The Court of Appeal issued reasons on March 29, 2018 detailing the obligations of parties when entering into litigation agreements. The decision in Handley Estate v. DTE Industries is both a reminder and cautionary tale that provides a nice roadmap of things to do and not to do when entering into these kinds of agreements as part of a litigation strategy. The decision is a must read for those involved in litigation where Pierringer, Mary Carter or other litigation agreements are employed.
In Handley, the plaintiff was a subrogating insurer in an oil spill claim. They failed to name one of the oil tank vendors in the supply chain. Because the limitation period had passed by the time it became apparent that the vendor was a necessary party, the plaintiff entered into a funding agreement with one of three defendants which required that defendant to issue a third party claim against the ‘missed’ vendor. In return the plaintiff would fund a finite portion of the cost of the third party action. The agreement was not disclosed to the other defendants. The plaintiff and the same defendant entered into a second agreement several years later which effectively saw the subrogating insurer step into the shoes of that defendant by way of an assignment of that defendant’s rights in the third party action. The existence of the second agreement was subsequently disclosed but not immediately. The plaintiff was eventually compelled to disclose the fact and details of the first agreement as well.
One of the other defendants who was not a party to the agreement brought a motion to stay the action on the basis that the plaintiff had failed to disclose the initial agreement and failed to disclose the subsequent agreement in a timely manner. The Court Of Appeal agreed, noting that agreements which ‘change entirely the landscape of the litigation’ must be disclosed immediately and that a failure to do so amounts to an abuse of process. There are sound policy reasons for this rule. The rules of our litigation process do not provide for trial by ambush or other ‘gotcha’ litigation strategies but rather embrace transparency and full disclosure. Procedural fairness requires that parties adhere to those principles. As the court noted, any agreement that has the effect of ‘changing the adversarial position of the parties set out in their pleadings into a cooperative one’ must be disclosed immediately to the other parties.
If there is any doubt about which side of the line to fall on when faced with disclosing litigation agreements the outcome in this case (which to some might appear Draconian) should make that decision an easy one.
What do you do at work that is considered ‘under the direction’ of your employer?
The answers to this question are endless. A more interesting question: what do you have to be doing at work not to be ‘acting under the direction’ of your employer? That question is at the heart of the decision in Oliveira v. Aviva , a Court of Appeal decision released this week. The applicant sought coverage and a defence for claims brought against her by a hospital patient for damages as a result of applicant’s alleged accessing the hospital records of a patient who was not under her care. The crux of the case turned on whether the applicant (defendant in the lawsuit) was an insured under the policy issued by Aviva. The policy would provide coverage if the allegations in the underlying Statement of Claim alleged conduct took place while the applicant was acting under the direction of the named insured but only with respect to liability arising from the operations of the named insured.
Because the policy provided coverage for ‘invasion or violation of privacy’, also referred to as the tort of intrusion upon seclusion (which would include accessing records in an unauthorized manner) the court held that the policy was by definition intended to cover offensive conduct that would presumably not be authorized by the insurer. In that case, how can coverage be denied for conduct that on the face of it would appear to be covered?
Acting under the direction of the employer relates not to control how the work is done or actual oversight at the moment of the incident (in this case when records were improperly accessed) but rather flows from the relationship generally and ‘control’ over incidental features of the of the employment such as directing when and where to work and having the right to terminate the employment.
Whether the alleged misconduct arose out of the operations of the named insured was also in issue. The insurer argued that hospitals operations are to provide care and because the employee was not within the patient’s circle of care, her conduct did not fall within the operations of the hospital. The court rejected this argument, noting that the ‘operations’ of the hospital included creating, collecting and maintaining medical records. The underlying claim against the applicant (defendant) for which coverage was sought related to allegations about the unauthorized access to those medical records.
Ultimately however, in reading the decision, the irresistible inference is that the court accepted that because the policy covered ‘intrusion upon seclusion’, it could only be read to cover the alleged misconduct. As a result to deny coverage for the very conduct that the policy was intended to cover would be perverse. It is also consistent with the underlying interpretive imperative of insurance policies – coverage should be interpreted broadly and exclusions should be interpreted narrowly.
Reconciling Inconsistent Policy Documents through Rectification
The recent Court of Appeal decision in Alguire v. Manulife provides a helpful primer (and reminder) on the law of rectification, an equitable remedy not often invoked in insurance related litigation. This case involved a GRIP life insurance policy issued by Manulife to the plaintiff in 1982. The face amount of the coverage was $5,000,000. The policy required large premiums payable up front and reduced premiums payable over time and included a guaranteed paid up value that would ensure a pre-determined coverage amount that was guaranteed even in the event of a default by the insured in paying premiums. The guaranteed amount was memorialized in a table of non-forfeiture values that would increase over time. The approved quote for the policy agreed to by the parties included the non-forfeiture table that was based on each $5,000 of the face amount of the coverage. However when the policy was issued the non-forfeiture table was presented based on each $1,000 of the face amount of the coverage. The result was that the paid up value was always 5 times greater than what it was supposed to be and eventually exceeded the face value of the policy by a factor of almost 3. At the time of trial, despite a policy with a face value of $5,000,000 the paid up value which was guaranteed was $13,400,000 instead of $2,680,000. The plaintiff sought a ruling that affirmed the higher paid up value.
The plaintiff attempted to justify his position by testifying that he had specifically requested a policy that would provide ‘inflation protection’. He testified that he reviewed the non-forfeiture table with the (now deceased) broker who expressly represented to him that the non-forfeiture value would eventually exceed the face value of the policy.
At trial, the court held that the parties contracted for a policy with a maximum value of $5,000,000 and the inclusion of the non-forfeiture table that showed a higher amount was clearly an error. As a result the court exercised its discretion to rectify the contract so that is accurately reflected the agreement reached between the parties. The Court of Appeal agreed noting that in order to rectify the contract Manulife was required to lead evidence to establish that the parties had reached a ‘prior agreement whose terms are definite and ascertainable’.
The court was satisfied that it had done so. The court ultimately considered the notion that a policy with non-forfeiture values that exceeded the face value of the policy to be nonsensical. In addition the non-forfeiture tables had no inflation related pattern which undermined the plaintiff’s position that he had bargained for inflation protection.
What’s In a Name?
Plenty. Particularly if you are an insurer attempting to advance a subrogated claim and your insured is in bankruptcy protection proceedings. This was the circumstance faced by the insurer in Douglas v. Ferguson Fuels . What would have otherwise been a garden variety oil spill subrogated action was complicated by ongoing bankruptcy proceedings involving the insureds. By the time the subrogated claim was issued the insured had made an assignment in bankruptcy. By application of s. 71 of the Bankruptcy and Insolvency Act, the insured’s right of action vested in the trustee once an assignment in bankruptcy was made. The subrogated action was commenced in the name of the insured and the court, applying long standing principles of bankruptcy law held that the claim commenced in the name of the insured was a nullity. Had the claim been brought in the name of the Trustee the insurer would have been entitled to proceed.
There were a number of technical issues argued in relation to the law of misnomer (where the court will substitute the correct party for a party improperly identified) and the distinction between the law of subrogation and assignment. Ultimately the court determined that the naming of the insured personally instead of the Trustee could not properly be characterized as a misnomer. The action was ultimately dismissed. Two of the five judge panel dissented on the basis that the insurer should have the opportunity to argue the misnomer issue before the Superior Court motions judge.
The take away: be mindful of the technical consequences of an assignment in bankruptcy as it pertains to advancing subrogated actions. Although the issue more often arises where a target defendant is in a bankruptcy proceeding (which requires that steps be taken by the subrogating insurer in order to proceed) this case demonstrates that advancing a claim on behalf of a bankrupt insured can be a minefield that requires planning and thoughtful advocacy.
A fire at commercial premises is at the center of a dispute between the insurers of a landlord and tenant
in the recently reported decision of Imperio Banquet v. Alternative Access and Mobility. The lease
required the tenant to contribute its proportionate share of the landlord’s premiums for ‘public liability,
fire and other coverages’ insurance. Other parts of the lease made it clear that the Additional Rent paid
by the tenant was for ‘Building Insurance’. The tenant was also required to obtain insurance but only to
insure the property and operations of the tenant. Moreover the tenant’s repair obligations expressly
excluded the portions of the building which were expressly the responsibility of the landlord, ‘namely
the roof, foundation, structure, outside walls and unit heaters.’ The tenant paid the additional rent. The
landlord obtained the building insurance. When a fire resulted in damage to the building as a result of
the negligence of the tenant’s employee, the landlord’s insurer attempted to subrogate. The court
granted summary judgment to the tenant, referring to Ross Southward v. Pyrotech in finding that where
the tenant contributed to the insurance obtained by the landlord, the tenant should obtain the benefit
of that insurance as it was evident that the underlying lease shifted the risk of this type of loss to the
landlord. Contractual risk shifting cases are often tricky and a close read of the underlying agreement, in
this case the lease is critical to understanding which party was to bear the risk of loss.[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]
The Ontario Divisional Court has weighed in on an application under the JRPA for a stay of LAT proceedings pending a review of 2 rulings refusing the insurers requests for an adjournment.
In Taylor v. Aviva there was a threshold legal issue as to whether the claimant was involved in an ‘accident’. After the case Conference, and facing an unexpected affidavit in a written hearing proceeding, the insurer sought an adjournment of the case in order to cross examine the affiant and was denied. Twice. With no substantive reason provided. The insurer turned to the Divisional Court for relief and in particular a stay of the proceeding pending judicial review of the refusal to grant the adjournment. It was argued that there was a serious issue to be tried (relating to procedural fairness) and that irreparable harm would result if the stay was not granted.
The Divisional Court didn’t buy it. Not only did they not accept the arguments regarding the serious nature of the issue to the insurer they found that the insurer’s application was premature because they had not exhausted all of the remedies available in the LAT such as a Request for Reconsideration. Importantly the court noted the importance of allowing a relatively new tribunal such as the LAT the opportunity to ‘iron out wrinkles in procedural issues’ and to let it do ‘what the legislature directed it to do’ – to provide a dispute resolution mechanism that is fair, efficient and proportional.
See Aviva Canada Inc. v Taylor , 2017 ONSC 2661 (CanLII)[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]