2 Liability Coverage; Direct Compensation Property Damage (Sections 3 and 6)

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1 2 Liability Coverage; Direct Compensation Property Damage (Sections 3 and 6) Learning Objectives When you finish this study, you should be able to meet the following objectives: Discuss the legal basis for liability arising from the ownership, use, or operation of an automobile. Under the Liability section of the policy: Identify the individuals who will be indemnified. State the coverage provided. Explain the reason for each of the exclusions. Explain how Direct Compensation for Property Damage works. State the types of injury claims that could be expected under the Liability section of the automobile policy. Summarize the Additional Agreements of insurer. State the responsibilities of insured persons. State the agreements of the insured. Define priorities of payment. 1

2 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Contents Introduction Liability Coverage Exclusions Liability for Property Damage Direct Compensation Property Damage Deductible Liability for Injury Claims Additional Agreements of Insurer Responsibilities of Insured Persons Agreements of the Insured Policy Limits Priorities of Payment 2

3 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE Introduction Named insured should be the registered owner An automobile policy (OAP 1) is purchased by the registered owner of the automobile. He or she has an insurable interest in that automobile. The owner is the named insured. That is why the OAP1 is also known as the Owner s Policy. The owner s name appears on the policy and should appear on the ownership documents (vehicle registration). If the two are not the same, there is already a problem. The policy defines various classes of persons as insured persons as well. These definitions vary from one part of the policy to another. In the next few studies we will be studying the Owner s Policy in modules in the following sequence: Liability Coverage (Sections 3 and 6) Accident Benefits (Section 4) Loss or Damage Coverages (Section 7) Uninsured Automobile Coverage (Section 5) General Provisions, Definitions, and Exclusions (Section 2) Statutory Conditions (Section 8) Endorsements Liability Coverage Legal liability protection Liability coverage is designed to provide financial protection for the insured s legal liability for injury to other people (Bodily Injury) and damage to the property of others (Property Damage) arising out of the ownership or directly or indirectly from the use or operation of the automobile. Negligence Legal liability to others can arise from the use or operation of the automobile owned and described in the policy or the use or operation of certain other automobiles by the named insured or persons insured as defined in the policy. To be legally liable for injuries or damage to other persons, the driver or owner must either have deliberately caused the injury or damage or be considered negligent to some degree. An individual s legal liability as a motorist is stated in the Highway Traffic Act. This can be modified by other legislation and regulations as is the case with bodily injuries resulting from automobile accidents. 3

4 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Section 239 of the Insurance Act states: (1) Subject to section 240 1, every contract evidenced by an owner s policy insures the person named therein, and every other person who with the named person s consent drives, or is an occupant of, an automobile owned by the insured named in the contract and within the description or definition thereof in the contract, against liability imposed by law upon the insured named in the contract or that other person for loss or damage (a) arising from the ownership or directly or indirectly from the use or operation of any such automobile; and (b) resulting from bodily injury to or the death of any person and damage to property. Who is insured and when The above section of the Act tells us who is insured by an automobile policy and under what general circumstances. The possibilities of being involved in an accident, and being found negligent and therefore responsible to third parties, are increasing constantly. They are mainly caused by: The greater numbers of cars and drivers The continual increase in the number of accidents Need for adequate insurance The need for an adequate amount of insurance is emphasized by the amounts of claim settlements and court judgments. Average cost of injury and property damage is constantly increasing. In Canada there are more and more awards in the millions of dollars while in the United States these amounts have been even higher. The responsible broker or agent will encourage clients to purchase adequate Liability insurance. To do otherwise, exposes them to possible financial ruin. Minimum limits are compulsory in all provinces but do not necessarily provide adequate coverage. Exclusions Types of losses not covered Certain types of losses are not covered by this section of the policy: Claims for damage to property carried in or upon the automobile, or claims for damage to other property owned or rented by, or in the care, custody, or control of the named insured or other insured persons. Claims arising from contamination of property carried in the automobile. 1 Refers to excluded drivers 4

5 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE This last exclusion was added in 1970 in Ontario, and subsequently in other jurisdictions, as a result of an incident in which a load of gasoline became contaminated by the previous cargo, due to improper cleaning of the tank between loads. The contaminated gasoline was distributed to a service station and a large number of vehicles developed engine problems as a result. The automobile policy on the tank truck paid the claim. The general consensus, however, was that the automobile policy was not intended to cover this type of claim, and so this exclusion was added to prevent similar claims in the future. Nuclear energy hazards means radioactive, toxic, explosive, or other hazardous properties of substances described in Regulations made under the Atomic Energy Control Act (Canada). If the named insured or other insured persons are involved in an incident where the loss or damage is directly or indirectly caused by a nuclear hazard, the policy will pay up to $200,000 if the named insured or other insured persons are covered under this policy for a nuclear hazard and are also insured under a nuclear energy hazard liability policy. The automobile policy provides excess coverage and will only pay after the limits of the nuclear energy hazard liability policy have been exhausted. There is no coverage under the automobile policy if the insured does not also have a nuclear energy hazard liability policy. Section of the policy also clearly states that the policy will not cover amounts in excess of the limit purchased, other than legal costs and postjudgment interest. Summary There is no coverage for: The insured s own property or property for which he or she is responsible while being carried in the automobile Contamination of property being carried Nuclear hazards, unless the insured also has a nuclear energy hazard liability policy, and then only as excess insurance Amounts over the policy limit purchased Liability for Property Damage Under tort law, when you are negligent and found responsible for damage to someone else s automobile, that third party looks to you or your insurer for recovery. That is why you need Liability insurance. When someone else is responsible for damaging your automobile, you expect to recover from him or her to the extent of his or her liability. 5

6 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Ontario introduced direct compensation for vehicle damage in June 1990, while similar direct compensation for vehicle damage came into effect in New Brunswick in January Although liability must still be established, insureds recover from their own insurers under a direct compensation scheme. Direct Compensation Property Damage (DCPD) Only deal with own insurer It is important to understand clearly the change created in the handling of claims for damage to vehicles brought about by Section 263 of the Insurance Act. Insureds now deal only with their own insurers and cannot claim against third parties or their insurance companies. Their own insurers will indemnify them for the cost of repairs as well as for damage to contents carried in the vehicle and its loss of use subject to the extent they are not at fault. Further, Section 263 will apply even if there is a breach of a policy condition (as decided by the Ontario Divisional Court in Aube v. Royal Insurance (1998)). Note that a claim could be made under this section even though the other driver has not directly struck the insured vehicle. The other driver could indirectly force the insured off the road causing damage to the vehicle. The other driver would have to be identified and insured, and proven negligent in indirectly causing our insured s single vehicle accident. Many people believe that DCPD is a no-fault system but in fact this is a misunderstanding DCPD is not no-fault. You can only claim against the DCPD section of the policy to the extent that you are not at fault. This means that if, for example, you are 100% at fault, you cannot claim anything under the DCPD section, whilst a true no-fault system would allow you to claim against that section without taking into account whether you are at fault or not. The Accident Benefits section of the OAP1 is an example of a no-fault system. Let us once again look at the Insurance Act. Section 263 (1) This section applies if, (a) an automobile or its contents, or both, suffers damage arising directly or indirectly from the use or operation in Ontario of one or more other automobiles; (b) the automobile that suffers the damage or in respect of which the contents suffer damage is insured under a contract evidenced by a motor vehicle liability policy issued by an insurer that is licensed to undertake automobile insurance in Ontario or that has filed with the Superintendent, in the form provided by the Superintendent, an undertaking to be bound by this section; and 6

7 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE (c) at least one other automobile involved in the accident is insured under a contract evidenced by a motor vehicle liability policy issued by an insurer that is licensed to undertake automobile insurance in Ontario or that has filed. Jurisdiction of DCPD Recovery from own insurer Insured s rights unchanged Direct Compensation applies if damage occurs in Ontario and both vehicles are insured under automobile policies issued by licensed insurers in Ontario or insurers from outside Ontario, who have signed agreements to be bound by this section. The insured is then entitled to recover for the damages to his or her automobile and its contents and for its loss of use from the insured s own insurer as though the insured were a third party. (2) If this section applies, an insured is entitled to recover for the damages to the insured s automobile and its contents and for loss of use from the insured s insurer under the coverage described in subsection 239 (1) as though the insured were a third party. (3) Recovery under subsection (2) shall be based on the degree of fault of the insurer s insured as determined under the fault determination rules. This section does not give rights greater than a third party would have if the insured still had the right to recover from the third party. Under normal tort law the third party would only recover to the extent of being not at fault, for example, 100 percent not at fault, 50 percent, 25 percent, and so on. This same right of recovery is now to be exercised against the insured s own insurer when direct compensation applies. 7

8 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Fault chart approach In Ontario, the use of Fault Determination Rules is similar to Quebec s Fault Chart approach to automobile physical damage. The Regulations pursuant to the Insurance Act contain a section entitled Fault Determination Rules. Following is one example: Fault Determination Rule No. 7 (1) This section applies when automobile A collides with automobile B while automobile B is entering a road from a parking place, private road or driveway. (2) If the incident occurs when automobile B is leaving a parking place and automobile A is passing the parking place, the driver of automobile A is not at fault and the driver of automobile B is 100 per cent at fault for the incident. (3) If the incident occurs when automobile B is entering a road from a private road or driveway and automobile A is passing the private road or driveway and, if there are no traffic signals or signs, the driver of automobile A is not at fault and the driver of automobile B is 100 per cent at fault for the incident. 8

9 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE Dispute resolution Sue own insurer Recovery restrictions If no DCPD agreement (4) An insured may bring an action against the insurer if the insured is not satisfied that the degree of fault established under the fault determination rules accurately reflects the actual degree of fault or the insured is not satisfied with a proposed settlement and the matters in issue shall be determined in accordance with the ordinary rules of law. Provision is made that an insured can still sue if unsatisfied with the degree of fault and/or the settlement, but such action would be against the insured s insurer, not the third party insurer. The insured would have to present evidence that there were extenuating circumstances that made his or her situation different than the circumstances described by the rule applied. (5) If this section applies (a) an insured has no right of action against any person involved in the incident other than the insured s insurer for damages to the insured s automobile or its contents or for loss of use: (a.1) an insured has no right of action against a person under an agreement, other than a contract of automobile insurance, in respect of damages to the insured s automobile or its contents or loss of use, except to the extent that the person is at fault or negligent in respect of those damages or that loss. (b) an insurer, except as permitted by the regulations, has no right of indemnification from or subrogation against any person for payments made to its insured under this section. The insured is prevented from suing any other person involved in the accident for such damage or loss of use unless the negligent party is insured with an insurer outside the province of Ontario and that insurer is not a subscriber to the DCPD agreement. An example may be an American tourist insured with the Indiana Mutual Insurance Company. Otherwise, the insurer which pays the claim cannot subrogate against other insurer(s) who are signatories to the DCPD agreement except as permitted by the regulations. Section 6 of Regulation 664 states: (1) For the purpose of clause 263 (5)(b) of the Act, the insurer of an automobile that is in the care, custody or control of a person who is engaged in the business of selling, repairing, maintaining, servicing, storing or parking automobiles is entitled to indemnification from the person. (2) The amount of the indemnity is limited to that proportion of the loss that is attributable to the fault, as determined under the fault determination rules. 9

10 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Automobile businesses When someone who is in a business relating to automobiles is negligent and damage to an insured automobile results, the insurer may subrogate against that responsible party. Section 7 of Regulation 664 states: (1) For the purpose of clause 263 (5)(b) of the Act, the insurer of an automobile that is being towed by another automobile is entitled to indemnification from the lessee or, if there is no lessee, from the owner of the automobile towing it, (a) if the lessee or owner is engaged in the business of towing automobiles; or (b) if the automobile towing the insured automobile has a gross vehicle weight greater than 4,500 kilograms. (2) The amount of the indemnity is limited to that proportion of the loss that is attributable to the fault, as determined under the fault determination rules, of the driver of the automobile that is towing the insured automobile. Towing This is similar to Section 6 but deals with damage that occurs when an automobile is being towed. If the tower is negligent, the insurer of that automobile may subrogate for the attributable portion under the fault rules. Section 8 of Regulation 664 states: (1) For the purpose of clause 263 (5)(b) of the Act, the insurer of an automobile the contents of which suffer damage in an amount greater than $20,000 is entitled to indemnification from the insurer of the other automobile involved in the incident. (2) The amount of the indemnity is limited to that proportion of the loss over $20,000 that is attributable to the fault, as determined under the fault determination rules, of the driver of the other automobile. Contents losses If a contents loss is over $20,000, an insurer may recover from the insurer of the at-fault party the amount that is over $20,000. It will be apportioned according to the fault rules. There must be at least two automobiles, insured by an Ontario automobile policy, involved before direct compensation rules take effect. When a loss occurs involving an automobile and other property such as a building or a bridge, the fault determination rules do not apply. The ordinary rules of tort will apply. Own damage cover such as Collision or Comprehensive is not affected by these direct compensation provisions. To the extent that insureds are at fault, they can recover from their own insurer, subject to their deductible, provided they have purchased such cover, otherwise they have no source of recovery. 10

11 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE Example 1 Tom Thomas buys the following coverage from insurer XYZ: Liability - $500,000 Accident Benefits Collision with $500 deductible Comprehensive with $50 deductible Direct Compensation with no deductible An accident occurs with Nancy Wong who is insured with insurer ABC. The Fault Determination Rules indicate that Thomas is 100% not at fault. Damage is set at $5,000 plus $200 car rental for loss of use. Thomas recovers all of the loss from insurer XYZ. They pay the claim and close the file; they cannot subrogate. Example 2 The same set of circumstances exists as in Example 1, but the Fault Determination Rules show each operator was equally liable, that is, 50%/ 50%. Thomas recovers his loss as follows Damage to the vehicle Paid by insurer XYZ under Direct Compensation $2,500 ($5,000 x 50% since he was 50% at fault) Paid by insurer XYZ under Collision coverage $2,250 ($5,000 x 50% less 50% of his $500 deductible) Loss of Use Paid by insurer XYZ under Direct Compensation $100 ($200 x 50% since he was 50% at fault) Total recovery $4,850 The other half of the Loss of Use loss is not recoverable unless Thomas has bought the Loss of Use (Transportation Replacement) endorsement which is not a compulsory coverage. Wong can also recover her loss from ABC. She would receive 50% of her loss under her Direct Compensation coverage and the remaining 50% under Collision subject to her deductible, if she had purchased this coverage. 11

12 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Deductible Physical damage deductible In Ontario all physical damage claims, i.e., Specified Perils, Collision, Comprehensive, and All Perils coverage as well as Direct Compensation Property Damage are subject to a standard deductible of $500. There is provision to reduce or eliminate this deductible on any or all coverages. The standard deductible under DCPD coverage is $500, but an insured can select a higher or lower deductible amount. In the previous examples, if endorsements were not purchased, recoveries under DCPD would be as follows: Examples 1. Full loss ($5,000 plus $200) less $500 deductible = $4, % of $5,200 less 50% of $500 (deductible) = $2,350. Recovery under Thomas s own collision cover remains unchanged. Summary The above examples demonstrate that if the DCPD deductible is $0 the insureds recover exactly the same as they would have recovered under tort prior to the introduction of Direct Compensation, the only difference being that the recovery is made from their own insurer, and not the third party insurer, to the extent they are innocent (not at fault) in the accident. The Fault Determination Rules apply only to vehicle-to-vehicle damage, not to other damage such as collision with a building, or bridge, or tree where traditional liability law applies, nor to injuries for which you must refer to other sections of this course. The provision for direct compensation for contents of an automobile does not apply to contents being carried for reward. It appears that cargo insurance for public truckers continues to be needed. Liability for Injury Claims OMPP Under the Ontario Motorist Protection Plan (OMPP) the right to sue a third party in the event of injury was severely curtailed by limiting it to certain non pecuniary losses. Claimants had to establish that their injury met the severity threshold. The determination of whether the threshold was met could be decided by a judge on a motion before trial or at the trial. 12

13 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE Threshold Bill 164 Bill 59 & 198 Sept 1, 2010 The threshold which defined the conditions under which a person could sue was introduced in June It provided that suits could only be initiated if the injured person died or sustained permanent serious disfigurement or permanent serious impairment of an important bodily function caused by continuing injury which is physical in nature. Note that any psychological or mental impairment was not considered a criterion under the OMPP when determining if the injured party would be allowed to sue for damages. Effective January 1, 1994, Bill 164 introduced the Statutory Accident Benefits (SABS) and amended the threshold definition to allow suits on the grounds of death or serious disfigurement or serious impairment of an important physical, mental or psychological function. A deductible of $10,000 was applied to the amount of damages recoverable. Note that under this Bill psychological and mental impairments were added to the threshold definition but the requirement that injuries or impairments be permanent was taken out of the definition. Under Bill 59 in 1996 and Bill 198 in 2003, the threshold definition was again revised. This time it allowed suits on the grounds of death or permanent serious disfigurement or permanent serious impairment of an important physical, mental or psychological function. With the passage of the new Statutory Accident Benefits Schedule, effective September 1, 2010 new provisions have been added to the Insurance Act and the Regulations to deal with these changes. Note that under the current legislation (as well as the previous two bills Bill 59 and Bill 198), the psychological and mental impairments are again part of the definition of the threshold and the rule that injuries or impairments must be permanent is also back in the definition. Section of the Insurance Act states Liability protection: income loss; earning capacity loss (1) Despite any other Act and subject to subsection (6), the owner of an automobile, the occupants of an automobile and any person present at the incident are not liable in an action in Ontario for the following damages for income loss and loss of earning capacity from bodily injury or death arising directly or indirectly from the use or operation of the automobile: 1. Damages for income loss suffered in the seven days after disability arising from the incident. 2. Damages for income loss suffered more than seven days after the incident and before the trial of the action in excess of 70 per cent of the gross income loss, as determined in accordance with the regulations, suffered during that period. 3. Damages for loss of earning capacity suffered after the incident and before the trial of the action in excess of 70 per cent of the gross loss of earning capacity, as determined in accordance with the regulations, suffered during that period. 13

14 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Application Liability protection: health care expenses Basic rule = no right to sue (2) Subsection (1) applies to all actions, including actions under subsection 61 (1) of the Family Law Act. 2 (3) Despite any other Act and subject to subsection (6), the owner of an automobile, the occupants of an automobile and any person present at the incident are not liable in an action in Ontario for damages for expenses that have been incurred or will be incurred for health care resulting from bodily injury arising directly or indirectly from the use or operation of the automobile unless as a result, the injured person has died or has sustained, (a) permanent serious disfigurement, or (b) permanent serious impairment of an important physical, mental or psychological function. This section states that an insured is not liable for bodily injury losses or death arising out of the use or operation of an automobile except under certain circumstances. The Act is telling us that in Ontario the basic rule is that there is no right to sue. Subsequent sections, however, outline the exceptions. They are: Exceptions in Ontario We can sue in Ontario without meeting a threshold for pecuniary losses subject to the limitations specified in the act; and We cannot sue in Ontario for pain and suffering unless a threshold is met, and if it is met the judgment is subject to deductibles specified in the Act. Other jurisdictions Right to sue economic loss Liability protection: non-pecuniary loss When an action is brought in another province or state, where lawsuits are permitted, the policy must respond with a defence without any qualifications. On the economic loss side, there is a right to sue without the need to meet a threshold for all types of economic loss, but recovery from tortfeasors for loss of income and loss of earning capacity (both as determined by regulation) is limited to 70% of gross income loss suffered more than 7 days after disability arising out of the accident and up to the date of trial. Post trial, recovery for future losses is on a 100% gross income basis. (5) Despite any other Act and subject to subsection (6), the owner of an automobile, the occupants of an automobile and any person present at the incident are not liable in an action in Ontario for damages for nonpecuniary loss, including damages for non-pecuniary loss under clause 61 (2) (e) 3 of the Family Law Act from bodily injury or death arising directly or indirectly from the use or operation of the automobile, unless 2 Family Law Act, Section 61 (1) deals with the rights of dependants to sue in tort. 3 Family Law Act, Section 61 (2) (e) states: an amount to compensate for the loss of guidance, care, and companionship that the claimant might reasonably have expected to receive from the person if the injury or death had not occurred. 14

15 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE as a result of the use or operation of the automobile the injured person has died or has sustained, (a) permanent serious disfigurement, or (b) permanent serious impairment of an important physical, mental or psychological function. Application of subss. (1), (3), & (5) Non-economic loss conditions (6) Subsections (1), (3) and (5) do not protect a person from liability if the person is defended in the action by an insurer that is not licensed to undertake automobile insurance in Ontario unless the insurer has filed an undertaking under section On the non-economic loss side, a threshold must be met; it is defined as death, permanent serious disfigurement, or permanent serious impairment of an important physical, mental, or psychological function. A suit for non-economic loss is subject to a per person deductible. The deductibles can be increased or decreased by regulation. They apply in respect of each person who is entitled to damages for nonpecuniary loss. If the plaintiff is at fault, the amount of damages is reduced by the deductible before the award is reduced for contributory negligence. Note that suits are still permitted against motorists insured outside of Ontario, unless their insurer has an agreement with the Commission, providing that the insurer s motor vehicle liability policy will provide the same basic coverage as the Ontario policy when the vehicle is operated in Ontario. Example If damages under this section were assessed at $65,000, there is a $30,000 deductible, and the plaintiff is 50% at fault, the $30,000 is deducted from the $65,000, the difference of $35,000 is subject to reduction by 50% in respect of contributory negligence and $17,500 would be available. Liability of other persons (10) Subsections (1), (2) and (3) do not relieve any person from liability other than a protected defendant. Definition A protected defendant is defined as the owner of an automobile, the occupants of an automobile, and any person present at the incident. This section clearly states that only the persons identified in Subsection (1), (2), and (3) of the Act (quoted earlier) are protected against suits. Any other persons found liable would still be held accountable. 15

16 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Definition Uninsured automobile owner cannot sue Joint and several liability Section states In sections to owner includes an operator as defined in subsection 16 (1) of the Highway Traffic Act 4 and a person who is a lessee for the purposes of section 192 of that Act; An owner or lessee operating or occupying his or her own uninsured automobile contrary to the Compulsory Automobile Insurance Act is prohibited from bringing an action in damages even though there may not have been a prosecution or conviction under that Act (1) If, in an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, one or more protected defendants and one or more other persons are found to be liable for damages, (a) the other persons, i) are jointly and severally liable with the protected defendants for the damages for which the protected defendants are liable having regard to section and ii) are solely liable for any amount by which the amount mentioned in subclause i) is less than the amount that the other persons would have been liable to make contribution and indemnify the protected defendants in respect of damages in the absence of section 267.5; (b) the other persons are liable to make contribution and indemnify the protected defendants in respect of damages to the same extent as if section did not apply, up to the amount for which the protected defendants are liable having regard to section 267.5; and (c) the protected defendants are liable to make contribution and indemnify the other persons for the amount that the protected defendants are liable, having regard to section 267.5, reduced by the amount that the other persons are liable to make contribution and indemnify the protected defendants under clause (b). These provisions are fairly straightforward and follow normal tort procedures. There is, however, specific provision that liability is to be determined separately for each of the categories of damages. 4 Section 16. (1) of the Highway Traffic Act states: operator means the person directly or indirectly responsible for the operation of a commercial motor vehicle including the conduct of the driver of, and the carriage of goods or passengers, if any, in the vehicle or combination of vehicles. 16

17 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE Separate determinations Liability determination (2) Liability shall be determined under subsection (1) separately for each of the following categories of damages: 1. Damages for loss and loss of earning capacity. 2. Damages for expenses that have been incurred or will be incurred for health care. 3. Damages for pecuniary loss, other than damages referred to in paragraphs 1 and Damages for non-pecuniary loss, including damages for nonpecuniary loss under clause 61 (2)(e) of the Family Law Act. (3) For the purposes of subsection (1), the liability of all persons involved in the incident from which the action arose shall be determined as though all persons wholly or partly responsible for the damages were parties to the action even though any of those persons is not actually a party Liability will be determined taking into consideration all parties who contributed to the accident. Example Vehicles A, B, and C are involved in an accident. A is held to be blameless. It is found that the condition of the road and lack of proper signs substantially contributed to the accident thus making the municipality 25% liable while B is found to be 50% at fault and C is 25% at fault. If A sues only B and C, but not the municipality, for his substantial injuries the most he will receive is 75% of the judgment. Additional Agreements of Insurer Expenses in addition to limit of liability The policy automatically provides insured persons with certain benefits in addition to legal liability coverage. Any expenses incurred by the insurer to provide the following Additional Agreements are paid in addition to the limit of liability available to the third party. Section 3.3 of the policy is self-explanatory. 3.3 You or other insured persons may be legally responsible for the bodily injury to, or death of others, or for damage to the property of others as a result of owning, leasing or operating the automobile or renting or leasing another automobile. In these cases, we will make any payment on your or other insured persons behalf that the law requires, up to the limits of the policy. We will also reimburse anyone covered by this policy for costs involved in providing immediate medical aid needed by someone hurt in an automobile incident. 17

18 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) When we receive notice of loss or damage caused to persons or property we will investigate. We may then negotiate a settlement on behalf of you or other insured persons By accepting this policy you and other insured persons irrevocably appoint us to act on your or their behalf in any lawsuit against you or them in Canada, the United States of America or any other jurisdiction designated in the Statutory Accident Benefits Schedule arising out of the ownership, use or operation of the automobile. If someone sues you or other insured persons insured by this Section for losses suffered in an automobile incident, we will provide a defence and cover the costs of that defence, including investigation costs. We will pay all legal costs the court assesses against you and other insured persons in the lawsuit we have defended. If there is a judgment against you or other insured persons, we will pay any post-judgment interest owed on that part of the amount the court orders that fall within the liability limits of your policy. We reserve the right to investigate, negotiate and settle any claim out of court if we choose. If you are sued for more than the limits of your policy, you may wish to hire, at your cost, your own lawyer to protect yourself against the additional risk The most we will pay on your behalf and on behalf of all other insured persons insured by this Section, for any one incident (over and above legal costs and post-judgment interest) will be determined by the extent of your coverage. The limit under your policy is shown on the Certificate of Automobile Insurance. Policy limits Note that when insureds are sued for greater amounts than their policy limits, they may need to hire a lawyer, at their own cost, to protect themselves against the additional risk. If a judgment is rendered for an amount greater than policy limits, the insured is responsible for the portion that exceeds policy limits and any postjudgment interest on that portion. Example 1 You are sued for injuries suffered by Tom Jones in an accident for which you are legally responsible. Your insurer will hire lawyers at its expense and cover all costs of your defence in court. The court orders you to pay $10,000 in costs and $600,000 to cover losses. Your liability limit is $500,000. Your insurer will cover the $10,000 in costs and $500,000 of the judgment. It will also pay any interest owed on that amount from the day of the judgment. You will be responsible for the remaining $100,000 of the judgment and any interest owed on that. 18

19 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE Accident outside Ontario The next two Additional Agreements deal with situations where the insured has an accident outside his or her home province. The basic principle applied is that the insurer follows the laws of the jurisdiction where the loss occurred, not the laws of the jurisdiction where the insured lives If the incident happens in a jurisdiction covered by this policy in which the minimum liability coverage required is higher than the limit shown on the Certificate of Automobile Insurance, we will honour the higher amount. We also agree not to use any legal defence that would not be available if the policy had been issued in that jurisdiction. Example2 You have an accident in a province where the minimum liability coverage required is $500, Even though you are only carrying $200,000 of liability insurance, your insurer will pay up to $500,000. Example 3 In Ontario, one of the Statutory Conditions of the policy prohibits operation of the vehicle unless the insured is authorized by law to drive or operate it. In Nova Scotia, however, the Statutory Condition states the insured is not to drive the vehicle unless he is for the time being either authorized by law or qualified to drive or operate the automobile. If a 20-year-old Ontario driver is involved in an accident in Nova Scotia, but has not yet passed his driver s exam, the insurer of the vehicle cannot automatically deny coverage. While that defense would be available in Ontario because the driver was not authorized by law to drive, that driver may be qualified to drive, and there would be no defense in that regard in Nova Scotia. In practice, the driver would have to prove he is qualified to drive by immediately passing the driver s exam. Then, the insurer is liable under the policy, because the accident occurred in Nova Scotia, where the law as stated in the policy wording is slightly different than in Ontario. Multiple names We will protect you and others named as insured by this policy, for claims made against each other. In such cases, we will act as if a separate policy was issued to each named insured. However, the total amount we will pay (over and above legal costs and post-judgment interest) cannot exceed the maximum coverage shown on the Certificate of Automobile Insurance.. 5 This could be the case for certain types of commercial vehicles 19

20 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Only registered owner has insurable interest It is extremely important that only the names of registered owners of the automobile are shown on the policy. Only the owners have an insurable interest. By incorrectly showing individuals that do not own the vehicle you could be extending perceived benefits, that were never intended by the policy, to these individuals. This could result in unnecessary litigation. Vehicles can, of course, be registered in more than one name, especially in business arrangements. Example Jill Andrews and Jack Jones are in business together. Both are named in the insurance policy covering their van. They have $500,000 liability coverage. Jill is driving and Jack is a passenger when both are severely injured as a result of their combined negligence. They sue each other and Jill is awarded $300,000 and Jack is awarded $500,000. The combined amount paid by the insurer will be $500,000, apportioned between them, plus legal costs, and post-judgment interest. Summary The insurer agrees: a) To reimburse the insured for out-of-pocket expenses for immediate medical aid to third parties. This applies whether or not the insured is legally liable. b) To investigate, negotiate, and settle all reported claims. c) To defend any civil action brought against the insured with respect to the incident, even if it is groundless. d) i) To pay court costs assessed against the insured (subject to well defined legal rules of practice ). ii) To pay post-judgment interest on the insured portion of judgments for damages against the insured. The insured is responsible for paying interest on that part of a judgment that is in excess of the policy limits. Pre-judgment interest is included in the limit of liability available. e) To pay up to the minimum limits of the jurisdiction within Canada, the United States of America, or other jurisdictions designated in the statutory accident benefits schedule where the accident occurs. f) That it will not use any legal defence available in Ontario that would not be available if the policy had been issued in the jurisdiction where the accident occurred. 20

21 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE Responsibilities of Insured Persons Insured s responsibilities 3.4 Your and Other Insured Persons Responsibilities You and other insured persons agree: to notify us in writing within seven days of any incident involving loss or damage to persons or property (or, if unable because of incapacity, as soon as possible after that), giving us full details of the incident and any claim arising from it; if requested, to give us a statutory declaration that the claim arose out of the use or operation of the automobile and that you or other insured persons were using, operating or responsible for the operation of it; to help us obtain all necessary information and evidence about the incident, including the attendance of witnesses, and to cooperate, but not financially, in any legal actions if we ask; to send immediately to us everything received in writing concerning the claim, including legal documents; and not to assume any liability for the incident, or settle any claim, except at your or other insured persons own cost, and not to interfere in any legal proceeding or in any negotiations we conduct to settle any claim. We may, on occasion, be required by law to make payments, even though we are not otherwise liable for them under this policy. If so, you or other insured persons will have to reimburse us upon demand for those payments. These responsibilities are reinforced in the Statutory Conditions which will be studied in more detail later in this course. Agreements of the Insured Insurer appointed as attorney Absolute liability The insurer is irrevocably appointed the insured s attorney to conduct civil defence(s) in actions arising out of the ownership, use, or operation of the automobile. This ties in with the insurer s agreement to defend the insured in such actions. The insurer cannot properly defend the insured if the insured does not carry out his or her responsibilities. The insured agrees to reimburse the insurer for all amounts the insurer is required to pay because of the absolute liability provisions of the law and for which the insurer would not otherwise be liable under the policy. 21

22 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) Policy Limits Third party liability insurance is mandatory in all provinces and territories and no automobile policy may be issued for less than $200,000 ($500,000 in Nova Scotia and $50,000 in Quebec). Many types of commercial vehicles are subject to much higher minimum limits; these are beyond the scope of this text. Priorities of Payment All jurisdictions prescribe that a certain amount of the policy limit must be reserved for bodily injury claims and a certain amount for property damage claims. This is called priorities of payment and is heavily weighted in favour of bodily injury claims. Priorities of payment are only applied when the total liabilities of the insured to the claimant(s) are more than the limit purchased. However, Nova Scotia has an inclusive limit for bodily injury and property damage. Priorities of Payment Jurisdiction Bodily Injury Property Damage Alberta British Columbia Manitoba New Brunswick Newfoundland Northwest Territories Nova Scotia Ontario Prince Edward Island Quebec * Quebec ** Saskatchewan Yukon $190,000 $180,000 $180,000 $180,000 $180,000 $190,000 $190,000 $190,000 N/A $ 45,000 $ 90,000 $190,000 $10,000 $20,000 $20,000 $20,000 $20,000 $10,000 (inclusive limit $500,000) $10,000 $10,000 $50,000 $ 5,000 $10,000 $10,000 * Applies to automobile accidents in Quebec. ** Applies to vehicles excluded from the government plan (snowmobiles, farm tractors, and other exempted vehicles) and accidents outside Quebec. 22

23 2 LIABILITY COVERAGE; DIRECT COMPENSATION PROPERTY DAMAGE Study 2 Review Questions (Do not submit for marking) 1. Who has an insurable interest in an automobile policy? 2. Distinguish between a named insured and an insured under an automobile policy. 3. Where is the legal basis for liability arising out of motor vehicle accidents stated? 4. What does Liability coverage include? 5. Who is insured under the Liability coverage section of a policy? 6. Why is having an adequate amount of liability insurance important? 7. What types of losses are not covered under the Liability section of a policy? 8. What coverage is provided for nuclear hazards under an automobile policy? 9. What is Direct Compensation Property Damage (DCPD)? 10. When does DCPD apply? 11. To what extent does an insured recover under DCPD? 12. How is fault determined for the purposes of DCPD? 13. What can an insured do if he or she is unsatisfied with the degree of fault apportioned to him or her as a result of an automobile accident? 14. When may an insured sue a third party for damage to an insured vehicle? 15. Can an insurer subrogate against a garage if a mechanic test-drives an insured vehicle and it is damaged in an accident? 16. On what authority did you base your answer to the preceding question? 17. Who is responsible for damages to an insured automobile when it is towed by a third party? 18. What recovery provisions exist for insurers with respect to contents losses? 19. How is damage to property other than automobiles dealt with when caused by an automobile? 20. What is the standard deductible applicable to all physical damage claims? Can it be altered? 21. What is a threshold? 22. What is SABS? 23. Under what circumstances could a claimant sue for injury claims under OMPP? 24. Under what circumstances could a claimant sue for injury claims under Bill 164? 25. Under what circumstances may a claimant sue for injury claims under the new Statutory Accident Benefits Schedule? 26. How will a policy respond when action is brought against an Ontario insured in another province? 23

24 C14 AUTOMOBILE INSURANCE PART 1 (ONTARIO) 27. What is the main difference between economic and non-economic loss with respect to the right to sue? 28. How are the deductibles for non-economic losses applied, and to whom are they applied? 29. Who is protected against liability for injury claims involving an insured automobile? 30. From whom would a person who is injured in his or her own uninsured automobile claim? 31. What are the different categories of damages for which an individual might sue? 32. State the purpose of the Additional Agreements of the Insurer. 33. State the basic provision of each of the Additional Agreements of the Insurer. 34. What are the insured s responsibilities under a policy? 35. What does the insured agree to do if the insurer is required by law to make payments for which it would not otherwise be liable under a policy? 36. What are priorities of payment, and when are they applied? 24