Our lawyers have worked through the maze of complex litigation and coverage issues, managed the class action juggernaut, and represented employees of insurers that come under attack by plaintiff`s litigation. Some of the problems we face are front page news, most are not. They are all problems that are important to our clients, and to us.
The Court of Appeal for Ontario has held that a Minnesota tortfeasor with only $500,000 liability limits is an “inadequately insured motorist” under the Family Protection Endorsement (OPCF 44R) in Ontario, where the 44R limits are $1 million.
In Hartley v. Security National, the plaintiffs were injured in a motor vehicle accident while touring on a motorcycle in Minnesota. The accident occurred when the plaintiffs’ motorcycle was struck by a self-insured State of Minnesota-owned truck, operated by a state employee. The plaintiffs retained Minnesota counsel and sued the State of Minnesota for damages.
Even though Mr. Hartley’s injuries warranted damages in excess of US$500,000 dollars, he settled the action for only US$500,000, which was the maximum payable by Minnesota to a tort claimant in the circumstances. The settlement was inclusive of legal fees, including a 22 per cent contingency fee, and disbursements. After legal costs were accounted for, Mr. Hartley was left with approximately CAD$386,500.
He then claimed the difference from Security National under his Ontario policy and, more specifically, under his OPCF 44R, which provided underinsured coverage of up to $1 million. The insurer denied the claim on two grounds: Firstly, the insurer claimed that Minnesota was not an “inadequately insured motorist” within the meaning of OPCF 44R. Secondly, the insurer claimed that U.S. legal fees were not recoverable under the OPCF 44R.
The motion judge found for the plaintiffs on both issues.
The Court of Appeal agreed with the motion judge that Minnesota was an “inadequately insured motorist” but disagreed that the legal fees were recoverable.
“Inadequately insured motorist”
The evidence was that the Tort Claims Act inMinnesota provides that the State will pay compensation for property loss and personal injury caused by a state employee acting in the course of his or her employment. However, the Act contains a $500,000 cap on the amount that can be claimed by an individual and a $1,500,000 cap on the total that is payable “for any number of claims arising out of a single occurrence”. Mr. Hartley’s settlement agreement with Minnesota contained the following provision:
The parties to this Settlement Agreement agree and acknowledge that the amount paid to Plaintiff Glen Hartley and his counsel, (i.e., [US]$500,000.00) is the maximum amount Glen Hartley can recover against State Defendants pursuant to Minnesota law, including Minn. Stat. §3.736.
Security National raised three arguments for refusing Mr. Hartley’s claim for the shortfall left after his settlement agreement:
Minnesota was not underinsured, but self-insured, and therefore underinsured coverage does not apply.
The shortfall in recovery was not the result of underinsurance, but the result of a statutory immunity.
Even if a self-insured state enjoying statutory immunity can be an “inadequately insured motorist”, it is not accurate to say that Minnesota is underinsured because Minnesota offers single occurrence coverage up to US$1,500,000 that exceeds the CAD$1,000,000 coverage ceiling payable under OPCF 44R. Security National claimed that its maximum liability is zero under the terms of OPCF 44R.
The Court of Appeal rejected all three arguments.
First, the language in the OPCF 44R was clear:
“inadequately insured motorist” means
(a) the identified owner or identified driver of an automobile for which the total motor vehicle liability insurance or bonds, cash deposits or other financial guarantees as required by law in lieu of insurance, obtained by the owner or driver is less than the limit of family protection coverage … [Emphasis added.]
The Court held that the phrase “other financial guarantees as required by law in lieu of insurance” would include a legislated obligation by an uninsured state to indemnify its employees by paying compensation for tortious damage caused by those employees.
Second, the Court of Appeal held that the Tort Claims Act does not remove Minnesota’s liability: It limits the damages that can be collected from Minnesota:
Instead of assisting Security National, the cap on damages produces a shortfall between what Mr. Hartley is “legally entitled to recover” in damages, and what he is entitled to receive, thereby triggering a right of indemnity under OPCF 44R.
Finally, The Court of Appeal dismissed the insurer’s argument that the $1.5 million cap represents the “total of all limits” available to the claimant for the purpose of section 4 of the OPCF 44R:
When the words “the total of all limits of motor vehicle liability insurance, or bonds, or cash deposits, or other financial guarantee as required by law in lieu of insurance, of the inadequately insured motorist” in s. 4 are given their ordinary meaning in context, it is clear that they refer to the funds available to the claimant bringing the claim.
As Mr. Hartley’s claims were limited to $500,000, there was a shortfall within the meaning of section 4 of the OPCF 44R.
Section 3 of the OPCF 44R requires the insurer to indemnify the insured for the shortfall in “compensatory damages in respect of bodily injury to or death of an insured person arising directly or indirectly from the use or operation of an automobile” [emphasis added].
The motion judge found that the legal fees were not “compensatory damages”, but held that the fees could be recovered from the insurer as special damages. The Court of Appeal disagreed:
To use the vehicle of special damages to provide compensation for costs incurred in securing compensatory damages undermines the contractual agreement of the parties.
The Superior Court of Justice recently released an important decision finding full indemnity costs payable in a coverage case.
In the underlying action, a young boy was severely injured by a car after his father dropped him off in a parking lot. The boy (via his litigation guardian) and the boy’s mother (via the Family Law Act) sued the father for damages. The father’s insurer found a duty to defend and the insurer’s counsel represented him at trial. At trial, over $900,000.00 in damages were awarded. Following the trial, the father’s insurer denied coverage.
The mother and boy brought a claim against the father’s insurer under section 258(1) of the Insurance Act, which allows parties to bring a claim to enforce judgment against insurers. At the summary judgment motion, the court found that there was coverage.
The significance of Hoang v. The Personal Insurance Company is the court’s determination on costs. The court found costs payable to the mother and boy on a full indemnity scale, rather than the usual partial indemnity scale.
The court rationalized the full indemnity on the basis that the insurance premium is presumed to reflect the insurance company’s risk. It would be unfair and burdensome to make customers pay a premium plus legal fees in order to obtain the coverage they purchased. If the insurer chooses to attempt to reduce its risk by engaging in coverage litigation, it should be made to fully compensate the successful party if it losses. Ultimately, the court ordered the insurer to pay full indemnity costs at $72,000.00.
This decision marks a possibly new exception to the general policy of awarding partial indemnity costs to successful parties. It is something that both coverage counsel for insurers and policy holders need to keep in mind moving forward, as denying coverage under a policy now can apparently be very costly.
The License Appeal Tribunal has held that a person who tripped over stone blocks and fell into a parked Honda vehicle was involved in an “accident”, making him entitled to receive accident benefit under the Statutory Accident Benefits Schedule.
In D.S. v. TD Insurance, the applicant was running down a street in the early hours of September 28, 2015. He entered onto private property towards a low wall of stone edging blocks, which separated two private properties. As he was running, he tripped over the stone blocks, lost his balance, and fell head first towards a Honda sedan parked on the driveway. As a result of crashing into the parked car, he sustained catastrophic injuries.
DS applied to his insurer for accident benefits. The insurer denied the claim on the basis that DS was not involved in an automobile “accident”, which the policy defines as:
“…an incident in which the use or operation of an automobile directly causes an impairment …”
The LAT Adjudicator disagreed with the insurer and found that the claimant was involved in an “accident”.
One of the issues in the case was whether the claimant actually made contact with the parked vehicle. After considering the expert and other available evidence, the adjudicator found that the injuries occurred as a result of the claimant’s “contact” with the parked vehicle.
What is an “Accident”?
The meaning of the phrase “use or operation” and “(directly) causes” has been discussed at length in many cases across Canada, in all levels of tribunals and courts. It can safely be said that each case must be decided on its own facts, although some overriding principles apply.
In Ontario, the “test” for determining whether someone was involved in an “accident” for the purpose of coverage under the SABS is:
Did the accident result from the ordinary and well-known activities to which automobiles are put? (purpose test)
Was the use or operation of the vehicle a cause of the injuries? (causation test)
If the use or operation of a vehicle was a cause of the injuries, was there an intervening act or intervening acts that resulted in the injuries that cannot be said to be part of the "ordinary course of things"? In that sense, can it be said that the use or operation of the vehicle was a "direct cause" of the injuries? (direct causation test)
The Purpose Test
The adjudicator relied on the Court of Appeal’s decision in Economical Mutual Insurance Co. v. Caughy (2016) to find that parking a vehicle is an ordinary and well known activity to which automobiles are put. Accordingly, the claimant met the “Purpose Test”.
Of note, the adjudicator found in the context of the “Purpose Test” that falling into the car vs. over the car was irrelevant:
Further, does it matter that the applicant in this case collided with a parked vehicle as opposed to tripping over a parked vehicle as in Caughy? I find it does not for the purposes of the purpose test. The Court in Caughy noted that there was no ‘active use component’ to the purpose test. But I examine this in more detail in the causation aspect of the test.
The Causation Test
The adjudicator found that the injuries were caused by contact with the vehicle. The adjudicator found that the impact with the vehicle was not an intervening event that would break the chain of causation, finding that the impact with the car was part of the same chain of events. Further, the adjudicator found that the parked vehicle was a dominant feature of the accident, seeing that the impact with the vehicle caused all the injuries. The adjudicator concluded, “ I find that on a balance of probabilities that his injuries were caused by contact with the vehicle.”
The Court of Appeal decided in Caughy that parking a vehicle is part of the ordinary and well well-known activities to which automobiles are put. Therefore, it was open for the adjudicator to find that the act of parking the Honda met the Purpose Test.
However, and with the greatest of respect, I could not disagree more with the adjudicator’s findings on the Causation Test.
Firstly, the “Causation Test” asks whether “use or operation of the vehicle was a cause of the injuries”. The use or operation of the vehicle must be a cause of the injuries. Not just the vehicle itself.
It appears that the adjudicator in DS found causation because the vehicle itself caused the injuries – not its use. The adjudicator made the following finding:
This part of the causation test is met. As stated earlier, based on the evidence, the injuries could not have been caused by contact with the ground, and given that there is no other explanation before me, I find that on a balance of probabilities that his injuries were caused by contact with the vehicle. [emphasis added]
There was no finding that the parking of the vehicle (its use) was a direct cause of the injuries. There was no evidence that the vehicle was parked in a way that caused the injuries. It was the vehicle itself that caused the injuries (I assume because the vehicle was harder and more solid than DS) and not its use.
Secondly, as noted above the adjudicator found in the context of the Purpose Test that it made no difference whether the claimant feel over or fell into a parked vehicle. However, the distinction is very important under the Causation Test because tripping over a parked vehicle might have something to do with how the vehicle was parked.
For example, in Caughy, the Superior Court found that the use of the motorcycle (i.e., parking it so that it obstructed a path) was a direct cause of the fall. In other words, if whoever parked the motorcycle on the path hadn’t have done so, the fall likely would not have occurred. It was the (negligent) “use” of the parked vehicle that ultimately caused the claimant to trip over it, which caused his injuries.
This finding was not challenged on appeal.
Put another way, in Caughy the “dominant feature” of the incident was that the claimant tripped over a parked motorcycle that was obstructing his path. In DS, my opinion is that the dominant feature of the incident was that the claimant tripped over a stone block and happened to crash into a car. The car was ancillary, at best.
Following Caughy, I opined that the decision dilutes the Purpose Test to some degree. If the Purpose Test is designed only to rule out any aberrant uses of vehicles, one wonders whether there is any real purpose for the Purpose Test, especially if a parked vehicle that is not being used at all is found to be “use”.
Caughy might have been decided differently under the Causation Test if the motorcycle was not parked in a way that obstructed a pedestrian’s path.
But DS takes the cake.
If DS stands, insurers might consider charging much higher premiums if their insureds park their vehicles anywhere other than inside maximum security garages.