The Road to Alberta Auto Insurance Reform: Part 2
2004



By Order in Council on January 26, 2004, Finance Minister Nelson proclaimed into force the auto insurance reforms eliminating "double recovery" and many subrogated claims, as well as changing income loss recovery from gross to net.73



In mid-March 2004, it was revealed that the Canadian insurance industry had posted all-time record high profits for 2003, a total of about $2.63 billion (up from the industry's 2002 profit figure of $340 million).74 In the Maritimes, where all four PC governments had also intervened at the auto insurance industry's request to reduce pain and suffering compensation, provincial politicians expressed surprise. For example, Nova Scotia Insurance Minister Ron Russell said, "Last year I was being told that 2003 was going to be a disastrous year for the insurance industry...they were an industry teetering on the edge of bankruptcy."75 But the Alberta government appeared unconcerned. Said Mr. Renner, "We came to the conclusion the market was not operating effectively in a competitive marketplace, and it was necessary for government to step in and do some regulation. That, I think, is more critical and more important than worrying about if someone made a profit or not."76



Not only were insurance  industry investment profits up sharply, the industry also posted an underwriting profit, something it had not done in any of the previous 25 years. IBC VP Jim Rivait even conceded that the 2003 "auto loss ratio" in Alberta was 71.4%, resulting in underwriting profit in the Alberta auto insurance industry.77 Evidently, the industry had reached and comfortably settled into the "Perfect World" prior to implementation of any of Mrs. Nelson's insurance reforms.



Premier Klein succinctly stated the impetus for his government's insurance reforms in a statement in the Legislative Assembly on March 29, 2004: "If the truth be known, the whole government initiative relative to insurances was launched because of the concerns of small businesses, particularly those who use vehicles, plumbing outfits and welding outfits, and those involved in apprenticeship programs. Basically there were a number of complaints to this government that these small businesses couldn't hire people between the ages of 16 and 25 because their insurance rates would go sky high. So we took action. We took very definitive and very positive action to make it illegal for insurance companies to penalize good male drivers between the ages of 16 and 25, whereas under the old rules those people were penalized simply because they were between the ages of 16 and 25 and because they were male."78 



However, Fraser Institute economist Dr. Mark Mullins repeated his concerns about government intervention to subsidize young male drivers' insurance rates: "The evidence is pretty clear here that when you...misprice risk you tend to get too many of these risky people on the road. I would say if I were to do a study in five or 10 years in Alberta, I would probably see a noticeable increase in the number of collisions."79



Throughout the Legislative Assembly's 2004 session, which ended in May, Premier Klein defended the government's insurance reforms in Question Period. On April 22, 2004, Liberal MLA Hugh MacDonald asked, "given that this cap is a huge financial break for the insurance industry, which has recently posted record windfall profits, how much money will the $4000 cap save the insurance industry at the expense of innocent accident victims in this province?" The Premier responded, "Mr. Speaker, could I pose a question to the hon. member? Is he deaf or just stupid?" After hearing from the Speaker that no, he could not pose a question, let alone one so inappropriate, the Premier replied, "I'm sorry, Mr. Speaker. I'm sorry for calling the member stupid and deaf."80



A couple of weeks later, in response to a question on auto insurance reform from NDP MLA Brian Mason, Mr. Klein replied, "I look forward to the absolute annihilation and elimination of this individual in the next election."81 And a couple of days after that, in response to a question from Official Opposition Leader Dr. Kevin Taft, the Premier explained his opposition to public auto insurance, stating, "maybe the hon. member will explain to the media outside the House - I know he won't here - how he plans to dismantle all of the insurance companies that exist here in Alberta and say: with the great hand of government the Liberals will now socialize all insurance. It sounds like Allende in Chile, you know, when he took over all the copper mines and said: the Americans are out; the government now owns all the copper mines, all the minerals, all the resources, all the mining, all the newspapers. Pinochet came in, Mr. Speaker - and I'm not saying that Pinochet was any better, but because of the only elected communist in Chile, Allende, and the socialist reforms he put in, Pinochet was forced, I would say, to mount a coup. As a dictator he was no better then Allende. Of course, the debate still goes on. All you need to do is go on the web site. As a matter of fact, I did a paper on it, and I'll give it to you."82 



On May 12, 2004, Finance Minister Nelson appeared before the Public Accounts Committee and commented, "I have two groups that are warring, the injury lawyers on one side and the insurance companies on the other side. If both of those are equally mad at me, then I must be doing something right for the consumer in the middle."83 However, the Consumers' Association of Canada disputed Mrs. Nelson's logic and conclusion, stating in a May 25, 2004 press release: "Last year Statistics Canada reported auto insurance rates in Alberta increased by 50%. This past week the Alberta Government announced its solution to these massive price increases. The Government announced it would roll back auto insurance rates by 5% and cap benefits for innocent victims of car crashes."84 Said CAC President Bruce Cran, "The Alberta Government is trying to spin its announcement as good news for consumers. The reality is that it is bad news for consumers. The Government needs to design a solution beneficial to consumers and crash victims."85



Also on May 25, 2004, Drs. Michael Freeman and Christopher Centeno of the US-based Spinal Injury Foundation provided written comments in relation to a leaked draft of the government's definition of so-called "minor" injuries to be subjected to a $4000 cap. Understanding the minor injury definition to be a sprain, strain or minor whiplash "that is expected to recover with prompt diagnosis and treatment and results in no serious ongoing impairment that substantially interferes with the ability to perform: a) essential activities of regular employment, occupation or profession, b) essential activities of training or education, or c) normal activities of daily living",86 Drs. Freeman and Centeno wrote: "Is the above definition of a 'minor sprain or strain' appropriate or does the above definition include much more serious injuries (moderate, serious and/or permanent)? Response: The definition is highly inappropriate, and makes assumptions that are not medically, scientifically, or logically valid."87 



In a letter to ACTLA member Joe Nagy dated June 7, 2004, Finance Minister Pat Nelson wrote, "We have always said the cap will only apply to minor injuries that heal relatively quickly."88  However, despite what Mrs. Nelson and her cohorts had "always said", just two weeks later the Finance Minister passed a number of insurance reform regulations including a controversial treatment protocols regulation and a "Minor Injury Regulation" which, effective October 1, 2004, purported to cap at $4000 general damages compensation for far more severe injuries than merely those which "heal relatively quickly". Very basically, the regulation defines a "minor" injury as a sprain, strain, or Grade I or II whiplash associated disorder that does not substantially, permanently and continuously disable the victim from normal daily living activities or from essential tasks of her/his employment or education.89 IBC VP Jim Rivait advised that this definition should be broad enough to cap at least 85% of those persons injured by negligent drivers in Alberta.90 The government estimated that the cap should reduce claims costs by $200 million per year, most of which would be distributed, in the form of  premium reductions, to "the young drivers and the drivers who don't have a particularly good record", according to Rob Renner.91



In the last week of November 2004, just days after Premier Klein's government was re-elected (albeit with about a third less popular vote than in its previous election), Canadian insurance industry profit figures for the first three quarters of 2004 were revealed, evidencing approximately a $4 billion net, after-tax profit for the nine month period ending September 30, 2004 (the day before the "minor" injury cap took effect). Not only did that profit figure eclipse the all-time record high profit of $2.63 billion set in 2003, it in fact exceeded the profit totals of all of 2001 ($465 million), 2002 ($340 million) and 2003 combined.92 



As the year came to a close, IBC VP Jim Rivait seemed extremely pleased with the new insurance reforms. The December 24, 2004 Edmonton Sun reported, "The changes limit soft-tissue injury payouts to $4000 while making it easier for higher-risk drivers to get affordable coverage. 'Many companies are (seeing more clients) and brokers will also tell you they have all kinds of new business,' said Jim Rivait of the Insurance Bureau of Canada. Lower rates for some higher-risk motorists and for people who couldn't afford coverage are reasons for the boom, he said. 'Companies are taking business they never, ever could before,' said Rivait."93 



2005



At the time of writing this paper (mid-January), of course there is little "2005 history" to document. Looking forward, it is expected that this year will see the launching of legal challenges to Alberta auto insurance reforms, particularly to the Minor Injury Regulation. Likely, the arguments will be that the Minor Injury Regulation is ultra vires the governing statute, being the Insurance Act, and additionally or alternatively that the Regulation violates the equality rights provisions as set out in section 15(1) of the Canadian Charter of Rights and Freedoms, and cannot be saved by section 1 of the Charter.94



Regarding the first argument, that the Minor Injury Regulation is beyond the scope of the authority granted by section 650.1 of the Insurance Act, it is a long-held and strict legal principle of statutory interpretation that regulations may neither exceed nor be inconsistent with the legislative provisions under which they are made.95 As Coyne, J.A., observed in R. v. Wold, "in the absence of express statutory power to do so, regulations cannot enlarge or abridge any statutory provision."96 Certainly, section 650.1 of the Insurance Act does not expressly empower Alberta's Finance Minister and cabinet to include quite serious injuries in the regulatory definition of "minor" injuries to be subjected to a compensation cap. Arguably, by so doing, the regulation has improperly exceeded and enlarged a statutory provision.



As for the likely constitutional challenge, considering recent unanimous decisions of the Alberta Court of Appeal and the Supreme Court of Canada,97 it is submitted that by capping general damages compensation for auto accident victims whose soft-tissue injuries may well be far more severe than, for example, auto accident victims who sustain relatively minimal hard-tissue injuries not subject to the cap, the Alberta government has flagrantly violated the disability rights provisions enumerated in section 15 of the Charter of Rights. It is further submitted that the Alberta government will be unable to discharge the steep evidentiary burden it will face in arguing that the Minor Injury Regulation is saved by section 1 of the Charter. It is very doubtful that the government's goal of reducing private auto insurance premiums, primarily for young male drivers, can justify a marked restriction in the civil rights of innocent victims to fair pain and suffering compensation, particularly given the ample evidence that numerous, far less intrusive means existed to lower insurance industry costs and thus stabilize and indeed reduce premiums for Albertans.98







About the author: Edmonton injury lawyer Mark McCourt, founder of McCourt Law Offices and the now-defunct Accident Victims/Insurance Policyholders Advocate, was recognized last year by Alberta Venture magazine as one of the province's 50 most influential people, as a result of his leading role in opposing the Alberta government's tort reform initiatives, particularly the cap on pain and suffering compensation.





ENDNOTES



1. "2003 Facts Book", Insurance Bureau of Canada, p. 5



2. Ibid., pp. 2-3. In a December 6, 2004 meeting of the Canadian Bar Association's Insurance Law subsection in Edmonton, guest speaker and Deputy Superintendent of Insurance Art Hagen advised that Alberta will likely soon find or create a new stats gathering agency, acknowledging that the "optics" of the industry lobby group officially providing Alberta Finance's auto insurance data isn't very politically palatable.



3. Letter from Jim Rivait to Pat Nelson dated October 10, 2001



4. "Everyone Pays: Overcompensation in Alberta's Insurance Industry", Insurance Bureau of Canada, October 9, 2001, p. 1



5. Ibid., p. 3



6. According to an October 27, 2004 memo from Jim Rivait to the CEOs of the Alberta Auto Insurance Coalition, the 2005 health care levy will exceed $60.3 million. And according to a December 22, 2004 news release from the Canadian Taxpayers Federation (Alberta branch), the insurance premium tax yields Alberta government coffers an additional $191 million per year.



7. Supra, note 4, at p. 3



8. Supra, note 4, at p. 4



9. Bill 20, Justice Statutes Amendment Act, 2002



10. "Automobile Insurance: We Want Your Feedback", Alberta Finance, December 2002 (Deadline for submissions January 24, 2003)



11. Alberta Automobile Insurance Board Annual Reports, 2001 and 2002



12. http://www.statcan.ca/Daily/English/030122/d030122a.htm



13. "Alberta Private Passenger 2002: Bodily Injury" chart, Insurance Bureau of Canada



14. "Perspective" Newsletter, Insurance Bureau of Canada, March 2004, p. 3



15. "Submission to Alberta Finance on the Automobile Insurance Consultation Paper", Insurance Bureau of Canada, January 24, 2003



16. "Media advisory", Canadian Coalition Against Insurance Fraud, February 11, 2002



17. "Alberta Automobile Insurance Experience: Actual Loss Ratio Exhibit, 2002", Insurance Bureau of Canada



18. "Automobile Insurance in Alberta: Challenging Times", presented to ED & F SPC March 3, 2003 by Diane Strashok, President and CEO, Peace Hills Insurance; Don Marshall, Western Regional Claims Manager, Allstate Insurance; Ray Baril, Partner, Chomicki Baril Mah; and Jim Rivait, Vice President - Prairies, NWT and Nunavut, IBC.



19. Supra, note 4, at p. 1



20. Supra, note 18



21. Supra, note 1, at p. 6



22. "Legislative Assembly Minutes", Alberta Hansard, March 24, 2003, p. 670



23. "Legislative Assembly Minutes", Alberta Hansard, April 28, 2003, p. 1267



24. "Legislative Assembly Minutes", Alberta Hansard, April 28, 2003, p. 1268



25. "Legislative Assembly Minutes", Alberta Hansard, April 28, 2003, p. 1267



26. "Tories eye changes to auto insurance", Edmonton Sun, June 7, 2003, p. 20



27. "Gov't to probe young drivers' premiums", Edmonton Journal, June 11, 2003, p. A3



28. "The impoverished politics of automobile insurance reform", by George Anderson, Canadian Insurance magazine, February 2003, p. 25



29. AUPE Labour School, March 2002



30. Bill 21, Financial Institutions Statutes Amendment Act, 1996



31. Interview with Brent Rathgeber on CBC radio, November 17, 2003



32. Environics West poll dated June 27, 2003



33. Ibid.



34. "Government addressing consumer concerns with rising auto insurance rates", Alberta Government News Release, July 7, 2003



35. "The Injured's Rights are Down, Down Under", by Rick C. Gambrel, ACTLA's Barrister magazine, December 2004, p. 28 at 30-31.



36. "Profile", Canadian Bar Association's National magazine, December 2003, p. 16



37. "Regulatory Negotiation in Automobile Insurance Reform", by Shelley L. Miller, 2001 Risk Management and Insurance Review, Vol. 4:1, p. 54



38. Letter from Brent Rathgeber to Rob Renner dated August 11, 2003



39. "Insurance committee terribly biased", by Licia Corbella, Edmonton Sun, August 22, 2003. Ms. Corbella also quoted controversial and fictitious victims' rights advocate Herbert Patrotage (pseudonym of Mark McCourt), who dubbed the Renner - Donahue committee "the insurance industry all-star team", and added, "It's like Alberta Health announcing an advisory board to combat lung cancer, comprised entirely of tobacco company lobbyists, CEOs and their lawyers".



40. "Critics claim reform team is stacked", by Linda Slobodian, Calgary Herald, August 25, 2003



41. "Report I: Costing Analysis of 2004 Auto Reform", KPMG, December 13, 2004, p. 8



42. Ibid., p. 19



43. "Report II: Supporting Analyses - Review of Alternatives", KPMG, p. 5



44. "Auto insurance isn't really too complicated", IBC ad, Edmonton Sun, September 10, 2003, p. 14



45. Supra, note 18. See also note 41 at p. 36: "For 2000, the overall expense ratio for the industry was 24.7% and for 2001 it was 23.8%."



46. "Fraser Alert", September 2003, by Fraser Institute Dr. Mark Mullins, p. 1



47. Ibid., p. 5



48. "Perspective" Newsletter, Insurance Bureau of Canada, December 2002, p. 4



49. "Ralph promised us lower insurance rates", by Neil Waugh, Edmonton Sun, October 16, 2003, p. 11



50. "Auto Insurance Review", presented to ED & F SPC October 15, 2003 by Medicine Hat MLA Rob Renner, p. 5



51. Ibid., pp. 19 - 21



52. "Claims cap faces uphill fight", Edmonton Journal, October 17, 2003, p. A13



53. Ibid., p. A1



54. News Release, Alberta Transportation, September 29, 2003, p. 2



55. http://www.geoplace.com/gw/2003/0306ednd.asp



56. "More evidence would help PCs' insurance claims", Edmonton Journal, October 20, 2003, p. A14



57. http://www.gov.ab.ca/home/index.cfm?page=578



58. "Fictional victim helps fell Tory Goliath", by Graham Thomson, Edmonton Journal, October 28, 2003, p. A1



59. Ibid., p. A9



60. "Automobile Insurance Reform: Industry's Proposal to the Alberta Government", Insurance Bureau of Canada, October 29, 2003, pp. 2-3



61. "Insurers back off injury-claim cap", Edmonton Sun, October 30, 2003, p. 5



62. Joint proposal of AVIPA, ACTLA, CBA (Alta.) and Fight for Right Coalition, November 2003, p.1



63. Ibid., pp. 1-3



64. "Alberta consumers to benefit from sweeping auto insurance reforms introduced by Alberta Government", Alberta Government press release, November 19, 2003, p. 1



65. Thompson's Insurance News, November 3, 2003



66. Letter from Dr. Guy LaVoie (sent to various media), November 27, 2003



67. "Legislative Assembly Minutes", Alberta Hansard, November 18, 2003, p. 1695



68. "Legislative Assembly Minutes", Alberta Hansard, November 19, 2003, p. 1732



69. Alberta Government News Release, November 24, 2003



70. Insurance Act, Chapter I-3, RSA 2000, s. 650.1



71. "Government risking destruction of industry, insurer says", Thompson's Insurance News, December 15, 2003, p. 5



72. "Legislative Assembly Minutes", Alberta Hansard, March 15, 2004, p. 460



73. Supra, note 70, s. 626.1



74. "Insurance industry reaps record profits", Globe and Mail, March 17, 2004, p. A2



75. "Klein has plan for insurance profits", Red Deer Advocate, March 17, 2004



76. "Insurance profits soar", Edmonton Sun, March 16, 2004, p. 4



77. "Province on top of insurance costs, Klein says", Edmonton Journal, March 17, 2004



78. "Legislative Assembly Minutes", Alberta Hansard, March 29, 2004, p. 722



79. "Auto insurance changes blasted", Calgary Herald, April 20, 2004



80. "Legislative Assembly Minutes", Alberta Hansard, April 22, 2004, p. 987



81. "Legislative Assembly Minutes", Alberta Hansard, May 4, 2004, p. 1212



82. "Legislative Assembly Minutes", Alberta Hansard, May 6, 2004, p. 1291



83. "Alberta Public Accounts Committee Minutes", May 12, 2004, p. PA-114



84. "Consumers' Association Calls on Alberta Government to Return to the Drawing Board on Auto Insurance", CAC press release, May 25, 2004



85. Ibid.



86. Paper by Spinal Injury Foundation Drs. Michael D. Freeman and Christopher J. Centeno dated May 25, 2004, p. 1



87. Ibid., p. 2



88. Letter from Pat Nelson to Joe Nagy dated June 7, 2004



89. Insurance Act Minor Injury Regulation, AR 123/2004



90. "Accident Victims Decide Severity of their Injuries", Edmonton Journal, November 13, 2004



91. Statement by Rob Renner on Global TV news, June 21, 2004



92. "Insurance reforms didn't help Albertans", Medicine Hat News, December 8, 2004



93. "Car insurance business booming", Edmonton Sun, December 24, 2004, p. 14



94. Section 15(1) of the Charter reads: "Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, religion, sex, age or mental or physical disability." Section 1 of the Charter says that Charter rights are guaranteed, "subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society."



95. See R. v. Belanger (1916) 54 SCR 265, and R. v. National Fish Co. [1931] Ex. CR 75



96. R. v. Wold (1956) 64 Man. R; 19 WWR (NS) 75 (C.A.) at 79



97. Nova Scotia (Workers' Compensation Board) v. Martin  [2003] 2 SCR 54; Ferraiuolo v. Olson 2004 ABCA 281 (2004-10-07)



98. For a more comprehensive discussion of the possibility of challenging the Minor Injury Regulation as contrary to s. 15 of the Charter, see "Legislative Reform and Equal Access to the Justice System: An Examination of Alberta’s New Minor Injury Cap in the Context of Section 15 of the Canadian Charter of Rights and Freedoms", by U of A Constitutional and Insurance Law Professor Barbara Billingsley, forthcoming in the 2005 Alberta Law Review.   
For more information:
The Road...Part 1
About the author
AIRB Submission
Contact info:
Name: Mark McCourt
Email: mccourtlaw@shaw.ca