Mar. 12, 01:00 EDT
Insurers mull deductibles on write-off cars
James Daw
 
THE COURTS have spoken and some auto insurers have stopped charging motorists a deductible fee on vehicles damaged beyond repair.

But the first of many insurers targeted by class-action lawsuits over the legality of these fees has reconsidered plans to pay refunds on old claims immediately.

Co-operators General Insurance Co. of Guelph was turned down last week by the Supreme Court of Canada on a bid to appeal a ruling that insurers cannot charge these fees in cases of total loss. Now insurers fear that hundreds of thousands of clients who were charged a deductible fee over the last several years could be eligible for refunds of a few hundred dollars each.

The insurers say they may be forced to raise the basic price of insurance if they can charge deductible fees only in cases where vehicles are repairable.

Co-operators was planning to pay refunds on claims settled since June 18, 2000, the date when the Ontario Court of Appeal shocked all insurers with its ruling on deductible fees. But vice-president Sharon Bros said yesterday Co-operators has decided to pay the refundable money into an interest-bearing account for now.

The lawyers in Toronto and London who brought the case against Co-operators have objected that some of the refundable money will be owed to them for their fees, she said.

"We acknowledge we owe the money and we are in the process of identifying who should receive a refund," said Bros. "We will pay the money into an account with interest, and disburse it according to the instructions of the court."

A spokesperson for State Farm Insurance Co., which is also the target of a potential class-action suit, also plans to stop charging the deductible fee on new claims in Ontario.

"We are in the process of reviewing how to handle claims made prior to today," said Derek Fee of State Farm. "We are also reviewing the over-all scope of the decision."

It remains a matter of dispute whether the Ontario court's interpretation of provincial regulations will also apply in other provinces where private insurers operate.

Officials at Dominion of Canada General Insurance Co. and CGU Group Canada Ltd., whose companies include CGU, Traders General Insurance and Scottish York Insurance, said they are still considering what to do.

George Cooke, president of Dominion, said his company intends to fight an action brought against it in Ottawa by using a different set of arguments from those advanced by Co-operators.

Lawyer Michael McGowan of McGowan, Elliott & Kim LLP in Toronto, one of the lawyers suing Co-operators and several other companies, said he will argue in court that refunds are due to motorists in all provinces where private insurers operate.

The next step for McGowan and Paul Downs of London, Ont., will be to apply to have their suit against Co-operators certified as a class action. They will seek to have the class include motorists who paid deductibles or were denied the right to dispose of damaged vehicles themselves as many as 25 years ago. The lawyers will also seek millions of dollars in punitive damages.

Downs said any company that does not immediately stop charging deductible fees in cases of total loss is opening itself up to paying large punitive damage awards.

Lawyer Randall Bundus of the Insurance Bureau of Canada submitted an affidavit to the Supreme Court of Canada in which he estimated that claims are being submitted on behalf of 1 million to 2 million motorists.

These figures, however, appear to be based on the number of total losses reported rather than the percentage of those drivers who actually paid deductible fees. A motorist found blameless in a collision is not charged a deductible fee. Those only partly at fault pay only part of the deductible fee.

The Court of Appeal's interpretation of Ontario legislation would permit insurers to collect a deductible if they forced clients to dispose of their wrecked vehicles themselves.

While some drivers might be happy to have that opportunity, most would see this as a major inconvenience. The danger that insurers see is that unsafe vehicles could find their way on to the roads.

Some of the lawsuits filed against insurers are seeking refunds equal to the salvage value of wrecked vehicles in addition to or instead of deductible fees.

Most motorists now contract to pay a deductible fee of no more than $300. These fees were much lower years ago, but lawyers will argue that the insurers should pay interest.
 

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Money Talk appears Tuesday, Thursday and Saturday. James Daw can be reached at Money Talk, Business, 1 Yonge St., Toronto ON M5E 1E6; at 416-945-8633; 416-865-3630 by fax; or at jdaw@thestar.ca for e-mail.