The Myth of the Car Accident Lottery

In my last blog published to Facebook, a reader commented that anyone in a fender bender can get a big payout and that the rest of us pay for it through increased auto insurance premiums. I promised that reader that I would address his comment in my next blog – and here I am.

Let’s start with auto insurance rates. Payouts might be a factor that might impact our rates. But what do insurance companies do with our premiums when we pay them? They deposit them and they invest them. Factors like interest rates and returns on investment have a much larger impact on our insurance rates than insurance company payouts. In 2018, Canadians paid $25 billion in auto insurance premiums. A downturn in interest rates or the stock market will have a bigger impact than fender bender payouts – and as I will explain below, fender bender payouts are largely a myth.

All of us have heard stories of massive awards or settlements for injury claims in the United States. For better or worse, we don’t see those same awards in Canada. Our laws are designed to restore the injured person to the position they were in before the accident. Our laws are specifically designed to guard against double recovery or enriching an injured person.  In other words, if you lose $1 of income as a result of an injury, you should recover $1, not $2.

The only exception to this rule is compensation for pain and suffering. After all, pain and suffering is not a monetary loss so we can’t restore it dollar for dollar like we can lost income. Instead, pain and suffering is determined largely by precedent and the awards are subjected to a ‘cap’ imposed by the Supreme Court of Canada in 1978. It was originally set at $100,000. In 2020 dollars, that amount is now about $400,000 and it reserved for the worst imaginable injuries – fender benders need not apply.

In addition to the laws that we have that guard against double recovery, we also have two laws that are unique to Ontario that can make it very hard to recover any money at all if you’re injured in a car accident.

The first law is known as ‘The Threshold.’ The Threshold requires that the injured person satisfy the court that they have sustained an injury that is a permanent and serious impairment of an important physical or psychological function. The injured person’s evidence must be corroborated by a doctor. The idea that a fake or very minor injury will pass muster is a fiction. It is not easy to attract an award of money in injury litigation.

The second law is called ‘The Deductible.’ The Deductible is exactly what it sounds like – a deductible. If an injured person satisfies The Threshold, the first (roughly) $40,000 that they would otherwise receive for pain and suffering is a deductible. They don’t get it. To make matters worse, civil juries are not told about the deductible. If a jury awards $40,000 for pain and suffering, the injured person gets $0.

So, the idea that a fender bender will result in a big payout is a myth, at least in Ontario, where our laws guard against enriching injured people and even go so far as to prevent compensation for injured people altogether in some instances.