An Insured Reduced His Coverage to “Comprehensive Only,” or Did He?

February 16th, 2016 by

By Ivan Merrow

An insured calls to reduce his motor vehicle insurance coverage to “comprehensive only,” because he intends to leave the vehicle in storage. The insurer processes the change by removing liability, statutory accident benefits, and collision coverage from the policy. The insured is issued a refund and his premium payments decrease. Three months later, the insured breaches his promise not to drive the car, and collides his motor vehicle into the rear end of another vehicle on an Ontario highway.

Can the insurer deny the insured liability or statutory accident benefits coverage because the policy was reduced to comprehensive only?

Among other factors, it may depend on whether the insurer satisfied its obligation to notify the insured about the reduced coverage pursuant to the Insurance Act (the “Act”). Insurers must give 30 days’ notice to their insureds when they intend to renew policies with varied terms [1].  Written notice is required [2]. Not any written notice will do; the notice must be in a form prescribed in the Act and its regulations [3]. At the time this article was published, the required form was the OPCF 16 “Suspension of Coverage” form. The common law also tells us that any cancellation notice must be clear, unequivocal and unconditional [4].

The Ontario arbitration decision Re Optimum Insurance Co. and Dominion of Canada General Insurance Co. (De Paz) [5], surveyed several previous Ontario decisions where insurers did not send written notice to insureds in the prescribed form after reducing their coverage to “comprehensive.”  A failure to do so tended to defeat the insurers’ claims that their insureds were no longer covered for liability or accident benefits. The arbitrators interpreted the Insurance Act, s. 227 as an obligation for insurers to notify insureds whenever their policies are varied, and the notice must be in a prescribed form.

There was one decision referred to in Optimum that did not require the insurer to use an OPCF 16. However, it was a case where an insured had expressly asked that he not receive an OPCF 16 after reducing his coverage to “comprehensive only”.  Insurers cannot rely on the rare cases where insureds request not to receive notice, so insurers should have notice procedures in place that are compliant with the Act.

The cases surveyed in Optimum could be distinguished from liability coverage situations, as most of the cases surveyed focused on denying benefits pursuant to the statutory accident benefits schedule (“SABS”). One factor that led to the arbitrator’s hard stance on notice in Optimum was the unique public policy considerations inherent in SABS coverage.

Despite that possibility, it is unlikely that future decisions would treat liability differently than SABS coverage in the “comprehensive only” context. Neither tend to be covered in “comprehensive only” policies. The OPCF 16 is the prescribed notice form to take away coverage for both liability and SABS after policies are reduced to “comprehensive only.”  The principle of fairness inherent in proper notice is common to scenarios whenever coverage has been reduced, irrespective of the coverage label. For example, in Sinclair v. Lirio [6], an insurer provided notice that was not compliant with the Insurance Act after reducing an insured’s policy to “comprehensive only.” Even though the decision concerned liability coverage, the notice was still deficient because it was sent in a form that was not approved by the Superintendent of Insurance.

Accordingly, after an insured calls to reduce coverage to “comprehensive only,” the insurer must take steps pursuant to the Insurance Act to give effect to the coverage reduction. It does not seem to matter whether the insured gives evidence that they were aware that coverage was reduced, or that they benefit from a refund or reduced policy premiums. In the absence of clear, unequivocal and unconditional notice from the insurer in compliance with the Insurance Act, a coverage reduction to “comprehensive only” leaves insurers exposed at pre-reduction levels.

The insurance defence lawyers Devry Smith Frank LLP pride themselves on assisting their insurance clients to provide the best possible defence to their policyholders who have been named as defendants in lawsuits. For more information on the legal services available, please contact our insurance defence team at 1-416-449-1400.

[1] Insurance Act, R.S.O. 1990, c. I. 8., s. 236.

[2] Insurance Act, R.S.O. 1990, c. I. 8., s. 236(1)(a).

[3] Insurance Act, R.S.O. 1990, c. I. 8., s. 227(1).

[4] Bolton Estate v. Allstate Insurance Co. of Canada, 1995 CarswellOnt 490 (OCJ Gen. Div.).

[5] Re Optimum Insurance Co. and Dominion of Canada General Insurance Co. (De Paz)49 C.C.L.I. (5th) 127 (Ontario Arbitration (Insurance Act)) [Optimum].

[6] Sinclair v. Lirio, 190 A.C.W.S. (3d) 48 (ONSC).

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