Chapter 5 – Liability Coverage; DCPD

Introduction

· An auto policy is purchased by the R/O of the auto as he has an insurable interest in that auto

· The owner is the named insured. His name appears on the policy and should appear on the ownership

Liability coverage

· Liability coverage is designed to provide financial protection for the insured’s legal liability for:

o Injury to other people (BI) and

o Damage to the property of others (PD)

arising out of the o/ship or directly or indirectly from the use or operation of the auto

· To be legally liable for injuries or damage to other persons, the driver/owner must either have deliberately caused the injury or damage or be considered negligent to some degree

· Legal liability can be modified by other legislation and regulation as is the case w/ BI resulting from auto accidents

· The possibilities of being involved in an accident and being found negligent are increasing due to:

o The greater number of cars and drivers

o The continual increase in the number of accidents

· Minimum limits are compulsory in all provinces but do not necessarily provide adequate coverage – w/out adequate coverage people expose themselves to financial ruin

Exclusions

· There is no coverage for:

o The insured’s own property or property for which he is responsible while being carried in the auto

o Contamination of property being carried

o Nuclear hazards unless the insured also has a nuclear energy hazard liability policy and then only as excess insurance

o Amounts over the policy limit purchased other than legal costs and post-judgment interest

Liability for property damage

· Under tort law, when you are negligent and found responsible for damage to someone else’s auto, that third party looks to you or your insurer for recover. That is why you need liability insurance

· Ontario introduced direct compensation for vehicle damage in June 1990. NB have similar direct compensation come into effect January 2005

Direct compensation property damage

· Insureds deal only with their own insurer

· Their own insurer will indemnify them for the cost of repairs as well as for damage to contents carried in the vehicle and its loss of use subject to the extent they are not AF

· This section will apply even if there is a breach of a policy condition

· A claim could be made under this section even though the other driver has not directly struck the vehicle – the other driver would have to be identified and insured and proven negligent in indirectly causing our insured’s single vehicle accident

· DCPD applies if damage occurs in Ontario and both vehicles are insured under auto policies issued by licensed insurers in Ontario or who have signed agreements to be bound by this section

· The insured can recover damages to his auto and its contents and for its loss of use

· Recovery shall be based on the extent of being not at fault

· Ontario uses fault determination rules similar to Quebec’s fault charts approach to auto physical damage

· An insured can still sue if unsatisfied w/ the degree of fault and/or settlement, but it would be against the insured’s insurer

· Insured may sue if third party not covered by DCPD agreement

· The insurer which pays the claim can not subrogate against other insurer who are signatories to the DCPD agreement except as permitted by the regulations

· When someone who is in the business relating to auto is negligent, the insurer may subrogate against that responsible party

· If the tower is negligent, the insurer of that auto may subrogate for the attributable portion under the fault rules

· An insurer may recover from the insurer of the at-fault party the amount over $20,000 in content losses apportioned according to the fault rules

· There must be at least 2 auto insured by an Ontario auto policy involved b4 direct compensation rules take effect

Deductible

· A new feature added to the policy by way of regulation – all physical damage claims are subject to a standard deductible of $300 (collision, comp, all perils, DCPD)

Summary

· If the DCPD deductible is $0, the insureds recover exactly the same they would have recovered under tort. The only difference being that they recover form their own insurer to the extent of their innocence

· Fault determination rules apply only to vehicle-to-vehicle damage not to other damage such as collision with a building or tree nor to injuries

· The provision for direct compensation for contents of an auto does not apply to contents being carried for reward

Liability for injury claims

· Under the Ontario Motorist Protection Plan and Bill 164 which introduced the Statutory Accident Benefits, the right to sue a third party in the event of injury was severely curtailed by limiting it to certain non pecuniary losses

· Threshold in June 1990 – suits could only be initiated if the injured person:

o Died or

o Sustained permanent serious disfigurement or

o Permanent serious impairment of an important bodily function caused by continuing injury which is physical in nature

· Bill 164 amended the threshold definition January 1, 1994 to allow suits on the grounds of:

o Serious disfigurement or serious impairment of an important physical, mental or psychological function

A deductible of $10,000 was applied to the amount of damages recoverable

· The basic rule is that there is no right to sue except:

o We can sue in Ontario w/out meeting a threshold for pecuniary (financial) losses subject to the limitations specified in the act

o We can’t sue in Ontario for pain and suffering unless a threshold is met and if it is met the judgment is subject to a deductible

· Recovery for loss of income and loss of earning capacity is limited to 80% of net income loss suffered more than 7 days after the accident and up to the date of trial. Post trail recovery for future losses is on a 100% gross income basis

· The non-economical loss threshold:

o Death or

o Permanent serious disfigurement or

o Permanent serious impairment of an important physical, mental or psychological function

· A suit for non-economical loss is subject to a per person deductible of $30,000. Deductibles can be increased but not decreased by regulation

· If the plaintiff is at fault, the amount of damages is reduced by the deductible b4 the award is reduced for contributory negligence

· Bill 198 – September 2003 suits are permitted for excess medical, rehabilitation and attendant care benefits for not at fault insureds w/ injuries that meet the same verbal threshold as defined for non-economic losses

· Protected defendant – the owners of an auto, the occupants, and any person present at the incident

· Owner of uninsured auto cannot bring suit

· Liability will be determined taking into consideration all parties who contributed to the accident (example pg 17)

Additional agreements of insurer

· Any expenses incurred by the insurer to provide the additional agreements are paid in addition to the limit of liability available to the third party

· When insureds are sued for greater amounts than their policy limits, they may need to hire a lawyer at their own cost to protect themselves against the additional risk

· If a judgment is rendered for an amount greater than the policy limits, the insured is responsible for the portion that exceeds the policy limits and any post judgment interest on that portion

· Accidents outside the insured’s home province – the insurer follows the laws of the jurisdiction where the loss occurred not the laws of the jurisdiction where the insured lives

· It is important that only the names of registered owners of the auto are shown on the policy – only the owners have an insurable interest. By incorrectly showing individuals that do not own the vehicle you could be extending perceived benefits, that were never intended by the policy, to these individuals

Summary

· The insurer agrees:

o To reimburse the insured for out-of-pocket expenses for immediate medical aid to third parties. This applies whether or not the insured is legally liable

o To investigate, negotiate and settle all reported claims

o To defend any civil action brought against the insured w/ respect to the incident, even if it is groundless

o To pay court costs assessed against the insured

o To pay post-judgment interest on the insured portion of judgments for damages against the insured

o To pay up to the minimum limits of the jurisdiction w/in Canada the USA or other jurisdictions designated in the SABS where the accident occurs

o That it will not use any legal defense available in Ontario that would not be available if the policy had been issued in the jurisdiction where the accident occurred

Responsibility of insured persons

· The insured agrees:

o To notify the insurer in writing w/in 7 days of any accident

o Give a statutory declaration if requested

o Help obtain info and evidence

o Send everything received in writing concerning the claim including legal documents

o Not assume any liability

Agreements of the insured

· The insurer is appointed the insured’s attorney to conduct civil defense in actions arising out of the ownership, use or operation of the auto

· The insured agrees to reimburse the insurer for all amounts the insurer is required to pay b/c of the absolute liability laws

Policy limits

· Third party liability insurance is mandatory in all provinces and territories and no auto policy may be issued for less than $200,000 ($500,000 in NS and $50,000 in Quebec)

Priorities of payment

· All jurisdictions prescribe that a certain amount of the policy limit must be reserved for BI claims and a certain amount for PD claims

· Only applied when the total liabilities of the insured to the claimants are more than the limit purchased

· NS has an inclusive limit for BI and PD damage

· Refer to page 24 for chart

Sample Review Questions - Automobile Insurance (Part 1)

1. The registered owner of the automobile has an insurable interest in that automobile.

2. The named insured has his name appear on the policy and on the o/ship whereas an insured defines various classes of persons.

3. An individual’s legal liability as a motorist is stated in the Highway Traffic Act.

4. Liability coverage is designed to provide financial protection for the insured’s legal liability for

Injury to other people (BI) and

Damage to the property of others (PD)

arising out o f the o/ship or directly or indirectly from the use or operation of the auto.

5. The following are insured under the liability section – the named insured, every other person who has consent to drive, and an occupant of the automobile.

6. Adequate amount of liability insurance is important b/c w/out it the insured is exposed to possible financial ruin.

7. Losses not covered under the liability section are:

- the insured’s own property or property for which he is responsible while being carried in the auto

- contamination of property being carried

- nuclear hazards unless the insured also has a nuclear energy hazard liability policy and then only as excess insurance

- amounts over the policy limit purchased

8. Where the loss/damage is directly/indirectly caused by a nuclear hazard, the policy will pay up to $200,000 if the named insured or other insured persons are covered under this policy for a nuclear hazard and are also insured under a nuclear energy hazard liability policy. The auto policy provides excess coverage.

9. DCPD – insureds deal only w/ their own insurer. Their own insurer will indemnify them for the cost of repair as well as for damage to contents carried in the vehicle and its loss of use to the extent they are NAF.

10. DCPD applies if damage occurs in Ontario and both vehicles are insured under auto policies issued by licensed insurers in Ontario or insurer from outside Ontario who have signed agreements to be bound by this section.

11. Under DCPD the insured will recover to the extent they are NAF.

12. For the purpose of DCPD, fault is determined by the use of Fault Determination Rules.

13. An insured can sue if unsatisfied w/ the degree of fault and/or settlement, but such action would be against the insured’s insurer not the third party insurer.

14. An insured may sue a third party for damage to an insured vehicle when the negligent third party is insured w/ an insurer outside the province of Ontario and that insurer is not a subscriber to the DCPD agreement.

15. When someone who is in a business relating to automobiles is negligent and damage to an insured automobile results, the insurer may subrogate against that responsible party.

16. The above answer was based on section 6 of regulation 664 which states:

For the purpose of clause 263 (5)(b) of the Act, the insurer of an automobile that is in the care, custody or control of a person who is engaged in the business of selling, repairing, maintaining, servicing, storing or parking automobiles is entitled to indemnification from the person.

17. If the tower is negligent, the insurer of that automobile may subrogate for the attributable portion under the fault rules.

18. The recovery provision that exist for insurers w/ respect to contents losses – if a contents loss is over $20,000 an insurer may recover from the insurer of the AF party the amount that is over $20,000. It will be apportioned according to the fault rules.

19. When loss occurs involving an automobile and other property such as a building or bridge, the fault determination rules do not apply. The ordinary rules of tort will apply.

20. The standard deductible for all physical damage claims is $300. There is a provision to reduce or eliminate this deductible on any or all coverages.

21. Threshold – defines the conditions under which a person could sue.

22. SABS - Standard Accident Benefits Schedule.

23. Under OMPP, a claimant could sue for injury claims if the injured person had:

- died or

- sustained permanent serious disfigurement or

- suffered permanent serious impairment of an important bodily function caused by continuing injury which is physical in nature

24. Under Bill 164, a claimant could sue for injury claims if the injured person had:

- died or

- sustained serious disfigurement or

- suffered impairment of an important physical, mental or psychological function

25. Under the automobile insurance rate stability act (bill 59) a claimant may not sue except when:

- We can sue in Ontario w/out meeting a threshold for pecuniary losses subject to the limitations specified in the act and

- We can’t sue in Ontario for pain and suffering unless a threshold is met and if it is met the judgment is subject to deductibles

26. When an action is brought in another province or state, where lawsuits are permitted, the policy must respond w/ a defense w/out any qualifications.

27. Catastrophic impairment – severe impairment such as paraplegia or quadriplegia, loss of certain limbs and brain impairment. It means a loss or abnormality of a psychological, physiological or anatomical structure or function.

28. The difference with respect to the right to sue b/w economic and non-economic loss is:

- we can sue in Ontario w/out meeting a threshold for economic losses subject to the limitation specified in the act

- we can’t sue in Ontario for non-economical losses (pain and suffering) unless a threshold is met

29. A judge would decide if an impairment is catastrophic.

30. On non-economical losses, there is a per person deductible of $30,000. They apply in respect of each person who is entitled to damages for non-pecuniary loss. If the plaintiff is at fault, the amount of damages if reduced by the deductible before the award is reduced for contributory negligence.

31. The owners of an automobile, the occupants of an automobile and any person present at the incident is protected from liability.

32. A person who is injured in his own uninsured automobile cannot bring a suit or make a claim.

33. The different categories of damages for which an individual might sue are:

- damages for loss and loss of earning capacity

- damages for expenses that have been incurred or will be incurred for health care

- damages for pecuniary loss

- damages for non pecuniary loss

34. The purpose of the additional agreements of insurer is to provide the insured with certain benefits in addition to legal liability coverage. Any expenses incurred by the insurer to provide the following additional agreements are paid in addition to the limit of liability available to the third party.

35. Additional agreements of the insurer – the insurer agrees:

- to reimburse the insured for out-of-pocket expenses for immediate medical aid to third parties

- to investigate, negotiate and settle all reported claims

- to defend any civil action brought against the insured w/ respect to the incident

- to pay court costs assessed against the insured; to pay post-judgment interest on the insured portion of judgments for damages against the insured

- to pay up to the minimum limits of the jurisdiction w/in Canada the USA or other jurisdictions designated in the SABS where the accident occurs

- that it will not use any legal defense available in Ontario that would not be available if the policy had been issued in the jurisdiction where the accident occurred

36. The insured’s responsibility under the policy are:

- to notify us in writing w/in 7 days of any incident involving loss/damage to persons/property

- if requested, to give us a statutory declaration

- to help us obtain all necessary info and evidence about the incident and to cooperate in any legal action we ask

- to send immediately to us everything received in writing concerning the claim

- not to assume any liability for the incident

37. The insured agrees to reimburse the insurer for all amounts the insurer is required to pay b/c of the absolute liability laws and for which the insurer would not otherwise be liable under the policy.

38. Priorities of payment – a certain amount of the policy limit must be reserved for BI claims and a certain amount for PD claims. Priority of payments are only applied when the total liabilities of the insured to the claimants are more than the limit purchased.

CIP Study Guide

Automobile Insurance C14