Why the new s. 258.3(8.1) of the Insurance Act will retroactively scale back prejudgment interest rates in MVA actions

R. Lee Akazaki, C.S., B.A. (Hons.), J.D.Civil Litigation, Insurance0 Comments

This week, the new provision in the Ontario Insurance Act, s. 258.3(8.1) received Royal Assent.  When the provision is proclaimed by Order-in-Council,* it will  abolish the 5% rate of prejudgment interest (PJI) on non-pecuniary damages for automobile claims.  The new subsection says:


“Subsection 128 (2) of the Courts of Justice Act does not apply in respect of the calculation of prejudgment interest for damages for non-pecuniary loss in an action referred to in subsection (8) [actions in tort arising from motor vehicle accidents].”

Given the eagerness of the Ontario government to send a signal to the insurance industry, we should expect this provision to be proclaimed before long, perhaps as early as the beginning of 2015.  In my view, the transfer of non-pecuniary damages, the label for general damages for pain and suffering, and related loss of amenities, to the general calculation formula for PJI, will have a significant effect on damage awards, not only in future but also in pending cases.  The 5% rate has been out of step with modern slow-growth interest rates, in recent years as low as 0.5%.  In a multi-year action for catastrophic injuries, that type of reduction can mean a six-figure difference.  It should be standard of care for all defence counsel to ask trial courts to scale down prejudgment interest for non-pecuniary damages, retroactively.

Retroactively?  Yes, you heard it here first.

The Ontario Court of Appeal, in Somers v. Fournier, said that entitlement to PJI is substantive law because it is not granted by discretion but the measure of it can be adjusted by discretion.  In that decision, the court determined the substantive/procedural divide in a choice of law case, equally applicable here: “Remoteness and heads of damage are questions of substance governed by the lex loci delicti, whereas the quantification or measurement of damages is a question of procedure governed by the lex fori.”  The distinction arises from the difference between the vesting of a right and the granting of a remedy.  The right to PJI is a discretionary remedy under sections 128 and 130 of the Courts of Justice Act (CJA), and s. 258.3(8.1) of the Insurance Act refers back to those provisions in the CJA.  Thus, the presumptive right to PJI under the CJA is a substantive right, whereas the measure of the award is procedural right.

A further reason for construing the provision as procedural is that it bears no relation to actual market interest rates.  It cannot be argued that the plaintiff actually lost 5%, especially when the method used for other PJI awards are based on formulae involving actual published bank rates.  The 5% rate has always been arbitrary, and therefore cannot be a true measure of the actual loss, or of the money made by the defendant pending the determination of liability and quantum.

PJI has long been held to be a discretionary element of compensatory damages: Graham v. Rourke and Irvington Holdings Ltd. v. Black.  Appeals to lawyers’ intuition, fairness or ‘common sense’ may point in the opposite direction. However, the substantive/procedural divide exists as a judicial control over attempts to assert legal rights where they do not exist.  A party’s rightto the benefit of law is substantive.  The scope of the remedy is procedural.  Otherwise, black letter law can lead to injustices.  Overturning this important principle of the common law for the purpose of relieving against an perceived transitory unfairness would be unwise.

On this basis, the damages cap restricting Canadian courts to a conventional sum for general damages was held to be procedural.  Similarly, rules regarding costs were held to be procedural because of reliance on the Rules of Civil Procedure.  Based on the principle that rule regarding the measurement of an award are procedural, as opposed the entitlement, the new subsection 8.1 is procedural.  At common law, according to rules of statutory interpretation, procedural law takes immediate effect and, for pending suits where liability has not been determined, retroactive.  At para. 55 of the Somers decision, the court stated:

English courts have also recognized a distinction between laws which deny a remedy in respect of a particular head of damage in negligence (a substantive law) and those which affect the quantification of damages concerning a particular head of damage (a procedural law).

PJI awards in serious accident cases have often been used to inflate damages awards by 5% per annum, for the purpose of making allowances for lawyers’ fees or to achieve other ends regarding the calculation of settlements.  Suddenly, that 15% on a $340,000 award 3-years post-accident might be 3.9% or less, depending on the date of loss.  Although it is anticipated that plaintiffs will argue this is unfair, that position will be hard to justify given that actual PJI rates for other cases have tracked the returns on investment of the rest of the economy.

*Update: proclaimed and in force as of January 1, 2015

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About the Author

R. Lee Akazaki, C.S., B.A. (Hons.), J.D.

Civil trial and appeal counsel in all levels of Ontario courts, leave applications to the Supreme Court of Canada, and administrative tribunals. Certified by the Law Society of Upper Canada as a Specialist in Civil Litigation. Hearings in English and French. Bio | Contact

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