On January 1, 2015, amendments to the Insurance Act changed the way the prejudgment interest (PJI) rate is calculated in motor vehicle accident cases. The PJI is the rate of interest the defendant must pay on any damages awarded, for the period from the date the defendant was put on notice of the claim and the date of the settlement and judgement.
In effect, the 5% PJI rate set out for non-pecuniary losses or general damages, such as pain and suffering, in Rule 53.10 of the Rules of Civil Procedure was eliminated and replaced with the lower bank rate as defined in section 127(1) of the Courts of Justice Act. These amendments were a further erosion of rights for insurance policy holders in Ontario. The bank rate currently hovers around 1%, and for the foreseeable future, it is unlikely to rise much higher.
For those already involved in ongoing lawsuits concerning motor vehicle accidents, the question is whether the amended PJI rate for general damages applies retroactively. If your car accident occurred before January 1, 2015, will the 5% PJI apply to your general damages, as formerly legislated, or a PJI that is in accordance with the bank rate under the new rules?
Two Ontario Superior Court decisions in 2015 came to different conclusions. In Cirillo v. Rizzo, the Court held that the amendments applied retroactively to motor vehicle accidents that occurred before January 1, 2015. Months later, in El-Khodr v. Lackie, the Court held that Cirillo was wrongly decided, and that the new rules did not apply retroactively.
The latter case is under appeal. To date, no court of higher jurisdiction has ruled on the issue. Although the Superior Court has further considered the issue in subsequent decisions since El-Khodr, the law on the retroactivity of the new PJI rules will not be clearly settled until the Court of Appeal delivers its decision in El-Khodr.
- Cirillo v. Rizzo, 2015 ONSC 2440 – released April 15, 2015
In Cirillo v. Rizzo, the plaintiff sought damages for injuries sustained in an October 2005 motor vehicle accident. On March 24, 2014, the defendant made an offer to settle for $50,000 general damages. The plaintiff accepted this offer on January 26, 2015, three weeks after the PJI amendments came into force.
The parties disagreed over whether the PJI amendments for general damages would apply retroactively to this action. Were the $50,000 general damages subject to the applicable bank rate at approximately 4.5% as per the new rules in effect January 1, 2015, or to the formerly legislated 5% interest rate for general damages.
The key issue boiled down to whether the method for quantifying PJI was substantive law, which deals with the rights and obligations of individuals, or procedural law, which deals with the rules that govern the proceedings of the court, as this would determine retroactive application. It is settled law in Ontario that procedural law will take effect to apply to all actions and therefore apply retrospectively, changing the legal consequences of past events, while substantive law will apply only to actions commenced on or after the date the amendment came into force.
Relying on Somers v. Fournier, the plaintiff took the position that PJI was a matter of substantive law, and therefore the January 2015 amendments did not have a retroactive effect on ongoing proceedings. The defendant also relied on the Somers decision, but argued that it stood for determining entitlement to PJI, but not for determining the quantification of it. The defendant argued that the means by which PJI was quantified was a procedural matter, and therefore the amendments did apply retrospectively.
The Court found in favour of the defendant, and held that the amendments applied retrospectively to this action arising from an October 2005 accident.
- El-Khodr v. Lackie, 2015 ONSC 4766 – released July 28, 2015
On April 29, 2015, the jury in El-Khodr v. Lackie awarded the plaintiff a damages award of $2,931,006 for catastrophic injuries with respect to an action that commenced on May 29, 2007.
The defendant relied on Cirillo and took the position that the January 2015 amendments applied retrospectively, and therefore the interest payable was in accordance with the applicable bank rate pursuant to section 127 of the CJA. The plaintiff argued that Cirillo was wrongly decided, based on a misinterpretation of Somers, and therefore the amendments should not apply retroactively and the 5% PJI rate should apply to any general damages award.
In coming to a decision, the Court considered the legislative intent behind the amendments. Judge Roccamo found that the amendments were “not enacted to assist a court in controlling its process,” but rather “to better match the award for prejudgment interest in motor vehicle accidents to the actual loss of interest incurred by a party due to the delay in getting an award for damages…and, as a result, decrease insurance premiums.” The intent behind amending the PJI rates for general damages was not of a procedural nature, but rather to ultimately have an effect on the quantum of insurance premiums.
Judge Roccamo cited Angus v. Hart, in which the Supreme Court of Canada stated:
Insurance companies calculate their premiums according to known risk factors… The insurance company relied upon that “knowledge” in setting its rates. A retrospective change to that circumstance should not lightly be implied.
With respect to pre-January 2015 motor vehicle accidents, Judge Roccamo opined on the formerly required 5% PJI rate as follows:
The 5% prejudgment interest rate for general damages was a known risk factor, and insurance companies took this into account in setting their premiums. I see no reason to depart from the Supreme Court’s position that statutes should not be given retrospective operation in the absence of an express or implied intention to that effect, especially when the statute impacts the calculation of insurance premiums…[and in] a situation in which the retrospective change would essentially result in a windfall for insurance companies and a disadvantage to insured persons who paid higher premiums.
In direct contradiction with Cirillo, the Court held in favour of the plaintiffs.
In Cirillo, the difference between the two potential PJI rates amounted to approximately $2,000. In El-Khodr however, the difference was significantly greater, amounting to $45,000 in difference when comparing a potential 5% interest award of $90,000 to an interest award of $45,000 pursuant to the new PJI rules. Where an action arises from a more recent motor vehicle accident, with the applicable bank rate hovering much closer to 1% than 5%, the January 1, 2015 amendments and the Cirillo ruling – if it stands – will have a much greater impact on the amount of compensation a car accident victim receives for their pain and suffering.
Awaiting the Court of Appeal’s Decision
While El-Khodr is currently under appeal, the Superior Court has had opportunities to consider the conflicting decisions of Cirillo and El-Khodr. In these subsequent decisions, the Court has resoundingly found in favour of the El-Khodr ruling.
- In Markovic v. Richards, the Court preferred the reasoning in El-Khodr. The Court found that the PJI is akin to a head or category of damages, and hence is a matter of substantive law. Accordingly, the amendment should not apply retroactively.
- In Cobb v. Long Estate, the Court found that the El-Khodr decision was better reasoned than Cirillo, and exercised its discretion to order that PJI be paid at the rate of 3%. The defence had submitted that the new rate of 0.5% as opposed to the old 5% rate should be used to calculate PJI. The Court was satisfied that the rate of 3% was entirely just and reasonable, particularly given that the decision in El-Khodr remains under appeal.
- In Vickers v. Palacious, the Court found that both entitlement to PJI and quantification of PJI are substantive, and therefore the amendments do not have a retrospective effect. Again, the reasoning in El-Khodr was preferred.
Until the Court of Appeal clarifies the issue, defence counsel in settlement negotiations may use Cirillo as authority for seeking a lower PJI rate on general damages. However, injured victims and plaintiff counsel can rest easy knowing that thus far there has been a tide of post-Cirillo decisions that reject the Cirillo reasoning and hold that the new rules do not apply retroactively.
 Cirillo v. Rizzo, 2015 ONSC 2440,  O.J. No. 1881
 Somers v. Fournier,  O.J. No. 2543, 60 O.R. (3d) 225 (Ont. C.A.).
 El-Khodr v. Lackie, 2015 ONSC 4766, 256 A.C.W.S. (3d) 421 [El-Khodr].
 Ibid at para 49.
 Angus v. Hart,  2 S.C.R. 256 at para 28.
 El-Khodr, supra note 3 at para 51.
 Markovic v. Richards, 2015 ONSC 6983.
 Cobb v. Long Estate, 2015 ONSC 6799.
 Vickers v. Palacious, 2015 ONSC 7647.