Difficult problems arise for foreign (out-of-province and U.S.) insurers when either their insured vehicle and/or their named or unnamed insureds are involved in a motor vehicle accident in Ontario.

What are the rights of the foreign insurers’ insureds, and what are the rights of third parties in actions against those insureds?

What policy terms and laws govern in the circumstances?

Despite the difficulty of these questions, the answers have become clearer in Ontario jurisprudence. However, the answer is one which foreign insurers may not appreciate.

1. The Power of Attorney and Undertaking

A foreign insurer who is either licensed to write automobile insurance in Ontario (whether or not it actually does so) and/or files a Power of Attorney and Undertaking (“PAU”) with the Canadian Council of Insurance Regulators (“CCIR”), provided it is in standard form, will be required to treat its policy as an Ontario policy with all consequent coverages and benefits. Similar provisions are in effect in most if not all jurisdictions in Canada, and the single PAU filed with the CCIR is effective for all applicable Canadian jurisdictions.

Any vehicle which enters Ontario insured only by an insurer which is not a signatory to the PAU is considered an uninsured vehicle, and its owner, lessee and operator would be in breach of Ontario’s Compulsory Automobile Insurance Act and subject to very substantial penalties including (in the case of the owner or lessee) the loss of the right to sue for damages occasioned by an automobile accident involving the vehicle.

Discussion

This interpretation of the PAU set out above has been almost uniformly adopted by all courts in Canada. In Ontario, it has received the endorsement of the Ontario Court of Appeal and the Divisional Court in two recent cases:

Potts v. Gluckstein (1992), 8 O.R. (3d) 556 (Ont. C.A.); and, Schrader v. United States Fidelity & Guaranty Co. et al (1987), 59 O.R. (2nd) 178,additional reasons (1987), 59 O.R. (2d) 797 (Ont. Div. Ct.).

The practical effect of this rule is that foreign insurers may find themselves with far greater exposure with respect to a particular policy than was ever intended or considered possible under the terms of the policy as written in its place of origin.

This is true both with respect to first party and third party scenarios.

For instance, consider an example where a foreign insurer’s insured travels to Ontario, and drives a motor vehicle (whether the described motor vehicle in the policy or otherwise) and is involved in a motor vehicle accident for which he or she is totally at fault.

The foreign insurer will be responsible in the tort action to the third party and will be required to provide the statutory minimum liability limits in Ontario ($200,000 in Canadian funds), despite the fact that its policy may have contractual third party liability limits which may be dramatically lower.

Similarly, the foreign insurer will be responsible for paying its insured Statutory Accident Benefits (SAB’s) of the type and at the level available under an Ontario policy. Since Ontario, under its current regime, has one of the most comprehensive schemes in the world, it is likely that the insurer’s exposure to its own insured is greater than would have been the case had the accident occurred in the foreign insurer’s jurisdiction.

The Ontario Court of Appeal, in Healy v. Interboro Mutual Indemnity Insurance Company (1999), 44 O.R. (3d) 404 (C.A.), has ruled that the obligation, of a foreign insurer who has signed the PAU, to pay Ontario Statutory Accident Benefits extends to its insureds who are passengers in other vehicles in Ontario, even if they have not brought the insured vehicle into the jurisdiction.

Although by signing the PAU, the foreign insurer makes itself liable to pay no-fault benefits on an Ontario scale, it also entitles the signing insurer to avail itself of the benefits of the Ontario Loss Transfer legislation. (See: I.C.B.C. v Royal Insurance, Ont. C.A., [1999] I.L.R. I-3705). In broadbrush terms, this provision allows the insurer of an automobile to demand reimbursement from the insurer of a heavy commercial vehicle (basically a truck weighing more than 9,900 pounds) for all no-fault benefits the auto insurer has paid out to its insured, subject to apportionment for liability. (There is a similar provision for motorcycle insurers to recover from automobile insurers.)

Given the dramatic effects of the PAU, foreign insurers will require legal advice on Ontario law with respect to the nature of their first party and third party obligations when their insureds are involved in motor vehicle accidents in Ontario. This is especially true given the fact that there are currently three separate auto regimes potentially applicable in Ontario, all of which provide different third and first party coverages, benefits, and defences.

Please see the Rogers Partners LLP Commentaries for a summary of the various applicable regimes. Details of the current Statutory Accident Benefits (SABs), for accidents occurring after October 31st, 1996, are set out in O. Reg. 403/96.

Inquiries with respect to the PAU, and particularly as to whether an insurer is a signatory, may be made to:

Claire Schmid
Administrative Coordinator
CCIR Secretariat
5160 Yonge Street, Box 85
Toronto ON M2N 6L9

telephone : (416) 226-7895
fax : (416) 590-7070
e-mail : ccir-ccrra@fsco.gov.on.ca

2. The Two FSCO Undertakings

In addition to the PAU (which applies across Canada), as of November 1st, 1996, two other undertakings, The Protected Defendant Undertaking and The Direct Compensation Property Damage Undertaking were made available to foreign and out-of-province insurers. These undertakings apply only in Ontario, and are filed with the Financial Services Commission of Ontario (FSCO). Details of these undertakings are set out in FSCO Bulletin No. A-9/96.

Foreign and out-of-province insurers who do not file the Protected Defendant Undertaking cannot avail themselves of certain protections of the Ontario Insurance Act, including the protection of the “permanent serious impairment” threshold and protection from subrogation (in certain circumstances) by the provincial health insurer, OHIP.

Foreign and out-of-province insurers who do not file the Direct Property Damage Undertaking cannot avail themselves of a defence they might otherwise have against claims for property damage to other vehicles and cannot sue for property damage to their insured vehicle.

MOST U.S. INSURERS ARE SIGNATORIES TO ALL THREE UNDERTAKINGS

The situation where an Ontario resident plaintiff attempts to sue for damages occasioned by an accident that occurred in the U.S. is considerably more complicated. There are two primary issues to be considered – first, whether the Ontario Court can or will hear the matter; and second, if the matter is heard in Ontario, which laws are applicable. The former issue is the “Choice of Forum” issue and the latter is the “Choice of Law” issue.

1. Choice of Forum

The choice of forum boils down to two issues: Do the courts of Ontario even have jurisdiction to hear the matter? And, if they do have jurisdiction to hear the matter, should they exercise their discretion to decline jurisdiction on the grounds that another jurisdiction is more convenient? The former issue is referred to as “jurisdiction simpliciter” and the latter is “forum conveniens”.

Jurisdiction Simpliciter

The Ontario Court of Appeal in the cases of Muscutt et al v. Courcelles et al (2002), 60 O.R. (3d) 20 (Ont. C.A.) and Gajraj v. DeBernardo et al (2002), 60 O.R. (3d) 68 (Ont. C.A.) held that there was an eight-point test to determine whether an Ontario court had jurisdiction to hear a case with respect to an auto accident occurring out of the province:

1. the connection between the forum and the plaintiff’s claim, because a forum has an interest in protecting the legal rights of its residents;


2. a connection between the forum and the defendant, which may occur where it was reasonably foreseeable that the defendant’s conduct would result in harm within the jurisdiction, or where the defendant has done something within the jurisdiction that bears upon the plaintiff’s claim;


3. unfairness to the defendant in assuming jurisdiction;


4. unfairness to the plaintiff in not assuming jurisdiction;


5. the involvement of other parties to the suit, which factor includes concerns about avoiding a multiplicity of proceedings and the risk of inconsistent results;


6. the court’s willingness to recognize and enforce an extra-provincial judgment rendered on the same jurisdictional basis;


7. whether the case is interprovincial or international in nature, because the assumption of jurisdiction is more easily justified in interprovincial cases; and


8. comity and the standards of jurisdiction, recognition, and enforcement prevailing elsewhere.

Unfortunately, this test is so subjective that it makes it difficult, if not impossible, to predict the circumstances under which a court will in fact decide it has jurisdiction to hear the matter. Compare, for instance, the Court of Appeal’s decision in Gajraj, above, with its decision in Doiron v. Bugge (2005), 258 D.L.R. (4th) 716 (Ont. C.A.) where it came to an opposite result on almost the same fact situation.

Furthermore, this eight-point test results in the court taking jurisdiction where a foreign court would not do so if the circumstances were reversed. Arguably, the test is out of touch with international law. It is our recommendation that, in the right circumstances, the Court of Appeal should be asked to revisit this test, and if they chose not to do so, an attempt should be made to appeal the matter to the Supreme Court of Canada. As matters stand, we feel this test results in foreign insurers having to defend many actions in Canada that should properly be heard in the United States.

Forum Conveniens

Even if a court has jurisdiction to hear the matter, it still has the discretion to refuse to hear the matter on the ground that another jurisdiction is preferable. This is determined by a slightly different seven-point test in which the court considers the following issues:

1. location of the majority of the parties;
   
2. location of key witnesses and evidence;


3. contractual provisions that specify applicable law or accord jurisdiction;


4. avoidance of a multiplicity of proceedings;


5. the applicable law and its weight in comparison to the factual questions to be decided,


6. geographical factors suggesting the natural forum, and


7. whether declining jurisdiction would deprive the plaintiff of a legitimate juridical advantage available in the domestic court.

2. Choice of Law

If the court determines that the matter is to be heard in the Ontario, the next issue is what law is applicable.

The first and most important point to note is that the Power of Attorney and Undertaking is NOT applicable to accidents occurring in the U.S., even if the case is tried here. Therefore in cases in which accidents occur in the U.S. but are tried in Canada, your policy limits are NOT increased to the Ontario minimum limits.

The choice of law rules are set out in the Supreme Court of Canada case of Tolofson v. Jensen; Lucas (Litigation Guardian of) v. Gagnon, [1994] 3 S.C.R. 1022. The long and short of it is that substantive issues are to be determined by the law of the place where the accident happened, but procedural issues are to be determined by the law of Ontario. The difficulty is determining which is which.

It has been held that laws which take away a right altogether are substantive, but laws which only serve to determine the quantum of damages or how the matter is to proceed, are procedural.

As a result, the following issues have been held to be substantive and would be determined by the law of the place where the accident happened:

1. The Ontario threshold and deductibles would NOT apply. Any applicable threshold of the state where the accident happened would apply.


2. If there are any heads of damage taken away by laws of the state where the accident happened, those laws would be applicable in that regard.


3. The Ontario Family Law Act (which allows depends to sue) would not be applicable – the corresponding law of the jurisdiction where the accident happened would be applicable.


4. The Ontario law with respect to pre-judgment interest would not be applicable.


5. The limitation period which would be applicable is that of the state in which the accident happened.

1. The quantum of damages would be assessed as if this were an Ontario loss.


2. Ontario law with respect to legal costs would be applicable.


3. The cap on general damages is procedural and therefore the law of Ontario will apply in that regard.

(See Somers et al. v. Fournier et al. (2002), 60 O.R. (3d) 225 (C.A.), Britton v. O’ Callaghan (2002), 62 O.R. (3d) 95 (C.A.) and Wong v. Lee [2002] O.J. No. 885)

We have been unable to find any case law that determines whether the deductibility of collateral benefits is procedural or substantive, but it seems likely that issue is substantive and would be determined by the law of the place where the accident happened.

Finally, it should be noted that an Ontario Court will consider U.S. law to be an issue of fact to be proved. In a case tried in Ontario in which U.S. law is at issue, a U.S. attorney would have to be called as a expert witness to testify as to U.S. law.