Ontario – Appeal Court questions why arbitrate under a statute if statute does not apply to both parties

In Travelers Insurance Company of Canada v. CAA Insurance Company, 2020 ONCA 382, Ontario’s Court of Appeal set aside an award which issued following a statutory arbitration because the Ontario statute did not apply to the defendant.  The Court questioned how did Ontario statutory accident benefits for a Nunavut accident come to be arbitrated under Ontario’s Insurance Act, RSO 1990, c I.8 if that legislation’s priority rules only apply if both insurers are subject to those rules.  The Court identified as a “serious” error the arbitrator’s determination that the Insurance Act applied to the defendant insurer.  Despite that error, the Court is silent on (i) how/when parties can consent by contract to submit to statutory arbitration under a statute which does not apply to one of them and (ii) why apply the standard of review applicable to statutory arbitrations, recently restated in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, to an appeal from a consensual arbitration.

The dispute between Travelers Insurance Company of Canada (“Travelers”) and CAA Insurance Company (“CAA”) concerned which of them should pay statutory benefits owed to an insured injured in a motor vehicle accident.

Temporarily employed in Nunavut, the insured was driving a Nunavut-plated vehicle owned by the Government of Nunavut.  The vehicle was covered by a Nunavut motor vehicle insurance policy issued by Travelers to the Government of Nunavut (“Policy”).  Under that Policy, the insured was entitled to Nunavut statutory benefits. The insured was injured in a vehicle accident in Nunavut.

Ordinarily resident in Ontario, the insured owned an Ontario-plated vehicle covered by an Ontario policy issued by CAA under the terms of the Ontario Standard Automobile Policy (“OAP”).  Excerpted at para. 3 of the reasons, CAA’s coverage extended to anywhere the insured drove in North America.

Even though the injury occurred in Nunavut and did not involve her Ontario-plated vehicle, the insured’s OAP entitled the insured to claim against CAA.  CAA paid the insured the Ontario statutory accident benefits (“SABs”) and pursued Travelers for reimbursement of some or all of those benefits as a statutory cause of action described as such in Unifund Assurance Co. v. Insurance Corp. of British Columbia, 2003 SCC 40 (CanLII), [2003] 2 SCR 63, para. 10.

CAA initiated arbitration against Travelers under section 268 of Ontario’s Insurance Act, RSO 1990, c I.8  and prevailed.  In a February 27, 2017 award (“Award”), the arbitrator determined that Travelers was the priority insurer to pay SABs, ordering Travelers to reimburse CAA for the past and to assume responsibility for future payments.

Travelers sought leave to appeal which was granted in Travelers Insurance Company v. CAA Insurance Company, 2017 ONSC 5659.  On the merits of the appeal, Travelers failed to persuade the court to overturn the Award in Travelers Insurance Company v. CAA Insurance Company, 2018 ONSC 3911.  Travelers then appealed to the Court of Appeal. 

On appeal, the Court of Appeal was prompt to underline that nothing in those applications or decisions affected or will affect the insured’s entitlement to Ontario’s SABs.  “The only question is which insurer must pay them”.  To answer that question, the Court focused on a single issue which it framed at para. 8:

[8] As I will explain, this issue turns on whether, in respect of the Nunavut policy and the accident in Nunavut, Travelers is to be considered an “Ontario insurer” for the purpose of the priority provisions of the Ontario Insurance Act. I conclude that Travelers is not an Ontario insurer for that purpose and is not obliged to indemnify CAA or to assume CAA’s obligations to the claimant”.

The decision raises a situation in which the status or activity of a party determines whether it is a party to an agreement to arbitrate.  Most commercial contracts bind only the parties to them and, in other cases, statutes or membership in trade or sports associations can incorporate by reference the agreement to arbitrate.  In the case involving CAA and Travelers, the Ontario Insurance Act imposed the obligation to arbitrate but only on those subject to its provisions.  On appeal, the Court openly questioned whether Travelers was actually, on these facts, subject to the provisions of the Ontario legislation imposing that agreement to arbitrate.

The respective positions of the parties on appeal are captured at paras 9 and 10:

[9] Travelers is prepared to pay what it is obliged to pay as statutory accident benefits under the Nunavut policy (for which it received premiums at the Nunavut level), but not the higher Ontario statutory accident benefits. Travelers argues that the statutory scheme does not oblige it to pay the Ontario benefits and that the arbitrator erred in so finding.

[10] CAA argues that, having elected to take the benefits of its presence in the lucrative Ontario insurance market, Travelers must also take the burdens, one of which is the possibility that it would have to assume financial responsibility under the priority provisions of the Ontario Insurance Act, as CAA submits the arbitrator correctly found”.

In the Award, the arbitrator had made two (2) determinations which brought Travelers within the scope of the Ontario Insurance Act.  First, the arbitrator determined that Travelers was an “Ontario insurer” because it is licensed to undertake automobile insurance in Ontario as outlined in section 224(1) of the Insurance Act. Second, the arbitrator determined that Travelers was bound by the Power of Attorney and Undertaking (“PAU”), which Travelers signed in 1964.

Standard of review – Because the appeal was a statutory appeal under the Insurance Act, the Court applied the standard of review recently restated in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65.  Given that the appeal raised questions of law, including questions of statutory interpretation, the Court applied the standard of correctness.  In addition, the Court added that the legal errors were “several” and “serious” which it “would consider constitutional, jurisdictional, and exceptional” and deference was not due, referring to Intact Insurance Company v. Allstate Insurance Company of Canada, 2016 ONCA 609 para. 53, leave to appeal refused, [2016] S.C.C.A. No. 392.

The Court determined that the arbitrator had incorrectly applied Unifund Assurance Co. v. Insurance Corp. of British Columbia to determine that Travelers was an Ontario insurer for the purpose of section 268 and erred in consideration of the PAU’s role in reaching that conclusion.

The Court reiterated that Ontario’s insurance laws do not have extraterritorial effect, as set out in Unifund Assurance Co. v. Insurance Corp. of British Columbia.  In that case, the insurer, Unifund, could not use Ontario’s legislation to recover benefits it had paid and the Court of Appeal in the present case held that “the result in this case is the same”.

In distinguishing between licensing and insuring in a province, the Court emphasized that the first does not presume the second.  This distinction can apply to other situations in which an entity licensed in multiple jurisdictions must not simply be presumed to operate in a particular jurisdiction and, by virtue of that simple presumption, be held to be subject to mandatory arbitration under a statute applicable in that jurisdiction.

[25] In my view, the correct approach is not quite so simple. Like Travelers, many of Canada’s car insurers are licensed to write car insurance here and elsewhere in Canada. Mere licensing, or the presence of an office, does not convert these insurers into Ontario insurers for all purposes, nor does it make the Ontario Insurance Act the governing legislation for all of the automobile insurance policies they underwrite. Treating mere Ontario licensing as the sole reason to constitute an insurer as an “Ontario insurer” would give Ontario insurance legislation extraterritorial effect, which would be contrary to the essential holding in Unifund.

[26] In this case, Travelers issued a Nunavut motor vehicle policy insuring a Nunavut-plated vehicle owned by the Government of Nunavut. The accident occurred in Nunavut. Under that policy, which is governed by Nunavut insurance law, the claimant was entitled to Nunavut statutory accident benefits

At para. 24, the Court noted that the term “Ontario insurer” was not explained in Unifund Assurance Company of Canada v. Insurance Corporation of British Columbia and was “not a term of art or a technical legal term”.  The arbitrator was therefore wrong to determine that Travelers was an Ontario insurer for the purposes of the Ontario Insurance Act.

The Court expressly narrowed in on the issue raised in the appeal, namely that the Award imposed obligations on Travelers for activities which were beyond the application of the Ontario legislation.  Despite being licensed in Ontario, the activity in issue was not related to that licensing.  To underline the error made in the Award, the Court excerpted from the decision relied on by the arbitrator, Unifund Assurance Company of Canada v. Insurance Corporation of British Columbia, in order to reiterate something “well established”:

[50] It is well established that a province has no legislative competence to legislate extraterritorially.  If the Ontario Act purported to regulate civil rights in British Columbia arising out of an accident in that province, this would be an impermissible extraterritorial application of provincial legislation: Royal Bank of Canada v. The King, 1913 CanLII 401 (UK JCPC), [1913] A.C. 283 (P.C.); Gray v. Kerslake, 1957 CanLII 21 (SCC), [1958] S.C.R. 3; P. W. Hogg, Constitutional Law of Canada (loose-leaf ed.), vol. 1, at pp. 13-4 to 13-25; R. E. Sullivan, “Interpreting the Territorial Limitations on the Provinces” (1985), 7 Supreme Court L.R. 511, at p. 531.

[51] This territorial restriction is fundamental to our system of federalism in which each province is obliged to respect the sovereignty of the other provinces within their respective legislative spheres, and expects the same respect in return.  It flows from the opening words of s. 92 of the Constitution Act, 1867, which limit the territorial reach of provincial legislation:  “In each Province the Legislature may exclusively make Laws in relation to” the enumerated heads of power (emphasis added).  The authority to legislate in respect of insurance is founded in s. 92(13), which confers on each legislature the power to make laws in relation to “Property and Civil Rights in the Province””.

The Court at paras 19-31 examined the wording of the applicable legislation and the PAU, leading it to puzzle aloud why Travelers and CAA were even arbitrating under legislation which did not apply.

[33] How did Ontario statutory accident benefits for the Nunavut accident come to be arbitrated under s. 268 of the Ontario Insurance Act? The purpose of s. 268 is to permit two or more insurers who might have responsibility for paying Ontario statutory accident benefits to determine responsibility on a set of prescribed priority rules. If the insurers cannot agree, then the issue is arbitrated under the Disputes Between Insurers regulation.

[34] Although s. 268 appears to require the insured to select a certain insurer from which to claim benefits, that is not how the scheme works in practice. The historic refusal of insurers to pay benefits before their liability had been established through litigation led to the enactment in 1995 of the Dispute Between Insurers regulation: Ontario (Finance) v. Echelon General Insurance Company, 2019 ONCA 629, 147 O.R. (3d) 1, at para. 12; Allstate Insurance Company of Canada v. Motor Vehicle Accident Claims Fund, 2007 ONCA 61, 84 O.R. (3d) 401, at para. 24. The regulation allows the claimant to select the insurer that will pay statutory accident benefits and the selected insurer must pay. The paying insurer may then initiate an arbitration under the regulation to sort out priorities where another insurer is involved. At that point the claimant is no longer involved or affected by the outcome; the claimant will receive the benefits regardless of how responsibility is allocated between the insurers. That is how this case got before the arbitrator.

Having examined the above, the Court flagged the issue another way: “But the priority rules stipulated by s. 268 only apply if both insurers are subject to those rules”. By further analysis, the Court identified the inconsistency in the record: “An insurance policy cannot both be governed by Ontario and Nunavut law at the same time”.

The Court at para. 38 concluded that “the arbitrator erred in applying s. 268 of the Ontario Insurance Act to Travelers and to the Nunavut policy on the facts of this case”.

In addition to the above, the Court pursued alternative/additional reasons to overturn the Award, including assuming that section 268 even governed the dispute, as set out at paras 43 and following.  Further into its analysis, the Court determined at para. 49 that the arbitrator’s error had been duplicated on appeal in first instance. “Both the arbitrator and the appeal judge erroneously treated Travelers as an Ontario insurer in this case and the Nunavut policy as an Ontario policy”.

In summing up its determinations at para. 58, the primary reason to grant the appeal and set aside the Award and the decision in first instance rested on a key error.

[58] In my view, the arbitrator erred in law in finding that Travelers was an Ontario insurer required to arbitrate priorities with CAA under s. 268 of the Ontario Insurance Act, for the reasons set out above. Further, if the arbitrator had been correct in that finding, he misapplied the section by failing to give effect to Nunavut law regarding the claimant’s status and the limits on her entitlement to Nunavut benefits under Nunavut legislation. The arbitrator should have found that s. 268(5.1) applied so that the claimant’s decision to seek statutory accident benefits from CAA was final and binding on CAA”.

urbitral note – First, in the 2017 decision in which Travelers successfully applied for leave to appeal, Travelers invoked an agreement to arbitrate between the parties which permitted appeals on questions of law.  The facts are set out in Travelers Insurance Company v. CAA Insurance Company, 2017 ONSC 5659.  The applications judge accepted that the facts demonstrated that the parties had entered into an agreement to arbitrate permitting either party to appeal on a question of law without leave.

It is obvious from the 2017 decision that neither party challenged the obligation to arbitrate despite the issue, raised squarely and, eventually, successfully by Travelers, that the Ontario legislation did not apply.

Second, if the Ontario legislation did not apply, then how can parties agree to submit to it, advertently or inadvertently.  The issue was raised by the Court of Appeal but not answered. The Court openly questioned how did Ontario SABs for the Nunavut accident come to be arbitrated under section 268 of the Ontario Insurance Act if the priority rules stipulated by section 268 only apply if both insurers are subject to those rules.

Third, despite readily applying the standard of review, restated in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, applicable to appeals from statutory arbitration, the Court determined that the statute did not apply. 

See the earlier Arbitration Matters note “Ontario – Vavilov does not overrule Teal Cedar or Sattva Capital“. In Ontario First Nations (2008) Limited Partnership v. Ontario Lottery And Gaming Corporation, 2020 ONSC 1516, Mr. Justice Glenn A. Hainey held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 does not refer to either Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 SCR 633 or Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (CanLII), [2017] 1 SCR 688 and that it is not reasonable to conclude that the Supreme Court meant to overrule its own decisions without making any reference to them or to the area of law to which they relate.

See also “Ontario – Vavilov standard applies to statutory insurance arbitration but not private commercial arbitration“. In Allstate Insurance Company v. Her Majesty the Queen, 2020 ONSC 830, Madam Justice Breese Davies held that Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 altered judicial intervention on appeals from insurance arbitration mandated by legislation.  Davies J. held that legislation which includes a statutory appeal mechanism signals legislative intent that courts are to perform an appellate function in respect of the administrative decision and apply appellate standards of review. Davies J. distinguished between appeals of statutory arbitrations and private commercial arbitrations, the latter being seen as autonomous, self-contained process in which courts should “generally” not intervene.

If the statute did not apply, did another standard of review apply?  If it statute did not apply, did the resulting arbitration still qualify as a statutory arbitration?  If the statute did not apply but the parties were able to consent to arbitration under that statute, did their arbitration remain consensual or devolve back into a statutory arbitration?  If their agreement to arbitrate qualified as consensual arbitration, should the Court have re-addressed the standard of review applicable to an appeal of a consensual arbitration rather than a statutory arbitration?  Can or should the Court apply different standards of review to different portions of the Award?