First Bill 198 Decision Says Not Much Has Changed

Posted on May 2, 2008 by Stephen Cavanagh

Nissan v. McNamee is, so far as we know, the first decision to interpret the “gloss” on the Insurance Act threshold that was enacted by regulation O.Reg. 381/03 (the package of legislative changes commonly referred to as “Bill 198”). The regulation took effect on October 1, 2003. While the wording of the threshold in s. 267.5(5) of the Act did not change, the regulation spells out, in much greater detail than had formerly been the case, the meaning of the three elements of the threshold: “permanent”, “serious” and “important”.

Nissan was decided by Madam Justice Johanne Morissette.

The ruling came in the context of a threshold motion following a jury trial. The jury apparently determined that the plaintiff was not entitled to any general or special damages. After an analysis of the wording of Bill 198, Justice Morissette found that the plaintiff did not meet the threshold because her injuries had not produced a “serious” impairment of function.

In a nutshell, Justice Morissette was of the view that the Bill 198 gloss on the threshold wording did not represent much of a change from the way that the caselaw had already interpreted the previous incarnations of the threshold. She said that in her opinion, “efforts to reframe the broad approaches that have been applied since Meyer, should be resisted”.

There were two aspects of the new wording that, in the view of Justice Morissette, had changed the threshold. The first (and most important) was the use of the word, “most” to modify the phrase, “daily activities”. This appears in the portion of the “gloss” that deals with “seriousness”. In one of three types of situations in which an impairment will be considered to be “serious”, the regulation says that the impairment must “substantially interfere with most of the usual activities of daily living, considering the person’s age”. Justice Morissette thought that the introduction of this language might suggest that a “quantitative analysis” must now be undertaken by the court, as to what daily activities had been affected and the importance of those activities.

Her Honour also thought that the regulation had made “a slight change” in its introduction of “accommodation” as a factor to be considered in determining whether or not an impairment is “serious”. The regulation says this:

The impairment must,
i. substantially interfere with the person’s ability to continue his or her regular or usual employment, despite reasonable efforts to accommodate the person’s impairment and the person’s reasonable efforts to use the accommodation to allow the person to continue employment. 

According to Morissette J., this provision:

raises the threshold for plaintiffs, but in my opinion, only does so modestly given the existence of prior decisions that have considered accommodation. It seems that this provision has added a positive obligation on plaintiffs to make reasonable efforts to use accommodation measures.

Justice Morissette summarized her conclusions about the effect of the regulation as follows:

In summary, most of the regulation does not appear to support any significant change in the interpretation of the threshold. In genera! terms, it suggests at best some clarification of the law regarding accommodation. The exception is the addition of the word “most,” which suggests a higher threshold where impairments affect daily living but not working.
[38] I would also note that I do not accept the defendant’s contention that the express requirements for proof suggest a higher standard as to the threshold itself. It seems to me that the requirements of s. 4.3 of O.Reg. 381/03 are for evidence that would be necessary to prove that the threshold is met in any case. The focus is on that evidence coming from a physician, and the source of the evidence should not change the standard on the threshold question.

Applying her interpretation to the case at hand, Justice Morissette held that the plaintiff did not meet the requirement of a “serious” impairment. The plaintiff had evidently failed to seek accommodation or to take advantage of accommodation offered by her employer. Surveillance evidence proffered by the defence was also telling and found by Her Honour to be inconsistent with the reports of her symptoms made by the plaintiff to her doctors.

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C.A. Says Trial Judge Applied Wrong Test in Determining Whether Injury “Serious” and “Permanent”

Posted on April 24, 2008 by Stephen Cavanagh

Brak v. Walsh is a short decision of the Court of Appeal (Justices Karen M. Weiler, Michael J. Moldaver and Russell G. Jurianz), on appeal from a ruling by Mr. Justice Gordon Killeen on a threshold motion brought at the end of trial. Justice Killeen had ruled in favour of the defence, that the plaintiff in this MVA action had not suffered a “permanent serious impairment of an important physical, mental or psychological function”.

The Court held that Justice Killeen had erred in finding that the plaintiff’s injuries were not permanent and not serious.

On the issue of permanence, Killeen J., following what the Court said was a “careful review of the medical evidence”, concluded that the plaintff’s low back pain would “clear up with time”.

Before the Court of Appeal, counsel for the respondent conceded that there had been no evidence that the plaintiff’s condition would “clear up”, only that her pain would diminish with time. The Court said that the caselaw had established that the requirement of permanency is met when a limitation in function is unlikely to improve for the indefinite future. As a result, Killeen J. was found to have applied the wrong standard on this element of the Insurance Act threshold.

With respect to the requirement that the impairment be “serious”, Justice Killeen had “focused on the appellant’s ability to resume ‘almost all’ of her domestic duties and the fact that she was able to hold gainful and steady employment.” Again, the Court of Appeal said that the trial judge had applied the wrong test:

So here, as well, the trial judge’s focus was too narrow in determining whether the appellant’s injury was serious. The requirement that the impairment be “serious” may be satisfied even although plaintiffs, through determination, resume the activities of employment and the responsibilities of household but continue to experience pain. In such cases it must also be considered whether the continuing pain seriously affects their enjoyment of life, their ability to socialize with others, have intimate relations, enjoy their children, and engage in recreational pursuits.

The appeal was allowed and the case was ordered to be “reconsidered by a different judge”. Somewhat cryptically, the Court then said:

We cannot finally decide this matter because of the credibility issues involved, however, given the amounts involved, the parties may see fit to resolve the matter without a rehearing.

Neither the reasons of the Court of Appeal nor those of Killeen J. say what amounts were involved. But we have ascertained that at trial, the jury apportioned liability 75-25 against the defendant. It assessed general non-pecuniary damages of $35,000, past income loss of $10,000 and FLA damages of $2,500, $15,000 and $5,000 for the husband, a 2-year old son and a 14-month old son, respectively.

Assuming that these assessments do not reflect the Insurance Act deductibles, that would mean that the non-pecuniary general damages awarded to the injured plaintiff would have a net value of $20,000, the FLA claims of the husband and the 14-month old son would be reduced to zero and the 2-year old’s claim would become $7,500. Thus, the total damages would be $37,500 or $28,125 after being reduced for contributory negligence.

It does not appear that Killeen J. factored the jury’s assessment of damages into his threshold ruling and so, this was not the subject of comment by the Court of Appeal (although the Court does seem to have been aware of what the assessment was). It would have been interesting to know what the views of the Court of Appeal would have been, had Killeen J. placed reliance on the jury’s assessments as part of his threshold ruling. A number of other trial judges have followed this approach: Dennie v. Hamilton, Bisier v. Thorimbert and Parks v. Peter, to name a few. It does seem rather illogical for a judge to conclude that a plaintiff’s injuries constitute a permanent serious impairment of an important function while, in the same proceeding, the trier of fact (the jury) values that injury at an amount that suggests only minor impairment. It would have been helpful to received some guidance from the Court of Appeal on the respective roles of judge and jury in these types of cases.

For now, perhaps the best defence strategy in these types of cases  is to ask the jury to decide the issue of causation, as was done in Campbell v. Julta. There, the jury apparently assessed non-pecuniary damages of $45,000 but when asked to determine whether the accident had materially contributed to the plaintifif’s condition as of the time of trial, answered in the negative.  Although the trial judge had found that the plaintiff’s injuries did meet the threshold, the Court of Appeal upheld the jury’s decision on the causation issue and leave to appeal to the Supreme Court of Canada was refused.

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Snow Removal Contractor’s Insurer Ordered to Defend Property Owner Under “Additional Insured” Endorsement

Posted on April 23, 2008 by Stephen Cavanagh

Further addendum: The appeal of this decision was to have been heard in April, 2009 but was abandoned before then.

Addendum: We have been advised that this decision is under appeal.

Riocan Real Estate Investment Trust (O&Y Properties Inc.) v. Lombard General Insurance Co. is a very interesting decision, just released, that deals with insurance coverage in “additional insured” situations. The ruling was made by Madam Justice Patricia C. Hennessy.

We regularly encounter this type of case in our office. Unfortunately, this is an area of law that seems to be quite poorly understood in Canada and as a result, the caselaw is uneven. However, Riocan is fairly typical of the usual situation and Justice Hennessy’s decision will certainly guide practitioners and courts in the future.

The case was an application brought by Riocan against Lombard, who insured Riocan’s snow removal contractor. Riocan sought a declaration that Lombard had a duty to defend it in two underlying personal injury actions arising from plaintiffs having  slipped and fallen on allegedly icy parking lots owned by Riocan.

Under Riocan’s contract with the snow removal company (“Palmer Paving”), the contractor had agreed to indemnify Riocan for losses suffered “as the result of anything arising from or related to the work [performed by Palmer].” The contract went on to say that “this indemnity applies whether [Riocan] is negligent or not.”

Palmer was also required to maintain a policy of insurance and to have its insurer (Lombard) name Riocan as an additional insured. (Unfortunately, the reasons do not quote the language of the underlying contract with respect to the insurance obligation.)

Often the first problem in these cases is that the insurer does not, in fact, name the “indemnitee” as an additional insured. However in this case, Lombard evidently did name Riocan as an additional insured.

The decision of Justice Hennessy refers to two certificates of insurance that were issued by Lombard to Riocan, confirming that it had added Riocan as an additional insured. However, there is no mention in Her Honour’s reasons of the additional insured endorsement itself. She relied on Lombard’s certificates to determine what coverage it had extended to Riocan.

This highlights one of the most common problems with the “additional insured” cases. Typically, there is an underlying contract whereby one party has agreed to have its insurer add the party as an “additional insured” or an “additional named insured” (the two terms are not synonymous). If the insurer does so, it will usually use its off-the-shelf additional insured endorsement and basically fill in the blanks. It will then issue a certificate of insurance, to evidence that the coverage exists.

This gives rise to a host of problems. First of all, it is rare, in our experience, to find that the wording of (a) the underlying contractual obligation; (b) the additional insured endorsement; and (c) the certificate of insurance, correspond with each other. Quite often, they are all different. And that is because insurers make no effort to try to match their endorsements with what their insured has contractually obliged itself to obtain. Worse, their certificates frequently describe coverage that is different from what is actually set out in the additional insured endorsement. (For an example of this problem, see Lacombe v. Don Phillips Heating, a decision of Master Beaudoin and one in which our office was involved.)

To the extent that the coverage in the endorsement departs from the obligation in the underlying contract, the insured might be exposed to damages for breach of contract.

It is important to recognize that the actual coverage comes from the endorsement, not from the certificate, as Justice Hennessy seems to have assumed. (Having said that, in one of the leading texts on the subject of additional insured endorsements, an entire chapter is devoted to a consideration of the relationship between the certificate and the endorsement. In the United States, there have been cases that have considered whether the certificate can be a basis for establishing the existence and the scope of coverage. The question has received a mixed response.)

To return to the present case, Lombard had refused to undertake the defence of Riocan and this led to Riocan’s application.

Justice Hennessy looked at the allegations in the two statements of claim and compared them with the two certificates of insurance. (As noted above, this was not the right approach; she should have looked to the wording of the endorsements, which might very well have been different from the certificates.)

In any event, the first certificate read as follows (and the other was in substantially the same language):

Re: …Snow Removal, Sweeping and Flushing…
It is hereby understood and agreed that RioCan Property Services, RioCan Holdings Inc and RioCan TEIT [sic; should be “REIT”] are added as additional insured but only with respect to the above noted contract and solely with respect to the operations performed by the original Named Insured.

This brings us to another recurring problem with these endorsements; what coverage do they provide?

After quoting from the certificates, Justice Hennessy characterized the coverage this way:

[14] Each of the underlying actions alleges negligence against the owner specifically for failing to properly maintain the parking lot free of ice and failing to salt or sand. The failures alleged in these claims could be attributable to the failure of the contractor to perform its obligations under the contract. These claims, if proven, would fall within the policy coverage and would therefore trigger a clear duty to defend Riocan as a name insured with respect to the work under the contract.
[15] However, in each of the actions, there are also claims asserting breaches of Riocan’s statutory obligation as an occupier. The contractor’s insurance coverage does not cover Riocan’s own negligent acts or breaches of the Occupiers’ Liability Act. For these claims the duty to defend Riocan is not independently triggered.

She went on to say, “there is no suggestion that the Lombard coverage includes coverage for all negligence of RioCan”. However, it is far from obvious that this is true (leaving aside the fact that her conclusion was based on the certificate, not on the endorsement).

Additional insured endorsements used in Canada typically track, more or less closely, a form that was created by the Insurance Services Office (“ISO”) in the United States. But the ISO stopped using that form in 1986. The old wording extended the definition of “insured” to persons named in a schedule to the policy, but only with respect to liability “arising out of” the work of the named insured.

Litigation in the U.S. about the meaning of the “arising out of” form of the endorsement led many courts to conclude that endorsements so worded required only an indirect causal connection, with the result that coverage was extended for the additional insured’s sole negligence.

This line of cases led the ISO to revise its form in 1986. The new (if 22 years can be called “new”) wording limits coverage to injury, damage etc. caused, in whole or in part, by the acts or omissions of the named insured or those acting on its behalf in the performance of its operations for the additional insured. For some reason, no one seems to use this wording in Canada.

The language used by Lombard is not precisely the same as either ISO form, but more closely resembles the pre-1986 wording by omiitting any reference to causation. (And in fact, the obligation created by the underlying contract was to indemnify Riocan against liability “arising out of activities of [Palmer]”.)

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The “Surowiecki Ballot”: A Tool for Multi-Party Mediations

Posted on April 23, 2008 by Stephen Cavanagh

We came across this interesting article on the website for the International Risk Management Institute, Inc. (“IRMI”). It is entitled “A Tool for Multi-Party Insurance Litigation Mediation with ‘Additional Insureds'” and was written by Jeff Kichaven.

The title makes the article sound more narrowly-focused than it is. It discusses a technique called the “Surowiecki Ballot”. It sounds to us like this approach could be useful in the mediation of a variety of cases, not just insurance litigation and certainly not just ones involving “additional insureds”.

This tool is a bit reminscent of the “double-blind” offer technique sometimes used by Rick Weiler and others, in that it creates some pressure on parties to step back and value their risk (and that of others) without the posturing that usually happens at mediation.

Worth a look.

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C.A. Dismisses Appeal in “Flying Ladder” Case

Posted on April 22, 2008 by Stephen Cavanagh

In CUMIS General Insurance Company v. 1319273 Ontario Ltd., the Court of Appeal was dealing with a coverage question involving a CGL policy. In the underlying action, the plaintiff motorcyclist had been seriously injured when a ladder flew off a truck and struck him. He sued the owner of the truck, a numbered company carrying on business as “Done Right”, alleging that its employees had negligently loaded and stored the ladder on the truck.

Done Right tendered the defence of the action to its CGL insurer, CUMIS, which denied the claim on the basis that its policy excluded automobile-related risks.

CUMIS brought an application for a declaration that it had no duty to defend Done Right in the underlying action. It was successful before Mr. Justice David Brown. The Court of Appeal then dismissed Done Right’s appeal.

It seems fairly obvious that the claim in the underlying action was drafted with an eye to the Supreme Court of Canada’s decision in Derksen v. 539938 Ontario Limited. There, the Supreme Court of Canada had found that an accident had resulted from “concurrent causation”, triggering both an auto and a CGL policy. In particular, in the underlying action here, the plaintiff alleged that Done Right had failed to load and secure the ladder properly to its vehicle, that it had failed to supervise and train its employees and that it had failed to clean up its work site properly.

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Court Says Successful Threshold Defence Not to be Taken Into Account for Purposes of Costs

Posted on April 18, 2008 by Stephen Cavanagh

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In Dennie v. Hamilton, the defendants’ solicitor probably thought that the trial had gone pretty well (see our previous post about this case). In this MVA action, the plaintiff had claimed damages of about $1 million. At the end of an 11-day jury trial, in closing argument, counsel for the plaintiff asked the jury to award damages totalling about $405,000. The jury came back with an award of only $40,000; after applying the Insurance Act deductible, that sum was reduced to $25,000.

And it got even better! The trial judge then allowed a threshold motion brought by the defence. That eliminated the general damages award, leaving only $20,000 for loss of housekeeping capacity.

But the victory became somewhat Pyrrhic when the trial judge, Mr. Justice William L. Whalen, had to fix costs. He awarded the plaintiff costs of (gulp!) $106,255.12. How did this happen?

Prior to trial, both sides had made offers to settle. The plaintiff had offered to accept $95,000 (net of the Insurance Act deductible), plus costs.  The defendants had offered $15,000 (net) plus interest and “costs at 15%, plus taxable disbursements and G.S.T. or costs as otherwise agreed”.

The defence argued that its offer had been within dollars of the plaintiff’s eventual recovery. By comparison, the plaintff’s offer had been so high that, far from promoting settlement, it merely ensured that the case would have to be tried. The defendant’s solicitor asked that the trial judge award costs to the plaintiff up to the date of her offer, on a partial indemnity basis, and thereafter to the defendants on the same basis. To do so, it was argued, was in keeping with the philosophy of Rule 49.

Justice Whalen did not agree. He began by citing the Court of Appeal’s ruling in Rider v. Dydyk, where the Court held that, in deciding the issue of costs, courts are not to take into account the Insurance Act deductibles.

But then, he went further and applied the same principle to the threshold defence:

I conclude that the principle of comparing offers and trial results without applying Insurance Act deductions applies equally to the consideration of threshold questions. It would be inconsistent to take some aspects of the operation of the Insurance Act on damage assessments into account while ignoring others. In my view, the same policy considerations apply, so that the result should be considered for the purpose of determining entitlement to costs without the effect of deductions or threshold findings. To do so would not undermine the objectives of the Insurance Act or Rule 49.

(Readers of this blawg will have seen another recent post about the decision of Justice Raymond Harris in Ksiazek v. Newport Leasing Limited. There, it was held that statutory accident benefits received by a plaintiff prior to trial are also not to be taken into account for purposes of costs. The next thing that we can expect to see is that courts will ignore the fact that under the Insurance Act, pre-trial income loss is limited to 80% of income, net of income tax, CPP, EI, etc. It will soon be argued that damages awarded for pre-trial income loss should be grossed back up to 100% for purposes of fixing costs. While we’re at it, although there was no claim for health care expenses in this case, that was probably because, at the time, the Insurance Act required that a plaintiff’s impairment be “catastrophic” before being eligible for such damages. When fixing costs, why not add back in the damages that notionally would have been awarded if the plaintiff had not had to meet the “catastrophic” requirement?)

To return to the present case, even though Justice Whalen had allowed the defendants’ threshold motion, disentitling the plaintiff to any non-pecuniary general damages, he added the general damages back in for purposes of fixing costs. Comparing the notional recovery of $40,000 with the defence offer of $15,000, he concluded that the plaintiff’s recovery exceeded the offer.

His Honour then held that the defence offer was, in any event, too uncertain to qualify as a Rule 49 offer. As noted above, the offer had been for “costs at 15%, plus taxable disbursements and G.S.T. or costs as otherwise agreed”. But, said Whalen J., “15% of what–of $15,000, or of the plaintiff’s assessed costs? In my view, this part of the defendants’ offer is uncertain, and is therefore ineffective as an offer under Rule 49.”

As well as the trial itself had gone for the defence, the costs issue just kept going from bad to worse. The defence argued that if the plaintiff were to receive any costs at all, she should be penalized because her recovery fell within the jurisdiction of either Small Claims Court or simplied procedure. His Honour ruled (rightly) that the recovery for the plaintiff had been greater than the $10,000 Small Claims Court limit. Turning to simplified procedure, even though the award (no matter how it was looked at) was less than the $50,000 limit under Rule 76, he was not prepared to apply Rule 76.13 and deprive the plaintiff of costs. He said that it had been reasonable for her to commence and continue the action under ordinary procedure. (In fact, Justice Whalen went so far as to say that if the plaintiff’s solicitor had brought the claim under Rule 76, “he probably would have been professionally negligent”!)

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C.A. Upholds Record Personal Injury Damages Award

Posted on April 18, 2008 by Stephen Cavanagh

Sandhu v. Wellington Place Apartments was one of the largest personal injury damages awards in Canadian history. The Court of Appeal recently dismissed an appeal from the trial decision (other than disallowing most of a $350,000 costs premium).

The award at trial was more than $17 million. The case arose out of a tragic fall from a fifth floor window by a 2-year old boy. The appeal raised several interesting issues.

The defence appealed from the jury’s award of damages for the cost of future care in an amount that exceeded even the highest of various scenarios put to it by the plaintiffs’ counsel in argument. However, the Court of Appeal held that there was evidence before the jury which, if accepted, would have produced a higher future care figure than those urged upon it by the plaintiffs’ counsel at trial and added, “clearly, there is no obligation on the jury to accept only the suggestions of counsel.”

The Court also rejected the defence arguments, that the non-pecuniary damages award (the maximum of $311,000) and the FLA awards to the plaintiff’s parents and brother ($100,000 each) were too high.

In the alternative, the defendants argued that even if the individual damages awards were allowed to stand, the cumulative total was too high and should be reduced. The Court called this argument “startling” and “plainly wrong”.

Evidence of remedial measures implemented after the accident had been admitted by the trial judge. The defence submitted that this had been an error. Again, the argument failed. The Court of Appeal said that the evidence was relevant, as possibly showing that the appellants had failed to maintain the building properly. And it rejected the argument that such evidence should be excluded for policy reasons (i.e., because allowing it to be introduced at trial would serve as a disincentive to potential litigants, to take remedial steps to correct dangerous conditions).

Finally, the trial judge had awarded a costs premium of $350,000, payable by the defendants. Her ruling was given prior to the Supreme Court of Canada’s decision in Walker v. Ritchie and Manufacturers Life Insurance Company v. Ward, a Court of Appeal case. Those decisions have made it clear that “risk premiums” cannot be awarded. Here, counsel for the plaintiffs sought to distinguish Walker and Ward on the basis that the $350,000 costs premium had been based only partly on risk. (She argued that the outstanding result achieved was another factor.)

The Court of Appeal was satisfied that risk had been the predominant factor that had led the trial judge to award the costs premium. However, the Court’s approach was to reduce the amount payable by the defence by $300,000. The net effect was that the defendants were ordered to pay $50,000 over and above the costs that had been agreed to between the two sides. (The rationale for this is not entirely clear to us from the reasons. The Court appears to have given a costs premium based on something other than risk, but we are uncertain what the criteria for such an award might be.)

Having reduced the party and party costs by $300,000, the Court allowed a cross-appeal by the plaintiffs’ solicitor, asking that she be permitted to add that $300,000 to the solicitor-client fees that had been approved by the trial judge.

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C.A. Says Damage to Building’s Foundation Not Part of General Contractor’s “Work”

Posted on April 18, 2008 by Stephen Cavanagh

In York Region Condominium Corporation No. 772 v. Lombard Canada Ltd., the Court of Appeal rejected the appeal by Lombard from a judgment holding that its CGL policy covered a claim against its insured, a general contractor.

The plaintiff condominium corporation had sued the contractor for damage caused to the foundation of the condominium building by the negligence of the insured general contractor. The insurer, Lombard, had denied coverage to the contractor. The condominium corporation obtained summary judgment against the contractor (for an amount in excess of the policy limits), which judgment was not satisfied, and it then commenced this proceeding against Lombard for payment up to the policy limits.

The condominium corporation was successful in recovering summary judgment against Lombard and the insurer appealed. The appeal was dismissed.

In the course of its work on the condominium corporation’s building, the contractor (Lombard’s insured) had negligently punctured a layer of clay soil that prevented the underlying waters of the aquifer from permeating the layer containing the building’s foundation. To correct the situation, the contractor hired subcontractors to install a dewatering system, but that work was also done negligently. The result was that the dewatering system began to pump away silt and sand from beneath the building, from 1989 to 1995. This created large voids in the foundation which left parts of the building unsupported. The unit owners had had to vacate the premises for several months while remedial work was undertaken.

Lombard’s denial of coverage was based on its contention that the loss had been caused by its insured’s own work and that to find that there was insurance coverage would convert the policy into a performance bond.

The Court of Appeal rejected this argument. It said that Lombard’s submission stemmed from confusion about “the dual meaning of the term ‘foundation'”:

In relation to a building, the foundation can refer either to the structural components constructed by the contractor that anchor the building: the “constructed foundation”, or to the compacted soil, earth or rock that forms the natural base upon which the building is erected: the “natural foundation”

The Court of Appeal held that its decision in Alie v. Bertrand & Frère Construction Co. was controlling. (It was found in that case that a defect in the fly-ash component of ready-mix concrete had caused homeowners’ foundations to fail. The cost of the concrete itself was held not to be covered by insurance but the cost of repairing and replacing the foundation and the damage to the houses was covered.)

Applying that decision, the Court of Appeal held that here, the contractor’s negligence damaged the natural foundation, which was not part of the contractor’s work and was therefore covered by the policy.

Lombard also argued that there was no coverage because the loss had been caused by the contractor’s negligence and that it was therefore not an “accident”, as required by the policy. The Court of Appeal made short work of this submission, saying that while the cost of repairing a negligently-manufactured product might not be considered an “accident”, damage to the property of a third party (as in this case) certainly was.

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Court Refuses Summary Judgment in “Social Host” Claim

Posted on April 18, 2008 by Stephen Cavanagh

In Hamilton v. Kember (and another action), Mr. Justice John F. McGarry was dealing with a defence motion for summary judgment in two personal injury actions. The moving defendants were a young woman and her parents. In 2004, when the young woman (“Chelsie”) was a 17-year old high school student, her parents had agreed to let her have a party at their home while they were to be away camping. Chelsie was only supposed to have about 20 guests but, as often seems to happen, uninvited guests showed up, swelling the number of students to between 85 and 100.

Chelsie’s parents had also told her that she was to serve no alcohol and that anyone who became inebriated was to be told to stop drinking. Chelsie did not serve the guests but she herself did consume alcohol.

Late in the evening of the party, two young men (at least one of whom was drunk) were standing by the side of the road in front of the home, when they were struck by a car driven by another guest. Both were catastrophically injured and brought these actions. (The reasons do not say whether or not the driver was alleged to have been intoxicated.)

On their examination for discovery, the parents admitted that they knew there would be drinking at the party and the risks of teenagers “getting out of hand”. Chelsie acknowledged having become aware that the party was getting out of hand and that she had taken no steps to contact the police or the neighbours.

Counsel for Chelsie and her parents moved for dismissal of the action, relying on the Supreme Court of Canada’s decision in Childs v. Desormeaux. In our commentary on that decision, we suggested that the ruling had not closed the door to social host litigation and Justice McGarry’s ruling (dismissing the defence motion for summary judgment) seems to bear that out.

His Honour felt that there were genuine issues for trial. Factors that he considered significant included:

  • the parents’ awareness that there would probably be drinking by minors during their absence;
  • the concomitant risk of the party getting out of control;
  • the parents’ failure to contact Chelsie to ensure that their instructions were being complied with; and
  • Chelsie’s failure to take any action when the party got “out of hand”.

Justice McGarry held that, in these circumstances, it could not be said that the defendants owed no duty to the plaintiffs. 

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Court Ignores Past Collateral Benefits in Evaluating Rule 49 Offer

Posted on April 18, 2008 by Stephen Cavanagh

Bad news for insurers. In Ksiazek v. Newport Leasing Limited, Mr. Justice C. Raymond Harris extended the application of the Court of Appeal’s decision in Rider v. Dydyk and ruled that a defendant’s offer to settle should be compared with the gross damages awarded to the plaintiff, with no reduction for statutory accident benefits that were deductible from the award.

The action arose out of motor vehicle accident. At trial, the plaintiffs (the injured person and several FLA claimants) were awarded damages totalling $131,100. After subtracting the value of accident benefits that had been paid to the injured plaintiff (as required by the Insurance Act), the value of the claim dropped to $69,000.

The defendant had made two settlement offers, for $70,000 and $147,000. It argued that it was entitled to costs after the date of its first or its second offer. Instead, Justice Harris awarded partial indemnity costs to the plaintiff throughout.

He reached his conclusion based on the Court of Appeal’s decision in Rider, supra. There, the court held that for purposes of evaluating Rule 49 offers, the statutory amounts deductible from awards of non-pecuniary damages were not to be taken into account. The offer is to be compared with the gross award of damages, not the award net of the statutory deductible.

In the present case, the defendant the Regional Municipality of Halton was “unprotected” under the Insurance Act, so the statutory deductibles did not come into play. That defendant was vicariously liable to the plaintiffs as employer of the negligent driver. Income replacement benefits had been paid to the injured plaintiff prior to trial and the parties agreed that those payments wiped out the damages awarded for loss of income and future care. Justice Harris referred to the Court of Appeal’s decision in Vollick v. Sheard, where it had been held that “an owner qua employer does not have immunity under Bill 59 for the negligent operation of a motor vehicle by an employee in the course of her or his employment”.

Justice Harris said that Rider and Vollick “support the plaintiffs’ submissions that the costs determination should be made by considering the total judgment awarded and is not ‘net of deductions’ as the defendants claimed. Therefore, the Offers to Settle will be compared to the total damages awarded at the end of the trial.”

It is difficult to see how this can be correct. Rider was based on a specific provision in the Insurance Act, that says that “the determination of a party’s entitlement to costs shall be made without regard to the effect of [the statutory deductible] on the amount of damages, if any, awarded for non-pecuniary loss.” No corresponding provision exists for collateral benefits. Rather, s. 267.8 of the Insurance Act says that “[i]n an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the damages to which a plaintiff is entitled for income loss and loss of earning capacity shall be reduced by the following amounts” (and then goes on to list various types of collateral benefits, including statutory accident benefits).

(The decision is also difficult (well, impossible) to reconcile with the ruling of Justice Charles Hackland in Abel v. Hamelin, where His Honour evaluated a Rule 49 offer by deducting the present value of future collateral benefits.)

Rule 49.10, which deals with the costs consequences of offers to settle, says that where a defendant makes an offer “and the plaintiff obtains a judgment as favourable or less favourable than the terms of the offer, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise”. [Emphasis added] Here, the global damages judgment that was obtained by the plaintiffs was less favourable than both defence offers. There is no justification, that we can see, for evaluating Rule 49 offers before deducting the collateral benefits received by the plaintiffs, when the plaintiffs are only entitled to judgment for the net amount.

This ruling will make it very difficult for defendants in MVA cases to serve effective offers to settle. In this case, for example, for the defendant to have made an offer that might have triggered costs consequences under Rule 49.01, it would have had to add $62,000 (the value of the accident benefits already paid) to its offer. In serious cases, that number could be much higher, sometimes in the hundreds of thousands of dollars. It would then be open to the plaintiffs to accept the offer; they would not then have to give back the double compensation received. That doesn’t make sense.

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