In Ontario, the first insurer to receive an application for benefits must pay the benefits, even if no policy is in place, pending a coverage arbitration

Lombard Canada Limited, whose policy on the Insured expired two months prior to an accident, was found to be liable to pay benefits as it was the first insurer in receipt of a benefits application.  Under a no-fault statutory insurance scheme, whereby an insured party is entitled to compensation for a portion of financial loss regardless of fault, Lombard should have paid the appropriate benefits to the claimants, then make reasonable investigations within the 90-day period to determine whether another insurer was liable.

Lombard Canada Ltd. v. Royal and SunAlliance Insurance Co., [2008] O.J.  No.  5239 Ontario Superior Court of Justice G.R. Strathy, J. December 19, 2008

This was an appeal by Lombard from an Arbitrator’s award.  Ontario has a no-fault insurance scheme whereby a person injured in an automobile accident is entitled to compensation for a portion of financial loss regardless of fault.  Section 2 of the Regulations requires that the first insurer to receive an application must adjust the claim and pay the benefits to the insured person, pending resolution of the dispute between the insurers.  The regulation also provides that if the first insurer believes that another insurer is responsible for the claim, it must notify that insurer within 90 days of receiving the application.  Any disputes between insurers are resolved through private arbitration.

The Court found that the Arbitrator was correct in concluding that there was sufficient nexus between Lombard and the Claimant to require Lombard to pay statutory accident benefits on receipt of the application.  Lombard’s position was that it was not an insurer and had no liability and therefore it did nothing to investigate whether another insurer may be liable for benefits.  Lombard did investigate nine months after receiving notice, and took less than one week to identify a second policy holder. This fell outside the 90-day notice period required under the regulations.

One of the reasons the no-fault scheme was enacted was to ensure claimants would receive benefits within a reasonable time.  The claimant in this case did not receive benefits for 15 months, and the delay was sufficient that the Arbitrator decided Lombard was permanently responsible for the payment of the accident benefits to the claimant, without recourse to the rightful insurer.  The Court held that the obvious consequence of Lombard’s breach was to leave the claimant without benefits at a time when those benefits were most needed, which offends the very purpose of the legislation.  As well, the failure to give prompt notice to the rightful insurer, deprived them of any opportunity to investigate the claim and take appropriate and early claim management measures.  The Court agreed with the Arbitrator’s decision on the facts and dismissed the appeal.

This case was originally summarized by Neil J. MacDonald and originally edited by David W. Pilley.

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