The limitation period for a loss transfer claim may commence on the day after a demand for payment has been made

The Court of Appeal determined that the limitation period for a “loss transfer claim” made by one insurer against another for indemnification for statutory accident benefits (“SABs”) paid to an insured begins to run on the day after the insurer seeking indemnification makes a demand for loss transfer.Insurer’s application for declaration that its obligation to contribute to the costs of defending its insureds was limited to pro rata share based on time “on risk” was dismissed.

Markel Insurance Co. of Canada v. ING Insurance Co. of Canada et al., [2012] O.J. No. 1505, April 5, 2012, Ontario Court of Appeal, S.T. Goudge, R.J. Sharpe and R.A. Blair JJ.A.

Loss transfer claims, brought pursuant to s. 275 of the Insurance Act, R.S.O. 1990, c. I.8 (the “Act”), are fault based claims available as between insurers for different classes of vehicles as defined by regulation. Under s. 268 of the Act, insurance companies, known for these purposes as “first party insurers”, must pay SABs to their insureds when the insureds are injured in a motor vehicle accident. In certain circumstances, first party insurers can claim indemnification for the SABs paid to its insureds from a “second party insurer” who has insured another vehicle involved in the accident. The claim for indemnification is made on the basis of the fault of the second party insurer’s insured. This loss transfer scheme was introduced as part of the no-fault SAB regime to achieve an appropriate balance between the insurers of various classes of vehicles in meeting the cost of providing SABs to injured motorists.

In Federation v. Kingsway, the arbitrator had held that the limitation period begins to run the day after the insurer seeking indemnification makes a demand for loss transfer. In ING v. Markel, the arbitrator had found that the limitation period runs only from the date the second insurer definitively refuses to indemnify. A judge of the Superior Court, sitting on appeal from both decisions, upheld the approach of the arbitrator in Federation v. Kingsway and rejected that of the arbitrator in ING v. Markel. This decision was appealed.

The Court of Appeal noted that under the prior Limitations Act (1990, R.S.O. 1990, c. L.15), the six-year limitations period for seeking loss transfer began each time a first party insurer made a statutory accident payment to its insured for which it could be entitled to loss transfer. The new Act, the Limitations Act, 2002, S.O. 2002, c. 24, made fundamental changes and it was common ground that the new legislation did not provide that the limitation period ran from the date the SAB payments were made.

The Court of Appeal noted that the issue before it was when a first party insurer “discovered” a loss transfer claim against the second party insurer within the meaning of s. 5 of the Limitations Act, 2002. The four requirements specified in s. 5(1) of the Limitations Act, 2002 define when a claim is discovered and provide that the party asserting the claim must know:

(i)  that the injury, loss or damage had occurred;

(ii)  that the injury, loss or damage was caused by or contributed to by an act or omission;

(iii)  that the act or omission was that of a person against whom the claim is made; and

(iv)  that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it.

The issue then became: once a loss transfer claim had been asserted, when does the first party insurer know that the second party insurer’s “omission” to pay the claim caused a loss to the first party insurer? The Court of Appeal held that the first party insurer suffers a loss from the moment the second party insurer can be said to have failed to satisfy its legal obligation to satisfy the loss transfer claim. The Court of Appeal agreed with the arbitrator in Federation v. Kingsway that the first party insurer suffers a loss caused by the second party insurer’s omission in failing to satisfy the claim the day after the Request for Indemnification is made.

In the result, the appeal was dismissed.

This case was digested by Jonathan D. Meadows and edited by David W. Pilley of Harper Grey LLP.

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