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Recent automobile insurance reforms in Canada.

Recent automobile insurance reforms in certain provinces of Canada are aimed at limiting recovery of non-pecuniary compensation for traffic injury claimants by means of capping. In Canadian provinces (except Quebec), motor vehicle liability evolved from tort law, particularly from the fault-based principles of negligence, which were first developed in England. Those principles have been adapted to suit local conditions. Today Canada has four models, with the standard fault-based scheme still in place in the east, west, and northern regions, pure no-fault in Quebec and Manitoba, a hybrid threshold no-fault model in Ontario, and now a choice model in Saskatchewan.

Legal commentators have recognized the close relationship between negligence law and insurance. The connection is nowhere more evident than in the area of auto insurance. Regulation of the auto insurance product has led to regulation of the conditions of entitlement to compensation. In personal injury claims under the general tort law of Canada, non-pecuniary general damages are recoverable as compensation for pain and suffering and for loss of the amenities of life.

Policy-makers in Canada have considered and tested various methods of controlling the social burden or premium cost of general damage awards for traffic injuries. One approach has been to exclude less severe injuries from entitlement to compensation, either by a verbal threshold of severity of injury or a monetary deductible from general damages recoverable. Another approach is to set an upper limit or cap on general damages, usually in conjunction with a verbally defined class of injury or injuries. Although capping has been the subject of recent attention, it is not a new mechanism. In 1978, the Supreme Court of Canada in the seminal case of Andrews v. Grand & Toy adopted as the appropriate award in the case of a young adult quadriplegic, the amount of $100,000 in general damages (indexed for inflation so that the current ceiling on non-pecuniary damage awards for the most serious injuries is now around $290,000) and stated that, save in exceptional circumstances, this should be regarded as an upper limit of non-pecuniary loss in cases of this nature.

The provinces actively discussing or implementing legislative change in 2003 included the tort jurisdictions in the Atlantic provinces and Alberta, which wanted to reduce what had become unaffordable premium rates. In Nova Scotia, the cost of insurance reportedly rose 65.9% between March 2002 and March 2003, 71% in New Brunswick, 64% in Newfoundland and Labrador, and 60% in Alberta, whereas in Manitoba the increase was 0.12%, in Saskatchewan there was no increase, and in British Columbia the increase was 7.3%.

Individual insurers in the predominantly tort jurisdictions admitted that auto insurance was now unaffordable in some segments of society. There was much debate about whether the true cause of premium instability was the precipitating event of 9/11, poor investment returns, a developing possibility of capital withdrawal from a supply-driven industry, reinsurance reaction to proposed legislative changes, rising bodily injury claims costs, or a combination of some or all of the above. The changes in New Brunswick, Nova Scotia, Newfoundland and Labrador, and Alberta will now be considered.

New Brunswick has a small rural population of 750,000, comprising only 5% of the auto insurance market. Because of restricted availability, it was found that some 50% of the Facility (high risk pool) consumers were good drivers, and the average premium was $6,500. Although frequency of accidents, deaths, and injuries had all decreased in the previous decade, per claimant payout had increased. In response, insurers adjusted premiums producing a rate shock that caused consumer outrage against industry and then government. The auto insurance premium crisis was credited with the dramatic outcome of the 2003 provincial election. The Premier's response to the electorate was to reduce rates by July 1 and introduce legislation requiring insurers to offer no-frills insurance. On July 1, 2003, New Brunswick brought regulations into force, which instituted a cap of $2,500 on non-pecuniary general damages for minor personal injuries. The regulatory definition of minor personal injury is any injury that does not result in permanent serious disfigurement, or permanent serious impairment of an important bodily function caused by continuing injury that is physical in nature. Serious impairment is defined as an impairment that causes substantial interference with "a person's ability to perform their usual daily activities or their regular employment".

Nova Scotia consumers began to receive sharp increases in auto insurance costs beginning in 2001, following the trend in New Brunswick, which was exacerbated by sharp increases in heating oil and gasoline prices. After the election in July 2003, the government introduced amendments to the auto portion of the Insurance Act, which were passed in November 2003. The changes implemented included the following:

* the appointment of a consumer watchdog;

* an Insurance Review Board;

* regulatory approvals required for rate increases and classification systems;

* discrimination restricted to rate setting and issuing of driving records;

* optional improved no-fault accident benefits;

* a no-frills insurance option, and

* the introduction of a cap of $2,500 on general damage compensation awards for minor injuries.

Like New Brunswick, Nova Scotia's reform defines minor injury to exclude cases of permanent serious disfigurement or impairment. However, Nova Scotia adds the requirement that the injury resolves within 12 months following the accident. Resolution may be actual in the sense that the injury ceases to produce substantial interference to the "person's ability to perform their usual daily activities or their regular employment", or constructive, for example, where the person has not sought and complied with all reasonable recommendations of a medical practitioner trained and experienced in the assessment and treatment of personal injury. Under the Nova Scotia regulations, the onus of proof that an injury is not minor is on the injured party.

On May 31, 2004, the government of Newfoundland and Labrador introduced Bill 30, to be the first step in reforms, through a combination of a $2,500-deductible on claims for pain and suffering, and mandatory reductions on coverage for collision, comprehensive, and the uninsured motorist. This Bill was proclaimed in force on August 6, 2004.

In November 2003, the government of Alberta introduced Bill 53, the Insurance Amendment Act 2003, which became law on October 1, 2004. The key features of the reforms to auto insurance are the following:

* enhancement of the mandatory no-fault accident benefits by increasing the limits for medical and rehabilitation costs from $10,000 to $50,000;

* establishment of pre-approved treatment protocols or "best practice guidelines" to enable health professionals to provide early, appropriate, and consistent treatment under the no-fault coverage;

* no-fault benefits are deductible from pecuniary damages in tort;

* a $4,000 cap on general damages for "minor injuries";

* an independent assessment process to determine if injuries are "minor";

* injuries deemed to be minor if claimant fails unreasonably to follow treatment protocols.

The definition of "minor injury" and the details of the diagnostic and treatment protocols were introduced in regulations approved in June of 2004 to take effect on October 1, 2004.

The Diagnostic and Treatment Protocols Regulation is meant to provide a competent and consistent medical regime for soft tissue strains and sprains with a view to obtaining complete or maximum resolution within the first 12 weeks of a traffic injury.

Caps on general damages have been introduced in Canada as instruments of social policy to help control inflation in the cost of the mandatory auto insurance product. The Atlantic and Alberta governments have determined that the appropriate balance can be provided by legislating the ability to obtain early rehabilitation and recovery of lost expenses, costs, and reasonable compensation, without the necessity of adversarial determination of issues at each stage of the proceedings to provide added value that the motorist receives for his or her premium in exchange for reduced monetary compensation.

Shelley L. Miller, Q.C. is a partner with the firm of Fraser Milner Casgrain LLP in Edmonton, Alberta.
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Title Annotation:Special Report on Insurance
Author:Miller, Shelley L.
Geographic Code:1CANA
Date:Apr 1, 2005
Previous Article:The Supreme Court of Canada protects the little guy.
Next Article:Liability for impaired driving: expanding the scope.

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