Insurance Company Loses Gamble Of No Future Claims When Settling Privately
Insurance companies can sometimes attempt to privately negotiate settlements with insured parties. The dangers of doing so were recently demonstrated in an Ontario Superior Court of Justice decision, where the insurer failed to consider that other claims may arise after a privately negotiated settlement had been reached.
A tragic car accident
The facts in the case deal with an automobile accident that occurred on June 25, 2006, resulting in the death of two passengers in the vehicle. The vehicle was insured by the defendant. The car was insured under a standard automobile policy, which included $1 million in third party liability. There were three actions initially brought against the defendant, including one from the family of one of the deceased. The family of the other deceased passenger did not immediately commence an action, though their insurance broker had talked with the defendant about the possibility of an action.
Nothing further was heard from the plaintiffs until after the defendant had reached privately negotiated settlements with the three other parties, who shared the $1 million third-party liability on a pro-rated basis. The plaintiffs in the current case then took action against the defendant, seeking their entitlement to their share of the $1 million. Meanwhile, the defendant took the position that they were not required to make any further payments, given that they had negotiated with the previous plaintiffs, had tried to make contact with the current plaintiffs, and had exhausted the $1 million. It was their position that they dealt with the claims in a “first past the post” manner until all of the money under the policy was exhausted.
The court’s analysis
The court did not buy the defendant’s position that it didn’t know the plaintiff’s may pursue a claim. In fact, the evidence shows that the defendant was aware of the risk of another claim. Despite this, the defendant chose to settle the other three claims without going to court. Had they elected to have the proceeds paid into court, the court could have required them to determine whether there were possible additional claims. The court also found that the defendants made no attempts to follow up on the possibility of another claim.
The court pointed out that a first past the post approach may apply to some insurance situations, but not that of auto insurance, which is covered under Section 258 of the Insurance Act, which states
“Any person who has a claim against an insured for which indemnity is provided by a contract evidenced by a motor vehicle liability policy, even if such person is not a party to the contract, may, upon recovering a judgment therefore in any province or territory of Canada against the insured, have the insurance money payable under the contract applied in or towards satisfaction of the person’s judgment and of any other judgments or claims against the insured covered by the contract and may, on the person’s own behalf and on behalf of all persons having judgments or claims, maintain an action against the insurer to have the insurance money so applied.”
“The right every person who is entitled under subsection (1) to have insurance money applied upon the person’s judgment or claim is not prejudiced by,
an assignment, waiver, surrender cancellation or discharge of the contract or of any interest therein or the proceeds thereof, made by the insured after the happening of the event giving rise to a claim under the contract…”
 S. 258(7) states:
“Where any person has recovered a judgment against the insured and is entitled to bring action under subsection (1), and the insurer admits liability to pay the insurance money under the contract and the insurer considers that
a) there are or may be other claimants; or
b) there is no person capable of giving and authorized to give a valid discharge for payment who is willing to do so,
the insurer may apply to the court without notice for an order for payment of the money into court, and the court may, upon such notice, if any, as it thinks necessary, make an order accordingly.”
The court ruled in favour of the plaintiffs, stating “ The plaintiffs’ action was commenced within the applicable limitation period and was served within the time frame permitted by court order. A simple inquiry by (the defendant) regarding the potential advancing of the (plaintiff’s) claims at the time of or shortly after its considering settlement of the three other actions on November 5, 2008 would no doubt have brought those actual claims already commenced to their attention. As indicated above, (the defendant) considered that they were potential claimants from the outset and there is no evidence that those three other claims settled because of the limitation period having expired for the Scale claims. The three proposed settlements were not conditional on there being no (plaintiff) claims, on (the defendant) being satisfied there were no such claims being advanced or on the (plaintiff) family members providing a release in favour of (the defendant) regarding their claims.
Ultimately, the court found that the defendant had gambled on the chance of their being futrher action. It was a gamble they lost, and were required to pay the defendant their pro-rated entitlement of the $1 million offered by the policy.
If you have been injured in an accident, it is important to obtain the advice of a skilled personal injury lawyer. The lawyers of Derfel Injury Law represent individuals who have been involved in motor vehicle accidents. At Derfel Injury Law we fight to get maximum compensation for our clients through our decades of experience. To make an appointment with a member of our team, contact us online or call 416-847-3580.