A new decision of the Ontario Superior Court is a painful reminder to auto insurers of the importance of following the correct procedure in terminating statutory accident benefits. The failure of the insurer to use the correct form of notice in 1997 led to it being found liable for ten years’ of benefits and over $400,000 in interest.
In Stranges v. Allstate Insurance, Mr. Justice Nick Borkovich was dealing with a statutory accident benefits dispute dating back to 1997. In that year, Allstate Insurance terminated the plaintiff’s benefits (arising out of a 1996 accident). The plaintiff sued in 1998, claiming a declaration of entitlement to unpaid benefits, as well as punitive and aggravated damages. The lawsuit evidently languished (to say the least) for a number of years, until the Supreme Court of Canada’s decision in Smith v. Co-operators “breathed new life” into the lawsuit, as Justice Borkovich put it.
In Smith, the insurer had terminated a claim for accident benefits using a standard form of wording which the Supreme Court ultimately said did not satisfy the requirements of s. 71 of the SABS, in that the notice did not explain the dispute resolution process to the insured.
Allstate Insurance, the insurer in the present case, had employed the identical form of wording in terminating the plaintiff’s benefits. It had obtained a DAC report which had said that the plaintiff “was not impaired from the physical perspective but clearly had a major depressive illness at this point which would be adequate to be ‘disabling'”. However, the DAC examiner had not been asked to assess any mental impairment on the plaintiff’s part. Justice Borkovich found that Allstate ought to have done so.
His Honour followed Smith and held that Allstate’s termination notice had been ineffective and that the plaintiff was entitled to benefits from 1997 to date, with compound interest at 2% per month, as provided for in the SABS. The benefits themselves would amount to a little more than $175,000. But the interest totals more than $400,000.
This decision will likely be particularly frustrating to Allstate because His Honour went on to find that although the plaintiff had suffered from a “major mood disorder” to which the 1996 accident had materially contributed, the disability resulting from that disorder had ended in 1998. By the fall of that year, said Borkovich J., the plaintiff “had recovered from all her injuries related to the motor vehicle accident”.
Thus, Allstate was ordered to pay ten years’ of benefits, together with a huge amount of interest, even though the court found that it would have been entitled to terminate the benefits in 1998.
Justice Borkovich rejected the claim for punitive and aggravated damages, for three reasons. First, he did not feel that Allstate’s conduct represented “a marked departure from the ordinary standards of decent behaviour”. In terminating benefits, it had simply employed the form that the entire insurance industry was using at the time.
Secondly, His Honour took into account the sanctions built into the SABS and in particular, the obligation to pay compound interest at the rate of 2% per month on unpaid benefits. He said that “the legislation, by imposing an extraordinary high interest rate has had built into it a sufficient punishment for the insurer who breaches the Regulations”.
(Interestingly, His Honour observed that even if the criteria for an award of punitive damages had been met in this case, such entitlement would have been negated by the enormous amount of compound interest that had accumulated.)
Finally, Justice Borkovich considered the long time that it had taken for the action to get to trial. This too, in his opinion, militated against an award of punitive damages.
In the case, the long delay in getting to trial proved especially costly to the insurer.