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Fundamental Flaws in Injury and Disability Law | Part Two: Let’s Talk Car Accidents – The History of How We Got Here

Did you know that you cannot sue the person who caused the accident and your injuries for pain and suffering unless you meet a “threshold test” that indicates your injuries must be permanent and prevent you from returning to school, work or activities of daily living?

Did you know that even if you meet that threshold test there is a deductible of nearly $40,000, meaning if you are awarded $80,000 for your pain and suffering, you will only receive about half of that?

Did you know that if you do not return to work after a serious accident, you are only entitled to 70% of your past income losses?

Auto insurance litigation is one of the most fundamentally flawed systems in Ontario law.   There is no justice for these victims.  In terms of  car accidents in Ontario  there is a two tiered system in place:

1.  Accident benefits

2. Lawsuit against an at fault party

The History – How did this two Tier system come into existence and why?

This two-tier system came into place in 1990 following what was perceived by the insurance industry as a Liability Crisis as a result of the 1985 Ontario Court of Appeal Decision, McErlean v Sarel et al.  In response to the perceived liability crisis,  liability insurance costs skyrocketed.  Two major reports were commissioned to address the issue; the Ontario  Task Force on Insurance which was released in  1986 and the other that dealt with auto insurance exclusively, Justice Osborne’s Report of Inquiry into Motor Vehicle Accident Compensation in Ontario, issued in April 1988.

Both of these reports were commissioned to deal with the insurance “crisis”, one that did not in fact exist and while they continue to postulate a crisis 33 years later, one does not exist for the insurers.  The real “crisis” is the injustices that are faced by the injured victims.

In any event, in order to combat this “crisis” many recommendations for reform were presented. These recommendations were then enacted into legalisation called the Ontario Motorist Protection Plan (OMPP) which came into force on June 23, 1990.  This created a two tier system where a party could only sue an at fault driver if they suffered permanent serious disfigurement, permanent serious impairment, or death.  The second tier was no-fault accident benefits which were intended to pay any person regardless of fault with income replacement, medical and rehabilitation benefits and attendant care benefits.

In 1994 Bill 164 replaced OMPP. With this came sweeping changes, and a vastly reduced ability to sue an at fault driver.  Bill 164 took away a victim’s right to sue the at-fault driver for any lost income, out of pocket expense or cost of care. It also implemented a $10,000 deductible on pain and suffering damages that would revert back to the at fault driver’s insurance company.  The only purpose of the deductible was to save insurance companies money.   The proposed trade off was enhanced accident benefits under the new Statutory Accident Benefits Schedule.  These benefits included income replacement benefits, medical and rehabilitation benefits, housekeeping benefits, and attendant care benefits. Auto insurers had a strong dislike for Bill 164 as it significantly increased their claim exposure. This legalisation was only in place until  November 1996 with the advent of Bill 59.

Bill 59 restored injured victims right to sue an at fault driver for all types of damages, although still subject to the serious and permanent threshold. The restored right to sue for past income loss was restricted to 80% of net income and it was not to be indexed. This means that any loss of income crystallizes to the amount earned at the time of the accident.  It also increased the deductible on pain and suffering damages to $15,000.  Again this money would go back to the at fault parties insurance company. This bill significantly reduced the availability of no fault accident benefits.

All of the above legislative changes were spurred by a perceived “crisis” and combating fraud.  Of note, in 1996, the rate of fraudulent claims was approximately 12% to 15%[1].  This is a very low occurrence of fraud.  The “crisis” never actually came to fruition, what did happen was that insurers panicked, increased rates, and created a sizable issue that to date has not been fairly addressed.

Even more drastic changes came in 2003 with Bill 198. This bill increased the insurance deductible for pain and suffering to $30,000,  which again is money that goes directly back to the at fault driver’s insurer.  The intent of the threshold and the deductible was to deter people from bringing actions against at fault drivers.  There were also significant cuts to accident benefits which will be the subject of my next article.

Despite the low rate of fraud, insurance companies continued to espouse fraud and decreased profitability in the auto insurance sector.  This in turn led to Bill 16.  Bill 16 made gouging cuts to accident benefits and reduced the amount that could be recovered or past loss of income to 70% of the victim’s gross income at the time of the accident.

To paint the picture,  if you were in a serious car accident that was caused by someone else,  and your injuries were so serious that you will never work again, all you can claim until the date of a trial is 70% of your income.  That means 30% of what you would have normally earned,  well it goes to the insurance company.  This may not sound like a lot when looking at percentages but if you were earning $60,000 per year and it took  5 years to get to trial,  you would expect to get $300,000 for your lost wages.  However, because of this law, you would only receive $210,000. The insurer does not have to pay you that additional $90,000. These statutory changes, which are still in place, make is so that an accident victim cannot be made whole, not even those who have sustained such serious injuries as traumatic brain injuries,  loss of limbs, or quadriplegia. The current legislation guarantees they will be worse off financially,  without the ability to ever break even.

If things didn’t seem bad enough,  more changes were made.  In  2014,  Bill 15 reduced the interest rates from 5% per year to the current rate of  1.5% per year.   Prior to this legislation, certain damages awarded earned interest at 5%.   This reduced the incentive for insurers to settle these cases in a  timely fashion.

The 2014 changes also stripped the injured victim’s right to sue their own insurance company for payment of benefits.

2015 and 2016 saw major changes and a huge reduction of accident benefits available to those injured in car accidents.  Please stay tuned for my next article that will outline the massive accident benefit reductions.

Despite all of the above-noted limits on injured victim’s right to recovery, and the heavily pared back benefits under the accident benefits scheme,  auto insurance rates have remained high. Injured victims now have fewer rights, less opportunity to recover losses sustained as a result of an at fault party,  millions of dollars fewer benefits, and in order to secure minimal or restrictive compensation they face years of adversarial disputes coupled with biased medical examinations.

And yet,  rates have remained high throughout the past 30 years.   Ontario auto insurance rates are among the highest rates paid by Canadians. Auto insurers are claiming huge losses in the auto insurance sector but investigations into the financial performance of Ontario Auto Insurers has revealed otherwise.

The report by Dr. Fred Lazar and Dr. Eli Prisman, from the York University Schulich School of Business has concluded that Ontarians have likely overpaid for auto insurance by between $3 and $4 billion for the period of 2001 to 2013[2].

This report has also identified that profits for the auto insurance sector are on the rise. And yet, premiums remain high and the justice, care, and fairness remain at an all-time low.  The time for change is now.

What we are left with is a tort system where there are severe restrictions on Ontarian’s rights to sue the person who has caused their injuries as a result of a car accident.  When an injured person sues the driver that caused the accident, that person’s insurance steps into their shoes and defends the action.  As such, the person  who caused the accident is not being sued directly rather the lawsuit is against the insurance company, in the name of the at fault party.  No money comes out of the at fault parties pockets.

Insurance companies through the lobby group they fund, the Insurance Bureau of Canada, spends an estimated $32 million dollars per year lobbying the Government.  That is a major factor in why motor vehicle legislation is pitted against the injured victim.

Current Hurdles Faced by Injured Victims

Those who have been injured in a car accident as a result of someone else’s wrongdoing face significant barriers to being able to sue that person.  Even if those hurdles are met,  the current system continues to limit what can be recovered.

The Threshold

The threshold test was first introduced in 1990 with the OMPP and it is still in place today. The test is designed to prevent injured victims from being able to sue as a result of minor injuries.  However, the reality of the test prevents even serious claims from being advanced if recovery takes place.

Before you can successfully sue for this category of damages, which is compensation for pain and suffering, the loss of enjoyment of life, and the loss of amenities, you must prove that your injury “meets the threshold”.  This can only be done if you can show that you have sustained one of two types of injury:

1.         Permanent serious impairment of an important physical, mental or psychological function; or

2.         Permanent serious disfigurement.

This threshold test is further defined.  The impairment must either substantially interfere with

(a) your ability to continue your regular/usual employment, or

(b) your ability to continue training for a career, or

(c) with most of the usual activities of daily living, considering your age.

For the function that is impaired to be an important function, the function must either

(a) be necessary to perform the activities that are essential tasks of your regular/usual employment or

(b) be necessary to perform the activities that are essential tasks of the training for your career, or

(c) be necessary to perform your activities of daily living.

For the impairment to be permanent, the impairment must have been continuous since the incident and must, based on medical evidence and subject to your reasonable participation in the recommended treatment of the impairment, be expected not to substantially improve.  In addition, the impairment must continue to meet the criteria as noted above, and be of a nature that is expected to continue without substantial improvement when sustained by persons in similar circumstances.

This effectively means that if you  are in a car accident and you sustain injuries that heal and you return to your normal level of function that existed prior to the accident, you cannot sue for pain and suffering damages.  It does not matter how severe the injuries were, or how long it takes you to get back on your feet.  For example,  if you sustain a serious concussion and broken bones,  and it takes you several years to recover but a full recovery is made, you have no right to sue for your pain and suffering during those years.

This is a stringent test that acts as a bar to recovery for many deserving car accident victims.

The deductible

If your injuries do happen to meet the “threshold test” there is yet another big hurdle to overcome, the pain and suffering deductible.   This deductible was introduced in 1994 in the amount of $10,000.  This was increased to $15,000 in 1996,  and then to $30,000 in 2006.  Then, in 2015 the $30,000 became subject to inflation.  The deductible amount is now nearly $40,000 and ever-increasing.

This has a very significant impact on all injured victims. In 1978 the Supreme Court of Canada capped pain and suffering damages at $100,000, even for the most seriously injured.  Today, this amount is approximately $374,000.

If the award for pain and suffering is less than $126,610,  nearly $40,000 will not have to be paid by the insurance company.  Since there is a cap on damages,  awards for pain and suffering are generally low.   As such,  if a person injured in a car accident is awarded $80,000 for their pain and suffering,  they will only be paid approximately $40,000.  The only purpose for this deductible is to save insurers money and to combat so-called fraud which has not been shown to be a real issue in motor vehicle litigation to the extent claimed by the auto insurers.

Past Income Losses are Reduced to 70% of Income Earned

For no reason other than to save insurers money,  in the guise of offsetting for tax purposes, an injured party is only allowed to recover 70% of the income they have lost from the date of the collision to the date of trial.

This 70% rule negatively impacts injured parties and the restriction affects individuals disproportionally.  The theory behind the proposal was  to allow for these payments to be non-taxable.  However,  a flat reduction of 30%  does not adequately reflect the amounts an individual would have paid in taxes.  No real valuation of taxes payable went into this determination and it affects those with the lowest income the most,  as they are in the lowest tax brackets.


Interest rates on general damages were reduced from  5% to be calculated in accordance with the Courts of Justice Act.  This reduced the interest rate from 5% to 0.8% in 2016, and 2017.  The current prejudgment interest rate is only 1.5%.   The 5% rate had been in place since 1989.  The kicker is that the prejudgment interest rate remains at 5% for all other types of personal injury cases.

Again, this change will impact those who have the largest claims the most, and ergo, are the most significantly injured.  For example, if you have a very large pain and suffering award, which equates to very serious injuries, and your case has been tied up in litigation for years, the award for prejudgment interest will be significantly reduced.


The Insurance Act, as it relates to those who have been injured in motor vehicle collisions is simply not fair, it’s not right, and it prevents access to justice. The above-noted laws are only the tip of the iceberg.  The erosion of Accident Benefits that have occurred over the last few decades is a real cause for concern.  To learn more, stay tuned for part three of the series.

This article was written by personal injury lawyer Catherine Shearer.


[1] AR Vol. 3, Tab 21 at pp1180 Ontario Legislative Assembly, Official Report of Debates (Hansurd), Session 36:1, dated June 13, 1996

[2] Dr. Fred Lazar and Dr. Eli Prisman, 2015, Return on Equity for Automobile Insurance Companies in Ontario available at: