On April 1, 2016, amendments to the Insurance Act came into effect and drastically changed the dispute resolution process for no-fault accident benefits in Ontario. Most prominently, people injured in a motor vehicle accident are no longer permitted to commence court proceedings against insurance companies arising from the denial of their accident benefits. Instead, the insured person must apply to the Licence Appeal Tribunal (LAT) in order to have the dispute resolved by an adjudicator from the tribunal.
Previously, an injured person had the right to sue their insurer for the wrongful denial of benefits, and for mental distress and punitive damages resulting from the insurer’s breach of contract and bad faith conduct.
These changes raise the question: can an injured person still sue separately in court for these two heads of damages?
One of the objectives of the motor vehicle insurance contracts in Ontario is to secure peace of mind by providing some financial and psychological security to all insured drivers. Insurance companies owe a contractual duty of good faith when handling an insured’s claim under his motor vehicle insurance policy.
Damages for mental distress can be claimed when the breach of contract by one party causes the other party an intangible injury, such as additional stress, anxiety, frustration, humiliation, and emotional or psychological distress. To support a claim for mental distress, the party breaching the contract must 1) have reasonably known that their breach would cause the other party mental distress; and 2) caused mental distress significant enough to warrant compensation under the law.
Bad faith conduct can be claimed when the insurer breaches its contractual duty of good faith in handling an insured’s claim for accident benefits. The Courts have established that this duty requires an insurer to deal with an insured’s claim fairly in both the manner in which the insurer investigates and assesses the claim, and the decision whether or not to pay the claim. The mere denial of a claim that is ultimately approved, is not itself an act of bad faith.
Do mental distress and punitive damages fall within the Insurance Act dispute resolution provisions?
It could be argued that mental distress and punitive damages are exceptions to the new dispute resolution provisions and as such, fall outside the jurisdiction of the LAT. If they fall outside LAT’s jurisdiction, then any claim for mental distress and punitive damages should be litigated through a court proceeding.
S. 280(1) of the Insurance Act states, “[t]his section applies with respect to the resolution of disputes in respect of an insured’s entitlement to statutory accident benefits or in respect of the amount of statutory accident benefits to which an insured person is entitled”.
S. 280(3) of the Insurance Act states that no person may bring a proceeding in any court with respect to a dispute of accident benefits other than an appeal from a decision of the LAT or an application for judicial review.
On reading these two provisions, the legislation suggests that an insured has to apply to the LAT for dispute resolution, only when the dispute is regarding an insured’s entitlement to accident benefits, or the amount of money the insured is entitled to under their accident benefits. All other disputes do not have to be litigated through the LAT, and ought arguably to be litigated through a court proceeding.
How does this help me?
The failure to mention these heads of damages within the new dispute resolution scheme is alarming to personal injury lawyers, as they are fundamental protections that have been historically available to insured persons in Ontario. Further, the LAT has not yet reported a decision on the issue of these damages, making it unclear how they will treat them. Given this ambiguity, it is beneficial to insured persons to know that they may have an alternate option to litigate their claim for damages arising from breach of contract. Further, the courts have previously awarded mental distress and punitive damages for insurer’s breach of auto insurance policies. The following are some examples where mental distress and punitive damages were awarded:
In McQueen v Echelon General Insurance Co., the Ontario Court of Appeal stated that an object of motor vehicle liability policies is to secure a psychological benefit. It is within the reasonable contemplation of the parties at the time the contract is made that breach of the contract could cause mental distress. Here, McQueen was found to have suffered mental distress that was of a degree that warranted compensation based on the “adversarial relationship” Echelon had created with her when dealing with her accident benefits claim.
In Phan v Jevco Insurance Co., Jevco was found to have handled Phan’s claim with “incompetence, lack of care, indifference, neglect, [and] outrageous arrogance”, with no rationale for the treatment and as such was found to have breached their duty of good faith. They were ordered to pay punitive damages.
Until the LAT confirms it has the jurisdiction to deal with these heads of damage, insured parties have the option to directly litigate their claims in court. Doing so would be advantageous to injured persons, since the court’s treatment of these damages is currently clearer.
 Insurance Act, R.S.O. 1990, c. I.8.
 Fidler v Sunlife, 2006 SCC 30.
 Whiten v Pilot Insurance Co., 2002 SCC 18.
 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s London, England, (2000), 184 DLR (4th) 687 (ONCA).
 McQueen v Echelon General Insurance Co, 2011 ONCA 649.
 Phan v Jevco Insurance Co,  176 A.C.W.S. (3d) 636 (On Sup Ct J).