Unifund Insurance v. ICBC


In Unifund Assurance Co. v. Insurance Corp of British Columbia, 2003 SCC 40, the Supreme Court of Canada ruled that an Ontario insurer (Unifund) could not recover SABs (statutory accident benefits) that it paid to its insured from British Columbia’s auto insurance provider, ICBC. The decision, however, was not unanimous. The court sharply divided 4-3 over whether Ontario legislation could apply to ICBC in order to enforce indemnification.

The Supreme Court of Canada ultimately resolved the decision by determining whether there was a sufficient connection between ICBC and the Ontario legislation so that application of the law would accord with territorial limits on provincial jurisdiction. The court canvassed a thorough discussion of whether there was a real and substantial connection between the subject matter involving ICBC and Ontario’s legislation and, more specifically, whether a PAU (Power of Attorney and Undertaking) signed by ICBC meant that it attorned to Ontario insurance law in respect of a motor vehicle accident that occurred in British Columbia.

The Facts

The Brennans, two Ontario residents, traveled to Vancouver from Ontario to attend their son’s wedding. They rented a car in Vancouver and while they were driving along the Upper Levels Highway near North Vancouver, a tractor-trailer hit them from behind, forcing them into the oncoming lane of traffic. Mrs. Brennan was rendered a quadriplegic. All of the vehicles were registered in B.C. and insured by ICBC.

The couple applied to their insurer, Unifund, in Ontario for SABs and were awarded $750,000. This large sum is due in part to the fact that the couple had to essentially renovate their entire home in order to accommodate Mrs. Brennan’s needs.

The couple then launched a suit in B.C. against the owner and driver of the tractor-trailer and the garage, which had repaired the tractor-trailer before the accident. All three Defendants admitted liability and the Brennans were awarded $2.5 million dollars. The Court of Appeal then decided that the Defendants were entitled to deduct the no-fault benefits already paid by Unifund from the total award of the damages due to section 25 of the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231. At this time, the total amount still has not been resolved by the courts.

The Legal Proceedings Initiated Between Unifund and ICBC

Based on this decision, Unifund sought indemnification from ICBC pursuant to section 275 of the Ontario Insurance Act, R.S.O. 1990, c. I.8, which is discussed in more detail below. It applied to the Superior Court for the appointment of an arbitrator to determine the question of indemnification. However, ICBC responded in two ways. In B.C., ICBC sought a declaratory order that the law of B.C. (and not that of Ontario) applied to the rights of the two insurers, and that Unifund had no right of subrogation under B.C. law. In Ontario, ICBC made a cross-motion and asked for a stay of proceedings on the basis that Ontario’s Insurance Act did not apply since ICBC was not an Ontario insurer. ICBC won a stay pending the outcome of the outstanding B.C. litigation.

Unifund appealed to the Ontario Court of Appeal, which overturned the stay and ordered that the matter be referred back to the lower court to deal with the arbitration request because the motions judge should have declined to hear the motion for a stay of proceedings. ICBC appealed this decision to the Supreme Court of Canada.

Bastarache J. in his dissent characterized the appeal as follows:
“This appeal involved two insurers which are parties to a reciprocal scheme for the enforcement of motor vehicle claims. They disagree to the effect of that scheme and on the extraterritorial application of the Ontario Insurance Act, R.S.O. 1990, c.I.8, notably s. 275, which provides for the indemnification of a no-fault insurer, here Unifund…by a tortfeasor’s insurer, here [ICBC]…for benefits paid over $2,000. Also at issue in this appeal is the jurisdiction of an arbitrator to be appointed pursuant to s. 275(4) of the Ontario Insurance Act to decide the issues of jurisdiction simpliciter, forum conveniens and choice of law. “

The Applicable Legislation

Section 25 of the B.C. Insurance (Motor Vehicle) Act provides that a B.C. court is directed to deduct from a damages award “benefits” which include “accident insurance benefits’ similar to B.C.’s no-fault benefits “provided under a contract…of automobile insurance wherever issued…” However, the Ontario insurance scheme, which regulates numerous competing auto insurers, takes a different approach. Section 267 of the Ontario Insurance Act calculates non-pecuniary damages without regard to SABs.

However, section 275 of the Ontario Insurance Act provides that the payor of SABs is entitled to seek indemnification from the insurer of any heavy commercial vehicle involved in the accident “according to the respective degree of fault of each insurer’s insured as determined under the fault determination rules”.

ICBC’s and Unifund’s Arguments Made Before the Supreme Court of Canada

Before the Supreme Court of Canada, Unifund argued that ICBC was “seeking to avoid the burden of the Ontario legislation, and to thereby obtain a massive windfall” by being able to deduct the SABs paid by the Ontario insurer. It stated that it should be able to enforce its Ontario civil rights in Ontario, namely the right to indemnification created by section 275 of the Insurance Act. Basically, it argued that it was entitled to do so under ordinary constitutional law principles because there was a “real and substantial connection” between ICBC and Unifund, or alternatively, under the PAU.

ICBC contended that constitutional law principles barred Unifund from applying section 275 of the Insurance Act to ICBC in order to enforce indemnification. It argued that there was not a real and substantial connection between ICBC and Unifund, and that the PAU was in force simply to assist service and other procedural matters when an ICBC-insured vehicle is involved in an accident in Ontario.

The Two Decisions

Binnie J. for the majority noted that the principal issue was the constitutional applicability of the Ontario Insurance Act to ICBC. He stated that the discreet issues in the appeal were as follows:
(a) Was the Ontario Court of Appeal correct that arbitration under the Insurance Act was the appropriate forum for determination as to whether the Act did apply to ICBC in the circumstances of this case?
(b) If not, should the Superior Court have determined that section 275 of the Insurance Act was constitutionally applicable to ICBC because of the alleged “real and substantial connection” between ICBC and Ontario on the facts of this case, and/or the terms of the PAU?
(c) If so, should the Superior Court have dealt with the further issue of forum non conveniens, or, having found jurisdiction simpliciter, should the issue of forum non conveniens have been referred to an arbitrator, as held by the Court of Appeal?

With respect to whether the matter should have been referred to arbitration, Binnie J. recognized that there is no doubt that an arbitrator or administrative tribunal can be vested with jurisdiction to determine questions of law, even questions of constitutional law going to its own jurisdiction, provided that the legislature has made plain that intention. However, Binnie J. stated that if the Ontario law:

“is wholly inapplicable to the appellant on the facts here, an arbitrator appointed under the Ontario Act is without any statutory or other authority to decide anything in this case…”

He then stated:

“[i]n my view, when the authority of the court is invoked to appoint an arbitrator under a statute which one of the parties contends cannot constitutionally apply to it, the court should deal with the challenge.”

Binnie J. then held that the Ontario provision was constitutionally inapplicable to ICBC because of the territorial limits on provincial legislation. He noted that it is well established that a province has no legislative competence to legislate extraterritorially and that provincial laws cannot apply to matters not sufficiently connected to the enacting province. After reviewing the real and substantial connection test that has been adopted and developed in Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, Hunt v. T&N, plc. [1993] 4 S.C.R. 289 and Tolofson v. Jensen, [1994] 3 S.C.R. 1022, Binnie J. summarized the law as follows:

(a) The territorial limits on the scope of provincial legislative authority prevent the application of the law of a province to matters not sufficiently connected to it.

(b) What constitutes a “sufficient” connection depends on the relationship among the enacting jurisdiction, the subject matter of the legislation and the individual or entity sought to be regulated by it.

(c) The applicability of an otherwise competent provincial legislation to out-of-province defendants is conditioned by the requirements of order and fairness that underlie our federal arrangements.

(d) The principles of order and fairness, being purposive, are applied flexibly according to the subject matter of the legislation.

Binnie J. concluded that the Ontario provision in question did not have a real and substantial connection to ICBC because of the following:

(a) ICBC is not authorized and does not sell insurance in Ontario.
(b) ICBC-insured vehicles involved in the accident did not go into Ontario.
(c) The accident did not take place in Ontario.
(d) ICBC benefited from the deduction of the statutory benefits by virtue of B.C. law, rather than Ontario law.

Additionally, Binnie J. considered the effect of the PAU to which both Unifund and ICBC were parties that denoted compliance with minimum coverage requirements and facilitated acceptance of service. Although he found that a PAU is:
“…part of a ‘reciprocal scheme for the enforcement of motor vehicle liability insurance policies”
he saw that the PAU in this case applied only to provinces and territories other than B.C.

Furthermore, the PAU was held to be:
“about enforcement of insurance policies, not about helping insurance companies, which have been paid a premium for the no-fault coverage, to seek to recover in their home jurisdictions their losses from other insurance companies located in a different jurisdiction when the accident took place in that other jurisdiction, and where the claims arising out of the accident were litigated there.”

Thus, Binnie J. held that section 275 of the Ontario Insurance Act was constitutionally inapplicable to ICBC because its application in the circumstances of the case did not accord with territorial limits on provincial jurisdiction.

Bastarache J. for the dissent held that, on the facts of this case, ICBC had accepted the jurisdiction of Ontario by signing the PAU. Signing a PAU ultimately means that an insurer is recognizing the interrelationship of insurance regimes across Canada and has accepted that insurers in one province will sometimes be sued in other provinces. He stated that:

“by virtue of the fact of attornment through the PAU, amongst other factors, I conclude that the subject matter which the Insurance Act covers is sufficiently connected to Ontario to as to render the Act applicable to ICBC.”

What will be the Effect of this Decision on the Insurance Industry?

Subrogation rights between ICBC and out-of-province insurers has always been a source of litigation in the auto insurance industry.

In B.C., it has been accepted by the courts that, pursuant to section 25 of the Insurance (Motor Vehicle) Act, an out-of-province insurer may not recover accident benefits it has paid through the courts in British Columbia. Courts have found that an insurer can have no greater rights than the person who obtained those benefits and has released the claim to the extent of those benefits. This was affirmed in both Shaffer v. McPherson (1997), 1 C.C.L.I. (3d) 88 (B.C.S.C.) and Matilda v. MacLeod (1997), 1 C.C.L.I. (3d) 94 (B.C.S.C.). The effect of Unifund v. ICBC in this regard is that the Supreme Court of Canada has now confirmed that an out-of-province insurer cannot even recover from ICBC accident benefits it has paid through its own courts because a province can have no legislative competence to legislate extraterritorially and provincial laws cannot apply to matters not sufficiently connected to the enacting province.

However, this decision, which has had the effect of barring an Ontario insurer from recovering accident benefits from ICBC within its own courts, could potentially bar ICBC from recovering paid accident benefits from another insurer where the accident has not occurred in B.C. and none of the vehicles are insured by ICBC. Pursuant to Unifund v. ICBC, ICBC would be limited to bringing an action in the other jurisdiction and would be subject to its law.

The other consequence that this decision may have on the insurance industry is the majority’s interpretation of signed PAUs and their effect on the interrelationship between insurance companies throughout Canada and the United States. Binnie J. concluded that by signing a PAU an insurance company is not attorning to another jurisdiction’s insurance scheme. He held that PAUs are simply employed in order to assist in procedural matters where an ICBC insured is being sued in another jurisdiction.

Historically, PAUs have been used in order to impose undertakings on out-of-province insurers to extend liability coverage for accidents up to the minimum liability limits required in the province where the accident occurred. A PAU signed by ICBC generally imposes an obligation on ICBC to:

(a) file an appearance in any lawsuit outside of B.C. that is issued against either the insurer or the insured as a result of the latter’s involvement in a motor vehicle accident in the other jurisdiction;
(b) cause the notice to be personally served upon the insured; and
(c) not raise any coverage defence which would not be available to any insurer in the other jurisdiction respecting the other insured.

Although Binnie J. in this case found that the PAU did not extend to B.C. because, for some unforeseen reason, B.C.’s name was crossed out on the actual PAU form, he still determined that the above-noted undertakings were of limited effect and did not amount to accepting inter-provincial integration. Thus, an insurance company could not use a PAU to seek to recover its losses in its home jurisdiction from another insurance company located in a different jurisdiction in which the accident took place and was litigated. This was not the result that Bastarache J. came to in his dissent; however, it is Binnie J.’s interpretation of PAUs which is now binding on any court of law in Canada.

This paper was written by Tara Cluff, former lawyer Whitelaw Twining