Sometimes people who are not residents of Ontario decide that they want to visit Ontario. In many cases, these visitors have their own auto insurance policies in their home jurisdiction, and many times their insurers do not conduct business in Ontario. Unfortunately, sometimes these visiting motorists are involved in car accidents in Ontario and claim Ontario accident benefits from local insurers.
Many times, the Ontario insurer pursues a priority dispute against the claimant’s foreign insurer, who usually responds with something like “we don’t have Ontario SABS coverage in our policy. Byeeeeeee”.
There is a misconception regarding the applicability of Ontario’s accident benefits and priority dispute scheme to foreign insurers and policies. Join me as we examine why these regulations are indeed relevant when their insured parties are involved in car accidents in Ontario.
The Reciprocal Scheme
In Canada, all the provinces and territories have set up a reciprocal scheme for the enforcement of automobile policies when accidents occur outside a home province, anywhere in Canada or the United States. The scheme is designed to ensure that motorists travelling outside their home jurisdictions are financially responsible for their actions in other provinces and territories. The reciprocal scheme requires out-of-province insurers to respond to claims in respect of accidents that occur outside of the insured’s home jurisdiction. Most importantly, the insurer is not allowed to raise a defence in the jurisdiction where the accident occurred, which is not otherwise available had the contract been issued in that jurisdiction.
Reciprocal by Statute
These conditions are also baked into provincial legislation. In Ontario, section 45 of the Insurance Act provides the following licensing conditions on Ontario automobile insurers:
Conditions of automobile insurance licence
45 (1) A licence to carry on automobile insurance in Ontario is subject to the following conditions:
- In any action in Ontario against the licensed insurer or its insured arising out of an automobile accident in Ontario, the insurer shall appear and shall not set up any defence to a claim under a contract made outside Ontario, including any defence as to the limit or limits of liability under the contract, that might not be set up if the contract were evidenced by a motor vehicle liability policy issued in Ontario and such contract made outside Ontario shall be deemed to include the statutory accident benefits referred to in subsection 268 (1).[emphasis added]
- In any action in another province or territory of Canada, a jurisdiction in the United States of America or a jurisdiction designated in the Statutory Accident Benefits Scheduleagainst the licensed insurer, or its insured, arising out of an automobile accident in that jurisdiction, the insurer shall appear and shall not set up any defence to a claim under a contract evidenced by a motor vehicle liability policy issued in Ontario, including any defence as to the limit or limits of liability under the contract, that might not be set up if the contract were evidenced by a motor vehicle liability policy issued in that jurisdiction. [emphasis added]
Penalty for breach
(2) A licence may be cancelled when the holder commits a breach of condition as set out in subsection (1). R.S.O. 1990, c. I.8, s. 45 (2).[1]
For example, if a motorist from Alberta is involved in an accident in Ontario, their Alberta-licensed insurer will be required to respond to any Ontario accident benefits claims arising from the accident in Ontario, pursuant to section 33 of Alberta’s Insurance Act. If the Alberta insurer is also licenced in Ontario, section 45(1)1 of Ontario’s Insurance Act would also compel the insurer to respond to any claims arising from the accident in Ontario, and the Alberta policy “shall be deemed to include the statutory accident benefits referred to in subsection 268 (1).” This means, among other things, that the Alberta insurer would have to provide its insured with Ontario accident benefits under the Alberta policy. It would also be subject to Ontario’s priority dispute scheme and would have to provide Ontario benefits to anyone who would have recourse against it for accident benefits, pursuant to the priority pecking order in section 268(2) of the Insurance Act.[2]
Reciprocal by PAU
American insurers have similar obligations for accidents outside their home states, although several states don’t legislate those obligations. However, most American (and many Canadian) auto insurers have filed a Power of Attorney and Undertaking (PAU) with the Canadian Council of Insurance Regulators. The PAU regime was introduced in 1964 in recognition that different jurisdictions have different minimum requirements for auto insurance. To allow drivers to cross international and interprovincial borders without violating any insurance laws, the industry came up with a reciprocal system to ensure that the mandatory minimum requirements for a given jurisdiction are met when drivers cross the border.[3]
In Potts v. Gluckstein, the Ontario Court of Appeal provided the following description of the PAU and the reciprocal scheme:
The reciprocal scheme is based upon a power of attorney and undertaking filed by each participating motor vehicle insurer with the superintendent of insurance of British Columbia. He accepts the filing on behalf of the superintendents of insurance in the other provinces and territories, and sends copies to them. They are authorized to accept service on behalf of the insurer with respect to an action against it or its insured arising out of a motor vehicle accident in their respective jurisdictions. The insurer, as ICBC did in this case, undertakes first, to appear in any such action or proceeding and second, to personally serve notice upon the insured. The dispute here is about the interpretation of the insurer’s third undertaking:
Not to set up any defence to any claim, action, or proceeding, under a motor-vehicle liability insurance contract entered into by it, which might not be set up if the contract had been entered into in, and in accordance with the law relating to motor-vehicle liability insurance contracts of the Province or Territory of Canada in which such action or proceeding may be instituted, and to satisfy any final judgment rendered against it or its insured by a Court in such Province or Territory, in the claim, action, or proceeding, up to
- the limit or limits of liability provided in the contract; but
- in any event an amount not less than the limit or limits fixed as the minimum for which a contract of motor-vehicle liability insurance may be entered into in such Province or Territory of Canada . . .
(Emphasis added)
The reciprocal scheme provides a uniform basis for the enforcement of motor vehicle insurance claims in Canada. This ensures that a person who has entered into a motor vehicle insurance contract in one province is recognized as insured in other provinces. In the event of an accident, the insurer agrees to be bound by the law of the province or territory where the action is brought and not the province where the policy is issued. The insurer also accepts liability to the limits prescribed in its policy or, at least, to the minimum limits established in the province or territory where the action is brought. The scheme is open to participation by United States insurers: see Schrader v. United States Fidelity & Guaranty Co. (1987), 59 O.R. (2d) 178, 37 D.L.R. (4th) 120 (Div. Ct.), additional reasons (1987), 59 O.R. (2d) 797, [1987] I.L.R. 1-2219 (Div. Ct.). The benefits of the scheme are obvious in Canada because of the heavy volume of interprovincial motor vehicle traffic.[4]
In summary, the PAU was established to allow motorists to travel across provinces without breaching provincial compulsory auto insurance laws. It achieves this by ensuring that the motorist is covered under a policy that meets the minimum coverage requirements of the province they are in. Furthermore, it mandates that the foreign insurer participate in any legal proceedings within the province where the incident occurred, and prohibits them from invoking any defences under the foreign policy that are not permissible under a policy issued in the province where the accident took place.
The PAU and Priority Disputes
The first Ontario priority dispute dealing with an American insurer was Healy v. Interboro[5]. The claimant was a resident of New York State. He was insured with Interboro under an automobile insurance policy issued in New York. He was involved in an accident in Ontario when he was a passenger in a vehicle registered and insured in Ontario with Guardian Insurance. Healy suffered serious injuries in the accident. A priority dispute emerged between Guardian and Interboro over which insurer was responsible to pay the claimant Ontario accident benefits. Interboro argued that its policy did not include Ontario accident benefits, which was true on the face of the New York policy.
Interboro acknowledged that it had filed a PAU in Canada but argued (1) that the reciprocal scheme was not triggered unless the insured automobile was in Ontario at the time of the accident; (2) the PAU filed by Interboro under the reciprocal scheme did not provide for the payment of Ontario benefits; and (3) because of subsequent legislative changes, the PAU filed by Interboro in 1964 was no longer in force in Ontario.
The motion judge and Court of Appeal rejected all three arguments and held that Interboro’s PAU required it to pay Ontario accident benefits arising from an accident in Ontario involving its insured. With respect to the first argument, Goudge J.A. wrote:
The answer to this argument is that the terms of the PAU nowhere limit its operation to circumstances where the vehicle insured by Interboro is in Ontario. Nor do those terms confine the PAU to the kinds of claims that were permitted under Ontario law at the time of the filing in 1964. Rather, those terms suggest that the PAU was intended to have not just a fleeting effect, but a prospective reach to Ontario law as it may develop. It is clear that, at the time of the accident in 1996, the named insured in a motor vehicle policy issued in Ontario was entitled to receive SABS under that policy as a result of a motor vehicle accident even if the automobile insured under the Ontario policy was not involved in the accident because it was not at the time in the jurisdiction where the accident occurred: see s. 268(1) and (2) of the Insurance Act and Prasad v. Gan Canada Insurance Co. (1997), 33 O.R. (3d) 481 (C.A.).
Moreover, the outcome urged by the appellant would be inconsistent with the purpose of the reciprocal scheme. To paraphrase the description of Blair J.A. in Potts, supra, a participating insurer agrees to be bound by the law concerning compulsory automobile insurance coverage of the province where the action against it is brought rather than the automobile insurance coverage of the state or province where its policy is issued. In return, a participating insurer can assure those persons whom it insures that they will be recognized as being validly insured when driving in other participating jurisdictions. It assures the same statutory guarantees to someone injured in an automobile accident in Ontario whether the relevant automobile insurance contract was made in Ontario or another participating jurisdiction.
To limit this scheme, either by requiring that the vehicle insured by the out-of-province insurer be in Ontario at the time of the accident, or that the out-of-province insurer be required to respond only to a liability claim, would frustrate the purpose of the reciprocal scheme. Specifically, it would disadvantage those insured with participating out-of-province insurers compared to those insured by Ontario insurers.[6]
With respect to the argument that the Interboro policy did not contain Ontario accident benefits, the Court of Appeal referred to Potts and held that Interboro was raising a defence under its policy that was not available to an Ontario insurer:
In this case, the PAU equally precludes Interboro from asserting the defence that its policy does not include SABS coverage given that this coverage is mandated by s. 268(1) of the Insurance Act to be a part of the standard Ontario policy. This result serves the “level playing field” objective of the reciprocal scheme.[7]
Finally, Goudge J.A. rejected Interboro’s third argument and held that it was still bound by its 1964 PAU:
In my view, this argument is flawed. The Interboro PAU (which on its face extends to Ontario proceedings) was filed in 1964 and has never been withdrawn or modified. This alone would be enough to conclude that the Interboro obligation set out in the PAU has remained alive throughout for Ontario proceedings.[8]
In the end, the Court of Appeal held that the PAU precluded an American insurer that had filed one from asserting the defence that its policy did not include accident benefits coverage when the accident happened in Ontario. The Court of Appeal held that this coverage was mandated by section 268(1) of Ontario’s Insurance Act to be a part of a motor vehicle liability policy, which is contained in the standard Ontario policy. The Court held that this result served the “level playing field” objective of the reciprocal scheme.
To summarize, jurisdictions in Canada and the United States have recognized that motorists travel into other provinces, territories, and states. Whether by legislation or by undertaking, the reciprocal scheme provides a uniform manner to enforce auto policies anywhere in Canada. If the insured is involved in an accident outside their home jurisdiction, their insurer is obligated by their home legislation and/or by undertaking to be bound by the law of the province or territory where the accident happens and not the province, territory, or state where the policy is issued.
This means that the foreign insurer is required to provide Ontario accident benefits coverage for accidents arising in Ontario. Further, the insurer is also required to participate in Ontario’s priority dispute scheme and to agree to submit to arbitration to resolve any priority dispute issues with an Ontario insurer.[9]
Another noteworthy case is Economical v. Intact[10]. The claimant was a resident of Alberta and insured there with Intact and an Alberta policy. Her mother was a resident of Ontario and insured here with Economical. Her mother was killed in an accident in Ontario. As a result of the accident, the claimant applied to Economical claiming recourse as a non-involved “insured person” because of psychological impairment. Economical denied coverage but in the interim it pursued a priority dispute against Intact. Intact disputed priority, in part because its policy was issued in Alberta and subject to the laws of that province at the time of the accident.
The arbitrator found that Intact had priority over the claim because it had signed the PAU.
The appeal judge disagreed, finding that the claimant’s policy with Intact was not subject to Ontario’s accident benefits scheme in the circumstances of the case. The appeal judge held that Intact wasn’t an “Ontario insurer” because its policy was issued in Alberta. Further, the appeal judge found that the PAU could not be used against Intact. He distinguished Healy in part because Intact’s insured was not in Ontario when her mother was involved in the accident here.
Economical is somewhat of an outlier because it might be the only decision finding that Ontario’s accident benefits and priority dispute scheme doesn’t apply against an out of province insurer[11] when the accident happened in Ontario. But the facts in Economical are somewhat unique because the claimant wasn’t in Ontario when the accident happened and she was claiming entitlement to benefits as a non-involved “insured person”, which is a coverage that isn’t available under the Alberta policy. I do not believe that Economical changed the law[12].
Takeaways
Foreign insurers who have filed a Power of Attorney and Undertaking (PAU) are bound by Ontario’s accident benefits coverage requirements when their insureds are involved in accidents in Ontario – even when their policies were issued outside the province. This approach maintains a consistent and fair system for enforcing auto insurance policies across different jurisdictions in Canada and the United States. The ruling in Healy v. Interboro underscores the necessity for insurers to comply with local laws where accidents occur, promoting a level playing field and protecting the rights of insured individuals. While there are exceptions, such as the unique circumstances in Economical v. Intact, the general mandate remains clear: insurers must adhere to the reciprocal agreements that facilitate seamless auto insurance coverage and dispute resolution across borders.
Ontario claims handlers should continue to investigate and pursue priority against foreign insurers on claims where a foreign claimant was involved in an accident in Ontario. If the foreign insurer denies the claim on the basis that their policy doesn’t contain Ontario accident benefits, you should call me (I was also lead counsel for Coseco in Coseco v. Liberty, (CanLII), https://canlii.ca/t/j22rg).
Want to know more about Priority Disputes?
[1] Insurance Act, RSO 1990, c I.8, s 45, https://canlii.ca/t/2g6#sec45. See also Insurance Act, R.S.A. 2000, c. I-3, s. 33 (Alberta); Insurance Act, C.C.S.M. c. 140, s. 27(6) (Manitoba); Insurance Act, R.S.N.S. 1989, c. 231, s. 126 (Nova Scotia); Insurance (Vehicle) Act, R.S.B.C. 1996, c. 231, s. 18 (BC).
[2] Chubb v Zenith (2023) (Arbitrator K Bialkowski).
[3] See https://www.ccir-ccrra.org/PrivatePassengerAutomobiles or a copy of the PAU wording and a list of insurers that have filed the PAU in Canada.
[4] Potts v. Gluckstein, 1992 CanLII 7623 (ON CA) at paras 2-3, https://canlii.ca/t/g17jx
[5] Healy v. Interboro Mutual Indemnity Insurance Company, 1999 CanLII 1485 (ON CA), https://canlii.ca/t/1f9f9
[6] Healy, https://canlii.ca/t/1f9f9 at paras 13-15
[7] Healy, https://canlii.ca/t/1f9f9 at para 19
[8] Healy, https://canlii.ca/t/1f9f9 at para 21
[9] See Coseco v. Liberty, 2019 ONSC 4918 (CanLII), https://canlii.ca/t/j22rg. See also RBC General Insurance Co. v. Geico Indemnity Co. (2010) (Arbitrator P. Samworth).
[10] Economical v. Intact, 2021 ONSC 3249 (CanLII), https://canlii.ca/t/jfpgw
[11] Funny enough, Intact is the largest automobile insurer in Ontario.
[12] See also Chubb v Zenith (2023) (Arbitrator K Bialkowski), which distinguishes Economical similarly and held that Zenith was required to pay Ontario accident benefits under an Alberta policy arising from an accident in Ontario.