OIAA Claims 2003: Legislative Trade-Off

Two new pieces of legislation are changing the landscape for Ontario’s insurers. Changes to the auto insurance system have been much discussed, but falling under the radar is the introduction of contingency fees for lawyers, potentially signaling a swing to a more U.S.-style of litigation. Both legislative moves were up for discussion at the recent Claims 2003 Seminar, with a panel of insiders speculating on whether the industry is indeed in a better position or if there are more cost concerns on the horizon.

“We have been chasing the puck and we haven’t been winning many games.” This is how one insurance executive describes the losing battle insurers have been playing against rising bodily injury (BI) costs since the introduction of Bill-59 in Ontario. Steve Smith, vice president of Kingsway General Insurance Co., was among those tackling the latest piece of auto legislation in the province, Bill-198, plus new legislation on contingency fees for lawyers, at the Ontario Insurance Adjusters’ Association (OIAA) Claims 2003 Seminar in Toronto recently.

There is a conflict between two new pieces of legislation, notes Bill Blakeney, a partner at Blakeney Henneberry Baksh and Murphy. These being Bill-198, which seeks to limit fraud in the healthcare side of auto claims, and Bill-213 which legalizes contingency fees. “Insurers may get relief on the AB [accident benefits] side, but at the expense of the tort side.”

REGULATORY “WISH LIST”

Bill-198, which contains changes to Ontario’s Auto Insurance Act amongst a larger omnibus bill, is seen as a response to rising fraud costs in the AB and BI portion of auto claims. The provisions most discussed amongst insurers are those regulating the role of paralegals in the claims arena. Specifically, the legislation limits their participation in claims arbitration and mediation, and takes the onus off insurers’ to pay for arbitration even when the outcome is in their favor.

Paralegals are a 1980s phenomena in the U.S. that has now taken hold at the grassroots level in Canada. This has been partly due to the complexity of AB forms and also language issues by many claimants for whom English is not a first language, Blakeney notes. Paralegals have “found a lucrative money-making scheme”, he observes, through the FSCO arbitration process where they can use the threat of mediation as a means to get insurers to pay even suspect claims. In many cases, claimants have come to view paralegals as the next best thing to a lawyer, a low-cost alternative.

Blakeney says this section may also limit the role of independent adjusters in the process, an issue he said sparked much concern on the part of conference attendees. He later said many adjusters were unaware the provisions could apply to them and were upset to learn they could be lumped in with paralegals.

Bill-198 also contains a periodic review, which Blakeney says could be a “double-edged sword”, allowing for fine tuning, but also for governments to “tamper regularly” in response to public pressure. Overall, he points out, “so much in Bill-198 is going to have teeth or not based on the regulations”.

While the first set of regulations had yet to be released at the time of the conference, insurers speculated on what they wanted to see put forward to get “teeth” in the legislation. Among the “wish list” is a 52-week moratorium on lump sum payouts to discourage paralegals from using a litany of assessments and the threat of arbitration to force this kind of payment from insurers, says Richard Dubin, vice president of the Insurance Bureau of Canada’s (IBC) Investigative Services Division (ISD). He also hopes paralegals will be required to declare conflicts of interest, and that fines will be built in where there is improper practice by a paralegal. Insurers want a fee structure firmly in place for service providers, and also controls on how soon after an accident the vehicle involved is taken to a Collision Reporting Center (CRC).

However, even the legislation falls short in some areas. As Smith notes, there are no provisions to change the current “punitive and tedious” rating filing system and institute a file and use system in its place. Bill-198 is a win, says Bob Tisdale, president and CEO of Pembridge Insurance Co. But, the hybrid of tort and no-fault represented by the new system is never efficient. “Unfortunately, I think we’re going to be sitting here within a year saying this system needs to be reformed again.”

A STAND

In absence of the regulations, companies need to take their own stand against fraud, speakers agree. “The only way going forward to keep control of spiraling costs is a corporate policy against fraud and abuse of the system,” says Blakeney.

Kingsway is one company that has gone out on a limb to “cut off” fraudulent paralegals, but encourages all companies to take measures. “This [fraud] is not a Kingsway problem, it’s all the companies,” Smith says. “Realistically, a lot of our clients have already had two or three claims [with another insurer] before they get to us.” Under Bill-59, insurers’ ability to investigate was limited, forcing adjusters to become merely “processors” of claims. Kingsway is using insurers’ right to ask for information before processing a claim to given them more time to look into suspect claims, used investigators to ensure in every claim that treatments are actually taking place, and another strategy is to pay 50% of a claim directly to the claimant, with the other half pending proof of treatment. The fraudsters will “take the money and run”, observes Smith.

Working directly with claimants rather than dealing through paralegals is key, says Tisdale. He notes that insurers have no obligation to paralegals, only to the insured. And keeping on top of claims in the first place, calling claimants back in a timely manner and offering to help with complex forms, may be the best line of defense. Too often, claimants end up with paralegals “because they didn’t hear back from the company, they didn’t know what to do”.

CONTINGENCY FEES

While insurers have focused on Bill-198, the legalization of contingency fees via Bill-213 has slipped under the radar, although it stands to have a major impact on the tort end of claims. “My reading is plaintiffs’ shops are gearing up to really rock in the aftermath of this legislation,” says Blakeney. The next five years will be a “golden age” on the tort side, he predicts.

Tisdale predicts lawyers will become more aggressive and there may be a trend towards a more U.S.-style of litigation, with “billboard firms” popping up to capitalize on this trend. “It’s going to make dealing with lawyers much more adversarial because the stakes are higher,” he adds.