Payroll expenses are not part of gross revenue; why policies are impossible to understand

Gene Killian at New Jersey Insurance Coverage Litigation has blogged about a Massachusetts Appeals Court case, Verrill Farms LLC v. Family Farm Cas. Ins. Co., 86 Mass. App. Ct. 577 (2014).  The case addressed business interruption coverage and held that payroll expenses should be deducted from gross revenue in the calculation of profit or loss to determine loss of business income. 

Killian wonders why insurance policies are so badly written.  I disagree with both of his hypotheses: that the underwriters think the nature of the risks they seek to cover is complicated, or that they think that if they write the policies in an arcane and convoluted manner they'll have wiggle room when coverage disputes arise.

Policies are complicated because they are written reactively rather than proactively.  They react to court decisions that interpret them. 


Say there's an exclusion that provides, "This policy excludes damage to trees."  A court holds the exclusion does not apply to apples that have fallen from trees.  (For those of you who did not grow up near orchards, such apples are used for cider.) 

The next version of the exclusion will provide, "This policy excludes damage to trees and to the product of any tree that has not yet been harvested." A court  holds that that exclusion does not apply to damage to apples sitting in a wheelbarrow under a tree, because they have been harvested. 

The next version of the exclusion will provide, "This policy excludes damage to trees and to the product of any tree that has not yet been harvested, and to the product of any tree that has been harvested that remains on the insured property."  A court decision holds that "the product of any tree that has been harvested" applies only when the the tree itself has been harvested (such as for lumber) and not when its fruit has been harvested.

The next version of the exclusion will provide, "This policy excludes damage to trees and to any tree that has not been harvested and to any product that has not yet been harvested that grows on trees on the property and to any tree that has been harvested and remains on the property and to any product that grows on trees that has been harvested and remains on the property." 

By now no one can read through the exclusion without their eyes crossing, much less figure out what it purports to exclude.  Combine it with a few policy definitions and maybe an anti-concurrent causation clause, and . . . welcome to a modern insurance policy. 

City Not Liable for Icy Boulevard

In 2013, we blogged on a decision by Justice Gorman dismissing a claim where the plaintiff fell on a sloped boulevard between the street and the sidewalk, Bondy v. London.  The link to the blog post can be found here.  The plaintiff appealed the decision.

The Court of Appeal dismissed the appeal, at 2014 ONCA 291 (C.A.).  The parties agreed that the boulevard was a "highway" within the meaning of the Municipal Act.  The Court of Appeal held that the highest standard to which the area needed to be maintained was as a highway for vehicles, not as a passageway for pedestrian traffic. 

The plaintiff argued on appeal that because from time to time people cross the road in the middle between intersections, it creates a special circumstance that elevates the standard of maintenance.  The Court of Appeal disagreed, holding that "The fact that people may cross at undesignated places on a road does not create or impose on the Municipality a higher level of maintenance obligation."  There were also no special circumstances that created an obligation on the adjacent property owner to maintain the boulevard.

Are Insurers Using Cost Control Tools Properly?

I noticed an interesting section at the end of a recent bulletin issued by FSCO regarding recent regulation changes that I reviewed in a recent post.  Thrown in with the announcement of regulatory changes is a discussion on mileage expenses by health care providers.

The bulletin goes on to state that FSCO is aware that some health care providers are submitting mileage expenses to insurers to travel to an injured accident victim to provide services. Insurers are reminded that "authorized transportation expenses", as defined in the SABS, are intended to apply to expenses incurred by the insured person and not health care providers.  Details of what can be claimed by insured persons are subject to the Superintendent’s Transportation Expense Guideline.

The bulletin also reminds insurers that hourly fees in the Superintendent's Professional Services Guideline include all administration costs, overhead, and related costs, fees, expenses, charges and surcharges. Insurers are not liable for any administration or other costs, overhead, fees, expenses, charges or surcharges that have the result of increasing the effective hourly rates, or the maximum fees payable for completing forms, beyond what is permitted under the Professional Services Guideline.

My guess is that these aren't just friendly reminders.  More likely FSCO has become aware that health care providers are submitting for mileage and other expenses related to treatment of insureds, and insurers are paying them.  While the industry is lobbying government to reduce costs in the system, insurers are paying for expenses that do not fall under the SABS.

Having worked for the government for many years I am fully aware of the amount of lobbying in which stakeholders partake.  Insurance companies are not shrinking violets when it comes to lobbying efforts.  There is a constant list of suggested changes presented to government officials to reduce the cost of auto insurance.

It was frustrating to work on endless changes to the system that will never be fully utilized. We now have a complex set of rules, many proposed by the insurance industry, that are not always being used. It is a system that is too complex for many to properly understand and use.

Yet the government keeps churning out more regulation and rule changes to drive down costs.  But growing red tape and complexity likely have the opposite affect.  Transactional costs keep going up for insurers, health care providers and legal representatives which ensures that the price of auto insurance in Ontario remains high.

As the service provider licensing system is rolled out and soon to be followed by a new minor injury protocol I wonder which direction costs will go - up or down.

Insurance News - Thursday, December 4, 2014

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Thursday, December 4, 2014:

• The Supreme Court of Canada grants Zurich Insurance leave to appeal ruling over Ontario 'Dispute Between Insurer' regulation (O. Reg. 283/95) from last May.
• Project Whiplash has produced a 2-year conviction and $1.3 million in restitution for operating a staged collision ring in the GTA.
• On and after December 1, Ontario auto insurers cannot pay service providers directly if they do not have a FSCO licence.
• An undercover investigator hired by the city of Toronto reports that Uber poses ‘real and urgent’ safety problems.
• Google has taught its driverless cars to be aggressive, Google cars now nudge into traffic to compete with pushy drivers.

Massachusetts Appeals Court continues trend of PIP decisions against insurers

On April 7, 2007 a passenger was injured in an automobile accident.  Pilgrim was the PIP carrier.  Bryan Hartunian provided orthopedic treatments to the insured.  Pilgrim paid some of the bills from the treatment but withheld payment of $990 on the ground that the charges exceeded an amount that was reasonable in comparison to other medical providers in the same geographic area.  However, it did not notify Hartunian  within ten days of its intention not to pay. 

After twelve months of demanding payment, Hartunian sued Pilgrim in the Massachusetts District Court.  In addition to the unpaid portion of his bill he sought damages under Mass. Gen. Laws ch. 93A.  Pilgrim then issued payment of $990 and filed a motion for summary judgment on all counts of the complaint.  The motion was denied with respect to the 93A count.  Pilgrim was found liable for breach of 93A after a bench and subsequently appealed.

In Hartunian v. Pilgrim Ins. Co.,  __ N.E.3d __, 2014 WL 6607866 (Mass. App. Ct.), Pilgrim argued that its refusal to make payment was not an unfair business practice because it disputed the obligation to pay in good faith.  The court held that that argument ignored the fact that an insurer must, by statute, make PIP payments within ten days or notify the submitting physician or claimant of its intention not to pay. 

Pilgrim also argued that it did not act in bad when  it had an independent medical exam conducted by a physical therapist (apparently a common thing now) rather than a practitioner licensed in the same medical specialty as Hartunian. While not dismissing out of hand the use in all circumstances of a physical therapist for an IME, the court held that whether such use is in good faith raises a factual issue. 

Similarly, the court held that review of the bills by a billing program is not automatically a bad faith act by an insurer but that "its use as a substitute for a practitioner's review of billing statements and underlying services provides an additional basis for an inference of Pilgrim's lack of good faith." 

Municipal Toboganning Case Dismissed

The Municipality of Leamington recently successfully defended a case where the plaintiff alleged she was injured tobogganing.  In De Cou v. Leamington, 2014 ONSC 6044 (S.C.J.), the plaintiff was injured while sledding down a hill in a park run by Leamington.  Although the Town was aware that people used the hill, there had been no complaints about it.  The plaintiff was 29 years old and had been sledding on the hill since she was 5.  The Town did not maintain the park in the winter.

Justice Carey held that there was no breach of the duty of care.  The plaintiff willingly assumed the risk.  Justice Carey held that "Going down a snow covered hill in February  on a light piece of material (be it plastic, cardboard, Styrofoam or wood) is a typical Canadian winter experience.  Falling off a sled is also part of that experience."  There was no causal link between the Town's failure to supervise or inspect the hill and the plaintiff's injuries.  The case was dismissed.

New Auto Insurance Regulations

In October the government posted a notice on their Regulatory Register inviting stakeholders who comment on proposed auto insurance regulation changes.  The regulations have now been approved by the Ontario Cabinet. The regulations dealing with the licensing of service providers are effective December 1, 2014.  The regulation amendment dealing with the interest on overdue payments is effective January 1, 2015.

Section 51 of the SABS (O. Reg. 34/10) has been amended (by O.Reg. 236/14) so that interest payments of 1 percent per month compounded monthly for overdue SABS payments only applies up to the date on which a mediation proceeding begins.  Once the dispute reaches mediation the interest on overdue SABS payments is calculated at the prejudgment interest rate described in the Courts of Justice Act that is used for past pecuniary loss.  The lower interest rate and is then payable until the date a settlement is reached or a decision is issued that finally disposes of the dispute.

Section 49.1 has been added (by O. Reg. 227/14) to the SABS (O. Reg. 34/10)  to cover invoicing by unlicensed service providers.  These providers must bill claimants using the Standard Invoice (OCF-21) and the claimant is to submit the invoice to their insurer.  It is the responsibility of the insurer to provide HCAI with billing information from invoices submitted by claimants when they reimburse a claimant.

The Unfair or Deceptive Acts or Practices regulation (O. Reg. 7/00) has been amended (by O. Reg. 231/14). An unlicensed service provider may not advertise that they are a licensed provider. A licensed provider that has had their licence suspended or revoked may not continue to advertise that they are licensed.

The Administrative Penalties regulation (O. Reg. 408/12) has been amended (by O. Reg. 230/14) to deal with significant contraventions of the regulations that can involve or potentially lead to improper billing practices by service providers.

The Service Providers – Standards for Business Systems and Practices regulation (O. Reg. 90/14) is amended (by O. Reg. 228/14) to introduce a duty to report accurately to the Superintendent of Financial Services, in the periodic return established under section 288.4(5) of the Insurance Act, all information necessary to calculate any applicable fees established pursuant to section 121.1 of the Insurance Act.

The Service Providers – Listed Expenses regulation (O. Reg. 89/14) is amended (by O. Reg. 229/14) to allow licensed service providers to seek payment for outstanding accounts directly from claimants where a full and final settlement has been reached and signed between the insurer and the insured person that includes these amounts.