The Facts about CAPS

Legal challenges against caps on pain and suffering awards for minor injuries resulting from automobile accidents are currently working their way through the Nova Scotia and New Brunswick judicial systems. A similar court challenge in Alberta was resolved late last year. So far, four different courts in two jurisdictions have found the caps to be fair and consistent with the Canadian Charter of Rights and Freedoms.

Even if similar legal decisions are rendered in outstanding cases, it is unlikely that cap opponents, led mostly by personal injury lawyers, will stand down. Cap critics are expected to shift the debate from the courtroom to the public arena where emotional arguments can be more easily won. As a result, changes to the caps are possible; however, the costs associated with any changes must be clearly understood by consumers.

Unfortunately, many consumers — and elected officials — simply don’t understand the scope or purpose of the caps. Insurance Bureau of Canada (IBC) is committed to setting the record straight by reaching out to government officials, journalists and consumers themselves. Our aim is to present the facts. We are confident that when armed with objective facts, consumers will come to their own informed conclusions about the usefulness of the caps.

THE SCOPE OF CAPS

One often-misunderstood fact about the caps is their scope. Caps apply only to pain and suffering damages paid to those suffering minor, nonpermanent injuries incurred in motor vehicle collisions. They do not apply to the many other benefits to which injury victims may be entitled irrespective of the severity of their injuries. These benefits might include income replacement during the recovery period, medical/rehabilitation services to support recovery or other extra costs experienced as a result of an injury.

We need to recall the reason the caps were introduced in the first place, namely to control spiraling auto insurance claims costs and rising premiums while continuing to provide sufficient benefits to injury victims. While some would argue that any limitation on pain and suffering awards is unfair, it is instructive to remember that claims costs were increasing significantly. This was not because injuries had become more serious or even more expensive to treat, but rather because pain and suffering court awards for minor injuries, such as sprains and strains, had grown so significantly.

GOVERNMENTS ENDORSE CAPS

This brings us to another important point: the fact that four separate governments concluded that caps on pain and suffering damages for those with minor injuries represented the best method of controlling injury claims costs and stabilizing premiums. Other methods of controlling costs were discussed and debated, but caps were preferred because they were considered reasonable, had the greatest potential to be effective and still ensured robust benefits to collision victims regardless of the severity of their injuries.

If declining premium rates are any indication of success, these governments appear to have made the right decision. Take Alberta, for instance. Since the introduction of reforms in 2004, including the implementation of a pain and suffering damages cap, auto insurance premiums have dropped by 10.4% on average. This despite the fact that, when it implemented the cap, the government also greatly enhanced accident benefits. In fact, the province increased the limit on medical and rehabilitation treatment — to which all collision victims have access — five-fold from $10,000 to $50,000.

COURT CHALLENGES

Opponents of the cap launched a court challenge in 2008. Fortunately, in June of 2009, the Alberta Court of Appeal released its decision upholding the constitutional validity of the cap. The court found “the legislation, as a whole, responds to the needs and circumstances of those suffering minor soft tissue injuries.” The plaintiffs then sought leave to appeal this decision to the Supreme Court of Canada, which refused to hear the case, thereby bringing this legal challenge to an end.

Similar legal events have unfolded in Nova Scotia. The Supreme Court of Nova Scotia upheld the constitutional validity of the province’s cap in February 2009. Ten months later, after an appeal by the plaintiffs, the Nova Scotia Court of Appeal unanimously upheld the cap’s constitutional validity. As in the Alberta case, the plaintiffs in Nova Scotia sought leave to the Supreme Court of Canada. The Supreme Court has yet to announce whether it will hear the case.

The situation has become more complex in Nova Scotia because the new NDP government has initiated a cap review. In its submission on the question, IBC urged the government to assess all alternatives to changing the cap against the overriding principle of maintaining affordable and stable auto insurance for the province’s motorists. In this regard, IBC’s submission points out that there is an important difference between changes to the cap that might produce a one-time increase in tort claims costs and yet not pose a serious threat to future market stability, and other changes that would likely set in motion ongoing cost pressures, ultimately pushing up premiums.

All of this in a province that has enjoyed a remarkable 23.1% reduction in average auto insurance premiums — from $1,069 in 2003 to $822 in early 2010 — since the introduction of reforms, including the implementation of a pain and suffering damages cap.

Nearby, in New Brunswick, another cap challenge is under way, although no court date has been set. We do know, however, that in the seven years since cost-saving reforms were introduced there, average annual auto insurance premiums have dropped by 35%.

Yet another cap challenge can be expected to take place in Prince Edward Island, where consumers have so far enjoyed a 15% drop in auto insurance premiums since the introduction of auto insurance reforms in 2004.

FACTS SPEAK FOR THEMSELVES

All in all, the facts speak for themselves. In every jurisdiction where they have been implemented, minor injury pain and suffering damages caps have helped to lower costs and stabilize auto insurance premiums. Despite their proven success, however, opponents continue to challenge the caps in the courts while also pressing politicians to remove them through legislation — at a significant cost of time and money.

Insurers are prepared to operate within the range of possible insurance systems that governments determine will best serve their consumers. However, if a cap is removed in one system, another effective cost-saving measure must replace it. Only in this way can balanced auto insurance systems, offering fair and adequate compensation to collision victims while ensuring fair and stable premiums for all consumers, be realized.

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Despite the success of caps, opponents continue to challenge the caps in the courts while also pressing politicians to remove them through legislation — at a significant cost of time and money.