Legal view on Alberta and Nova Scotia caps
| May 18
John McKiggan, founding partner, Arnold Pizzo McKiggan Trial Lawyers, NS: At the time the legislation was introduced in Nova Scotia, the financial arguments in favour of compensation caps no longer existed. The insurance industry has always been cyclical and profits have increased or decreased depending on whether the markets were hard or soft. The evidence before the court in Nova Scotia in the Hartling case was that the industry had been unprofitable in the late 1990’s. However in 2003 insurance claims costs were decreasing and insurance profits were increasing, before the minor injury cap legislation was introduced in Nova Scotia.
In the Nova Scotia decision, Justice Goodfellow went beyond saying that there was a lack of proof from the insurance industry that their claims costs were rising when caps were imposed. He indicated that claims costs were decreasing and the insurance industry was becoming more profitable when the minor injury cap legislation was introduced. He, also, indicated that these facts had not been brought to the attention of the government—however, Justice Goodfellow did not feel that this issue was relevant to a determination of whether the legislation was discriminatory.
Richard Halpern, partner, Thomson Rogers LLP, chair Ontario Bar Association: There is an issue as to whether the cap was needed at all in Alberta. While the industry argues it was justified, the economic data in Alberta suggests otherwise. Undoubtedly the industry argues that the absence of a cap will have a significant impact, but the most recent rate review process by the Alberta regulator suggests that the problem probably is not as bad as the industry would have one believe.
Experience in Ontario has proven that limits on third party claims have not, and never will, stabilize the auto insurance product. The prime example is the most recent reforms in 2003. At that time the industry was at one of the low ebbs of its ROE cycle and promoted further limits on the right to sue. For accidents occurring on and after October 1, 2003, the deductibles were increased and a regulation defining the verbal threshold was introduced. Both these measures were allegedly proposed to address costs and stability. Yet, in 2008 and 2009 the insurance industry is once again complaining about stability and advocating for further reforms—reforms that can have no more success than their earlier counterparts. The 2003 reforms failed to introduce stability. It is also worth noting that at the time these reforms were being proposed the auto industry in 2003 was on its way to earning record profits.
Randy Bundus, vice-president, general counsel, Insurance Bureau of Canada (IBC): It’s interesting to note where the two judges agreed. For instance, they both commented on the false argument advanced by personal injury lawyers that the industry “duped” governments into thinking there was an auto insurance crisis when there wasn’t. While the two judges reached different conclusions about the constitutionality of the cap, they both recognized that the reasons for the implementation of caps were real and valid.
In the Nova Scotia decision, Justice Goodfellow wrote: “…After careful reflection on the totality of the evidence advanced I have no basis to fault the government or the insurance industry with respect to the data and statistical information available at the time of the introduction of the legislation…” He continued, “there can be no doubt that there is a clear rational connection between the imposition of insurance caps and limitation on the dramatic increases on insurance premiums … caused by rising claims costs primarily related to minor injuries.”
Alberta’s Justice Wittmann responded to the same argument from the personal injury lawyers as follows: “In sum, I find that it was reasonable for the Crown to perceive that an insurance crisis existed or was imminent and that mandatory automobile insurance was becoming inaccessible to many Albertans at the time that the insurance reforms were implemented.” Justice Wittmann also dismissed the Smith Report, which had been prepared for the personal injury lawers: “A document prepared by Gordon Smith on behalf of Deloitte Touche … concludes that the increasing premiums for third party liability coverage in 2002 and 2003 were not being driven by bodily injury claims in these years as claim costs had been falling since 1999… I have not accepted the conclusions in the Smith Report for a number of reasons…”
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