Written by Jason Taggart
Reviewed by Grant Ferguson
Introduction
The recent Ontario Court of Appeal decision, Chubb Insurance Company of Canada v. Zurich Insurance Company, [1] (“Chubb v. Zurich”) raises the risk of insurer’s paying accident benefits permanently if they do not comply with an increasingly “inflexible rule”. That rule: “pay now dispute later,” has serious implications for its breach for insurers in Ontario. The Court ordered the respondent/plaintiff, Chubb to repay $1.5 million to the appellant/defendant Zurich where Chubb was never the priority insurer.
The reasoning behind the Court of Appeal’s decision was uphold and provide teeth to the “pay now dispute later” scheme governed by the Disputes Between Insurers regulations under the Insurance Act (“the Regulations”),[2] going as far as to contemplate the imposition of the “inflexible rule” as a possible necessary measure to ensure compliance.[3] This decision demonstrates the significant risk of non-compliance to insurers: upending the priority of insurers to impose a payment obligation on the non-priority insurer.
The Regulatory Scheme
Under s.2(1) of the Regulations, the first insurer to receive an application for benefits is required to pay benefits to that person until any disputes between insurers have been resolved.[4] Under s.3(1) of the Regulations, no insurer may dispute its obligation to pay benefits unless it adjusts the claim and gives written notice within 90 days of receiving the application for benefits to every insurer who it claims is required to pay instead.[5] Extensions are available on “reasonable grounds.”[6]
When read together, the Regulations require first notice insurers to “pay now dispute later,” and expect an insurer to treat a claim as their own until they find out who is the appropriate insurer.[7] After that dispute is resolved, the original insurer can then be reimbursed by the correct insurer.[8]
The intended benefit of this regulatory scheme is that it provides insurance funds to the insured immediately while the details of entitles and priorities of coverage are sorted out.[9] It also applies pressure to the first insurer to ensure that disputed claims are adjusted promptly.[10] The alternative scenario would arguably leave an insured without benefits when they need it most, as their claim goes through adjusting, investigation and arbitration. It could also unduly prejudice the secondary paying insurers, as a lack of adjusting early might prevent the preservation of evidence and details months after the date of loss.[11]
Facts of Case
This case originated from a single-vehicle accident involving a rental vehicle owned by Wheels 4 Rent (“W4R”).[12] Following the accident, the renter, Ms. Singh, returned the vehicle and requested the rental company’s insurance information but was denied on the basis that she did not produce a police report.[13] Ms. Singh retained counsel, and remembering Chubb’s name from some insurance paperwork, put forward her claim to them.[14] The issue was that Chubb truthfully was not the priority insurer in this matter. Chubb supplied optional coverage that Ms. Singh never actually purchased.[15] Chubb denied the application on that basis without undertaking to investigate or adjust the claim at all, though they have been approached first under the correct policy details.[16]
The priority insurer of the vehicle was Zurich, something that Ms. Singh only found out a year and a half later through Chubb’s counsel.[17] When this information came to light, Zurich undertook to investigate and adjust the claim on a without-prejudice basis.[18] Zurich started making payments to Ms. Singh, however, the year and a half without benefits being paid out to Ms. Singh and the lack of early opportunity to adjust the claim was highly prejudicial to both Ms. Singh and to Zurich.[19] What followed next were years of litigation between Chubb and Zurich, involving multiple arbitrations and appeals to determine (i) whether Chubb was an insurer under the regulations, (ii) if Chubb breached the regulations, and if so, what the consequence should be.[20]
The underlying arbitrations went to the Supreme Court. The Supreme Court held Chubb was an insurer for the purposes of the Regulation, whether or not coverage was afforded.[21] The second arbitration found in favour of Zurich and required Chubb to pay Ms. Singh’s benefits on a permanent basis and reimburse Zurich for benefits paid.[22] A further appeal preceding this decision found that the insurers should split the obligation of paying benefits.[23] Zurich appealed the decision to split benefits to the Ontario Court of Appeal in this case. The Court of Appeal here reinstated the arbitrator decision that Chubb, not Zurich, should pay the full amount of benefits to Ms. Singh.[24]
Analysis
The underlying upset in this matter is whether an insurer ought to be included in the “pay now dispute after” system when they earnestly have no relationship with a party. Chubb’s main argument was that because they provided no coverage, they should have no obligation to adjust or pay out any portion of the claim.[25] The Court disagreed and found that “while the connection was remote, it was not arbitrary.”[26]
The Court referenced the Regulatory Scheme and the finding that Chubb was an “insurer” for that purpose.[27] Chubb still had obligations to adjust the claim and to notify who they believed to be the correct insurers – something that would have been easy for Chubb to do due to their business relationship with W4R.[28] This would have imposed no real burden on Chubb, as their costs for that inquiry would have been reimbursed.[29] Instead, Chubb’s behaviour left Ms. Singh without benefits and unduly prejudiced Zurich by leaving them to adjust a claim that was a year and a half old.
The Court held that Chubb was a sophisticated party that should have been aware of other decisions on this matter, which have similarly held that the first notified insurer is obligated to adjust the claim and inform all other parties they believe to be the correct insurers within 90 days.[30] What the Court decided here was that there should a consequence for failing to follow the Regulatory Scheme and that the entity that does not “pay now, dispute later” can be looked to pay all benefits on a “permanent basis” regardless of whomever was the true priority insurer.[31]
The Court of Appeal outlined the benefits of imposing this in cases as an “inflexible rule” whereby an insurer breaching the regulations must take on the entirety of the claim. While it was not formally introduced in this decision, the Court of Appeal did sound the serious consequences of such a breach and establish that insurers who did so neglect their responsibility to “pay now, dispute later” could face paying all benefits owed under another company’s responding policy on a permanent basis.[32]
Takeaways
What does this mean for insurers? The short answer is that insurers have a duty whether or not there is coverage to act in the insured’s best interests. They must handle the claim outright as if they were on risk, regardless of the claimant’s actual connection to the insurer.
In this case, Chubb had the ability to locate other insurers and put them on notice in a way that Ms. Singh did not. That obligation on insurers as sophisticated parties creates a risk of near strict liability of an “inflexible rule” where neglect of duty and failure to utilize the insurer’s powers can result in severe payment obligations on those insurers to pay out a claim they would not have had.
The consequences to insurers choosing not to act as if there is coverage until coverage is excluded are now very high. The duty to investigate and notify supersede technical responsibilities on coverage. Those duties matter. The small cost of adjusting early is now grossly outweighed by the large cost of paying for a claim that could have otherwise been transferred and paid for by another insurer.
Given a very expensive and drawn-out litigation, this decision is a warning. There are consequences to breaking the “inflexible rule” whether or not that term is enshrined in law. There could be an even stricter liability standard imposed, given the Court’s favourable consideration of this potential “rule.” For now, there is a clear duty and an obligation to follow it. There is also a very heavy consequence for those choosing to ignore that obligation. If that requires a strict liability rule, the Court might just impose it. Either way, the consequences for breaking an insurer’s duty to “pay now, dispute later” are very real and very present today.
[1] Chubb Insurance Company of Canada v. Zurich Insurance Company, 2026 ONCA 302 (CanLII) [Chubb v Zurich].
[3] Chubb v Zurich, at paras 67-69.
[4] Disputes Between Insurers, O Reg 283/95, s 2.
[5] Ibid, at s 3(1).
[6] Ibid, at s 3(2).
[7] Chubb v Zurich, supra note 1 at para 50 citing Kingsway General Insurance Company v. Ontario, 2007 ONCA 62 at para 19.
[8] Ibid, at para 22.
[9] Ibid, at para 50 citing Kingsway General Insurance Company v. Ontario, 2007 ONCA 62 at para 19.
[10] Ibid, at para 80.
[11] Ibid, at paras 79-80.
[12] Ibid, at paras 8-10.
[13] Ibid, at para 11, 13.
[14] Ibid, at para 12.
[15] Ibid, at para 9.
[16] Ibid, at para 15.
[17] Ibid, at para 16.
[18] Ibid, at para 17.
[19] Ibid, at para 80.
[20] Ibid, at paras 4-6.
[21] Ibid, at para 24.
[22] Ibid, at para 28.
[23] Ibid, at para 33-34.
[24] Ibid, at para 81.
[25] Ibid, at para 20.
[26] Ibid, at para 21-23.
[27] Ibid, at para 24.
[28] Ibid, at para 79.
[29] Ibid, at para 79.
[30] Ibid, at paras 56-59.
[31] Ibid, at para 74; see also Lombard Canada Ltd. v. Royal & SunAlliance Insurance Co., 2007 CanLII 82792 (ON SC); Wawanesa Mutual Insurance Company v. Lombard Canada, 2010 ONCA 383; Kingsway General Insurance Company v. Ontario, 2007 ONCA 62.
[32] Ibid, at para 58, 67-68, 81.
