A recent decision in State Farm Mutual Automobile Insurance v. Fedrico (March 25, 2013) is important in assessing which interest rate applies to an Insurer where it has not paid statutory accident benefits in a timely fashion.
Prior to September 1, 2010, the Regulation required an Insurer who had not paid in a timely fashion to pay interest at a rate of 2% per month, compounded monthly.Obviously this is a significant interest rate, however the Regulation which took effect on September 1, 2010, appeared to change the interest rate from 2% to 1% compounded on the same basis.
This change obviously followed insurance lobbying. The issue in the Federico case was which interest rate applied to defaulted payments by the Insurer for accidents prior to September 1, 2010. Guidelines for the Regulations released by the Superintendent were apparently clear that such rate should be 1%. Notwithstanding the Superintendent's guidelines, the Arbitrator found that the interest for late payments relating to accidents prior to September 1, should in fact be 2%, and not 1%.
This decision was upheld on Appeal by Appellate Officer Blackman. In so finding, the Arbitrator and Appellate Officer held that the guidelines only need to be considered and were not binding. The Superintendents bulletin was found to be unclear on the issue of interest for accidents prior to September 1, 2010. The transitional rules in the Regulation were not clear.
The Arbitrator and Appellate Officer also found that the guidelines could not change a right vested under the old Regulation. A new provision in the legislation should only be given an immediate effect and not a retroactive effect. In other words, an Insured on the 31st of August 2010 had a vested right which had materialized to receive 2% per month compounded monthly. This right could not be taken away by the existing wording of the transition provisions or the guideline.
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