Beyond the Limit:
A Case Summary and Policy Commentary Following the Court of Appeal’s Decision
in Schmitz v. Lombard
By: Daniel I. Reisler and Tamara Zdravkovic
REISLER FRANKLIN LLP
Toronto, Ontario
In the recent decision of Schmitz v. Lombard General Insurance Company of Canada1, the Court of
Appeal turned the initiation of limitation periods for underinsured motorist claims on its
head. In the following commentary, we will outline a brief history of the case law
surrounding this issue. We will continue by summarizing the decision in Schmitz and end
with a consideration of the residual impact on future claims.
History of Case Law
The same issue was considered by Master Dash in the 2008 decision of McCook v
Subramaniam2. In that case, the plaintiff was seeking to add his own auto insurer as a
defendant. The auto insurer provided the plaintiff’s underinsured endorsement. The insurer
resisted the motion on the basis that the plaintiff had not sued within the limitation period.
The governing provision for interpreting the limitation period was section 17 of the OPCF
44R3. This was not disputed. In interpreting the wording of section 17, Master Dash
concluded that the limitation period did not begin to run when the plaintiff knew or ought
to have known that his or her damages would exceed the actual liability limits of the
tortfeasor’s policy. Instead, the 12 months began to run when the plaintiff knew or ought to
have known that the “quantum of claims” would exceed the statutory minimum limits of
$200,000.
The limitation period for underinsurance claims was recently considered in Roque v Pilot
Insurance Company4. The Court in Roque followed McCook and ruled that the limitation period
began to run when the plaintiff had accumulated a body of evidence that would give him a
‘reasonable chance’ of persuading a judge that his claims would exceed the minimum limits
2014 ONCA 88 [Schmitz].
172 ACWS (3d) 244 (SC).
3 Section 17 states that every action or proceeding against the insurer for recovery under this change form shall be
commenced within 12 months of the date that the eligible claimant or his or her representative knew or ought to have
known that the quantum of claims with respect to an insured person exceeded the minimum limits for motor vehicle
liability insurance in the jurisdiction in which the accident occurred, but this requirement is not a bar to an action which
is commenced within 2 years of the date of the accident.
4 2012 ONCA 311 [Roque].
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of $200,0005.
Schmitz v Lombard
It appears that the Courts had largely sided with insurers until the Schmitz ruling by the
Superior Court of Justice in 20126. The Court of Appeal agreed with the lower court
decision.
The facts of Schmitz are straightforward. On July 19, 2006, the plaintiff was involved in a
motor vehicle accident. The plaintiff sued the defendant for damages in excess of
$1,000,000. The defendant’s automobile insurance coverage was limited to $1,000,000.
However, the plaintiff’s policy included the (optional endorsement) OPCF 44R wherein the
plaintiff could obtain coverage for a maximum of $2,000,000 in case the defendant’s
coverage was not sufficient to indemnify him for the losses sustained in the motor vehicle
accident. The plaintiff sued Lombard under his OPCF 44R for any amount found owing in
excess of the defendant’s policy limits (up to the $2 million limit).
The questions before both the Court of first instance and the appeal Court were: 1) whether
the limitation period in the Limitations Act displaced the limitation period in s. 17 of the
OPCF 44R, and 2) when the limitation period began to run in respect of such claims.
At the Superior Court level, Schmitz argued that Section 22 of the Limitations Act applied
since the OPCF 44R is contractual in nature. Section 22 states that a limitation period
applies under the Act despite any agreement to vary or exclude it, subject only to the
exceptions in subsections (2) to (6)7. Counsel for Lombard pleaded that the action was
commenced after the expiry of the 12-month limitation period in s. 17 of the OPCF 44R.
James J. agreed with the plaintiff and determined that “…[t]he notion of discoverability is an
overarching policy consideration implicit in the legislation even though its application may
occasionally be awkward in particular circumstances”.
The Court of Appeal relied on Markel Insurance Company of Canada v ING Insurance Company of
Canada8 in determining the second issue. In Markel, the Court was asked to determine the
Please note that the Court in Roque was dealing with an accident that occurred well before the year in which the
Limitations Act came into force. As such, it appears that the limitation period under the Act did not apply. However, this
is not expressly stated in Roque as the Court never considered the application of the Act.
6 2013 ONSC 7140. The Endorsement can be found at the following address: http://www.cavanagh.ca/blog/wpcontent/uploads/2013/02/Schmitz-v-Lombard.pdf.
7 The exception in subsection (2) excludes any agreement made before January 1, 2004. The policy did not qualify as
such an agreement because it had been renewed on an annual basis. The other exceptions apply to the ultimate limitation
periods under section 15.
8 2012 ONCA 218 [Markel].
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initiation of the limitation period for a ‘loss transfer’ claim made by one insurer against
another for indemnification for statutory accident benefits paid to the insured of the first
insurer. The Court held that the limitation period starts on the day after the second party
insurer receives a loss transfer request for indemnification. Using the language of section 5
of the Limitations Act9, the Court in Markel ruled that the first party insurer suffers a ‘loss’ as
a result of the applicant’s ‘omission’ on the day after the claim is made.
As in Markel, the Court of Appeal determined that the limitation period begins to run on the
day after the claimant makes a request for indemnification from the insurer. The Court
reasoned that the claimant for indemnity would have suffered a loss from the moment that
the insurer can be said to have failed to satisfy its legal obligation under the OPCF 44R.
Unfortunately, the Court of Appeal did not seem to address the primacy of section 4 of the
Limitations Act over section 17 of the OPCF 44R.
Policy Considerations
The Court of Appeal ruled that section 14 of the OPCF 44R protects the insurer against any
prejudice. Section 14 provides that “…the findings of a court with respect to issues of
quantum or liability are not binding on the insurer unless the insurer was provided with a
reasonable opportunity to participate in those proceedings as a party”.
The Court further stated that there are other provisions in the OPCF 44R which sufficiently
protect the insurer by requiring the insured to provide timely notice when he knew or ought
to have known that he was underinsured10. This provision places the onus on the insured to
assess the quantum and alert the insurer if the amount is in excess of policy limits.
Realistically, it is questionable whether or not an insured will immediately alert the insurer
once a claim has been made. If the insured fails to do so, then section 14 of the OPCF 44R
can operate to bar a claimant from making such a demand following settlement or trial. This
could result in unfairness to the insured, which courts almost always relieve against.
Worse however, the decision in Schmitz could result in considerable delay for future
litigation. In its most basic form, a typical personal injury can easily take five years to resolve
from the date of loss, if not more. If the underinsured carrier disputes the quantum of
damages, or opposes payment on some other basis, the plaintiff can now wait another two
Section 5 sets out the criteria for discoverability under the Act.
The Court is most likely referring to the following provision (section 15 of the OPCF 44R): “The following
requirements are conditions precedent to the liability of the insurer to an eligible claimant under this change form: (a) the
eligible claimant shall promptly give written notice, with all available particulars, of any accident involving injury to or
death of an insured person and of any claim made on account of the accident.”
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years to sue the insurer for indemnity. Instead of resolving the underinsured motorist claim
along with the underlying action, the litigation process would begin anew. This will
unnecessarily prolong the matter and lead to a much less expeditious disposition of claims,
and a consequent continuation of our already clogged court system.
Conclusion
Counsel for Lombard is currently seeking instructions with respect to an application for
leave to appeal. Leave will be difficult to obtain as this situation may be fairly unique to
Ontario. This is unfortunate, as the decision is an unnecessary departure from easily
understood provisions which have been interpreted and relied upon for years.