The Court of Appeal has handed down a ruling that is important for auto insurers. The Court has held that an injured plaintiff can still sue his or her own insurer, pursuant to an OPCF-44R underinsured motorist endorsement, even after the plaintiff has settled with the insurer of the at-fault driver for less than that insurer’s policy limits and has released the driver, the vehicle’s owner and the primary insurer. As discussed at the end of this post though, we are left with some questions about the decision.
In Maccaroni v. Kelly, the plaintiff claimed to have been injured when rear-ended by a car driven by Kevin Kelly and owned by his mother, Donna Ainsworth. The Co-operators insured the Kelly/Ainsworth vehicle for third party liability, with limits of $1 million, denied coverage. It claimed that Kelly’s driver’s licence had been suspended and that Ainsworth had allowed him to operate the vehicle while knowing that he was unlicensed. (These would be breaches of the statutory condition in the auto policy, prohibiting anyone from operating a vehicle unless “authorized by law” to do so.)
Co-operators had itself added to the action as a statutory third party and took the position that its liability was confined to the statutory minimum limits ($200,000) as a result of the absolute liability provisions of the Insurance Act. (Those provisions, contained in s. 258(4) of the Act, provide that even when an insured breaches the policy, the insurer remains absolutely liable to an injured claimant, up to a maximum of $200,000.)
The injured plaintiff herself was insured with Intact Insurance and had an OPCF-44R endorsement, providing underinsured motorist coverage, to a maximum of $1 million.
In their statement of claim, the plaintiffs sued Kelly, Ainsworth, Co-operators and Intact.
In due course, the plaintiffs settled with the tortfeasors and Co-operators, for the statutory minimum limits of $200,000. They executed a full and final release in favour of all three parties. That release made it clear that the settlement had been entered into with no admission of liability. The plaintiffs then sought to continue with their claim against Intact for additional compensation to which they thought they were entitled.
Of course, if Co-operators’ full liability limits of $1 million had been available, then there would have been no basis for a claim against Intact. The limits of the two policies do not “stack”. Since both policies had limits of $1 million, there would have been no “underinsured” coverage available, had Co-operators’ full liability limits been payable.
The OPCF-44R endorsement effectively provides that where the limits of the liability policy are reduced to the statutory minimum “by operation of law…because of a breach of the policy”, then the underinsured coverage will respond.
Intact moved for summary judgment, dismissing the action as against it. The motion was based on its argument that just because Co-operators had claimed that its policy had been breached and that it was entitled to deny coverage did not make it so, even if the plaintiffs were prepared to accept Co-operators’ position. This did not reduce Intact’s limits to the statutory minimum “by operation of law”, Intact contended.
Mr. Justice Patrick Flynn heard the motion at first instance. He agreed with Intact and dismissed the action as against it. He said, “I further agree with ING’s [now ‘Intact’s’] argument that no such legal determination can now be made, since the plaintiff has released the tortfeasors and Co-operators from this action.”
However, while the Court of Appeal agreed that Co-operators’ policy limits had not been reduced to the statutory minimum “by operation of law”, it rejected the conclusion quoted in the previous paragraph. In the opinions of Justices MacFarland, Rouleau and Epstein, the action against Intact could still proceed to a conclusion. Thus, the plaintiffs’ appeal was allowed.
In the Court’s view, it would be up to the trial judge to decide whether Co-operators’ off-coverage position was well-founded. The plaintiffs would have the burden of proving that it was:
The fact that Co-operators and the tortfeasors are not parties to the proceeding is of no moment. The tortfeasors and representatives of Co-operators can be called as witnesses and can be examined under oath as non-parties: see rules 31.10 and 53.04 of the Rules of Civil Procedure. While a factual finding made in respect of the coverage issue will bind neither Co-operators nor the tortfeasors vis-à-vis the appellants in view of the release, such a finding can determine, as between the appellants and ING, whether the appellants are entitled to recover anything from ING. If the appellants are successful and establish that the tortfeasors were in breach of their policy provisions and hence, that the off-coverage position taken by Co-operators is correct, they may be entitled to recover from ING. If they are not successful, their action will be dismissed and they will, absent exceptional circumstances, be liable for the costs of those proceedings.
The Court went on to make the following somewhat surprising statement:
Furthermore, it is, I think, arguable on the basis of the Supreme Court of Canada’s decision in Somersall v. Friedman, [2002] 3 S.C.R. 109, that the appellants may well have a claim against ING in spite of their settlement agreement with Co-operators and the tortfeasors. The plaintiffs in Somersall had settled their claims with the third party liability insurer for the policy limits and agreed not to pursue the tortfeasor for any amount over those limits. They then sought to recover their damages, over and above those policy limits from their own insurer under a SEF 44 endorsement (similar to a OPCF 44R endorsement). The majority concluded, on the facts of that case, that the plaintiffs’ settlement did not bar their right to pursue their own insurer for damages claimed above the settlement figure. [Emphasis added]
How would such a claim differ from the one already being asserted, viz., that Co-operators was entitled to deny coverage, rendering Intact liable on its underinsured coverage?
The Somersall case was quite unlike this one, in that there was no issue of a breach of the primary liability policy. That insurer had paid its entire policy limits and the question was whether the plaintiffs could still claim against the underinsured policy, the limits of which were higher. The Supreme Court held that they could. The plaintiffs in that case did release the tortfeasor, as was the case here. But there was no doubt there, as there certainly was here, that the plaintiffs had gotten all of the primary insurance money to which they could possibly be entitled.
So, we find the reference to the Somersall case a bit puzzling, but perhaps one of our readers will be able to shed some light on the subject in a comment.
Returning to the main part of the Maccaroni decision, there is another issue that arises. Section 20 of the OPCF-44R provides as follows:
Where a claim is made under this change form, the insurer is subrogated to the rights of the eligible claimant by whom a claim is made, and may maintain an action in the name of that person against the inadequately insured motorist and the persons referred to in section 7 of this change form.
So, if the action against Intact is going to proceed, Intact will presumably want to invoke s. 20 and advance a subrogated claim against Kelly and Ainsworth, to be reimbursed for whatever Intact is required to pay to the plaintiffs. It did not release anyone in this settlement and would not be bound by the release entered into by the other parties. If Intact proceeds by way of crossclaim against Kelly and Ainsworth in the Maccaroni action, why would Kelly and/or Ainsworth not be entitled to commence third party proceedings against Co-operators, claiming indemnity and defence costs?
Or if Intact were to commence a separate action for the subrogated claim, could Kelly and Ainsworth, in defending that action, say that they are not bound by the finding of no coverage by Co-operators in the Maccaronis’ action (not having participated in it), thereby giving rise to the possibility of inconsistent decisions? (Kelly and Ainsworth would presumably be entitled to commence third party proceedings against Co-operators in this scenario as well.)
Perhaps these questions have already been addressed by the terms of the release that was executed among the plaintiffs, Kelly, Ainsworth and Co-operators, such that Kelly and Ainsworth relinquished any right they might have had to claim indemnity from Co-operators for any claim made against them, whether by the plaintiffs or by Intact. If that was indeed what the release provided though, it is not clear that Kelly and Ainsworth derived much benefit from the settlement. They will still be facing claims against them personally, but those claims will (or might) now be advanced by Intact, instead of by the Maccaronis.