In a significant decision today, the Court of Appeal dismissed an appeal by Liberty Mutual Insurance Company from a ruling of Mr. Justice Geoffrey Morawetz, who had dismissed a lawsuit brought by Liberty, to dispute a CAT DAC assessment of catastrophic injury. In its reasons though, the Court of Appeal departed from Justice Morawetz in some important respects.
The case is Liberty Mutual Insurance Company v. Fernandes. (Beginning with this post, we are linking to the PDF version of decisions, where available. They are much more readable than HTML format, where it can be difficult to distinguish quotations from the decision itself.)
This case arose out of a 1999 motor vehicle accident. The injured person was assessed for catastrophic impairment at a Designated Assessment Centre (“CAT DAC”) and was found to be catastrophically impaired. His insurer, Liberty Mutual, initiated mediation, as required by the Insurance Act. The mediation failed. Liberty then sued in the Superior Court, seeking a declaration that the plaintiff had not suffered a catastrophic impairment.
The insured brought a motion before Justice Morawetz and succeeded in having the action dismissed. His Honour concluded that under the wording of the dispute resolution scheme set out in ss. 279-283 of the Insurance Act, only the insured has a right to sue. The Court of Appeal agreed.
Justice Morawetz went further though, and held that, “simply put, the CAT DAC finding is binding on the insurer”. With this proposition, the Court of Appeal disagreed.
On a proper reading of the Act, said the Court today, if an insurer wishes to challenge a CAT DAC assessment, it should first initiate mediation. If the mediation fails, the insurer has no further right to seek arbitration or litigation (except private arbitration, which would require the consent of the insured). But, once the mediation has failed, the insurer need only pay accident benefits “in accordance with the last offer of settlement that it made before the failure (until otherwise agreed by the parties or until otherwise ordered by a court or arbitrator).
Should the insured be dissatisfied with benefits being paid in accordance with the insurer’s last offer of settlement, then the insured has the option of commencing arbitration or litigation and seeking an order implementing the favourable CAT DAC assessment. As the Court observed:
Consequently, the onus is always on the insured to initiate dispute resolution after a failed mediation in order to seek any additional benefits that may be warranted by the CAT DAC. If the insured does not act, the insurer will only pay benefits in the amount at which it was prepared to settle. The insurer is thereby protected and need not pay the additional benefits to which it objects unless so ordered through the dispute resolution scheme. The insured is similarly protected as it has the right, pursuant to s. 281(1), to commence litigation or arbitration to try to obtain the benefit of a favourable CAT DAC finding.
The Court of Appeal went on to caution insurers against trying to take advantage of this scheme, by making unreasonably low offers to settle. It pointed out that s. 281(3) of the Act does allow a court or arbitrator to order the insurer to pay a higher amount.
The Court of Appeal went on to caution insurers against trying to take advantage of this scheme, by making unreasonably low offers to settle. It pointed out that s. 281(3) of the Act does allow a court or arbitrator to order the insurer to pay a higher amount.
Finally, the Court reviewed the conflicting court and arbitral jurisprudence as to whether insurers have the right to sue to determine entitlement to accident benefits. It concluded that insurers do have that right, but apparently, only in relation to repayment of benefits obtained through fraud or error.