Appeal courts says LAT entitled to make awards in bad faith claims

A Court of Appeal decision has opened the door for accident victims who are poorly treated by their insurers to pursue bad faith claims at the Licence Appeal Tribunal (LAT), says Ontario personal injury lawyer Patrick Brown.

Brown, partner with McLeish Orlando LLP, acted for the appellant in the matter, a 15-year-old girl who suffered serious injuries as a passenger in a 2011 car crash and was unrepresented for almost five years.

The girl sued her accident benefits insurer in court, claiming aggravated and punitive damages for alleged misrepresentations and mental distress inflicted during its handling of her claim.

However, because the claim was filed after April 2016 legislative changes that diverted all disputes under the Statutory Accident Benefits Schedule (SABS) to arbitration at the LAT, a motion judge ruled that it should be dismissed under Rule 21 of the province’s Rules of Civil Procedure. That decision was then upheld by a unanimous appeal court panel.

Brown says that the silver lining for his client and other victims of alleged insurer maladministration comes in the case’s clarification of the treatment of bad faith in accident benefits matters. Previous jurisdictional uncertainty had allowed some bad faith claims to fall between the cracks, he adds.

“Adjudicators at the LAT have been reluctant to deal with bad faith claims because this was an open question,” Brown says. “The good thing here is that the appeal court says the LAT is fully entitled to make awards in those claims.”

‘Double-edged sword’

“In that way, the decision is a double-edged sword — you can’t sue in court, but it is open to the LAT to award damages where an insurer’s bad conduct warrants it,” Brown adds.

The Court of Appeal, Brown says, has now confirmed that the LAT can award bad faith compensation for the way the claim “was handled” and not limit itself to the way the payment was denied. The way an insurer performs its “SABS related obligations” will now be open to review and any unreasonable conduct will be addressed. As to the quantum of the bad faith award, the court also reaffirmed that the LAT can “deem an expense to have been incurred” if the insurer’s unreasonable conduct “led to it not providing the benefit” or “providing it later.”

The 2011 accident at the heart of the case left Brown’s young client with a traumatic brain injury, skull fractures, a brain bleed, rib fractures, lacerated spleen and kidney, as well as a pulmonary contusion.

According to the decision, the girl’s parents made a claim for accident benefits in early 2012 but were not told for another three years by their insurance company that their daughter might qualify as catastrophically impaired, a designation that would entitle her to significantly more generous benefits.

When the insurer finally acknowledged the girl’s catastrophic impairment in February 2015, it continued to provide benefits statements that described her injuries as non-catastrophic before she sued for alleged breach of good faith.

In her bad faith claim, the girl alleged the insurer’s failure to properly investigate her condition, and mixed messages about her entitlements prolonged her suffering, and caused fresh distress, warranting aggravated and punitive damages.

Moved to have claim dismissed

The insurer moved to have the claim dismissed, relying on the 2016 legislative changes, which amended s. 280 of Ontario’s Insurance Act, to divert all disputes under the SABS exclusively to arbitration at the LAT in one of the biggest shakeups to the regime in the last couple of decades.

Previously, SABS disputes were handled either in court or at the Financial Services Commission of Ontario, where they were subject to mandatory mediation.

The three-judge appeal court panel upheld the motion judge’s decision dismissing the claim, finding that the new SABS dispute resolution process was intended to apply broadly.

“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 decision reads.

Brown says the case has been closely watched by counsel on both sides of the personal injury bar since its launch, and he confesses the result was not a huge surprise.

“It was always going to be an uphill battle because it would mean more claims flowing into an already backlogged system,” Brown says. “But the decision will be of great interest to anyone who practises in the area.”