessment despite the plaintiff’s documented struggles at school.

As a result, the plaintiff brought a Statement of Claim against Economical seeking punitive, aggravated and exemplary damages. She alleged that its conduct prolonged her suffering, causing new difficulties and impairments she would not otherwise have suffered, as well as emotional psychological and financial distress. She argued that these claims were distinct and separate from her accident benefits claim, as they were grounded in breach of contract and fiduciary duty.

Economical brought a Rule 21 Motion on a question of law to have the claim dismissed. It argued that the amendments to the SABS clearly barred a claimant’s access to the courts for disputes in respect of accident benefits, assigning exclusive jurisdiction to the Licence Appeal Tribunal [LAT]. Since the dispute arose from Economical’s handling of her accident benefits claim, the court had no jurisdiction to her the matter.

The plaintiff claimed that these issues had not yet been decided under the amended SABS, and that the circumstances of the dispute were unprecedented. Also, she argued that a bad faith claim was a "stand-alone" cause of action, and was not, "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 was entitled," as set out in s.280 of the Insurance Act. In addition, the damages sought in the lawsuit were not available through a LAT hearing.

Justice Ramsay, the motion judge, agreed with Economical and dismissed the claim. He explained that "in respect of" describes a very broad form of connection, in keeping with the legislative goal of providing a cost-efficient and expedient dispute resolution process for accident benefits claims. Whether or not a dispute is within the LAT’s exclusive jurisdiction involves an analysis of the facts behind the dispute, not the legal characterization of the wrong. Prior to the amendments, the 2002 Arsenault appeal determined that when a refusal of accident benefits is an essential part of the claim, the statutory dispute resolution mechanism for accident benefits is the appropriate forum, even if bad faith was involved.

On this appeal, the plaintiff relied upon the Supreme Court’s Whiten v. Pilot decision to demonstrate that an insurer’s duty of good faith was independent and in addition to its duty to pay the benefits to which she was entitled. She claimed that Arsenault was not "truly" a bad faith claim. Finally, she argued that the motion judge’s position, "effectively insulates insurers from claims involving a breach of their duty of good faith in relation to claims for SABS", which would be contrary to the consumer protection objectives of the SABS regime.

Justice Zarnett for the Court broke the appeal into three related issues:

1) What is the breadth of the SABS dispute resolution provisions?

2) Does a bad faith claim seeking punitive damages fall outside of these provisions?

3) How do 1 and 2 impact the plaintiff’s claim?

After providing an extensive review of the relevant legislation and case law, Justice Zarnett upheld the motion judge’s decision. He found that the legislature intended the SABS dispute resolution mechanisms mandated by s.280 of the Insurance Act to constitute a complete code, both before and after the amendments. However, the specific mechanisms were revised by the amendments, conferring sole jurisdiction to the LAT to hear all disputes in respect of the SABS at first instance, including those relating to: the insurer’s compliance with its obligations to the insured, the timeliness of performance of those obligations and/or the manner in which they were administered.

Bad faith by an insurer in the performance of its obligations fits within these broad categories. The fact that punitive and other damages are not available to the LAT was considered irrelevant to the Court. Analogous forms of compensation, and specifically a special award when an insurer has unreasonably withheld or delayed provision of benefits, are within the Lat’s authority to grant. Justice Zarnett explained that the legislature was presumed to have considered available remedies and included those that it felt were appropriate. It could have included punitive and exemplary damages- the fact that it chose not to do so was not sufficientto take a claim in relation to the handling of an accident benefits claim out of the LAT’s jurisdiction.

As a result, the appeal was dismissed.

This is a correctly-reasoned result that somehow still feels wrong. There is a basic injustice in the fact that accident victims across the province cannot use the Superior Court to hold insurance companies accountable for obvious acts of bad faith like this. Special awards rarely represent a significant deterrent, since they are capped at 50% of the amounts in dispute.

For this reason, Campisi LLP launched a constitutional challenge to fight for our right to fair treatment. However, this issue withstood the challenge in Court, and is viewed as a reasonable limitation on individual rights.

If you have been seriously injured in a car accident and have questions about your insurance company’s handling of your accident benefits claim or the claim generally, we are pleased to offer a free consultation. Campisi LLP - "Clients First, Excellence Always!"