Insurer-generated medical expenses are not subject to indemnification under the SABs

The issue in this case was whether the expense of insurer generated medical assessments conducted to assess a claimant’s entitlement to benefits under the Statutory Accidents Benefits Schedule were recoverable under s. 275(1) of the Insurance Act as payments “in relation to such benefits paid.” The Court held that insurer generated medical expenses were not subject to indemnification under section 275(1) under the Insurance Act.

Wawanesa Mutual Insurance Co. v. Axa Insurance (Canada), [2012] O.J. No. 4196, September 11, 2012, Ontario Court of Appeal, K.M. Weiler, R.A. Blair and P.S. Rouleau JJ.A.

In this case, the appellant, Wawanesa, and the respondent, Axa, were both automobile insurers. In two separate motor vehicle accidents a Wawanesa insured driver of a car was injured by an Axa insured driver of a heavy commercial truck. Wawanesa was responsible for paying statutory benefits to its insured driver pursuant to the 1996 Statutory Accidents Benefits Schedule (“SABS”). Axa conceded that its insureds were 100% at fault for both accidents and agreed that the loss transfer provisions of the Insurance Act applied. Thus, Axa was required to indemnify Wawanesa for the statutory benefits it paid to its insured drivers. The issue at bar concerned Wawanesa’s claim for indemnification in relation to the costs of insurer generated medical assessments. Axa refused to indemnify these costs on the basis that they were not “in relation to a benefit” paid to the insured.

The Court noted that this issue was last dealt with by the Ontario Court of General Division in Jevco Insurance Company v. Prudential Insurance Company (1995), 22 O.R. (3d) 779 (Ont. Gen. Div.) by Justice Mandel. Therein, Mandel J. held that while the words “in relation to” in s. 275(1) were very wide in scope, the apparent purpose of the provision was not to indemnify an insurer for insurer generated medical assessments. Mandel J. held that if the legislature had intended insurer generated medical assessment costs to be indemnified under s. 275(1) the wording of 275(3) would so indicate. The Court also noted that following Mandel J’s decision in Jevco, no court decision had dealt with the issue of whether indemnification could be claimed for insurer generated medical assessments until the case at bar. However, between 1996 and 2006 the question of whether the first party insurer could claim indemnification for the expenses of medical assessments were raised in several arbitrations, with decisions going both ways.

Wawanesa took the position that as a result of the 2006 amendments to the 1996 SABS, insurer generated medical assessments were now mandatory because the first party insurer was required to pay statutory benefits within a limited time or request medical examination of the insured. Thus, Wawanesa argued that the assessments were now part of a comprehensive scheme dealing with benefits entitlement and should be recoverable under s. 275(1) of the Insurance Act.

At arbitration, the arbitrator held that she was bound by the decision of Jevco and ordered that Wawanesa was not entitled to recover the cost of insurer generated medical assessments despite the legislative changes to the 1996 SABS that took effect in March 2006. She concluded that the decision was binding absent any concurrent change to s. 275 of the Insurance Act. Thus, whether the costs of insurer generated medical assessments were mandatory or optional, they were not subject to indemnification.

The Ontario Court of Appeal agreed that the proper interpretation of the current regulatory regime did not provide for first party insurers in Wawanesa’s position to recover the cost of insurer generated medical assessments from second party insurers. The Court held that the words “in respect of” are intended to convey some connection between the statutory benefit paid and the cost of insurer generated medical assessments. The Court was not satisfied that those words were broad enough in scope to include insurer generated medical assessments.

The Court further rejected Wawanesa’s argument that the Insurance Act ought to be re-examined in light of changes to the regulatory scheme. The Court held that this submission was inconsistent with principles of statutory interpretation, including the principle that regulations and schedules are subordinate to the statutes. Further, the Court was not satisfied that the amendments to the regulations constituted a substantial change to the law justifying a reassessment of the existing interpretation of s. 275(1).

Finally, the Court held that the existing interpretation of s. 275(1) led to a just and reasonable result. The Court held that Wawanesa’s position ignored the remedial aspect of legislation which sought to put statutory benefits into the hands of an insured person as soon as possible. The Court held that if the payment of statutory benefits was likely to be delayed if the first party insurers were automatically indemnified for the costs of insurer generated medical assessments, this would be contrary to the remedial aspect of the “no fault” legislative scheme. The Court held that it would not be just or reasonable to interpret s. 275(1) in a manner that further diminishes the likelihood of an expeditious payment of statutory benefits to an injured insured.

As such, the court dismissed the appeal, holding that s. 275(1) of the Insurance Act does not entitle first party insurers to indemnification for the costs of insurer generated medical assessments.

This case was digested by Katherine E. Tinmouth and edited by David W. Pilley of Harper Grey LLP.

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