In Stegenga v. Economical Mutual Insurance Company, 2019 ONCA 615, the Ontario Court of Appeal held that the nature and subject matter of a dispute, assessed on the facts giving rise to it, determine jurisdiction. The legal characterization of a cause of action does not determine whether a claim falls within the jurisdiction of the court or an alternative dispute process created by legislation. Though an insured raised an independent cause of action of alleged bad faith in the handling of statutory benefits and sought remedies which the statutory tribunal could not grant, litigation was barred. The legislation used broad phrase of “in respect of” to link “dispute” and “entitlement” and captured the facts alleged.
Appellant, Ms. Morgan Stegenga, was involved in a November 2011 motor vehicle accident which caused her significant injuries. See para. 8 for a summary of those injuries. Insured by Respondent, Economical Mutual Insurance Company, under a policy issued to Appellant’s father, a claim was made on Appellant’s behalf for statutory accident benefits (“SABs”) under Ontario’s Insurance Act, RSO 1990, c I.8.
Despite those injuries, Respondent did not advise Appellant that her injuries could qualify as catastrophic or that benefits were available for such level of impairment. In February 2015, Respondent did advise Appellant that Respondent accepted that Appellant suffered a catastrophic impairment but, over the next year, Respondent continued to provide benefits which described those injuries as non-catastrophic.
Appellant instituted litigation in Ontario Superior Court and not the License Appeal Tribunal (“LAT”) created under the Insurance Act to resolve disputes in respect to a person’s entitlement to SABs or the amount of such SABs. The claim sought damages for mental distress and aggravated and punitive damages due to Respondent’s alleged bad faith, negligence and fraud in the administration of her SABs.
In first instance, Respondent applied successfully under Rule 21.01 of Ontario’s Rules of Civil Procedure, RRO 1990, Reg 194 (i) to strike Appellant’s Statement of Claim because it disclosed no reasonable cause of action and (ii) to determine a question of law, namely that the claim made is within the exclusive jurisdiction of the LAT.
“21.01(1) (a) for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs; or
(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,
and the judge may make an order or grant judgment accordingly.”
“21.01(3) A defendant may move before a judge to have an action stayed or dismissed on the ground that (a) the court has no jurisdiction over the subject matter of the action[.]”
Respondent argued that litigating the claim in court was barred by section 280 of the Insurance Act.
“Section 280(1) This section applies with respect to the resolution of disputes in respect of an insured person’s entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled.”
“Section 280(3) No person may bring a proceeding in any court with respect to a dispute described in subsection (1), other than an appeal from a decision of the Licence Appeal Tribunal or an application for judicial review.”
Appellant argued that the Insurance Act bar her from suing in court for SABs but does not bar her from “independent claims” based on bad faith in the administration of SABs. In Stegenga v. Economical Mutual Insurance Company, 2018 ONSC 1512, Mr. Justice James A. Ramsay granted Respondent’s motion. Appellant appealed.
On appeal, Appellant focused on her claim of bad faith. Relying on Whiten v. Pilot Insurance Co., 2002 SCC 18 (CanLII), [2002] 1 SCR 595 para. 79, she argued bad faith was a standalone action arising from an insurer’s duty of good faith which is independent of and in addition to an insurer’s duty to pay benefits.
“79 In the case at bar, Pilot acknowledges that an insurer is under a duty of good faith and fair dealing. Pilot says that this is a contractual duty. [Vorvis v. Insurance Corporation of British Columbia, 1989 CanLII 93 (SCC), [1989] 1 SCR 1085], it says, requires a tort. However, in my view, a breach of the contractual duty of good faith is independent of and in addition to the breach of contractual duty to pay the loss. It constitutes an “actionable wrong” within the Vorvis rule, which does not require an independent tort. I say this for several reasons.”
(See below in urbitral note the three (3) accompanying paras 80-82 in which the Supreme Court set out those reasons).
Appellant argued that the Insurance Act did not remove jurisdiction from the Superior Court to determine independent claims for bad faith which did not seek benefits entitlements and for which the LAT could not award aggravated, exemplary or punitive damages.
Appellant argued that section 280 did not apply due to “principles of statutory interpretation, case law that has emphasized the standalone nature of a cause of action for bad faith, the nature of the relief claimed, and sensible policy considerations”.
The Court of Appeal disagreed and dismissed the appeal. It held that the dispute resolution provisions in the Insurance Act captured a broad range of disputes including how an insurer handled SABs.
“[22] Neither the legal characterization of the cause of action asserted against the insurer nor the relief claimed determines whether a claim falls within the scope of the dispute resolution provisions. If the dispute relates to the insurer’s compliance with obligations to the insured concerning SABs, the timeliness of performance of those obligations and/or the manner in which they were administered, it falls within the broad reach of the dispute resolution provisions, and within the jurisdiction of the LAT. The prohibition on court proceedings will apply.”
The Court reviewed the evolution of the Insurance Act’s dispute resolution processes, from the earlier option of court or arbitration to the post-April 1, 2016 changes in which the LAT was given jurisdiction, subject to appeal or judicial review, to resolve disputes. See paras 36-40.
The new amendments constituted a “complete code” and efficient dispute resolution before the LAT “would not be served by an overly restrictive reading of the LAT’s jurisdiction and the corresponding limit on the court’s jurisdiction.”
The Court held that the wording in the Insurance Act at section 280 was expansive including the phrase “in respect of” which “connotes the broadest possible connection between two subject matters”. The use of the phrase “in respect of” connects “dispute” to “entitlement”. At paras 43 and 44 respectively, the Court examined the scope of “dispute” and “entitlement” to conclude at para. 45 that, taken together, section 280 covers a “wide array of disagreements connected in some way to SABs to which a person was or is entitled”.
“Viewed in the context of the purpose and history of the dispute resolution provisions, those words include disagreements about when the insurer’s obligation to provide SABs should be or should have been performed, and how the obligation to provide them should be or should have been performed.”
The Court disagreed that differences in remedial powers kept jurisdiction open for the courts. It accepted that legislature can choose which types of disputes would be within the LAT’s exclusive jurisdiction and qualifies as a policy choice. “The legislature must be taken to have armed the LAT with the remedial powers it considered appropriate to deal with improper insurer behaviour, knowing those remedial powers were different from the court’s.”
Disagreements of amounts to be received, their timeliness and the conduct and process followed by an insurer constitute disputes in respect of entitlements to SABs and therefore under the LAT’s exclusive jurisdiction.
The Court agreed that bad faith can be characterized as a cause of action available to an insured which is independent of and distinct from a claim of payment but agreeing to this does not automatically take the subject matter outside section 280. See paras 54-61. Rather, it is not the type of legal claim which determines section 280’s application but the nature of the claim and subject matter of the claim, assessed on the facts, which give rise to the dispute, which determine jurisdiction.
At paras 62-67, the Court applied its analysis to Appellant’s claims. Following the approach adopted in Weber v. Ontario Hydro, 1995 CanLII 108 (SCC), [1995] 2 SCR 929, the Court held that it is the facts giving rise to a dispute, rather than the legal characterization of a dispute, which determine whether a dispute has been removed from the court’s jurisdiction by dispute resolution process imposed by legislation. The facts determine which form has jurisdiction over a dispute.
At paras 64-65, the Court flagged the essential facts alleged in Appellant’s claims and noted that those facts were subject to the same determinations which the LAT would have to make and which were within its jurisdiction.
“[66] It does not matter that the LAT would look at the facts through the lens of unreasonableness, while a court would do so through the lens of bad faith. It is not the legal characterization of the claim but the facts giving rise to the dispute that are determinative.”
Based on the above analysis and the facts alleged in the pleadings which the Court held at para. 7 are taken to be true, the Court dismissed the appeal.
urbitral note – First, the Court’s analysis on the wording in the legislation has potential application to other market activity covered by legislation which removes dispute resolution from the courts to other methods, including arbitration. While the Court acknowledged the declared purpose of reducing costs in insurance, other legislation has similar incentives which would likely offer equivalent support to consolidating jurisdiction to the chosen dispute resolution method.
Second, the decision in first instance issued from Ramsay J. See his earlier reasons in Niagara Ice Dogs Hockey Club Inc. v. Ontario Major Junior Hockey League, 2019 ONSC 1713. In that case, he refused to enjoin a hockey league from holding a disciplinary hearing for a hockey club in favour of that same club’s arbitration with one of its players. In doing so, Ramsay J. demonstrated that the same fact can trigger separate sets of rights and obligations between the club, the player and the league as well lead to different dispute resolution processes. Read more in the Arbitration Matters note “Court passes on stay because hockey contract’s arbitration agreement not in play”.
Third, the following are the three (3) reasons given by the Supreme Court in Whiten v. Pilot Insurance Co. to justify the conclusion that breach of the contractual duty of good faith is independent of and in addition to the breach of the insurer’s contractual duty to pay.
“80 First, McIntyre J. chose to use the expression “actionable wrong” instead of “tort” even though he had just reproduced an extract from the Restatement which does use the word tort. It cannot be an accident that McIntyre J. chose to employ a much broader expression when formulating the Canadian test.
81 Second, in Royal Bank of Canada v. W. Got & Associates Electric Ltd., 1999 CanLII 714 (SCC), [1999] 3 S.C.R. 408, at para. 26, this Court, referring to McIntyre J.’s holding in Vorvis, said “the circumstances that would justify punitive damages for breach of contract in the absence of actions also constituting a tort are rare”. Rare they may be, but the clear message is that such cases do exist. The Court has thus confirmed that punitive damages can be awarded in the absence of an accompanying tort.
82 Third, the requirement of an independent tort would unnecessarily complicate the pleadings, without in most cases adding anything of substance. Central Trust Co. v. Rafuse, 1986 CanLII 29 (SCC), [1986] 2 S.C.R. 147, held that a common law duty of care sufficient to found an action in tort can arise within a contractual relationship, and in that case proceeded with the analysis in tort instead of contract to deprive an allegedly negligent solicitor of the benefit of a limitation defence. To require a plaintiff to formulate a tort in a case such as the present is pure formalism. An independent actionable wrong is required, but it can be found in breach of a distinct and separate contractual provision or other duty such as a fiduciary obligation.”