The Era of Active Communication

Ontario’s 2010 auto reforms, particularly changes to the Statutory Accident Benefits Schedule (O. Reg. 34/10), marked the first time in Ontario auto insurance history that coverage has actually been taken away. At the same time, auto insurance consumers were faced with an increase in premium for less coverage than previously enjoyed. Meanwhile, consumers were told this is part of the government’s rate stability program. More money for less coverage, rate stability but higher premiums – no wonder consumers are feeling confused. If we can agree on one thing, it’s this: paying more for car insurance is not on anybody’s list of Top 10 priorities, especially not after the past three years of economic challenges.

Given the above, it’s obvious why auto reform is a live, political and positional issue. It will continue to have tremendous momentum until case law emerges defining the new regulations, setting out the standard of practice for brokers, insurers and medical assessors alike.

As an insurance defence lawyer with a practice devoted to first-party disputes, most of my energy prior to September 2010 was committed to the end of the “transaction process.” This includes the period when an arbitration or court claim is initiated against an insurer as a result of denial or non-payment of benefits demanded following an auto accident.

However, long before a dispute between an insurer and claimant, the “transaction process” has already undergone many stages. The first stage is now in the spotlight and warrants attention and thought. This is when the broker helps the consumer make an informed decision when purchasing auto insurance.  

Documenting the Broker’s Advice

From the perspectives of defence counsel, risk managers and errors and omissions experts, a critical issue is how brokers document their efforts in order to show a standard practice (of best practices), thereby protecting the broker from what appears to be inevitable litigation given the current auto insurance climate.

“Inevitable litigation” isn’t said in an effort to make brokers panic or simply for the sake of being dramatic. Just as sure as there will be litigation over the next few years related to the application of the Minor Injury Guideline (MIG) cap of $3,500 or the $2,000 cap on assessment fees, so, too, will litigation commence against brokers. This is predictable when an insured client suffers injuries requiring benefits in excess of the standard package policy limits, only to learn that there is no money to be had.

As many readers would appreciate by now, for policies that have renewed since Sept. 1, 2010, the standard package of accident benefits has decreased by half for medical, rehabilitation and attendant care coverage for non-catastrophically impaired claimants (from $100,000 collectively for medical and rehabilitation benefits to $50,000, and from $72,000 to $36,000 for attendant care benefits). These and other reductions in the basic coverage are significant.

In our ongoing provincial lecture circuit for the Insurance Institute, my co-presenters Hugh Fardy (CG&B Group), Jim Cameron (Cameron & Associates) and I have outlined the following, easy example illustrating how quickly those limits can be depleted, with no recourse against any third party.

A couple of “snowbirds” drive to Florida from Ontario when they hit some fog. A single vehicle accident results in both the driver and his wife being hospitalized in South Carolina for five nights. The hospital bills exceed $50,000 for each of them. Their travel insurer had it written into the travel policy that the auto insurer would be first payer in the event of a claim stemming from an auto accident. Immediately, the $50,000 available for medical and rehabilitation benefits from the AB insurer is gone. And because the snow birds have returned to Ontario, the travel insurer will not pay for any expenses once repatriated. OHIP then takes 12 months to reimburse the AB insurer for its covered portion of the U.S. hospital fees. By then, the two elderly, previously independent and active snowbirds require significant ongoing medical and rehabilitation treatment. They also require further attendant care benefits, which, at a maximum of $3,000 per month (up to a maximum of $36,000), were exhausted in the first year post-loss. Sure, the wife can make a claim in tort against her husband (not an easy decision to make after 48 years of marriage). But the husband, the driver, has no third-party claim, no more money available under his auto policy, and yet has significant continuing needs. What are the snowbirds to do?

Suing the Broker

As a choicely-worded advertisement in the Barrie Examiner would recommend, the snowbirds, who have been with the same insurer for 15 years, and have only spoken with their broker perhaps twice in all of that time – they have one of those convenient direct withdrawal plans – may have a claim against their broker. The ad suggests a claim might be appropriate if the broker has been negligent and failed to make reasonable efforts to communicate with the snowbirds to advise of their diminished insurance coverage – especially given the reduction of their policy coverage since renewal on Sept. 2, 2010.

With no one else to claim against, and a genuine need, the snowbirds feel they have no choice but to engage in litigation against their broker.

Surely now the broker reading this article starts to panic.

How can brokers protect themselves? The reality is that brokers may not be able to protect themselves from a claim being made against them. What they can do is protect themselves from a finding of negligence by following a few basic best practice tips.

Protecting Against Negligence

It starts with communicating and ends with documenting. Yes, there are a few steps in between. And the dedication of resources  – people, time and paper (i.e. money) – is a necessary feature.

The changes to the standard package amount to more choice for the consumer. The job of the broker – even on personal lines policies, where perhaps 90% are on a direct payment plan with little to no communication with the broker historically – is to make sure the client is informed. One must ask why taking away coverage was required for this communication piece to become so relevant, since optional benefits have been available for some time. Arguably this should have been part of the standard practice annually, with or without the September 2010 reforms.

When I say “make sure the client is informed,” it is important for the broker to differentiate between: 1) making a sale (having the client purchase any or all of the optional coverages) and 2) putting the broker in a position of strength down the road, in the event a negligence claim is made based on the coverages in place at the date of a loss. I will leave the sales advice to the experts.

Both the Insurance Brokers Association of Ontario (IBAO) and the brokers’ self-regulating body, Registered Insurance Brokers of Ontario (RIBO), worked hard to help brokers prepare for the September 2010 changes.  In addition to the Financial Services Commission of Ontario (FSCO) efforts (three standard documents, mandated insurance company mailings, Web site information), the IBAO put together a road show seen by thousands of brokers. In addition, the association created specific, broker-related tools including sample marketing and checklists. RIBO, in addition to providing sample forms, additional information sources and a summary of the changes, also put together a Best Practices Guide.

The best practices include:

• informing and educating your client;
• being consistent (with your client and your practice as a whole);
• communicating often;
• obtaining client instructions; and
• documenting the process.

However, the challenge of implementing best practi ces is multi-faceted.  How is a broker to inform and educate?  Knowing with a fair level of confidence that a broker will not be protected by the three to five mailings that FSCO requires insurers to send out, how much effort – and expense – must a broker go to in order to successfully defend against a negligence claim?  If three to five mailings is FSCO’s standard for insurers, then brokers are wise to attempt to inform and educate their clients the same number of times, in writing, by phone, in person, by email, etc. These contacts must be documented and archived so the broker has proof of the efforts made, regardless of the eventual result.

You might think obtaining instructions shouldn’t be too difficult: after all, isn’t this a product the consumer has sought out, is paying a dear penny for and should ensure is in place to protect their own interests?

If you answered this rhetorical question, you have forgotten that auto insurance in Ontario is compulsory – and expensive. Average Ontarians are paying several percentage points more of their net family income for car insurance than residents in the rest of Canada. On top of that, the average Ontarian actually understands very little about Statutory Accident Benefits. So, at the end of the day, it turns out that even if a broker applies the necessary time and resources to communicate with the client, the calls may not be returned, the mailed questionnaire may go unanswered and the renewal may come and go with no written or verbal connection with the client. If this makes you panic, again, you are missing the point.

The reality is that if brokers use the resources created by FSCO, the IBAO and RIBO; use the mailings and checklists; create client contact points; and consistently document their efforts to assist clients in making an informed decision, then there is no negligence. This is true regardless of whether the client calls back, returns the questionnaire or communicates at all with their broker.  No doubt, a claim may be made. But an aggressive defence with cost consequences can flow from an unmeritorious claim. All the while, the broker has the peace of mind knowing that he or she met the requisite standard of practice.

Some brokers I have trained in the last several months have had a look of pure agony on their faces when I say: “And this is not a one-off. You now have to do this every year with each renewal.” But it seems the majority of the industry has accepted and planned for the augmented effort required to communicate with the client and assist them in making an informed decision. And most brokers are aware of the importance of documenting those efforts annually. We are unlikely to have further reductions in coverages within the next five years, but we might as well consider this the training ground. Who really knows if the worst has yet to come?