Are Ontarians ready for July 1 auto coverage shift?

Brokers, insurers, lawyers and consumer groups have all raised red flags about the finer points of Ontario’s auto insurance coverage changes that go into effect July 1. And the province’s regulator, the Financial Services Regulatory Authority (FSRA), has issued guidance and amended certain forms in response to those concerns.

“The real question is whether the practical consequences of the reforms — particularly around applicability of optional benefits, priority issues, and consumer understanding — have been fully stress-tested,” says Daniel Strigberger, an insurance coverage and private arbitration lawyer.

Currently, Ontario has a hybrid private auto insurance system that pays out accident benefits to insured drivers injured in auto collisions, alongside a tort system allowing injured drivers to sue to recover compensation for injuries from at fault drivers. The July 1 changes make several mandatory accident benefits optional so insured drivers can save money by declining certain optional benefits.

“I think the industry is still trying to work through how these reforms will operate in real-world claims scenarios after July 1, and when renewals begin,” Strigberger tells Canadian Underwriter.

Some of those stress tests may come in the form of lawsuits when people who are not insured (such as pedestrians or cyclists who don’t have their own auto coverage policies) are involved in auto accidents.

“If an injured person cannot access optional accident benefits such as income replacement, the financial pressure shifts elsewhere,” Strigberger says. “In serious cases, that increases the focus on tort recovery against the at-fault driver. That does not automatically mean drivers are personally exposed, because liability insurance still responds first, but where liability limits are inadequate the personal exposure risk becomes more significant.”

Related: Recovery | Injury claims will reveal limitations of Ontario auto reforms

Strigberger notes the July 1 changes won’t alter eligibility and limits for medical, rehabilitation and attendant care benefits. That means tort defendants would still benefit from a reduction of those mandatory accident benefits payments made to injured plaintiffs through Ontario’s Statutory Accident Benefits Schedule (SABS).

Expanded benefits like income replacement, housekeeping, dependent care, or death benefits would only be possible in limited circumstances. “The reforms do not eliminate mandatory accident benefits, but the optional benefits follow the named insured person who purchased them and are applicable to the named insured (including a deemed named insured under the regular use provisions in the SABS), spouse, dependants of named insured or spouse, and listed drivers,” he says. 

“An uninsured pedestrian or cyclist may still access those optional benefits if they qualify under a policy as a named insured, spouse, dependant, or listed driver. The challenge is that many people may assume they are covered when they may not actually meet those definitions.”

Beyond that, Ontarians may also have the option of purchasing an Ontario Driver’s Policy (OPF 2), which allows a person to purchase SABS coverage, including optional benefits, without insuring a specific owned vehicle. Strigberger notes that while the product has historically been viewed as a non-owner driver’s policy, the current wording does not appear to expressly require vehicle ownership or even a driver’s licence.

Related: Why Ontario auto reform may drive more lawsuits

In catastrophic or high-income-loss cases, it’s possible an uninsured injured party would pursue a lawsuit against a driver’s other assets. Plaintiffs’ lawyers examine all recovery options for their clients, he adds, and if fewer accident benefits are available, the tort system will become more important again — not less.

“That said, it is very unlikely that an uninsured person would have a cause of action against another motorist for failing to purchase optional benefits,” he says. “Among other things, optional benefits are available only to the named insured, spouse, dependants, and listed drivers. A random uninsured pedestrian or occupant wouldn’t be able to access those optional benefits in any event.”

Although a desire to reduce ‘unnecessary litigation’ was cited among the reasons for reforming Ontario’s auto insurance regime, Strigberger notes the July 1 changes may not reduce lawsuits.

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“I think we are more likely to see litigation shift rather than disappear,” he says. “There may be fewer disputes over benefits that simply were not purchased, but there will likely also be more disputes about whether optional coverage applies at all, or whether someone qualifies as a dependant (for example). Those are exactly the types of issues that will end up before Ontario’s Licence Appeal Tribunal (LAT).”

Related: Sales Column: Will brokers speak up about Ontario auto reform risks?

“In other words, if access to optional benefits turns on whether someone qualifies as a dependant under the legislation or policy wording, that issue will inevitably be litigated at the LAT. So, while some disputes may disappear, others will likely emerge in their place.”

In such cases, arguments will be highly fact-driven. “On dependency cases, the LAT and appellate courts will examine financial dependence, household relationships, economic support, caregiving arrangements, and the overall nature of the relationship. In that respect, the substantial body of existing priority dispute jurisprudence will become increasingly important for both plaintiff and defence counsel to understand and apply,” says Strigberger.

“What we will likely see is more status-based disputes about who qualifies for access to optional benefits, while some traditional medical entitlement disputes may become less significant where only standard benefits are available.”

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.