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Insurance - Deductibles and Similar. Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here, in the course of resolving the share of defence costs amongst multiple defendants, the court addresses the treatment of the various deductibles and 'self-insured retentions' involved:[17] Second, each Primary Insurer’s SIR/deductible must be exhausted before a duty to defend arises and until then, the respondents must contribute that insurer’s pro rata share of the defence costs. The issue of attribution of the SIR obligations falls away in the face of acceptance of the pro rata time-on-risk formula as does the issue of whether the language of the individual applicable policies permits the respondents to use funds received from third parties, including other insurers, to exhaust the Primary Insurers’ SIRs/deductibles.
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(d) Analysis of Self-Insured Retentions and Deductibles
(i) Exhausting the SIRs
[129] To understand this ground of appeal, it is helpful to commence with an examination of the concept of deductibles and SIRs.
[130] Black’s Law Dictionary, (11th ed., 2019), defines a “deductible” as “the portion of the loss to be borne by the insured before the insurer becomes liable for payment.” Traditionally, a deductible was applied to indemnity and did not remove or postpone an insurer’s duty to defend, although a policy could provide otherwise.[14]
[131] The authors Deborah M. Minkoff and Abby Sher, in “Self-Insured Retentions Versus Large or Matching Deductibles” in Jeffrey E. Thomas & Francis J. Mootz (eds.), New Appleman on Insurance Law Library Edition, Vol 1. (LexisNexis, 2009) (loose-leaf updated 2022, release 34-5), ch. 1A. at pp. 3 and 9-10, explain the distinction between deductibles and SIRs, underscoring that an SIR must be satisfied before the insurer’s defence obligation arises:For example, if a policy’s limit of liability is $1 million subject to a $250,000 deductible, the insurer’s indemnity exposure is the $750,000 difference between the policy limit and the deductible. However, the insurer’s defence obligation arises at dollar one, even before the insured satisfies its $250,000 deductible obligation.
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[An] SIR represents the amount of risk (defence and indemnity) that the insured retains before true coverage applies. Courts recognize that:A “self insured retention” is “[t]he amount that is not covered by an insurance policy and that usu[ally] must be paid before the insurer will pay benefits.…” The difference between a self-insured retention and a deductible is usually that, under policies containing a self-insured retention, the insured assumes the obligation of providing itself a defense until the retention is exhausted. The most significant characteristic of an SIR is that the insured must satisfy its SIR obligation before the insurer has any obligation to respond.
Courts often analogize SIRs to primary insurance in discussing the insured’s own obligation to defend claims until the SIR amount is satisfied. [Citations omitted.] [132] As stated in Kamayah, Snowdon & Lichty, Annotated Commercial General Liability Policy, s. 43:11, SIR provisions are often drafted to give a sophisticated, commercial insured a degree of control typically absent in deductible clauses:SIR provisions serve a slightly different purpose [than deductibles] and contemplate a sophistication in the handling of claims usually absent in the context of a policy containing a deductible clause. SIR clauses are often drafted to give the commercial policy holder a degree of control over claims investigation, handling and defence. This “management device” is reflected by the language which provides the policyholder control or a voice in matters including investigation, adjusting and legal expenses. Deductible clauses are usually silent in this respect. As such, terms giving the carrier the right to control investigation, defence, etc. prevail. [133] In the 1980s, economic factors such as the increased cost of certain lines of liability insurance led many large businesses to reconsider risk retention. Common arrangements included high deductibles and SIRs: Minkoff & Sher, ch. 1A., at p. 1. Generally speaking, the higher the deductible and the higher the SIR(s), the lower the premium the insured was required to pay: David Polowin Real Estate Ltd. v. Dominion of Canada General Insurance Co. (2005), 2005 CanLII 21093 (ON CA), 76 O.R. (3d) 161 (C.A.), at para. 49, leave to appeal refused, [2005] S.C.C.A. Nos. 388-95.
[134] The respondents were clearly experienced and sophisticated users of commercial insurance products and in many instances opted to negotiate policies with significant SIRs with attendant reductions in premium payments. This is the degree of exposure they chose to adopt, and they adopted it multiple times with respect to several discreet time periods under policies with many different insurers. In short, they agreed to pay new and additional SIRs/deductibles for each period.
[135] Given that the respondents look to each policy for coverage for separate policy periods, it follows that the SIR obligation in each policy must be satisfied before that insurer has a duty to defend. The SIRs do not have to be collectively exhausted before the obligation of a single insurer with an exhausted SIR is triggered. As indicated in Ontario v. St. Paul Fire and Marine Insurance Co., 2023 ONCA 173, 480 D.L.R. (4th) 30, at para. 54, the duty to bear the costs of the defence is only engaged when the SIR has been exhausted. Until then, the payment obligation remains with the insured.
(ii) Application Judge’s Order on Exhausting SIRs Through Payment by Other Insurers is Inapplicable
[136] The significance of this issue flows from the application judge’s determination that the respondents could each select one policy to defend and payments made by the selected insurer could be used to reduce the SIRs on other policies.
[137] An SIR depends on the legal obligations to pay, among other things, defence costs. The language of the policies in issue on SIR obligations differs. For example, Aviva’s policy states that the SIR shall “be eroded by payments for covered damages and defence, legal, loss adjustment costs and supplementary payments.” AIG’s policy states that the “Company’s liability under this policy shall not attach until the Insured becomes legally obligated to pay the amount of the Retained Limit [SIR] as damages and/or Expenses resulting from an event to which this policy otherwise applies.” As noted by the application judge, Liberty’s policy provided that its SIR shall be eroded by payments for covered damages and defence, legal, and loss adjustment costs. Zurich’s Integrated Policy defines the SIR as that portion of the ultimate net loss “for which the insured is liable for each and every ‘loss event’ before coverage is afforded by this policy.” The ultimate net loss includes “Defence Expenses”, which in turn are defined as “[l]egal costs and other expenses incurred by or on behalf of the ‘insured’ in connection with the defence of any actual or anticipated ‘claim’”. RSA’s policy states that its deductible amount “shall be deducted for claims arising from any one occurrence including the costs of legal investigation and adjusting fees and other expenses incurred in connection therewith and which sum shall be payable by the Insured”.
[138] Unquestionably an SIR must be paid before an insurer has an obligation to defend. However, as a pro rata time-on-risk formula is applicable, the issue of payment by another insurer disappears. This is because the pro rata time-on-risk formula applies to the exhaustion of the SIRs.
[139] To use an example, recall that the SIR under Aviva’s policy with SDM has been exhausted. A trial of the issue was ordered to determine whether the SIR of Liberty had been exhausted and it is conceded that the SIR of Zurich, SDM’s other insurer, has not been satisfied. Under the time-on-risk formula, Aviva, Liberty and Zurich are to pay 60%, 20%, and 20% of the defence costs respectively. Given that Aviva’s SIR has been exhausted, Aviva will pay 60% of SDM’s defence costs. SDM’s future payments of the remaining 40% of defence costs may be used to reduce SDM’s SIR obligations to Liberty and Zurich[15] to the extent of 20% and 20% respectively.
(iii) Adjusting Equitable Allocation Among Insurers
[140] The application judge held that the percentages for the allocation among the insurers would have to be adjusted for periods where a particular insurer did not have an obligation to contribute to defence costs as a result of an SIR that had not been exhausted. I take this to mean that the selected insurer whose SIR has been exhausted is responsible to pay all of the defence costs until the SIRs of the remaining insurers for that particular insured have been exhausted. I do not agree.
[141] Each Primary Insurer agreed to cover a portion of the defence costs of the Class Actions. Within each policy period, the insured is responsible for defence costs up to the exhaustion of the SIR, but that does not affect the proportion of time for which other insurers are responsible. Until the judge on the trial of an issue determines whether the SIRs relating to the Liberty, AIG, and RSA policies have been satisfied, or until a further court order, it is incumbent on the respective respondents to pay the percentages of legal fees allocated to those policies based on the time-on-risk formula. After that point, the insurers are responsible for the proportion of defence costs equivalent to their time-on-risk.
[142] So by way of example, Aviva acknowledges that its SIRs in its policies with SDM have been exhausted. Accordingly, it is obliged to pay SDM’s defence costs. However, in light of the allocation amongst the Primary Insurers, Aviva’s exposure is limited to 60% of SDM’s defence costs. As the SIR may not yet have been exhausted under the one Liberty policy (one of SDM’s other Primary Insurers), SDM is responsible for the remaining 40% until that determination has been made and until Zurich’s SIRs have been exhausted. Any subsequent adjustment following the determination of the trial of the issue will be as between SDM and Liberty. Aviva’s obligation will be unaffected.
[143] In conclusion, I would allow the second ground of appeal concerning SIRs/deductibles. . Spirou v. College of Physiotherapists of Ontario
In Spirou v. College of Physiotherapists of Ontario (Div Court, 2023) the Divisional Court considered (and dismissed) a JR against "the decision of the Inquiries, Complaints and Reports Committee of the College of Physiotherapists of Ontario to caution four physiotherapists".
In these quotes, the court considered an insurer complaint that a physiotherapy clinic "had failed to collect co-payment amounts for a number of products and services delivered" to it's insureds, and the RHPA jurisdiction to "regulate practices or businesses" in regarding this systemic billing issue:[2] The Decisions required the Applicants to attend before a panel of the ICRC to receive a verbal caution related to the accuracy of the invoicing practice of the multidisciplinary health clinic co-owned by the Applicants.
[3] The Applicants submit that the Committee exceeded its statutory jurisdiction and that the Decisions were unreasonable. ...
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Brief Background
[8] The Applicants are co-owners and directors of the Centres for Active Rehabilitation Excellence Institute (“C.A.R.E.” or the “Clinic”). The Clinic offers physiotherapy and other multidisciplinary health services through four clinics in the Windsor-Essex area.
[9] In November 2018, the College received a copy of a complaint that Green Shield Canada (“GSC”), an insurance company, submitted to the College of Physicians and Surgeons, regarding physicians at C.A.R.E.
[10] In November 2019, following a review of the documents from GSC, the College’s Registrar appointed investigators to inquire into the conduct of the Applicants, the Clinic’s co-owners, in order to ascertain whether they may have committed an act or acts of professional misconduct regarding conflicts of interest, billing practices, consent, record keeping, and patient assessment and treatment practices.
[11] As part of its investigation, the College sought and received further information from GSC. From this further disclosure, it was discovered that C.A.R.E. had failed to collect co-payment amounts for a number of products and services delivered to GSC plan members.
[12] GSC reported that it appeared that C.A.R.E. had waived the co-payment amounts for a number of plan members, yet it had submitted invoices to GSC for the full amount of the product or service. Independent of the College’s investigation, GSC asked C.A.R.E. to pay them $42,388.96 for the uncollected co-payment amounts. The Applicants paid the amount requested by GSC.
[13] There is no dispute that C.A.R.E. had a general and systemic practice of waiving insurance co-payments for its patients. The Clinic advertised this practice in bold and large letters on its website. Further, there is no dispute that it submitted invoices to GSC for the full amount of the service without noting the waived co-payments on the claim submissions, although the Applicants submit that, technically, there were no “invoices” submitted and/or there was no ability for the Clinic to advise GSC that they waived the co-payments.
[14] At the conclusion of its investigation, ICRC released the Decisions. In the Decisions, the Committee stated that “the College does not regulate physiotherapy clinics per se and in general, the College only regulates physiotherapists themselves. Nonetheless, the College may hold registered physiotherapists accountable, where appropriate, for systemic issues in the practices of clinics or businesses in which these physiotherapists participate in the ownership or management” (emphasis added). This is the crux of the judicial review. The Applicants submit that the College does not have jurisdiction to regulate practices or businesses.
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Analysis:
A. Jurisdiction
[17] The Applicants admit that the online claims and the manual claim submissions made by the Clinic to GSC did not indicate that the Clinic intended to or was waiving any co-payment. The Applicants submit that there was no place on the forms to indicate information regarding co-payments. The ICRC found that by submitting a claim to GSC for the full amount of the product or service without indicating that any co-payment would be waived, the Clinic had misrepresented the amount it billed to the insurer because GSC paid 100 percent of the cost, as opposed to only 80 percent.
[18] Whether the Clinic financially benefited or had an obligation to GSC to collect the co-payment from the patients was irrelevant to the fact that the Clinic submitted inaccurate claims or invoices.
[19] The Committee found that the Applicants, at all times, had a professional obligation to ensure that invoices and claims submitted by the Clinic under their direction were accurate.
[20] The Applicants submit that the Committee erred in investigating and reprimanding the Applicants for matters pertaining to the management and business practices of the multidisciplinary Clinic. The ICRC lacked jurisdiction to hold registered physiotherapists accountable for systemic issues in clinics or businesses.
[21] Did the Committee have jurisdiction to consider the actions taken by the Applicants pertaining to the management and business of the Clinic?
[22] Under the Code, the objects of the College are broad and include, among other things, “[t]o regulate the practice of the profession”, “[t]o develop, establish and maintain standards of professional ethics for the members”, and “[t]o promote and enhance relations between the College and its members, other health profession colleges, key stakeholders, and the public”: see s. 3(1), paragraphs 1, 5 and 8. In light of these objects, a number of regulations have evolved.
[23] Under s. 51(1)(c) of the Code, the ICRC may find that a member has committed an act of professional misconduct if the member has committed an act of professional misconduct as defined in the regulations. Regulated professions are given deference to define misconduct within their legislative mandate.
[24] Acts of professional misconduct for physiotherapists are set out in Professional Misconduct, O. Reg. 388/028, under the Physiotherapy Act, 1991.
[25] Both parties referred to caselaw in their submissions. Of the cases on which the Applicants rely to argue that the Committee does not have jurisdiction to regulate clinics, most involved complaints against individuals with no ownership interest in the business or clinic, rather than clinic owners (see for example, Feletig v. Williams, 2023 CanLII 10518 (Ont. HPARB) and P.B. v. S.M.B., 2017 CanLII 37546 (Ont. HPARB)). These situations are quite different from the matter before this court, where the business was owned and run by physiotherapists.
[26] Under the regulations, the College can find professional misconduct when a member has failed to take reasonable steps “to ensure that any accounts submitted in the member’s name or billing number are fair and accurate”: Professional Misconduct, O. Reg. 388/028, s. 1, paragraph 33 (also see paragraphs 28 and 32). The accounts submitted in the Applicants’ names were not accurate.
[27] It would be nonsensical for the College to have jurisdiction to regulate fees and billings of individual members, but no jurisdiction to regulate fees and billings over members that operate their practice through their own business. This would allow members to easily avoid oversight by the College by running their practice though a business. The Applicants do not deny that they were the operating minds of the Clinic and that they directed and were responsible for the Clinic’s practice of waiving co-payments. The Decisions were reasonable and consistent with past decisions made by the College: see for example, Ontario (College of Physiotherapists of Ontario) v. Yardley, 2023 ONCPO 61 (CanLII).
[28] I find that the ICRC had jurisdiction to hold the Applicants accountable for systemic billing issues in their Clinic.
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