december 2015 bulletin

DECEM

BER 2015

Hello! It is now the first of December as I write this and I am now 5 months into my term as President and can’t believe how fast the time has passed. In November, I attended Feed the Minds of Youth event held at Ontario Mutual Insurance Association and spoke about my career path in insurance and the KW-OIAA to grade 9 students that had attended the event as part of their take your kids to work day. In attendance was approximately 12 grade 9 students, the Insurance Institute and 5 speakers (myself included). I am quite impressed with Heather Graham’s ability to

relate anything back to insurance, a challenge that she issued to those in attendance to find something that she could not relate back to the insurance industry.

November is met with Black Friday sales, the Grey Cup and our annual Chili Cook off. We had around 85 people in attendance and 16 chili’s entered into the cook off. This year we decided to partner with the local charity Sleep Tight, to collect Pajama’s to be distributed in Waterloo Region and the Food Bank of Waterloo Region. I am so proud to say that we collected 75 pairs of pajamas for Sleep Tight, and 56 pounds of food for the Food Bank. We congratulate the Chili Cook-Off winners; Miller Thomson with the Peoples’ Choice and Ground Force environmental with the Chefs’ choice. Congratulations to our 50/50 winner Christine Fizell of Trillium Mutual.

The Executive committee and I are always available if you have questions or concerns about our organization, you can reach us at: [email protected] or contact myself at [email protected] I wish everyone a safe and happy holiday season!

Sincerely,

Jennifer Brown Economical Insurance K-W OIAA President

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mailto:[email protected]




Jennifer Brown Ryan Potts President Vice-President Economical Insurance ClaimsPro - Kitchener

519-570-8500 x 43375 519-501-2478 Email: [email protected] Email: [email protected]

Laura Potts Mark Potts Past-President Treasurer

Aviva Insurance ClaimsPro - Kitchener

519-883-7579 226-750-0087 Email: [email protected] Email: [email protected]

Carrie Keogh Stephen Tucker MA, CIP, CRM Secretary Toronto Representative

Economical Insurance Economical Insurance

Email: [email protected] 519-570-8500 X43281 Email: [email protected]

Gillian Reain, BA Leeann Darke Director Director Economical Insurance The Co-Operators

519-570-8500 X43283 519-618-1230 Email: [email protected] Email: [email protected]

Monika Bolejszo Stephanie Storer Social Director Social Director Samis + Company Xpera Investigations

1-844-SAMISKW ext 110 519-884-6352 X233 Email: [email protected] Email: [email protected]

Cyndy Craig Out of Town Liaison

Arch Insurance Canada Ltd

647-293-5436 Email: [email protected]

Daniel Strigberger Web Director Samis + Company

1-844-SAMISKW ext 127 Email: [email protected]

Manish Patel Bulletin Director

Larrek Investigations

519-576-3010 Email: [email protected]

If you have any questions, concerns or comments, please do not hesitate to contact

any of the above committee members.

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President’s Message Page 1 2015‐2016 K‐W OIAA Executive Page 2 Schedule of Events Page 4 Social Chit Chat Toronto Delegate Report Page 6 Restoration 1: Health Effects From Exposure to

Microbial Contamination in Water Damaged Buildings Pages 7‐9 Meet Your Executive Pages 13 Miller Thomson: Insurers Continue Success withLimitation Period Defences Pages 14‐16 Samis + Company: Statutory Third Parties Now Have

Some Explaining to Do Pages 20‐21 KPMG: Review your Business Interruption Insurance

Policy Pages 24‐26 Blaney McMurtry: Court Rules that the Increase inDeductibles is not Retrospective Pages 35‐36 2015 Chili Cook‐Off Pics Pages 37‐39 Advertisers’ Index Page 40

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December – No scheduled events

January 28, 2016 – Property Round table discussion- Laura Potts & Mark Potts

February 25, 2016 – Accident Benefits Dispute Provisions- Monika Bolejszo , Carrie Keogh & Gillian

Reain March 31, 2016 – Desktop Investigation Strategies- Stephen Tucker & Stephanie Storer

April 1st, 2015 - Annual Curling Bonspiel with the Insurance Institute and Insurance Brokers Association.

April 28, 2016 - Election & Fun Night: Monika Bolejszo & Cyndy Craig

May 26, 2016 – Accident Benefits/Bodily Injury Accounting Topic: Carrie Keogh & Gillian Reain.

June 23, 2016 - Golf Tournament- Ariss Valley Golf & Country Club: Jen Brown & Ryan Potts

*All events occur at Golfs Steakhouse: 598 Lancaster St W, Kitchener, ON N2K 1M3, unless otherwise noted.**Please note that topics are subject to change**

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December 2015

Thank you to all of the participants who took part in the Chili Cook-off and congratulations to the winners! There were some really delicious and unique entries!

Canadian winter driving. Need I say more! We’re talking about the slippery, icy, slick roads that we all have to maneuver for six months a year. Starting January 1, Ontario insurers will have to give a winter tire discount, but only if you are renewing your policy or starting a new one after that date.

It’s up to the individual insurance companies to determine what the discount will be. Currently, the standard discount is about 5 . However, about 5 of insurance companies already offer snow tire discounts. So remember to ask your insurance company whether the snow tire discount has been applied to your policy. Happy (safe) driving!

We are looking for suggestions to improve the OIAA for our vendor members, and for suggestions on how to bring out more adjustors to our monthly meetings. If you have any thoughts, I would love to hear from you!

Monika Bolejszo 2015-2016 KW-OIAA Social Director Samis Company

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The November joint seminar in Toronto was a very timely and informative panel discussion on Insurance Exposures in the Sharing Economy. This trendy concept, also known as collaborative consumption, is the ability and/or preference of some consumers to rent or borrow goods as opposed to buying or owning them.

Although there are a significant number of players in the sharing economy providing a wide variety of services, it was particularly interesting to hear the perspective of in-house counsel for ber. Much of the discussion was focused on the automobile insurance coverage gap that currently exists, and the need for an affordable insurance product for the part time ber driver. While there was heated debate on a number of topics, there was general consensus that the existing commercial automobile insurance product is not economically feasible for the part time ber driver. Intact currently has a product before the regulators.

It is hard to believe that the OIAA holiday party is upon us. I am definitely looking forward to the much anticipated return to the CN Tower.

The first major OIAA event of 2016 is the Claims Conference which takes place at the Metro Toronto Convention Centre on February rd. Online registration opens on December 1 th.

As always event registration is available at www.oiaa.com and you can stay tuned to OIAA events by following @PresidentOIAA on twitter or on Facebook.

e r e e c er

c e er er er r De e e

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Health Effects from Exposure to Microbial Contamination in Water Damaged Buildings

Aron Pinto | 519.616.2766 | [email protected]

There is an extremely specific formula for mould growth to take place. Without these three important elements it simply is not possible. The secret ingredient which is most often lacking is water. Without moisture, a food source and the right temperature mould and other microbial growth simply cannot take place. Mould grows best in warm temperatures, with the ideal being between 20 to 30 degrees Celsius. Incidently, this makes your everyday household or office the perfect breeding environment given the right conditions. For this reason, as soon as water damage occurs the breeding ground is set free and the microbes do not hesitate to take advantage of this great opportunity. Mould can start to grow in as little as 48 to 72 hours from moisture being introduced into the environment. There is an abundance of organic material commonly available in all households,

such as drywall, plywood, fabrics, leather, wool and other such materials. The more porous the material (eg. couches and mattresses) the easier it is for the growth to take place.

For this reason, whenever water damage strikes a home we make it our top priority to attend to the emergency as quickly as reasonably possible. Obviously happy customers, happy insurance companies, maintaining a high standard and getting to contents quickly are several of the main reasons, but the reasoning goes far beyond efficiency and pleasure. Allowing wet materials to sit for a prolonged amount of time presents a direct public health problem as it requires a minimal amount of time before microbial growth commences. As clearly specified in the IICRC guide known as the S-500, flood waters carry soil bacteria and fungi which can lead directly to respiratory inflammation. In a more severe case, sewer backups if not attended to immediately can lead to infectious diseases. This is not only of concern for the inhabitants of the household but also to our trained staff that are always working diligently in the affected areas of the home. In order to reduce any risks to health and safety, we must always make sure to make the following our priority:

1. Get Started on the Cleanup as Soon as Possible:There is no time to waste. If you ever experience water damage, make sure to call an IICRC

certified company to come help you out as soon as possible. Someone should be able to attend within the hour to help you through this difficult situation. Unless the situation is extremely minor, always count on the experience of your local restoration companies to help you to get your home back to pre-damage conditions.

2. Setup the Proper Containment Barriers:When dealing with Category 3 water, which by definition is grossly contaminated, such as

the water found in a sewer backup, it is important for the water mitigation technicians to properly

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isolate the affected area and setup containment barriers. There are various methods and materials that can be used to effectively create a proper containment barrier, but the most important consideration in ensuring that the affected area and any contaminants that can be in the air will not reach the non-affected areas. Zippers always make the contained areas much more accessible, allowing easy access in and out without a need to remove the barrier. It is also important to tape off ducts and make sure that the contaminants cannot find a path to other parts of the property. The containment barriers can be taken down once the area is considered to be sanitized and there is no longer a threat of cross contamination.

3. Always Wear the Proper Personal Protective Equipment (PPE):

This point is more related to our technicians when they complete the job. It is important that all of our technicians are always wearing the proper PPE to protect themselves from the environment that they are working in. One of the first items when we are dealing with an abundance of water are water proof safety shoes that are also shock resistant. The Canadian Standards Association (CSA - http://www.csagroup.org/) has special marks on their safety shoes that

give us the peace of mind of knowing that these boots have been tested under the strictest of standards to ensure that they meet the expectations for safety and performance. The first mark is for industries such as Water Damage where you can come into contact with live electrical conductors while the second mark is common in this industry as well where we often run into nails and sharp objects.

Additionally, it is extremely important for water mitigation technicians to wear the proper PPE such as half face respirators, full face respirators, Tyvek suits and others as required by the particular job. There are different types of cartridges as well for the respirators depending on the type of use, ranging from a basic particulate filter to a more advanced organic vapour filter, which can safely and effectively filter out vapours and odours.

4. Properly Clean and Disinfect the Area:There are many specialized solutions that should be used when

dealing with water damage. These include pre-cleans that are used in situations of heavy contamination. As soon as you apply the pre-clean to the environment, it will immediately begin to digest odours and soils, including those from fecal matter and urine commonly found in sewer backups. This is also commonly used in situations with heavy pet urine and soils from trauma. It is incredible how much the pre-clean manages to alleviate the smell in even the most severe of environments.

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http://www.csagroup.org/

The most commonly used solution for disinfecting is a natural plant based antimicrobial disinfectant called Benefect. In order to be classified as a “disinfectant” the product must effectively kill 99.999% of specific bacteria. Solutions such as Benefect pose no threat to human or animal health and help to disinfect an extensive array of scenarios and leave the area with a pleasant smell. Post-cleans are also available for a final clean once the remediation procedures are complete.

5. Run the Right Equipment:After the water mitigation crew has

successfully cleaned up the area and removed the affected materials, they need to start planning on setting up equipment to bring the environment back to pre-damage conditions. In the case of Category 3 water and mould, it is fundamental that negative air also known as air scrubbers be used to help bring the Indoor Air Quality (IAQ) back to pre-damage conditions. It is important to also begin dehumidification as soon as possible in order to remove the excess moisture from the air and bring the environment back to acceptable levels. This is measured by the Grains Per Pound (GPP), which represents the weights of suspended moisture in air also known as vapour pressure.

Air movement and dehumidification are also a fundamental part of the process, but it is critical to make sure that the environment has been fully sanitized in order to avoid making any contamination air born. Generally speaking, it takes three days for an environment to be properly dried; however, close monitoring with specialized equipment is necessary on a daily basis in order to ensure that everything is in fact drying appropriately. Equipment monitoring and adjusting is often required to make sure that the tougher to access spots are in fact dry by the time that the equipment is removed.

Conclusion:

There are many things to consider when water damage strikes. The most important thing to do is involve the right professionals to come assist with the matter. As soon as they arrive, they will be able to trace down the source of the water, analyze what was affected and create a scope on how they plan to tackle the situation in the manner that best allows progress to getting the environment back to pre-damage conditions. It is often if not always traumatic when disaster strikes, but trust in these professionals to make the necessary decisions, bring in the right team of experts, setup the correct equipment and do whatever needs to be done. They will be able to work directly with the respective insurance company to make sure that everything is completed to the proper standards.

In the early 1900s, Rabrindranath Tagore intelligently said “you can’t cross the sea merely by standing and staring at the water”. Similarly if water damage strikes and you aren’t sure what to do, get on the phone and call the water damage experts.

Aron Pinto is the General Manager at Restoration 1, servicing Kitchener, Waterloo, Cambridge Guelph and the surrounding area

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Stephen Tucker is the Toronto Delegate on the Kitchener-Waterloo OIAA executive team and he represents our chapter on the Provincial Executive. He is currently serving as the chair of the OIAA Curling Bonspiel, co-chair of the 2016 Toronto Claims Conference and co-chair of the seminar and education portfolio. A huge supporter of education, Stephen holds a BA in Political Science and Business Administration, an MA in Judicial Administration and the CRM designation. He is a member of RIMS and recently graduated from the FCIP program.

Stephen has been in the insurance industry for 19 years and with Economical Insurance for the past 15 years where he currently serves as the Ontario Casualty ine Manager accountable for 68 team members. He is very proud to work for Economical at this exciting time in their 1 year history as the company embarks on a journey to become the first property and casualty insurer to demutualize in Canada.

When not working or volunteering in the Insurance industry Steve is most happy spending time with his wife Kim. Steve and Kim enjoy skiing, curling, running, hockey, shopping, travelling and virtually any other outdoor activity. Steve and Kim’s true happy place is their cottage in Haliburton where they enjoy boating, waterskiing, wakeboarding, kayaking, hiking, reading, wildcrafting, or simply relaxing and hanging out together with a glass of red wine.

Attached are a few pics of Steve from the podium at the Toronto Claims Conference, at the cottage, on the slopes and on vacation in the Caribbean.

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Insurers Continue Success with Limitation Period Defences

Following the Court of Appeal’s decisions in Sietzema v. Economical Insurance, 2014 ONCA 111 (CanLII), 118 O.R. (3d) 713 and Sagan v. Dominion of Canada General Insurance Company, 2014 ONCA 720 (CanLII), insurers have continued to see success with the use of limitation period defences on summary judgement motions throughout 2015.

In a superior court decision involving six plaintiff all of whom brought individual actions against Aviva for accidents benefits arising out of motor vehicle accidents that occurred in 2004 and 2005 were all dismissed by way of summary judgement motion by Baird J. in Straus v. Aviva, 2015 ONSC 4589. The plaintiff’s argued that Aviva had failed to comply with the informational requirements pursuant to section 32(2) of the SABS by failing to provide a written description of benefits and should not be entitled to rely on the limitation period in the circumstances. Each claim can be briefly summarized as follows:

Straus

• Accident occurred in 2004

• Initial Disability Certificate indicatedStraus did not meet criteria for NEB

• Explanation of Benefits sent by Aviva onDecember 9, 2004 indicated claimantwas entitled to IRB and denied NEBsbecause claimant was employed at thetime of the accident

• On February 21, 2005 Aviva sent anExplanation of Benefits denying furtherentitlement to IRBs

• Statement of Claim issued on November1, 2011

Hanna


• OCF-1 indicated claimant was employed andworking

• Disability Certificate concluded claimant wasnot substantially disabled from employmentand NEB was not applicable

• On August 26, 2005 an Explanation ofBenefits was sent indicating claimant notentitled to IRB based on the DisabilityCertificate and not eligible for NEBs becauseclaimant was employed at the time of theaccident

• Statement of Claim issued on August 12,2012

Dushenko


• Disability Certificate of January 2005indicated claimant not substantially disabledfrom working but that claimant suffered acomplete inability to carry on a normal life

• Explanation of Benefits of February 8, 2005indicated claimant not eligible for IRBs basedon Disability Certificate and also indicatedthat she was not eligible for NEBs because“you must suffer a complete inability to carryon a normal life as a result of and within 104weeks of the accident. There is a 26 weekwaiting period for this benefit”

• Statement of Claim issued on August 2, 2012

Authored by:

Ashleigh Leon Associate, Guelph

519.593.2427 [email protected]

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Messer


• Disability Certificate indicated claimant notentitled to NEB

• On October 31, 2005 an Explanation ofBenefits was sent indicating claimant noteligible for NEBs because claimant wasworking at the time of the accident

• On November 9, 2005 another Explanation ofBenefits was sent this time stating not eligiblefor NEB because you must suffer a completeinability to carry on a normal life as a result ofand within 104 weeks of the accident

• Statement of Claim issued April 9, 2013

Larsen


• OCF-1 indicated claimant employed at time ofaccident

• Explanation of Benefits sent October 12, 2004indicating not eligible for NEBs becauseclaimant was employed at the time of theaccident

• Statement of Claim issued April 12, 2013

Dexter


• Explanation of Benefits sent on October 12,2004 indicating claimant eligible for NEB orCG benefits and requested an election ofbenefits

• Claimant elected CG benefits which wereterminated by Aviva following receipt of an InHome insurer examination. The denial wasnever disputed

• On February 28, 2012 claimant’s counselwrite to Aviva stating the letter should beconsidered an “application for NEB”

• Statement of Claim was issued on March 21,2013

Justice Baird held that the Court of Appeal has repeatedly said that so long as the insurer provides a valid refusal, the limitation period should be strictly

applied. It does not matter if the reason provided for the refusal of a benefit is incorrect or inaccurate at law. During the summary judgement motion, none of the plaintiffs provided any reason for why NEBs were not disputed during the two year limitation period.

The Explanation of Benefits provided to each of the plaintiffs were found to be “clear denials” of the benefit by stating that the insureds were not entitled to the benefit, a reason was provided for the lack of eligibility and a description of the dispute resolution process and a warning of the two year limitation period were also given. Justice Braid relied upon the reasoning in Smith v. Co-operators to find that the limitation period began to run at the time of the denial of the benefit and all six actions were brought outside of the limitation period.

The plaintiffs argued that they had not been provided with a description of the NEB and therefore the denial was invalid. Braid J. found that although Aviva did not provide a separate informational document during the initial application process with respect to NEBs the failure to do so did not prevent a timely and fulsome application for benefits. Aviva had provided descriptive information regarding NEBs in the various forms provided to each of the plaintiffs.

Braid J. also dismissed the plaintiffs’ claims for relief from forfeiture and mental distress and bad faith.

The Court of Appeal granted another summary judgment motion and the claim was dismissed in the case Bustamante v. Guarantee Co. of North America, 2015 ONCA 530.

In this case, the plaintiff was injured in an accident on June 3, 2004 and elected to received IRB. The plaintiff was advised that she did not qualify for NEB on September 1, 2004 and Guarantee began paying IRB, only terminating entitlement following post 104 assessments. On September 25, 2009 plaintiff’s counsel notified Guarantee that she intended to pursue a claim for NEB as there had been no denial. On June 17, 2010 Guarantee again notified the plaintiff that she was not entitled to NEB.

When litigation pursued, Guarantee moved for summary judgement which was granted by Ramsay J. based on the passage of the limitation period. On appeal, the Court of Appeal held that the OCF-9 form provided to the plaintiff back in 2004 gave clear notice of her rights of dispute as well as a warning of the two year limitation period. As such the limitation period was triggered and the claim was out of time.

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Finally, in the case Machaj v. RBC General Insurance Company, 2015 ONSC 4310, summary judgement was brought by RBC on the basis that the plaintiff’s claim was statute barred because mediation was not commenced within two years of the denial of the benefit claimed.

The plaintiff applied for Determiantion of Catastrophic Impairment on January 6, 2009. RBC conducted insurer examinations and responded on May 25, 2009 with an Explanation of Benefits stating “the assessors have formed the consensus opinion that you have not sustained a catastrophic impairment and therefore you do not qualify for the increased benefits”.

Mediation was applied for on July 18, 2011. During the summary judgment motion, the case of Do v. Guarantee Insurance Company, 2015 ONSC 1891, was contended (recall this case held that the limitation period does not begin to run based on a finding that an insured is not catastrophically impaired because this is not a denial of a benefit). Whitten J. found that this case was distinct from Do, supra, as RBC stated in its OCF-9 that the claimant did not qualify for the increased benefits thus flushing out the consequences of the denial of the status of catastrophic impairment; namely that enhanced benefits were not available. The action was dismissed on the basis that there was no genuine issue for trial.

The courts have consistently applied the limitation period in a strict manner with respect to accident benefits claims. As long as insurers are diligent in their denials by including a reason for the denial (which does not have to be correct at law) as well as information about the dispute resolution process and a warning of the limitation period, the two year limit for disputing the benefit will be upheld. In cases of catastrophic impairment, following the Machaj decision, the limitation period will begin to run as long as the insured is informed of the consequences of the denial of catastrophic impairment which include no access to increased benefits.

Ashleigh Leon is a Litigator and Associate in Miller Thomson’s Guelph office. Ashleigh received her Bachelor of Laws from Osgoode Hall Law School in Toronto. Throughout law school Ashleigh summered with Miller Thomson both her first and second year summers.

www.millerthomson.com Follow us on:

Vancouver Calgary Edmonton Regina Saskatoon London Kitchener-Waterloo Guelph Toronto Markham Montreal

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Statutory Third Parties Now Have Some Explaining to Do

Gerald S. George | 416.365.0000 + 122 | [email protected]

Traditionally, little, if any, information concerning the reasons for a coverage denial have had to be provided to a court (or the plaintiffs) in order for an insurer to obtain an order appointing it as a Statutory Third Party under s. 258 of the Insurance Act. Subsection 258 (14) simply says that, where it denies coverage, an insurer "shall", upon application to the court, be made a third party.

However, a recent decision by Justice David Price, in Brampton, appears to have "unsettled" what was previously thought to be a straightforward process.

The Plaintiff commenced an action against the Defendants after sustaining injuries in a motor vehicle accident. State Farm Mutual Insurance Company (“State Farm”) denied coverage to the Defendants and had itself added as a statutory third party in the action pursuant to s. 258 of the insurance Act. The plaintiff, in turn, amended his claim to add his own insurer (Intact) so he could access his underinsured (OPCF 44) coverage.

The discovery of State Farm proceeded by written questions (as a representative failed to showed for their scheduled oral discovery). They refused to answer many of the questions posed, including those inquiring as to the basis for their denial of coverage. The Plaintiff then brought a motion respecting those refusals, seeking an order requiring State Farm to answer the questions refused, and an order requiring them to deliver a sworn Affidavit of Documents.

In its original section 258 application, State Farm had simply indicated that it denied coverage as a result of a material misrepresentation by the owner of the vehicle and the lack of cooperation by both the owner and operator of the vehicle. State Farm argued that the issue of coverage as between it and its insureds was not relevant to the Plaintiff’s action, and also that it must act in the insureds’ best interests and that the issue of coverage must be dealt with after the trial of the Defendants’ liability. The plaintiff argued that, without more details concerning the basis for the denial of coverage, he was prejudiced in his ability to access his underinsured coverage through his own insurer.

The judge rejected State Farm's arguments. Justice Price noted that the Plaintiff had pleaded that he was entitled to underinsurance coverage from Intact. He further noted that the Plaintiff could access his underinsurance coverage only if it was determined that State Farm was legally justified in denying coverage to its insureds. As a result, State Farm’s refusal to answer the questions it was asked in this regard prevented the Court from making this determination and might affect the Plaintiff’s ability to be fully compensated for his losses. Citing the Court of Appeal in Maccaroni v. Kelly, Justice Price concluded that the effect of section 258 (11) is to reduce the limits of the policy to the statutory minimum “where

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it is determined” that there has been a breach of a policy condition by operation of the law, and until there is a finding to that effect, the insurer’s allegation of a policy breach is only an unproven allegation.

Justice Price also referenced the potential application of Rule 31.06 (6) where the disclosure of certain information may be prejudicial. However, in order to determine whether a Court should grant leave to State Farm to withhold the relevant information sought pursuant to Rule 31.06 (6), the Court must see the evidence. He held that, where an insurance company is a party to the litigation, it will be required to provide documentary discovery to the same extent as any other party. Where coverage has been denied, the Court should determine, upon a motion made by the insurer under rule 31.06 (6), whether the insurer must disclose the information and documents relating to its decision on a case by case basis, having regard to whether the documents are relevant, whether their disclosure would cause prejudice, whether they are protected by litigation privilege and whether that privilege, if it exists, has been waived. Any hypothetical prejudice to State Farm’s insureds would not justify a wholesale refusal by State Farm to answer the otherwise relevant questions put to it.

Justice Price therefore ordered State Farm to answer the Plaintiff’s questions (subject to any issues/objections to be submitted to him in sealed form), and also ordered that State Farm was required to deliver a sworn Affidavit of Documents in accordance with Rule 30.03.

The order of Justice Price is being appealed. However, insurers may now wish to consider more carefully how strong their coverage denials forming the basis of a section 258 application are, and whether they would be able to withstand scrutiny once they are appointed Statutory Third Parties in an action.

Gerry George is a lawyer and mediator at Samis+Company www.samislaw.com | @samislaw | #OntInsLaw

Toronto | Waterloo

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http://www.samislaw.com/

Review your Business Interruption Insurance Policy

Submitted by:

David Bushell Senior Manager

Tel 519-747-8882 Fax 519-747-1432 Cell 226-220-0094

[email protected]

Introduction

Most business people would agree that business interruption insurance is essential to the long-term health of their organization. However, the types of business interruption insurance available and the coverage purchased are generally not well understood. The sad result of this misunderstanding can be an unhappy business owner when the recovery after a disaster is less than the loss suffered.

As an example of what can happen, consider a business interruption assessment we recently completed. The insured operates a men's wear store. In early November, right at the beginning of the important Christmas selling season, there was a fire in an adjacent store. No fire damage occurred in the men's wear store, only smoke damage. However, it took approximately three weeks to clean up the smoke damage and replace the store's merchandise. The insured's assessment of the loss of gross earnings was approximately $80,000. However, because the policy purchased was not adequate, the recovery was limited to $27,000!

These results most often occur because the business owner does not understand how the policy will deal with:

■ Adequacy of coverage - is the owner self-insuring aportion of the risk without realizing it?

■ Period - will the coverage carry on until sales areback to normal, or does the loss end when thephysical damage has been repaired?

■ Payroll - will the owner be expected to lay off non-essential employees?

The purpose of all business interruption policies is to insure a business's reduction in net income and its necessary continuing expenses after a disaster. Different types of policies have been developed by the insurance industry to try to provide that amount of insurance at the most reasonable cost.

Types of Policies

The two main types of policies available are the "Gross Earnings" and the "Profits" forms. Each has advantages depending on the type of business you are in, so it is important to understand the type of insurance you are purchasing.

It is important to realize that gross earnings or gross profit calculated for insurance purposes and gross profit for financial statement purposes will seldom be the same.

The Areas of Misunderstanding

Adequacy of Coverage

There is a "co-insurance" clause in Gross Earnings policies which forces the insured to share a portion of the loss if under-insured. It works as follows: if a policy has an 80% co-insurance requirement, the face amount of the insured's policy must be at least 80% of gross earnings projected for the year following the loss to collect the full amount of any loss.

To estimate the co-insurance amount which is appropriate for your business:

■ Estimate the maximum amount of time yourbusiness could be unable to operate after a seriousdisaster,

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■ Estimate the maximum gross earnings which couldbe lost during that period, and deduct any savingsthat would occur from operating at a reduced level

■ Divide the above result by your projected annualgross earnings

■ Round the resulting percentage up

After you have done this analysis, purchase an amount of business interruption insurance that is equal to or greater than your projected annual gross earnings multiplied by the co-insurance percentage selected.

Period of Coverage

If you purchase a Gross Earnings policy, the time period for which your insurance company will indemnify your loss ends when the damaged property is either repaired or replaced. It does not consider the period after the reconstruction of your property when your sales may still be returning to normal.

If you have a Profits policy, your insurance company will compensate your losses until your sales return to normal.

No matter which type of policy you have purchased, your insurer will not reimburse you after that point in time when, with "due diligence and dispatch", your losses could have ended. We always advise people who have suffered a loss to act as if they had no insurance. In this way, they will certainly act with "due diligence and dispatch" and get their business up and running in the least amount of time.

Payroll Coverage

A business's payroll can be divided between salaries paid to key personnel and "ordinary payroll". You have different options for covering your "ordinary payroll".

It is important to analyse your payroll carefully so you will have the proper employees available to get your operations back to normal as quickly as possible.

Make sure that the amount of coverage you purchase matches your expectations as to which employees will be needed after a disaster.

The Premium Adjustment Endorsement

While it may be difficult to forecast the results of your operations as far into the future as seems to be required by business interruption policies, you can hedge yourself by purchasing a premium adjustment endorsement.

Your insurer will then refund the premium on the difference between the amount of coverage you purchased and your actual results during the premium year.

A great many of the business interruption assessments which we have undertaken have shown the insured to be under-insured because of a misunderstanding of the amount and nature of coverage purchased. All business owners should review their business interruption coverage carefully with their broker at least annually. This review will guard against getting the bad news that they are under-insured on top of the all the other bad news a fire or other disaster brings.

David Bushell is a Chartered Professional Accountant, Chartered Accountant and Chartered Business Valuator and is certified in Financial Forensics. David is a senior manager at the Waterloo office of KPMG Forensic. David's practice covers Southwestern Ontario and focuses on insurance claims and civil litigation support services. David has extensive experience in the review and preparation of income loss quantifications on behalf of legal counsel, insurance companies and insureds. He has also been qualified as an expert witness in the Ontario Superior Court of Justice in civil matters.

kpmg.ca

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■ Estimate the maximum gross earnings which couldbe lost during that period, and deduct any savingsthat would occur from operating at a reduced level

■ Divide the above result by your projected annualgross earnings

■ Round the resulting percentage up

After you have done this analysis, purchase an amount of business interruption insurance that is equal to or greater than your projected annual gross earnings multiplied by the co-insurance percentage selected.

Period of Coverage

If you purchase a Gross Earnings policy, the time period for which your insurance company will indemnify your loss ends when the damaged property is either repaired or replaced. It does not consider the period after the reconstruction of your property when your sales may still be returning to normal.

If you have a Profits policy, your insurance company will compensate your losses until your sales return to normal.

No matter which type of policy you have purchased, your insurer will not reimburse you after that point in time when, with "due diligence and dispatch", your losses could have ended. We always advise people who have suffered a loss to act as if they had no insurance. In this way, they will certainly act with "due diligence and dispatch" and get their business up and running in the least amount of time.

Payroll Coverage

A business's payroll can be divided between salaries paid to key personnel and "ordinary payroll". You have different options for covering your "ordinary payroll".

It is important to analyse your payroll carefully so you will have the proper employees available to get your operations back to normal as quickly as possible.

Make sure that the amount of coverage you purchase matches your expectations as to which employees will be needed after a disaster.

The Premium Adjustment Endorsement

While it may be difficult to forecast the results of your operations as far into the future as seems to be required by business interruption policies, you can hedge yourself by purchasing a premium adjustment endorsement.

Your insurer will then refund the premium on the difference between the amount of coverage you purchased and your actual results during the premium year.

A great many of the business interruption assessments which we have undertaken have shown the insured to be under-insured because of a misunderstanding of the amount and nature of coverage purchased. All business owners should review their business interruption coverage carefully with their broker at least annually. This review will guard against getting the bad news that they are under-insured on top of the all the other bad news a fire or other disaster brings.

David Bushell is a Chartered Professional Accountant, Chartered Accountant and Chartered Business Valuator and is certified in Financial Forensics. David is a senior manager at the Waterloo office of KPMG Forensic. David's practice covers Southwestern Ontario and focuses on insurance claims and civil litigation support services. David has extensive experience in the review and preparation of income loss quantifications on behalf of legal counsel, insurance companies and insureds. He has also been qualified as an expert witness in the Ontario Superior Court of Justice in civil matters.

kpmg.ca

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Court Rules that the Increase in Deductibles is not

RetrospectiveNovember 25, 2015Original Newsletter(s) this article was published in: Insurance Bulletin: November 2015

Article By: Stephen Moore

IntroductionIn less than one year, the provincial government has twice changed the rules for calculating damages forvictims of motor vehicle accidents. Both times, it failed to clearly state when the new rules are to take effect.

Effective January 1, 2015, the Insurance Act was amended and outlined a new rule for the calculation of prejudgment interest on general damages. That rule contained no clear transitional language. As a result, it isunclear whether the new rule applies to existing actions, new actions or only to claims arising from accidentswhich occurred on or after January 1, 2015. Clear transitional language could have made the legislature’sintentions clear. This lack of clarity has led to at least three conflicting decisions and confusion for the personalinjury bar.

Effective August 1, 2015, the regulation under the Insurance Act which specifies the amount of the deductiblesfor nonpecuniary general damages for motor accident victims and for their families under the Family Law Actwas amended. The threshold for the nonapplication of the deductibles was also amended.

The unanswered threshold question is whether these changes apply to accidents which occurred before thatdate. In 2003, when the deductibles were increased, the language used made it clear that the changes onlyapplied to accidents occurring after the date the regulation came into force. The new wording contains no cleartransitional language. It will be up to Courts to clarify the government’s intentions.

We have one decision that the regulation is not to be applied to accidents that predate its enactment. Will thisdecision be the last word on this issue?

In Cobb v Long (the Estate of) 2015 ONSC 6799, Belch J. concluded that the provision was not retrospectiveand only applied to accidents which occur on or after August 1, 2015. His Honour purported to follow thedecision of the Court in ElKhodr v. Lackie, 2015 ONSC 4766, which actually addressed the January 2015 P.J.I.amendment. His Honour refused to apply the regulation retrospectively and noted that insurers had chargedpremiums to consumers based on the assumption that the new deductible of $30,000 in the regulation was ineffect. If the regulation was applied retrospectively, then insurers would reap a windfall.

The Legislation

Deductibles for general and FLA damages were introduced under Bill 59 in the Fall of 1996. The originaldeductibles were $15,000 and $7,500 respectively. Bill 59 provided that those deductibles could be changed byregulation. O/Reg 461/96 was amended effective October 1, 2003 to increase the deductibles to $30,000 and$15,000 respectively. The language in the regulation specifically indicated that the changes applied only toincidents that occurred on or after October 1, 2003.

When the deductibles were raised in 2003, the Act was also amended to provide that no deductible applied ifthe general damages exceeded $100,000 or F.L.A. damages exceeded $50,000. However, there was noprovision permitting these amounts to be changed by regulation.

Effective August 1, 2015, the regulation that deals with deductibles was amended. It provides that thedeductible until December 31, 2015 is $36,540 for nonpecuniary general damages and $18,270 for F.L.A.damages. There is nothing in these provisions which suggest that the date of the accident or the date a lawsuitis commenced plays any role in determining what deductible should be applied. It should be noted that that theprevious provisions in the regulation increasing the deductibles to $30,000 and $15,000 respectively wererepealed. The revised regulation also provides for these amounts to be increased in January of every year toaccount for inflation. Collectively, these amendments seem to suggest that the government’s intention was toincrease the deductibles immediately for all accidents regardless of when they occurred. It is difficult to see howthe old $30,000 deductible could apply to outstanding actions if it has been repealed.

In addition, the legislature decided to raise the exemption amounts. This could not be accomplished byregulation so the Act itself was amended. It provides that the exemption amounts until the end of 2015 are

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http://www.blaney.com/lawyers/stephen-moore

$121,799 and $60,899 respectively. These amounts will be increased to account for inflation annually as well.Again, it appears that the intention was to make these new exemptions apply to existing cases.

The Decision in CobbWhen this issue came before Belch J. in Cobb v Long, His Honour concluded that the central question waswhether the change to the deductible was a change in substantive or procedural law. If it was the former, thenBelch J. was of the view that any legislative change should not be applied retrospectively. His Honour relied onthe Ontario Court of Appeal decision in Wong v Lee 2002 CarswellOnt 742 for the proposition that the deductiblewas a matter of substantive law. That case arose out of Bill 164. If Ontario law applied, the plaintiff would nothave been entitled to recover any pecuniary losses and would also have been subject to both a threshold anddeductible with respect to his nonpecuniary general damages. That Court concluded that all of these changeswere substantive rather than procedural, but the Court’s reasons seemed to focus on the prohibition onrecovery of pecuniary losses rather than the deductible.

His Honour also relied on the Court of Appeal’s decision in Somers v Fournier, 2002 CarswellOnt 2119. The issuein that case was whether costs, P.J.I., and the Trilogy cap were issues of substantive or procedural law. Theissue of deductibles was not directly addressed. However, the Trilogy cap was found to be an issue of proceduralrather than substantive law. It is therefore possible that the Court of Appeal, if asked to address the questionof changes to the deductible only, might conclude that deductibles are more akin to the Trilogy cap than theyare to P.J.I.

ObservationsWhether the deductible amendment should be given retrospective effect may not turn solely on thesubstantive/procedural question. The question is more complex than that and other rules for the construction oflegislation should be considered.

It should not be forgotten that the changes to the deductible were made by regulation, but that the changes tothe exemption were made through changes to the legislation itself. The legislature clearly has the power tochange substantive law retrospectively. However, it is usually quite difficult to convince a Court to enforce aregulation in a manner that affects accrued substantive rights. This raises the intriguing possibility that onemight be found to be retrospective in effect and the other not.

This issue may eventually find its way to the Court of Appeal and should result in a decision much lengthier andwith a more wideranging discussion than the decision of Belch J.

One additional comment should be made. If the regulation is found to apply to accidents which occurred beforeAugust 1, 2015 (i.e., it is retrospective), then the amount of the deductible and of the exemption would be tiedto the date of settlement or trial. If that is true, then both sides will be obliged to amend their offers onJanuary 2nd of each year to take into account the revised deductibles and exemptions. If this is the case, thenthe salutary effect of making the deductibles irrelevant to costs awards will be more than offset by the need torevise offers annually.

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