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Insurance - Auto - Property Damage. Owasco Canadian Car & Camper Rental Ltd. v. Fitzgerald et al.
In Owasco Canadian Car & Camper Rental Ltd. v. Fitzgerald et al. (Div Ct, 2021) the Divisional Court reviewed the basics of the direct compensation property damage MVA insurance scheme:[5] Property damage claims arising out of accidents between two or more vehicles that are insured in Ontario are governed by the “Direct Compensation – Property Damage” scheme in s. 263 of the Insurance Act. As discussed in greater detail below, s. 263 bars both Owasco and Mr. Fitzgerald from suing Mr. Dale in tort, even though it is an agreed fact between them that he was entirely at fault for the accident.
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A. The Insurance Act’s “Direct Compensation – Property Damage” scheme
[16] The first-payor “Direct Compensation – Property Damage” scheme established by s. 263 of the Insurance Act applies when two or more vehicles that are both insured in Ontario are involved in an accident that results in property damage. Section 263 requires the owner of a damaged vehicle to make a claim for compensation under his or her own insurance policy, instead of suing the other driver in tort and receiving compensation from the other driver’s insurer.
[17] As Juriansz J.A. explained in Clarendon National Insurance v. Candow, 2007 ONCA 680 at para. 7:Section 263 of the Insurance Act replaced the tort system that resolved automobile damage claims prior to its enactment. In the new statutory scheme, insureds can no longer sue the tortfeasor driver whose negligence has caused damage to their cars. Rather, their own liability insurer pays for the damage, to the extent that they were not at fault, under the third party liability section of their motor vehicle liability policies. Insureds can recover the at-fault portion of their damage by purchasing collision coverage. See also Quality Car Rentals Inc. v. Sedaghat, 2019 ONSC 5431 at para 12; Burridge v. Hardy, 2018 ONSC 202 at paras. 13-22.
[18] Specifically, s. 263(5)(a) states that when the s. 263 Direct Compensation – Property Damage scheme applies, “an insured has no right of action against any person involved in the incident other than the insured’s insurer for damages to the insured’s automobile or its contents or for loss of use”. Section 263(5)(b) likewise limits insurers’ ability to bring subrogated claims.
[19] Section 263(2) provides further that in situations where s. 263 applies:… an insured is entitled to recover for the damages to the insured’s automobile and its contents and for loss of use from the insured’s insurer under the coverage described in subsection 239 (1) as though the insured were a third party. Under s. 263(3), “[r]ecovery under subsection (2) shall be based on the degree of fault of the insurer's insured as determined under the fault determination rules.”
[20] Since s. 239(1) provides for insurance “against liability imposed by law upon the insured named in the contract for loss or damage” resulting from the ownership or use of an automobile, including “damage to property”, the effect of these provisions is that insured persons can obtain compensation for damage to their own vehicle from their own liability insurer under the legal fiction that they are a third party, to the extent that they are not deemed at fault for the accident under the fault determination rules that have been established by regulation (R.R.O. 1990, Reg. 668).
[21] However, s. 263(6) preserves the ability of insured persons to purchase additional collision coverage for damage to their own vehicle that was their fault, by providing that s. 263 “does not affect an insured’s right to recover in respect of any physical damage coverage in respect of the insured automobile”.
[22] In summary, when an insured’s vehicle is damaged in an accident to which s. 263 applies, insured persons are potentially entitled to claim compensation from two different insurance pools. To the extent that they are not at fault for the accident, they can obtain compensation under their own liability insurance policies through the Direct Compensation – Property Damage scheme. To the extent that they are at fault for the accident, they can also obtain compensation under any additional optional “physical damage coverage” they have purchased.
[23] The legislative purpose behind the s. 263 first-payor scheme is to reduce overall insurance costs by avoiding expensive disputes between different insurance companies over questions of fault. Essentially, the scheme recognizes that insurance companies will be no worse off in the long run even if they have to pay for the damages sustained by their own not-at-fault customers while losing their right to bring a subrogated claim against the at-fault driver, because they will also no longer have to cover the damages caused by their own at-fault customers. As Juriansz J.A. observed in Clarendon, supra at para. 8:Insurers have no right of subrogation for payments to their own insureds, but, on the other hand, do not have to pay the subrogated claims previously brought by other insurers in the tort system. The result is that the statutory regime eliminates the transactions costs that were inherent in the tort system.
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