Chapter 9 - OAP1 Flashcards
Mandatory Coverages
To ensure that no one being insured to drive in Ontario is left without necessary coverages, the Ontario government established a set of directives for the automobile insurance industry to bring in standardized, or mandatory, coverages.
On November 1, 1996, the Automobile Insurance Rate Stability Act, 1996 became law. This act set the minimum standard for all automobile insurance policy coverages in Ontario. One of the government’s main goals was to deter people from intentionally driving without insurance; as a result, the fine for this offence was increased to $5,000, up to a maximum of $25,000 for the first offence, and from $10,000 to a maximum of $50,000 for the second offence.
Mandatory Coverage - Section 3: Liability Coverage
Since March 1, 1981, the minimum liability coverage in Section 3: Liability Coverage has been set to $200,000 for property damage and bodily injury, combined. If a claim reaches or exceeds this limit, then injury claims take priority, and the amount is apportioned as follows:
- $190,000 for bodily injury.
- $10,000 for property damage.
Mandatory Coverages - Section 4: Accident Benefits Coverage
The accident benefits under Section 4: Accident Benefits Coverage are often referred to as “no-fault benefits” and are set out in the Statutory Accident Benefits Schedule (SABS). (The SABS can be found in Regulation 403/96 of the Insurance Act.) Although these are mandatory, the insured also has the option of purchasing additional accident benefits to supplement the basic mandatory benefits.
The SABS includes:
- Income replacement benefit.
- Non-earner benefit.
- Caregiver benefit.
- Dependant care benefit.
- Medical, rehabilitation, and attendant care benefits.
- Payment of other expenses.
- Death and funeral benefits.
- Optional benefits (for example, increased limits for the above benefits, indexation of benefits payable, etc.).
Mandatory Coverages - Section 5: Uninsured Automobile Coverage
Section 5: Uninsured Automobile Coverage provides protection for the insured, their spouses, and their children, as well as the operators of the described automobile, if they are struck and injured by an uninsured automobile.
Mandatory Coverages - Section 6: Direct Compensation — Property Damage Coverage
Section 6: Direct Compensation — Property Damage Coverage responds when there is damage to the insured’s automobile, its contents, or its loss of use due to an accident in Ontario that is not the insured’s fault.
Optional Coverages
When we describe some coverages as “optional,” we do not mean they are “add-ons” or less necessary than the mandatory coverages — rather, these coverages extend the mandatory coverages into key areas that drivers will benefit from.
Optional coverages include the following:
- Increased liability limits: The minimum limits in Ontario are $200,000, but most policies are issued with higher limits, such as $1,000,000 or higher.
- Physical damage (loss or damage) coverages: These coverages are designed to indemnify policyholders for physical damage to their automobile. They may be called “all perils,” “collision,” “comprehensive,” or “specified perils” coverage. Each of them covers damage to the vehicle itself, as well as coverage for damage caused by different perils. A deductible (in variable amounts) always applies, unless the loss is caused by fire or lightning.
- Optional accident benefits coverages: Insureds can increase the coverage limits specified in the SABS to allow for better than standard coverage. We’ll discuss these limits, as well as the optional increases, in more detail in Section 4: Accident Benefits Coverages.
- Other coverage and/or policy changes: Optional coverage is provided through endorsements known as the Ontario Policy Change Forms (OPCFs). These forms are used to indicate changes to the basic provisions of the policy. Later in the chapter, we’ll look at the most common endorsements (Section 9.3.10: Ontario Policy Change Forms).
Notice of Accident
An insured person is required to report an accident to their automobile insurer within seven days of an accident if:
- The accident has been reported to the police under the Highway Traffic Act (for example, for injury, criminal acts, damage over $2000, etc.); or
- The accident will be reported to an agent or broker, regardless of who is at fault.
If the insured is unable to report the accident due to incapacity, they may comply with this condition by reporting the accident as soon as they regain the ability to do so. If a third party has a right of recovery against the policy, then that party may make the claim on their own behalf, as stated in the Statutory Conditions.
Fault Determination Rules
The Fault Determination Rules (which can be found in the Insurance Act, Regulation 668) contain examples of common types of collisions. The rules also describe how fault is assigned for insurance purposes — for example, by using the Fault Chart. The Fault Chart covers the most common types of accidents and includes diagrams illustrating the points of impact between two or more cars. The diagrams illustrate how to apportion fault between the vehicles. The Fault Chart rules are based on the rules of the road and tort law precedents set in past cases.
If an insured disagrees with the liability derived from the Fault Determination Rules, they have the option of taking legal action against the insurer. If an insured disagrees with the amount of a settlement offered for damage to the vehicle, they can refer to OAP 1, Section 6.7.3: Settling a Claim and ask for an appraisal. In these situations, the insured and the insurer will each appoint an appraiser who will either agree on an amount or will appoint an umpire to decide between their respective positions.
Motor Vehicle Liability Insurance Card
Like other Canadian jurisdictions, Ontario requires proof of financial responsibility. As of March 1994, the Motor Vehicle Liability Insurance Card, commonly referred to as the “pink slip,” was introduced to Ontarians. This certificate clearly indicates coverage is provided within Canada and the United States.
Section 1: Introduction
Section 1: Introduction provides definitions of terms and explains information that applies to the entire policy. For example, it includes:
- Where the insured is covered.
- How to cancel the policy.
- Who and what the insurance company will not cover.
- Where to make a claim and who may make it.
SECTION 1.1: THIS POLICY IS PART OF A CONTRACT
“This policy is part of a contract between you and us. The contract includes three documents:
- A completed and signed Application for Automobile Insurance,
- A Certificate of Automobile Insurance, and
- This policy.”
SECTION 1.2: WHERE YOU ARE COVERED (TERRITORY)
“This policy covers you and other insured persons for incidents occurring in Canada, the United States of America and any other jurisdiction designated in the Statutory Accident Benefits Schedule, and on a vessel travelling between ports of those countries.
All of the dollar limits described in this policy are in Canadian funds.”
SECTION 1.3: DEFINITIONS
Under the OAP 1, the definition of an automobile includes the “described automobile” — that is, the automobile insured under the contract and described by its year, make, model, and serial number within the policy. But it can also mean a “newly acquired automobile,” “temporary substitute automobile,” or an all-encompassing “other automobile.” Each automobile defined is covered by the policy to varying degrees. The definition of an automobile under the OAP 1 also includes motorized snow vehicles, such as snowmobiles.
The policy defines an “excluded driver” as someone specifically not covered by the policy. The names of excluded drivers are always endorsed onto the policy using OPCF 28A: Excluded Driver Endorsement. This endorsement restricts all coverages (other than certain accident benefits coverages) if the excluded driver drives the described, newly acquired, temporary substitute, or other automobile as defined in the policy.
Note that the definition of “insured person” can change from one section to another. For example, in Section 1.3: Definitions, “named insured” is defined as “the person or organization to whom the Certificate of Automobile Insurance is issued.” However, persons covered under Section 3: Liability Coverage are “you [named insured], or anyone else in possession of the automobile with your consent, [who] uses or operates it.” Meanwhile, under Section 4: Accident Benefits Coverage, insured persons “are defined in the Statutory Accident Benefits Schedule. In addition, insured persons also include any person who is injured or killed in an automobile accident involving the automobile and is not the named insured, or the spouse or dependant of a named insured, under any other motor vehicle liability policy, and is not covered under the policy of an automobile in which they were an occupant or which struck them.”
SECTION 1.4: YOUR RESPONSIBILITIES
The policy states that, by accepting the OAP 1 contract, the insured agrees to the conditions listed in this section. It also states that if the insured fails to meet any of the listed conditions, then claims under the policy will be denied (with the exception of certain accident benefits). Let’s look at some of the key responsibilities.
Section 1.4.1 - “You agree to notify us promptly and in writing of any significant change of which you are aware in your status as a driver, owner or lessee of a described automobile. […] You must promptly tell us of any change in information supplied in your original application for insurance, such as additional drivers, or a change in the way a described automobile is used.”
Section 1.4.5 - “You agree not to drive or operate the automobile or allow anyone else to drive or operate the automobile, when not authorized by law.”
Section 1.4.6 - “You agree not to use or allow anyone to use the automobile in a race or speed test or for any illegal trade or transportation.”
SECTION 1.6: OUR RIGHTS AND RESPONSIBILITIES
The three subsections that follow are each, in some way, related to the settlement of any dispute over money. Claims, premium payments, and premium over- and underpayments are all addressed here.
Section 1.6.1: Payment of Claims
“We will pay legitimate claims within 60 days of receiving a proof of loss. Some claims for Accident Benefits will be paid sooner. If we refuse to pay a claim, we will notify the insured person in writing explaining the reasons why we are not liable to pay.”
The policy refers here to a proof of loss. A proof of loss is a formal statement made by the insured to the insurer regarding a claim, giving details of the loss so the insurer can determine the extent of its liability.
After an accident, an insurance company will usually send the insured a proof of loss form to complete. It is essentially a blank piece of paper, and the insured is required to write an explanation of the events which led up to the accident, such as:
- The parties involved.
- Any witnesses who were present.
- The degree of damages.
- The amount claimed and any other insurable interest of others or incumbrances.
- All other pertinent details about the loss and the resulting claim.
Note that the policy states that legitimate claims will be paid within 60 days of the insurer receiving the proof of loss — not 60 days from the date of the accident.
Section 4: Accident Benefits Coverage is designed to help the insured pay for any medical services they require. Since medical attention is often required immediately following an accident, certain components of Section 4: Accident Benefits Coverage will be paid sooner than the prescribed 60 days.
Section 1.6.2: If You Have Been Incorrectly Classified and Your Premium is Wrong
“If the incorrect classification resulted in your paying too high a premium, we will refund any premium overpayment with interest.
[…]
If the incorrect classification resulted in your paying too low a premium, we will require you to pay an additional premium as long as we tell you within 60 days of the effective date of the policy. We will not charge you interest on the additional premium.”
Incorrect classifications occasionally happen. If an application is incorrectly read by an underwriter and a policy is issued based upon the error, the premium charged will most likely be incorrect. An error of this sort will not go against the insured. This section addresses both overpayment and underpayment situations. Notice the 60-day reclassification window available to the insurer.
If the insurer does not notice the underpayment within this time period, it must honour the premium quoted until the renewal of the policy. However, an overpayment by the insured is not subject to any such timeline. Overpayment, to the knowledge of the insurer, must always be refunded, regardless of when it occurred.
Section 1.6.3: Monthly Premium Payment Option
Section 1.6.3: Monthly Premium Payment Option allows the insurer to add an interest charge to the premium payable. This is only if the insured chooses to pay the premium over a 12-month period instead of a total payment upfront for the coverage period.
SECTION 1.7: CANCELLING YOUR INSURANCE
As we learned earlier, the OAP 1 is written in plain language, and Section 1.7: Cancelling Your Insurance is a plain language restatement of Statutory Condition 11: Termination. This section explains the differences between an insurer’s cancellation and an insured’s cancellation of the policy.
Section 1.7.1: When You Cancel
“You may cancel your insurance at any time by advising us.
If you cancel, we will calculate the premium you owe on a short rate basis. Short rate means that the premium you owe will include our handling costs. We will refund anything due to you as soon as possible.
There may be a minimum premium set out in your Certificate of Automobile Insurance. This will not be refunded.”
Section 1.7.2: When We Cancel
“Where your policy has been in effect for less than 60 days, we may only cancel your policy for a reason that we have filed with Financial Services Regulatory Authority.
Where your policy has been in effect for more than 60 days, we may only cancel your policy for one of the following reasons:
- Non-payment of premium,
- You have given false particulars of the automobile to our prejudice,
- You have knowingly misrepresented or failed to disclose information that you were required to provide in the application for automobile insurance, or
- The risk has changed materially.
If we cancel your policy, we will calculate the premium you owe on a proportionate basis. Proportionate means you will pay for the actual number of days you were covered. For example, if half the premium period is over, you will pay half the premium.
There may be a minimum premium shown on your Certificate of Automobile Insurance. This will not be refunded.
If you have paid more than the premium you owe, we will refund the difference on cancellation. Your refund may be delayed if the amount of premium you owe is subject to adjustment, or we are waiting for reports in order to determine the premium paid or owing. We will make the refund as soon as possible in that case.”
Section 1.7.3: How We Can Cancel for Non-Payment of Premium
“In case of non-payment of premium, we may give you a notice in writing. We must give you ten days notice if we deliver the notice in person, or 30 days notice by sending the notice by registered mail to your last known address. The 30-day period starts on the second day after we mail the registered letter. The notice will inform you that you have until noon of the business day before the last day of the notice period to pay the arrears, plus an administration fee, failing which the policy will automatically be cancelled effective at 12:01 a.m. on the last day of the notice period. If you pay the arrears and the administration fee in time, then your policy will not be cancelled.
But if we have already given you two notices of non-payment of premium during the term of your policy and a non-payment occurs again, we don’t have to give you another notice under this section; instead we may cancel your policy as described in section 1.7.4.”
Section 1.7.4: How We Can Cancel for Repeated Non-Payment or Other Reasons
“If we cancel your insurance for non-payment of premium because we have already given you two notices during the term of your policy as described in section 1.7.3, or if we cancel for any other reason, we will notify you in writing. We must give you five days notice if we deliver the notice of cancellation in person, or 15 days notice by sending the notice of cancellation by registered mail to your last known address. The 15-day period starts on the second day after we mail the registered letter. If the notice was given because we have already given you two notices of non-payment during the term of your policy as described in section 1.7.3, we are under no obligation to accept a late payment or to keep the policy in force after the effective date of cancellation.”
SECTION 1.8: WHO AND WHAT WE WON’T COVER
Section 1.8.1: General Exclusion
Section 1.8.1: General Exclusion states that the vehicle is not to be used to carry explosives or radioactive material, nor will it be used to carry paying passengers (that is, it won’t be used as a taxi or a bus). The definition of “paying passengers” does not include carpools, friends sharing costs, carrying domestic workers, carrying children for activities related to educational programs, carrying elderly or special needs passengers while volunteering within the community, or carrying current or prospective clients and/or customers.
The wording in this section begins with the phrase: “Except for certain Accident Benefits coverage, there is no coverage under this policy if…”. There are two very important points within this phrase. Sections 1.8.1: General Exclusion to 1.8.5: Losses Due to War Activities Not Covered list uses and drivers of the automobile that the policy does not cover.
Neither the driver’s potential legal liability, nor the potential damage to the vehicle itself, will be covered if any of these uses occur or if any of these excluded drivers operate the vehicle. These exclusions represent risks that the OAP 1 was never meant to insure. Coverage can be purchased to allow these activities, either through (1) endorsement and an additional premium or (2) a different insurance policy altogether.
While the vehicle and the operator’s liability are not covered if any of the listed activities take place, there is a provision to ensure that the party in breach of these contract conditions will still receive some coverage for medical expenses if there is an accident causing injury or death. We’ll cover this in Section 9.3.8.4: Section 4: Accident Benefits Coverage. Aside from certain accident benefits coverages, there is no coverage, even for occupants in the vehicle, if the automobile is operated by a person without the owner’s consent or by a driver specifically excluded from this policy.
Section 2 What Automobiles Are Covered
Section 2: What Automobiles Are Covered explains coverages applicable to:
- Described automobiles.
- Extending the policy to other automobiles.
- When the insured has two or more automobiles.
- Trailers and towing.
- Inspection.
SECTION 2.1: DESCRIBED AUTOMOBILE
A described automobile is any automobile or trailer (or motorized snow vehicle) specifically shown on the Certificate of Automobile Insurance. This Certificate of Automobile Insurance shows which coverages were purchased for each described automobile. The coverages should include Section 3: Liability Coverage, Section 4: Accident Benefits Coverage, Section 5: Uninsured Automobile Coverage, Section 6: Direct Compensation – Property Damage, and Section 7: Loss or Damage Coverages (Optional).
SECTION 2.2: EXTENDING YOUR INSURANCE TO OTHER AUTOMOBILES
Section 2.2.1: Newly Acquired Automobiles
Newly acquired automobiles are either replacement automobiles (that is, a trade-in car) or additional automobiles (that is, a new car while keeping the old one). The new vehicle will have the same coverage as the vehicle it replaces, up to 14 days from the date it was purchased, provided the vehicle is not insured somewhere else. The 14-day window allows the insured enough time to arrange insurance on the new vehicle.
However, this time period is not free coverage. An endorsement needs to be processed to add the new vehicle, effective to the purchase date; this allows the insurer to collect for the coverage it is providing. This additional automobile extension can be a little difficult to understand, but there are two important points to know:
1) The policy states that, for any extension of coverage to apply, all the owned automobiles must be insured with the same insurer. The extension of coverage is an accommodation by the insurers for their insureds. If all vehicles are insured with one company, then it is a logical assumption that any new vehicle will also be insured with the same company. If vehicles are insured with more than one company, neither company will grant the extension, as there is no guarantee that the automobile will eventually be insured through them. If the business is not going to be placed with a particular insurer, the insurer will not grant the extension.
2) The policy states that the coverage provided under the automatic extension to an additional newly acquired automobile will be determined by the coverages in place on all owned automobiles. For example, for collision coverage to apply, collision coverage must be in place on all vehicles.
Section 2.2.2: Temporary Substitute Automobile
A “temporary substitute automobile” is defined as an automobile not owned by the insured or anyone else living in the insured’s dwelling that is temporarily used while the described automobile is out of service. The described automobile must be temporarily out of service due to breakdown, repair, servicing, theft, sale, or destruction.
The following coverages apply to a temporary substitute automobile, provided that a premium is shown for them on a Certificate of Automobile Insurance for the described automobile that is temporarily unavailable:
- Section 3: Liability Coverage.
- Section 4: Accident Benefits Coverage.
- Section 5: Uninsured Automobile Coverage.
- Section 6: Direct Compensation — Property Damage.
If a premium is paid for physical damage coverages on the described automobile (found in all-perils, collision, comprehensive or specified perils coverages), and the driver is involved in an accident while driving a temporary substitute automobile, the physical damage coverage will respond secondary to the coverage already in place on the vehicle (refer to Section 7.4.3: Temporary Substitute Automobile Covered).
Let’s look at an example:
Dennis owns a 2012 Chevrolet Malibu and has it insured with $1,000,000 of liability, collision, and comprehensive coverage, each with a $500 deductible. He needs to take it in for an oil change, so he borrows a car from his friend, Arif, for the afternoon.
Arif owns a 2019 Ford 150 truck. The Ford is also insured for $1,000,000, with collision and comprehensive coverage, although the deductibles on it are considerably higher (at $2,500 each). While driving the Ford, Dennis loses control and drives it into a tree at high speed.
The cost of a new fender and hood is approximately $18,000. Arif’s policy will pay for the damage first, as his policy is primary on the Ford. Arif will receive a cheque for $15,500 from his insurer, representing the $18,000 loss minus the $2,500 deductible.
Dennis could then claim $2,000 from his own insurer, as the Ford was a temporary substitute automobile in this case. His policy would pay Arif $2,000, representing the loss of $2,500 minus Dennis’s $500 deductible.
Note: A temporary substitute automobile cannot be owned by the insured or anyone living in the same dwelling as the insured.
Section 2.2.3: Other Automobiles
Automobiles other than the described automobile (that is, not the primary vehicle, but possibly a temporary substitute or newly acquired vehicle) are covered when driven by the insured or driven by their spouse, who lives with the insured.
The following coverage applies to other automobiles if a premium for it is shown on a Certificate of Automobile Insurance for a described automobile:
- Section 3: Liability Coverage.
- Section 4: Accident Benefits Coverage.
- Section 5: Uninsured Automobile Coverage.
•Section 6: Direct Compensation — Property Damage.
Section 7: Loss or Damage Coverages (Optional) are not available for other automobiles.
Section 2.2.4: Other Automobiles that Are Rented or Leased
Rented automobiles also fall within the definition of “other automobile.” This means it qualifies for the four legally required coverages, but only when the automobile is driven by the named insured or their spouse who lives with them.
The OAP 1 includes coverage for rented automobiles with a gross vehicle weight in excess of 4,500 kilograms, only if the rental is for personal use and rented for up to seven days. Rented automobiles with a gross vehicle weight of less than 4,500 kilograms have no time limit. This category of automobiles is specifically described to provide liability coverage when others drive automobiles rented or leased by the named insured with their permission.
If the driver is negligent in the operation of the vehicle, the insured is still protected against liability imposed by law upon them as the renter. This is a new addition to the OAP 1 as of January 2007, and it is now in place due to recent legislation changing the priority of policy coverage on rented or leased automobiles. You can find more information about this in Section 9.3.8.3: Section 3: Liability Coverage.
Section 2.2.5: Trailers
Any trailer used in connection with the described automobile is insured for the following coverages:
- Section 3: Liability Coverage.
- Section 4: Accident Benefits Coverage.
- Section 5: Uninsured Automobile Coverage.
Note that if the insured owns a trailer and it is not described in the policy, it would also be covered for Section 6: Direct Compensation — Property Damage Coverage, provided (1) that it is attached to an automobile with a manufacturer’s gross weight rating of not more than 4,500 kilograms, or (2) that it is not attached to an automobile and is normally used with an automobile with a manufacturer’s gross weight rating of not more than 4,500 kilograms. In addition, it must not be designed or used for living in, for carrying passengers, or for commercial purposes.
SECTION 2.3: WHEN YOU HAVE TWO OR MORE AUTOMOBILES INSURED
Hannah owns two vehicles. Vehicle One is insured for $1,000,000 of liability, and Vehicle Two is insured for $500,000 of liability. Both are insured on the same policy. If Hannah were involved in an accident causing bodily injury or property damage to a third party, the limit of coverage would depend upon which car was involved. If Vehicle One were involved, she would be covered for up to $1,000,000 of damages. If Vehicle Two were involved, she would be covered for up to only $500,000 of damages.
If Hannah were involved in an accident while driving a vehicle she did not own, the unowned vehicle would be considered an “other automobile” by the policy’s definition, and she would be covered for up to $1,000,000 for bodily injury or property damage caused to a third party, the highest limit on her policy.
SECTION 2.3: WHEN YOU HAVE TWO OR MORE AUTOMOBILES INSURED EXAMPLE 2
Howard owns two vehicles. Vehicle One is insured for $1,000,000 of liability under a contract with ABC Insurance and Vehicle Two is insured for $500,000 of liability under a contract with XYZ Insurance.
If Howard were involved in an accident while driving a vehicle he did not own, the unowned vehicle would be considered an “other automobile” by both policies’ definitions, since both contracts are the OAP 1. Howard, like Hannah, would be covered for up to $1,000,000 for bodily injury or property damage caused to a third party, the highest single limit of liability insurance purchased by him on one vehicle.
However, the difficulty arises when determining how much each insurer, ABC and XYZ, should be forced to pay in the event of a loss. The policies state: “The amount we will pay under this policy for any incident will be a fraction of the highest policy limit. This fraction will be the proportion that the limit under this policy bears to the total of the limits of all the policies.”
In this example, we have two policies: ABC’s contract covers $1,000,000 of liability, and XYZ’s contract covers $500,000. The total of liability limits in this case is $1,500,000. When the statement above is applied to ABC’s policy, ABC will pay the claim in the proportion that $1,000,000 bears to $1,500,000. The simplest way to think of this statement is to convert it to a fraction.
$1,000,000 ÷ $1,500,000 = 2/3 or 0.66
Therefore, ABC will pay 66% of the claim. or up to $666,666.66.
Applying the math to XYZ works in the same way:
$500,000 ÷ $1,500,000 = 1/3 or 0.33.
Therefore, XYZ will pay 33% of the claim, or up to $333,333.33.
SECTION 2.4: TRAILERS AND TOWING
“An automobile pulling one or more trailers will be treated as a single automobile when determining how much we will pay under Liability, Accident Benefits and Uninsured Automobile Coverages. However, they will be treated as separate automobiles when determining the deductibles and how much we will pay under Direct Compensation – Property Damage and optional Loss or Damage Coverages.”
SECTION 2.5: INSPECTION
“We may inspect the automobile at any reasonable time. If you do not co-operate in any reasonable arrangements for inspection, your optional Loss or Damage Coverages under Section 7 may be cancelled and any claims under that Section may be denied.”
Section 3: Liability Coverage
Section 3: Liability Coverage describes what the insurance company will cover if a third party is killed or injured in an accident or their property is damaged when the driver or other insured persons are involved in an at-fault accident.
This section describes in detail:
- Who is covered.
- What is covered.
- The insured’s and other insured persons’ responsibilities under the contract.
SECTION 3.2: WHO IS COVERED?
The definition of “insured persons” under Section 3.2: Who is Covered? includes:
- The named insured.
- Anyone who, with permission of the named insured, personally drives the vehicle.
- Anyone who, with permission of the named insured, personally operates a part of the vehicle (for example, rolls down the window or opens the hood).
SECTION 3.3: WHAT WE COVER
Section 3.3: What We Cover is designed to provide coverage for liability imposed upon the named insured or other insured persons for bodily injury or property damage caused to a third party as a result of an automobile accident within Canada or the United States. The policy will make payments that the law requires on the named insured’s or other insured’s behalf, up to the limit of the policy.
It includes a provision for reimbursement of out-of-pocket expenses suffered by the insured for any immediate medical aid provided to any injured third parties involved in an accident. For example, if an insured is required to pay an ambulance fee or a fee for paramedic services or medical aid to someone else, the policy will pay back the insured for these costs. This amount is paid without affecting the limit of coverage purchased.
Once notification is given to the insurer that a third-party loss has occurred, the insurer will investigate, negotiate with the injured party, and make a settlement of the claim on behalf of the insured. The limit of liability purchased is reserved specifically to compensate third parties for property damage or bodily injury caused by the actions of the insured.
Section 3.3.1: If Someone Sues You
By purchasing the policy, the insured agrees that, if someone presses a lawsuit against them in Canada or the United States, the insurance company will provide the insured’s legal representation — the policy states “you or other insured persons irrevocably appoint us to act on your or their behalf.” The insured must be represented by the insurer; they cannot appoint their own legal representative. The insurer agrees to pay all costs associated with the defence of the suit, including any investigation costs appropriate, court costs levied against the insured, and any post-judgment interest accruing on that portion of the judgment that is within the limit of liability purchased.
If the lawsuit is for an amount greater than the limit of insurance purchased, the insured may appoint a legal representative to defend against the amount of the suit exceeding the policy limit.
Section 3.3.2: How Much We Will Pay
How Much We Will Pay uses an example to illustrate some of the payment provisions explained in Section 3.3.1: If Someone Sues You.
Let’s look at another example.
Tonya was involved in an accident. She lost control of her vehicle and slid on black ice into the back of the car in front of her. After coming to a stop, she realized the driver of that car had hit their head on their steering wheel. She called an ambulance and was later billed $250 for paramedic emergency response. The other driver suffered a permanent, serious disfigurement to their face, and as a result, they filed a lawsuit against Tonya for $1,500,000.
Tonya is insured under an OAP 1 for $1,000,000 of liability. Tonya’s insurer will pay the $250 bill for emergency medical aid on her behalf. Her insurer will then investigate the accident, negotiate with the injured third party, and may attempt to make a settlement out of court with them. If the suit proceeds, the insurer will appoint Tonya a legal representative and defend her against the suit. The insurer will pay all costs for the lawyer appointed to Tonya, the defence cost, and any investigation costs incurred by the insurer.
If Tonya loses the suit, she would have to pay the court costs (usually around $10,000 to $15,000). In her case, the insurer will cover the court costs, and $1,000,000 of the settlement, since that was the amount of insurance purchased. Tonya will be responsible for the remaining $500,000. The insurer will pay post-judgment interest on the portion of the loss insured (in this case, $1,000,000). Tonya will be responsible for the interest on the $500,000 not covered.
Section 3.3.3: Outside Ontario
Section 3.3.3: Outside Ontario states that “If the incident happens in a jurisdiction covered by this policy in which the minimum liability coverage required is higher than the limit shown on the Certificate of Automobile Insurance, we will honour the higher amount.” The “minimum limit” referenced here is the lowest amount of legal liability coverage that must be purchased in any jurisdiction. In Canada, insureds must carry at least $200,000 of liability insurance in all common law provinces. In Quebec, insureds must carry $50,000.
If an insured has insured their vehicle to the minimum limit required, the policy will honour the minimum limit in any jurisdiction where coverage is afforded (that is, in Canada and the United States).
Let’s look at an example.
Tinh insured his vehicle for $200,000 of liability on an OAP 1 in January. The province of Nova Scotia has raised their minimum limit to $500,000 for automobile liability insurance. If Tinh took a vacation in Nova Scotia and was subsequently sued for causing an automobile accident there, his Ontario OAP 1 would honour the higher minimum limits in Nova Scotia.
In effect, the minute that Tinh drove over the Nova Scotia border, his Ontario liability increased to the limits required in Nova Scotia.
Section 3.3.4: If There is More Than One Named Insured Under This Policy
Section 3.3.4: If There is More Than One Named Insured Under This Policy explains how insureds under the same policy are protected against lawsuits from each other. Each insured will be treated as if a separate policy had been issued for each of them. However, the maximum amount payable for any one incident will be their purchased liability limit, split between them — not the maximum limit for each insured.
Section 3.3.5: Rented and Leased Automobiles
RENTER –> DRIVER –> COMPANY’S
The OAP 1 provides a special extension of liability to protect the insured against liability imposed due to the negligent operation of a rented or leased automobile by another driver. In 2007, legislation in Ontario changed the order in which different insurance policies covering these rented and leased automobiles should pay if the automobile is involved in an accident causing bodily injury or property damage.
A rented vehicle is covered by both the renter’s OAP 1 and the fleet policy of the company that owns the vehicle being rented. Take Hertz, for example — it has a policy insuring all its automobiles, which means it provides liability insurance for all drivers who rent their vehicles. This legislation makes the renter’s liability coverage respond before the rental car company’s policy will respond. If the renter allows another person to drive the rented vehicle, the renter’s policy responds first, the driver’s policy (if applicable) responds second, and the rental car company’s policy responds third. In all cases, the rental car company’s policy is the last to pay.
Leased vehicles are also subject to this same priority of payment legislation for liability claims. For example, if you lease a vehicle from Honda Financial Services, it will also have an insurance policy covering the leased vehicle. While the lessee’s policy (the OAP 1) is primary, the leasing company will always have a contingent policy to cover the car in case, for some reason, the policy of the lessee does not respond to provide coverage when needed. The leasing company’s policy on a vehicle will always be the last policy called upon to respond to any liability claims brought forward.
Section 3.3.5: Rented and Leased Automobiles offers two examples of how the OAP 1 would respond if a rental car were involved in an accident for which the driver was found to be negligent. In one instance, the renter is driving the vehicle; in the other instance, a friend of the renter is driving the vehicle. In both cases, the rental car company’s insurance policy responds last to the liability claim.
=====
Amelia is going to rent a car from Best Rentals. Best Rentals’s policy has a liability limit of $1,000,000. If Amelia has no automobile of her own (and therefore no OAP 1), then Best Rentals’s policy would respond up to the limit of their coverage to protect Amelia from liability claims.
If Amelia does own her own car (and therefore does have an OAP 1), then Best Rentals’s policy will respond, but only to top up Amelia’s own OAP 1 liability limit to the limit on Best Rentals’s policy. If Amelia has $200,000 of liability coverage under her own OAP 1 policy, this coverage would respond first to any claims, and if exhausted, then Best Rentals’s coverage would step in to pay claims over and above, but only up to the limit of their policy.
SECTION 3.4: YOUR AND OTHER INSURED PERSONS’ RESPONSIBILITIES
Section 3.4: Your and Other Insured Persons’ Responsibilities contains five points, plus a final paragraph in bold letters. Each is a Statutory Condition that the insured must fulfill in order to receive the coverage.
1) The insured must notify the insurer in writing within seven days of any incident involving the loss or damage to persons or property, giving the insurer full details of the incident and the claim arising from it. This is based on Statutory Condition 5: Requirements Where Loss or Damage to Persons or Property, which we will look at later.
2) The insured must make a statutory declaration (sworn affidavit) that the insured or other insured persons were driving the vehicle at the time of the loss. Since the insurer is liable for a potentially very large sum of money on the insured’s behalf, they expect a statement advising the insurer that either the named insured, or somebody with the named insured’s express permission to use the automobile, was involved in the accident. Anybody else driving the automobile at the time of the accident would receive no coverage.
3) The insured must co-operate with all investigative procedures as would be reasonable. Insureds are required to provide information of witnesses to the scene and co-operate in any legal action by the insurer if they ask.
4) The insured must forward any and all legal correspondence received regarding a legal action immediately to the insurer. The insurer is the insured’s irrevocable legal counsel — it’s their responsibility to act upon it.
5) The insured must not assume or admit liability for the incident or try to amicably settle the claim, except at the insured’s own cost. From the insurer’s perspective, this is very important. Admitting liability makes it almost impossible for the insurer to create a defence against any legal action that may follow. Since the insurer is potentially liable for the policy limit to the third party, any admission of responsibility to the third party could be very costly. The insured is also not allowed to interfere with any negotiations towards any settlement by the insurer.
6) Most importantly, the bold final paragraph refers to the absolute liability provision of law. If the insurer has to pay a sum of money due to a provision of law, and the payment was not made under the terms of the policy agreements, the insured is required to repay the insurer all amounts paid to a third party. See Section 9.3.8.3.6: Absolute Liability.
SUMMARY OF SECTIONS 3.3
We’ve covered a lot, so let’s do a quick review. Under Section 3.3: What We Cover, an insurer agrees:
- To investigate, negotiate, and settle claims.
- To pay any amounts the insured is liable for, up to the policy limit.
- To pay out-of-pocket expenses for immediate medical aid.
- To pay defence costs if a suit is brought against the insured.
- To pay court costs assessed against the insured.
- To pay any post-judgment interest accruing on the part of the settlement within the policy limits.
SUMMARY OF SECTIONS 3.4
Under Section 3.4: Your and Other Insured Persons’ Responsibilities, the insured agrees:
- To notify the insurer in writing within seven days of any incident involving bodily injury or property damage to a third party.
- To make a statutory declaration that they, or other insured persons, were operating the vehicle at the time of loss.
- To help the insurer obtain information and co-operate with the insurer in any legal action.
- To forward immediately everything received in writing regarding the claim, including legal documents.
- Not to assume or admit liability.
- Repay the insurer for any amounts it was forced to pay through the absolute liability provision.
SECTION 3.5: OTHER LIMITATIONS ON YOUR COVERAGE
Liability insurance is reserved solely to compensate others for property damage or bodily injury caused by the insured. This provision ensures the limit purchased is not used to pay for the insured’s own property or property the insured is responsible for. For example, if the insured strikes their own house with the automobile, liability coverage would not apply. However, the insured’s property policy would respond to such claims for damage.
Section 3.5.2: Contamination of Property
There is no coverage under the policy for property contaminated due to being carried in the automobile.
Section 3.5.3: Nuclear Hazards
There is no coverage under the OAP 1 for liability caused by nuclear hazards, unless the insured also has a nuclear energy hazard liability policy. The coverage, if provided, is limited to $200,000 regardless of the liability amount purchased and is excess to this other policy only.
ABSOLUTE LIABILITY
Each province’s Insurance Act contains clauses commonly referred to as the “absolute liability law.” The absolute liability law is designed to protect innocent third parties when a policyholder has violated a term or condition of their contract and, as a consequence, voided their policy. It allows the injured third party access to the money under an insurance contract regardless of any act or breach of the policy by the insured.
The injured party’s right to recover the insurance money payable under the policy shall not be prejudiced by:
- Any assignment, waiver, surrender, cancellation, or discharge of the policy by the insured after the event giving rise to the claim.
- Any act or default of the insured before or after the event in violation of the Insurance Act or the policy.
- Any violation of the Criminal Code of Canada or statute of any province by the owner or driver of the automobile.
Limitation Period
Civil proceedings to recover damages for injuries arising from a motor vehicle accident must be started within two years of the incident. Any court proceeding used to enforce the entitlement of coverages available according to the SABS must be started within two years after the insurer’s refusal to pay the claimed benefit.
Tort Framework Recovery for Pecuniary (Economic) Losses
Effective November 1, 1996, the right to sue for economic losses was reinstated for all accident victims who were not at fault in causing an accident and who suffered a loss to either income or earning capacity due to bodily injuries, or death, while using or operating the automobile.
The innocent party can recover damages for income loss and loss of capacity from the tort-feasor. However, this amount will be a maximum of 70% of gross income from the period commencing seven days after the accident up to and including the date of trial. An innocent party will not be entitled to claim damages against at-fault parties for any damages suffered in the first seven days after the accident. After the trial, the innocent party will be entitled to recover damages on a 100% gross basis for future economic losses from the tort-feasor.
Non-Pecuniary (Non-Economic) Losses
When someone files a claim that is a non-pecuniary loss due to a motor vehicle accident, or even by the use or operation of an automobile, any fatal injury or injury that meets the threshold (as described below) can be counted as a non-pecuniary loss.
Threshold
Deductibles for Non-Pecuniary Awards
Motion to Determine if Non-Pecuniary Threshold Has Been Met
Motion to Determine if Health Care Expenses Threshold Has Been Met
Non-Pecuniary (Non-Economic) Losses - Threshold
In a threshold-based system, people are prohibited from taking legal action until a certain point has been passed. There are two common types of thresholds: monetary and verbal.
Under the OAP 1, the threshold indicates the degree of severity of an injury caused in an automobile accident in Ontario to enable the injured party to bring an action (known as a tort) against the at-fault party who caused their injuries. In simpler terms, the policyholders must be harmed “at least this much” to sue for their injuries.
To meet the threshold, the injured person must be able to show that they have:
- Died.
- Suffered a permanent, serious disfigurement.
- Suffered a permanent, serious impairment of an important physical, mental, or psychological function.
The individual is then entitled to commence a civil proceeding for the recovery of non-pecuniary losses (also known as “pain and suffering”), provided that the individual was not at fault and falls into one of the following categories:
- The individual was the owner of the automobile.
- The individual was an occupant of the automobile.
- The individual was present at the incident.
Deductibles for Non-Pecuniary Awards
As of October 1, 2003, a plaintiff who obtains a judgment or a settlement for non-pecuniary loss must pay a deductible on the current non-economic loss settlement of $36,905. The deductible applies to each person included in the award — so if two spouses collectively win $1,000,000, each pays the deductible, reducing the award by $73,900. An exception to the $36,905 per person deductible exists in the Family Law Act, Section 61(2)(e), which reduces the deductible to $15,000 per person for suits pertaining to the loss of a parent or guardian, or “loss of care, guidance or companionship” claims.
Motion to Determine if Non-Pecuniary Threshold Has Been Met
Either a plaintiff or an insurer, on consent, can make a motion in a trial to determine if the verbal threshold for non-pecuniary loss has been satisfied. In addition, a judge may make an order to determine whether the threshold has been met, even if set out in the pretrial conference. An order made by a judge on a motion is binding on all parties at trial.
Motion to Determine if Health Care Expenses Threshold Has Been Met
ther a plaintiff or an insurer defending a claim may make a motion on consent to determine whether an injury meets the definition of “catastrophic impairment” before the trial. Conversely, a judge may determine whether the threshold has been met before the trial, if it is set out in an order by a judge who conducts the pretrial conference.
Catastrophic impairment includes:
- Paraplegia or quadriplegia.
- Amputation or other impairment causing the total and permanent loss of use of both arms.
- Amputation or other impairment causing the total and permanent loss of use of both an arm and a leg.
- Total loss of vision in both eyes.
- Brain impairment as defined by the rating system approved by Insurance Act and SABS regulations.
- Any impairment or combination of impairments that result in 55% or more impairment of the whole person according to the American Medical Association’s Guides to the Evaluation of Permanent Impairment.
- A mental or behavioural impairment that creates a marked or extreme impairment. The impairment must preclude useful functioning.
Uninsured Owner or Lessee Precluded from Commencing Civil Proceedings
An injured individual is precluded from commencing a civil proceeding to recover damages for personal injury or economic loss arising from a motor vehicle accident when the vehicle was uninsured. This rule applies whether they were an owner or lessee of an automobile at the time of the accident and was operating it, or if they were an occupant in their own vehicle at the time of the accident.
To further deter owners from driving without prerequisite insurance, the Compulsory Automobile Insurance Act was amended to substantially increase the fines for driving without insurance. Upon conviction, for a first offence, fines will range between $5,000 and $25,000; upon a subsequent conviction, fines will range from $10,000 to $50,000.
