In November of 2014 the Ontario Legislature passed Bill 15, the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014. This Act has several provisions, one of which added a provision to the Insurance Act which takes away the pre-judgment interest rate applicable to non-pecuniary damages under the Ontario Rules of Civil Procedure (non-pecuniary is the term used to describe personal injury damages or loss for pain and suffering and such things as loss of enjoyment of life, etc.) This specific provision came into force on January 1, 2015.
So what does this mean to the ordinary person or motorist in Ontario who has been injured in a car accident?
It means that if you have issued a claim for pain and suffering against an at-fault party, the pre-judgment interest rate has gone from 5% per year to the present pre-judgment interest rate of 1.3% (published on the Ontario Ministry of the Attorney General’s website).
This amendment will have a significant negative impact on car accident victims.
Here is an example of the financial or monetary significance of this change. Someone suffers serious personal injury in a car accident in Ontario. This individual brings a personal injury lawsuit against the person who was responsible for the car accident and their injuries. Suppose that this injured person is awarded damages for pain and suffering of $200,000.00. Under the Courts of Justice Act and the Insurance Act they are entitled to pre-judgment interest from the time they provided notice of their claim to the time they settle their claim or receive judgment against the at-fault party. If the time between notice and settlement/judgment is five years (not unusual in motor vehicle accident litigation), under the previous system they would receive pre-judgment interest of 25% or $50,000.00 (5% for five years). Now with the amendments to the Insurance Act under Bill 15, that same person would only receive pre-judgment interest of 6.5% or $13,000.00 (1.3% for five years). A significant difference of $37,000.00 for this car accident victim.
According to an article from Neale Fhima, there is another reason the change is significant for motor vehicle accident victims. The previous pre-judgment interest rate of 5% provided a strong incentive to the insurance company of the at-fault party to settle and resolve claims in a quick and expeditious manner. With this recent amendment to the Insurance Act that incentive is effectively gone. Insurers can deny and fight car accident claims for as long as they wish and not have to worry that the delay will have any significant impact on the applicable pre-judgment interest they may owe the accident victim.
Is the new interest rate retroactive?
Another issue of interest to Ontario personal injury lawyers and car accident victims is whether the new pre-judgment interest rate is retroactive. In other words is the new rate applicable to claims issued before January 1, 2015?
Car accident victims can only hope that the interest rate is not retroactive. Imagine the same car accident victim who is potentially entitled to an award of pain and suffering of $200,000 or more. Assume that when this amendment came into effect, this person had already been fighting a court battle with the insurer for the at-fault party for many years. It would hardly seem fair that this injured party should now suddenly have a significant pre-judgment interest award cut down by this change in the law. It would also seem unfair that the insurance company fighting this accident victim for years should now all of a sudden benefit from a significant discount on the interest payable.
In looking at case law it appears that the change to the interest rate will not be deemed retroactive. The courts in Ontario have stated that pre-judgment interest under section 128 of the Courts of Justice Act is a substantive right (see Somers v. Fournier, 2002, CanLII 45001 (ON CA)). Canadian courts have long held that changes to substantive law do not apply retroactively. Therefore, it appears that the old 5% rate should apply to older claims (pre January 2015). However, there will likely be challenges to this position. Insurance companies are already arguing that while the right to pre-judgment interest is a substantive one, the actual rate itself may not be substantive.
To our knowledge, the courts in Ontario have yet to rule on whether the new rate is retroactive (it is still a recent amendment). If there is a decision that the interest rate is retroactive, car accident victims may still have some form of relief. Under section 130 of the Courts of Justice Act, Judges are given significant discretion to disallow, increase or decrease the amount of pre-judgment interest payable. An accident victim would have a strong argument that the Judge should use their discretion to allow the previous 5% rate as a matter of fairness and equity if the injured party waited years to obtain judgment for pain and suffering damages.