Does "Pay First and Dispute Later" Rule Apply to Non-Motor Vehicle Insurance Companies?

What is "Pay First and Dispute Later" Rule

Section 2, paragraph 1 of the Ontario Regulation 283/95 - a regulation that sets out the mandatory process for private arbitration of all disputes between insurance companies, states, "The first insurer that receives a completed application for benefits is responsible for paying benefits to an insured person pending the resolution of any dispute as to which insurer is required to pay benefits under section 268 of the Act."

Application of the Pay First and Dispute Later Rule

The case called Zurich  Insurance  Co. v.  Chubb Insurance  Co. of Canada decided by the Supreme Court of Canada on April 17, 2015 answers the question on whether the insurance company that first receives the completed Statutory Accident Benefits Schedule (SABS) application is obliged to pay a claim while disputing the coverage with another insurance company.

The Zurich case originates from the accident benefit claim filed by Sukhvinder Singh with Chubb. Singh rented a vehicle from Wheels 4 Rent. The rental vehicle was insured by Zurich. Chubb, on the other hand, issued an accident policy to Wheels 4 Rent. Liability to others as a result of a motor vehicle accident was not covered by Chubb’s accident policy. Chubb has an optional death and dismemberment insurance to Wheels 4 Rent customers. Singh did not purchase Chubb’s optional coverage.

After encountering a single vehicle motor accident and after getting hold of a pamphlet for the optional Chubb policy made available by Wheels 4 Rent, Singh submitted an accident benefit claim to Chubb.

The dispute then arises: Who pays for the accident benefit claim of Singh, Chubb or Zurich? Chubb refused to pay Singh. Zurich, on the other hand, paid Singh. The two insurance companies submitted their dispute to arbitration.

The arbitrator decided that Chubb was not required to pay Singh benefits following the pay first and dispute later rule, reasoning that Chubb was not an "insurer" as there was no sufficient connection between Chubb and Singh. Zurich appealed the decision of the arbitrator.

The application judge ruled in favor of Zurich, concluding that Chubb is an insurer and there is sufficient connection between Chubb and Singh. Chubb appealed the decision of the application judge to the Ontario Court of Appeal. On May 15, 2014, the majority of the Justices of the Court of Appeal ruled in favor of Chubb, concluding that Chubb is not the insurer in this case, and added that there is no sufficient connection between Singh and Chubb.

For his part, Justice Russell Juriansz of the Ontario Court of Appeal expressed his disagreement with the decision of the majority of the Justices. In his dissenting opinion, Justice Juriansz wrote that it is "evident" that in this case, Zurich is the motor vehicle liability insurer of Wheels 4 Rent’s vehicles, and Chubb is not. There is no evidence, however, that Singh has knowledge about the relationship between Wheels 4 Rent and Zurich, Justice Juriansz.

"The overriding public policy of the Regulation is to provide timely delivery of benefits to all persons injured in car accidents in Ontario, despite the inconvenience to insurance companies who must provide benefits immediately and seek reimbursement from the correct insurance company later," Justice Juriansz.

Zurich appealed the ruling of the Ontario Court of Appeal to the Supreme Court of Canada. The highest court of Canada, adopting the reasoning of Justice Juriansz of the Ontario Court of Appeal, decided in favor of Zurich.