SABS Priority Disputes 101: Notice In 90

• Published date: 04 January 2022
• Subject Matter: Corporate/Commercial Law, Insurance, Corporate and Company Law, Insurance Laws and Products
• Law Firm: Strigberger Brown Armstrong LLP
• Author: Mr Daniel Strigberger

Years ago, I had a file where my client received a priority dispute notice. It was for a catastrophic accident benefits claim involving a 26-year-old who had suffered severe brain injuries. There was little doubt that my client had priority over this claim because he was married to our named insured.

While I was looking at the claim, I noticed that the other insurer had sent its priority dispute notice to my client on Day 89. They used a courier service. Unfortunately for them, the notice arrived at my client's offices on Day 91. I brough this to the attention of opposing counsel, and his client dropped the claim against us.

In our second article in the Priority Dispute Series, I provided a discussion on deflection and the "pay now, dispute later" provisions of section 2.1 of O. Reg 283/95. To recap:

1. Section 2.1 of the Regulation codifies some of the case law principles flowing from section 2.
2. Insurers must follow the steps in section 2.1 and cannot take any steps to deflect an application that is otherwise earmarked for them.
3. The first insurer to receive a completed and signed application for accident benefits (OCF-1) must adjust and pay any claims, as per the SABS. An insurer cannot refuse to pay benefits on the basis that another insurer might have priority.
4. An insurer that breaches section 2.1 of the Regulation might have to reimburse insurer(s) for various expenses and handling costs. They might also be subject to a special award.

In this article, I review the insurer's obligations to provide timely notice of a priority dispute, pursuant to section 3 and 3.1 of O. Reg 283/95, and the consequences of failing to do so.

Section 3(1): 90-Day Notice or Bust

Section 3(1) of O. Reg 283/95 prescribes a 90-day priority dispute notice deadline:

3. (1) No insurer may dispute its obligation to pay benefits under section 268 of the Act unless it gives written notice within 90 days of receipt of a completed application for benefits to every insurer who it claims is required to pay under that section. O Reg. 283/95, s. 3 (1).

In the seminal case of Kingsway General Insurance Co. v. West Wawanosh Insurance Co.,¹ the Ontario Court of Appeal reviewed section 3(1) and said:

The Regulation sets out in precise and specific terms a scheme for resolving disputes between insurers. Insurers are entitled to assume and rely upon the requirement for compliance with those provisions. Insurers subject to this Regulation are sophisticated litigants who deal with these disputes on a daily basis. The scheme applies to a specific type of dispute involving a limited number of parties who find themselves regularly involved in disputes with each other. In this context, it seems to me that clarity and certainty of application are of primary concern. Insurers need to make appropriate decisions with respect to conducting investigations, establishing reserves and maintaining records. Given this regulatory setting, there is little room for creative interpretations or for carving out judicial exceptions designed to deal with the equities of particular cases.²

Arbitrators have accepted that the purpose of section 3(1) is to encourage insurers to investigate priority issues in an expedient manner and to be proactive about these disputes. Section 3(1) allows the priority insurer to take the file early once it is satisfied that it has priority (plus, it facilitates an earlier arbitration if there is a dispute).

Over the years, many meritorious priority disputes have imploded because of untimely notices under section 3(1). The obligations under section 3 are very unforgiving. For this reason, it is very important that insurers comply with section 3(1).

It is helpful to break down the various components in the section and then review some of the cases that have examined section 3(1):

1. The notice must be given by the insurer claiming priority.
2. A notice under section 3 must be in writing. It cannot be verbal.
3. The 90-day notice clock starts on the day the insurer giving notice first received a completed application.
4. The notice must be given to every insurer who the paying insurer claims has priority.

Let's look at each component more closely.

1. Here's My Notice

Section 3(1) specifies that the insurer must give written notice of its intention to dispute priority. An insurer cannot rely on a third party to provide the notice (unless of course the third party is an agent of the insurer, like an independent adjuster or lawyer).³

In West Wawanosh⁴, the insurer giving notice tried to rely on a notice from the claimant's lawyer to the other insurer about a priority issue. The Court of Appeal rejected this argument, finding:

A second-hand statement from a third party is plainly not the same as the formal notice from the insurer that is contemplated by the Regulation. In any event, an unauthorized letter from a third party would not have bound the insurer. Given the specific language of the Regulation, I cannot accept the submission that a letter from a third party indicating the insurer's intentions is sufficient to meet the requirement of formal notice from the insurer.⁵

For the purpose of section 3(1), notice is "given" under section 3(1) when the other insurer receives the notice.⁶

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