Class action against auto insurers over HST deduction headed to Court of Appeal

A jurisdictional dispute that arose out of a class action against 15 insurance companies is headed to the Court of Appeal.

In 2018, car accident victims filed 15 class actions against auto-insurance companies in Ontario, saying they were fleeced out of a portion of their statutory accident benefits. The suits alleged the insurance companies were subtracting the Harmonized Sales Tax from the benefits awarded to claimants, rather than bearing the cost of the tax themselves as the Financial Services Commission of Ontario had directed. The next year, the Ontario government passed a regulation to clarify that HST “is required to be paid by insurers in addition to the maximum accident benefit amount limits specified in the Statutory Accident Benefits Schedule.”

Two insurers settled. The others – and the FSCO, which was also a defendant – argued the court lacked jurisdiction, as disputes about statutory accident benefits amounts are supposed to be handled by the License Appeal Tribunal. The defendants argued that s. 280 of the Insurance Act and the 2019 Court of Appeal decision in Stegenga v. Economical Mutual Insurance Company support their position.

 In Dorman v. Economical Mutual Insurance Company, Justice Edward Belobaba said of the dispute, “In principle, class actions were designed for this very purpose.” But Belobaba agreed, the Insurance Act states disputes concerning statutory accident benefits amounts belong in the LAT, and that Stegenga “made clear” the LAT’s jurisdiction is “wide-ranging and “’exclusive.’”

Belobaba added that “the vast majority” of the class members’ claims were worth less than the LAT filing fee of $100 and thus “individual claims will not be pursued and the impugned insurers will arguably be enriched in the millions of dollars.”

“Such is the consequence of the jurisdiction design decision,” Belobaba said.

If the appeals court confirms Belobaba’s ruling, counsel for the plaintiffs, Paul Harte and Ronald Bohm, say a “regulatory gap” will result, leaving accident victims vulnerable to abuse.

“If the Court of Appeal ultimately says that that door is shut, that may require legislative amendment… But surely it can't stand,” says Harte.

Harte is principle lawyer at Harte Law and Bohm is senior litigation partner at Blackburn Lawyers. Both are based in in Richmond Hill, Ont.

In the appeal, Harte and Bohm will argue their proposed framework is aligned with the legislative intent of the Insurance Act: to create a fair, efficient and accessible system and to avoid fraud. They will suggest that when facts vary, individuals should go to the LAT. But for representative actions, whether dealing with thousands or tens of thousands of plaintiffs – the magnitude of the class actions in Dorman – the disputes will be handled in the court, as a class proceeding in court is more efficient than ten thousand individual actions at the LAT.

“The LAT would then be inundated and would literally be brought to a standstill if people actually litigated every one of those,” says Harte.

Allowing for class proceedings concerning statutory accident benefits to be heard in court will be more efficient for both sides, say Harte and Bohm.

“Because part of the problem is that one of the things defendants have done is when they go to the LAT and they lose, they don't appeal. It’s not economically viable and so there's no binding authority,” says Harte.

“Unlike a court, in the LAT, adjudicators are not looking at another decision with another adjudicator on the same facts… There is no such requirement in the LAT, and so insurance companies can basically do the same thing, make the same argument, again and again and again,” says Bohm. “They could do it 100 times make the same argument, even if they lost the previous 99.”