On the first of this year, a little known portion of a recently passed provincial bill took effect, and it is not good news for accident victims in Ontario.
Late last year, Bill 15, interestingly called the "The Fighting Fraud and Reducing Automobile Rates Act," passed in the Ontario legislature. One portion of that bill, section 12 of schedule 3, became law on January 1, 2015, aligning the: "prejudgment interest rate used in calculating court awards for non-pecuniary losses made under a motor vehicle liability policy with the rate determined under the Courts of Justice Act, as it may be revised from time to time. The current interest rate is 1.3 per cent."
What does that mean?
Prejudgment interest means that when an accident victim is awarded damages for an accident, they must be awarded interest from the date defendants are notified that a claim is advanced against them. The prejudgment interest rates used to be set at 5%, meaning if a person was awarded $100,000.00 in pain and suffering damages for an accident that happened five years ago, they would actually receive a payment of $100,000 plus $5000 for every year since the accident.
Now the interest rate will be a fluctuating, market-based rate which is currently 1.3% – resulting in a significant difference in payment to an accident victim. (In the example above, the amount would change from $125,000 to $106,500.)
Not only will awards for victims be less, but with such a low interest rate, insurers will not be in a hurry to settle cases. Instead, they will be happy to wait out the lengthy proceedings before they finally pay a claim as they will only pay an additional 1.3% interest rate on top of the damages awarded, whereas the previous 5% was significant enough to motivate insurers to settle claims more quickly. In the current market, insurers will want to keep their money invested for as long as possible instead of paying up quickly – while accident victims endure the uncertain and complicated litigation process.
In short, Bill 15 puts the insurance industry ahead of accident victims. Watch this space for further explanation of Bill 15 and what it means for you.