Action for underinsurance coverage dismissed where insured settled Florida action for less than available limits

Action for underinsurance coverage dismissed where insured settled Florida action for less than available limits

Miller Thomson LLP

In a recently reported case, Kovacevic et al. v ING Insurance Company of Canada et al., 2015 ONSC 3415, the court has ruled that an insured may not settle an action for less than the tortfeasor’s available policy limits and then bring an action against their own automobile insurer for underinsurance coverage.

The plaintiffs were injured in a motor vehicle accident which occurred in Florida on February 4, 2004. The plaintiff’s vehicle was struck by a tractor/trailer vehicle. They sued the owner of the tractor and the owner of the trailer. The owner of the tractor failed to defend and was noted in default. The owner of the trailer defended the Florida action. At the time of the accident, the owner of the trailer was insured by Lincoln General Insurance (Lincoln) with a policy limit of $1,000,000.00.  In 2010, the plaintiffs settled the Florida action for $300,000.00 at a private mediation and signed a Full and Final Release in favour of the defendants and Lincoln in the Florida action. The plaintiffs then brought an action for underinsurance coverage against their own automobile insurer, ING, who was not a party in the Florida action and was not notified of the mediation proceedings. The plaintiffs contended that ING was not entitled to a deduction of the Florida tortfeasor’s Lincoln insurance policy limits in the circumstances of this case. The plaintiffs further submitted that the limits of the policy were unavailable in the Florida action as they believed that Lincoln was about to be insolvent at the time of the settlement. ING brought a motion for summary judgment dismissing the action on the basis that the plaintiff was not entitled to settle the Florida claim for less than the available policy limits and then pursue a claim against their own insurer for underinsurance coverage.

The Court considered the following issues:

  1. If the plaintiffs settled their claim against the Florida tortfeasor for less than that tortfeasor’s available insurance policy limits, can they pursue a claim against their own insurer, ING, for underinsured coverage?
  2. In the alternative, if the answer to the first issue is yes, is ING entitled to a deduction of the Florida tortfeasor’s full policy limits of $1,000,000.00 from any award of damages?
  3. Whether summary judgment should be granted in favour of ING on the grounds that there is no genuine issue requiring a trial with respect to the plaintiffs’ claim against ING for underinsured coverage.

ING’s motion for summary judgment was granted. Justice MacKenzie ruled that the plaintiffs were not entitled to settle their claim against the Florida tortfeasors for less than the available policy limits of the Florida tortfeasor’s insurance and then pursue a claim against their own insurer for underinsurance coverage. The plaintiffs were not permitted to rely on a bald allegation that Lincoln was potentially insolvent at the time of the settlement when they did not conduct due diligence to determine whether the policy limits were unavailable when they entered into the settlement. There was no evidence that Lincoln was not solvent at the time of the settlement and therefore, the plaintiffs had failed to prove on a balance of probabilities that the policy limits of the Florida tortfeasor were not available at the time of the settlement.

The case affirms that a party must be diligent with respect to the availability of the tortfeasor’s policy limits during settlement negotiations. Insurers will be pleased with this decision as they should not be expected to compensate for this lack of diligence

Risks remain even as courts hold back on liability for private parties

Written By Chella Turnbull | Law Times

With the holiday season approaching, it’s a good time for a reminder about the liability issues facing commercial establishments for the actions of their drunk patrons. The issue is a source of amazement to many foreigners. If you tell people from Germany or Australia that a bar can be liable when a patron drives drunk, they’ll assume you’re kidding.

In 1974, the Supreme Court of Canada held in Jordan House Ltd. v. Menow that a commercial establishment serving alcohol has a duty not to serve patrons past the point of intoxication. The plaintiff was a pedestrian struck while walking home. The court held that the accident was foreseeable because the bar had served him too much. In practical terms, bars do make significant profits and, therefore, it’s reasonable to transfer some of it to the costs of those injured as a result of alcohol consumption.

The court hasn’t however, extended the duty not to serve guests to excess to the private homeowner. In 2006, the Supreme Court of Canada held in Childs v. Desormeaux: “A social host at a party where alcohol is served is not under a duty of care to members of the public who may be injured by a guest’s actions, unless the host’s conduct implicates him or her in the creation or exacerbation of the risk.” That’s still the law in Canada.

But Canadian courts, in obiter dicta, have held that if a homeowner serves alcohol to minors, actively encourages consumption or allows drinking in dangerous circumstances, the potential for liability remains a risk. The B.C. case of Chretien v. Jensen held the defendant homeowner 60-per-cent liable for allowing guests to drink on a bridge that had no handrails. In Sidhu v. Hiebert, the B.C. Supreme Court, holding that the issue required a full trial, dismissed a summary judgment application brought by a homeowner whose guest had driven and allegedly killed a third party.

These and other cases leave the door open for a decision establishing social host liability. As a result, social hosts would be wise to take steps such as holding back keys and calling cabs.  Nobody wants to be the defendant in a test case.

For company holiday parties, which are a sort of hybrid between the commercial and social-host situations, foreseeability is a crucial part of the analysis. Liability of an employer likely requires specific knowledge of impairment plus a lack of any policy to help employees get home. The duty to employees would be more significant in rural or suburban settings where people are more likely to be driving as opposed to urban centres. One way to avoid liability is to hold office parties at a commercial establishment.

Based on Hunt (Guardian of) v. Sutton Group Incentive Realty Inc. and Jenkins v. Muir, there’s a positive duty of care between employer and employee; however, the employer must have specifically foreseen that the particular employee would be driving in an impaired state. In Hunt, the Ontario Court of Appeal wouldn’t dismiss the case against the employer even though there was evidence that the plaintiff wasn’t drunk when she left the company party. It held that the issue was one that required a trial. The Court of Appeal did opine, however, that there must be a clear chain of causation between the employer’s knowledge of the employee’s impairment and the accident. Given that comment, it’s likely wise to ensure that employees are aware of available transportation assistance when it comes to parties that take place at an employer’s office without trained servers to oversee consumption.

While the courts have assigned liability to commercial establishments, they’ve so far been reluctant to intrude into the realm of private parties. As the court stated in Childs: “A host is entitled to respect the autonomy of a guest. The consumption of alcohol, and the assumption of the risks of impaired judgment, is in almost all cases a personal choice and an inherently personal activity.”

Chella Turnbull, a lawyer practising personal injury litigation at Zuber & Co. LLP, is available at 416-646-3129

Alberta: Insurance companies bracing for a flurry of calls

By CINDY WHITE | 660 News

The phones could be ringing off the hook at your insurance agent’s office.

Claims will likely jump due to the snowfall in southern Alberta.

Heather Mack with the Insurance Bureau of Canada explained to 660 NEWS, crashes often spike around the first significant snowfalls, and the time change related to daylight saving.

She pointed out, drivers need to remember it’s not summer anymore.

“Never think you’re invincible on the road, because you’re quickly proven wrong, not only just based on the size of the vehicle you’re driving, but the damage you can do to other people on the road as well,” she said.

Mack added, the Insurance Bureau believes drivers should be given the choice of whether they use winter tires, not be forced to do so by government regulation.

However, many companies offer discounts to those who do swap out to stickier rubber when the cold and snow blow in.

The Ontario Court of Appeal has recently released a decision that will be widely applauded by the insurers of heavy commercial vehicles.

Read more

It’s All In The Fine Print: Will Your Fiduciary Insurance Cover You When You Need It?

Article by Carol Buckmann

Will that insurer your company has been paying premiums to for all of these years stand behind you if you are sued for ERISA violations?  Have you just been relying on a broker to give you the coverage you need?

I previously wrote about a decision in which CIGNA’s insurer was permitted to deny coverage for fiduciary breach due to a fraud exclusion in its policy.   We have just had another decision from an appeals court in Louisiana in which fiduciaries being sued by the U.S. Department of Labor were denied coverage under each of three separate policies they thought would provide them with legal defense costs and cover any awards assessed against them.  Again, the reason was buried in the policy fine print, which even the brokers didn’t seem to understand, if the facts set out in the decision are any indication.

The facts boil down to the following:  Plaintiffs had three policies: a D&O policy, fiduciary liability insurance and excess fiduciary coverage.  They were sued by the DOL following a formal investigation for selling stock to an ESOP at an inflated price, but the court ruled that the policies didn’t cover the plaintiffs for the following reasons:

  • The policies didn’t cover actions taken before the effective date.
  • The D&O policy didn’t cover ERISA claims at all.
  • Plaintiffs failed to give notice of the claims during the policy period, where the claim was specifically defined as including an investigation by the Department of Labor or the Pension Benefit Guaranty Corporation.
  • The excess coverage didn’t kick in until the policy limits in the basic policies had been reached (which was not possible given the court’s other rulings.)

The plaintiffs were also told that they couldn’t amend their complaint to include the brokers who they claimed were supposed to be providing them with specific coverage, but failed to do so.

No one wants to wade through the details of these policies, but those who fail to have them reviewed by legal counsel may be in for rude surprises later on.  We regularly speak with very competent  employee benefits professionals who confuse the required ERISA bonding coverage (which provides recovery to the plan, not the fiduciaries) with fiduciary liability insurance, or who think D&O policies cover their ERISA plan committee actions (many such policies either don’t cover ERISA claims at all, or don’t cover lower level committee members).  We frequently are told that a plan sponsor maintains fiduciary liability insurance, only to be sent the ERISA bond when we ask to see a copy of the policy.  In many of those cases, we have to deliver the bad news that the fiduciaries have no personal coverage at all.

Clearly, the time to review coverage and obtain any required endorsements is not when the accusations of fiduciary breach are raised.  Just a few among the points to be considered in a thorough review of coverage are the following:

  • Your broker is not a lawyer.  Don’t rely on her to interpret legal clauses in your policy. Get a qualified independent review.
  • Don’t assume that employer indemnification obligations are a substitute for coverage or will cover any gaps in coverage.  There will be legal constraints (for example, under state corporate law) on the company’s ability to provide full indemnification and the commitment may become worthless in the event of bankruptcy or other financial distress.
  • Understand the exclusions in your policy and find out whether endorsements are available to eliminate some of them.
  • Consider whether your policy limits should be increased.  Courts seem to be awarding ever increasing damages in fiduciary breach cases.
  • Understand and follow the notice requirements in your policies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: Mondaq

Liability Insurers: Beware Of Hasty Denials Of Coverage!

Article by Dominic Naud and Laurent Durocher-Dumais

Clyde & Co

In liability insurance matters, the control of the defence is a recurring issue before the courts.  A recent ruling of the Superior Court dealt with this issue after an insurer had denied coverage following its own investigation of the facts. This ruling may cause liability insurers to reconsider the way they handle their insureds’ files where no formal claim has yet been filed.

In this case, a house partially collapsed following work performed by a contractor. The latter quickly informed his liability insurer of a possible claim. After having conducted its own investigation of the facts, the insurer denied coverage on the basis of two exclusions.

A year later, a claim for damages was filed against the contractor. Following its analysis of the statement of claim, the liability insurer indicated that the allegations confirmed its investigation and therefore, its coverage position.

The contractor then presented a Wellington motion in order to determine whether the insurer owed a duty to defend and, if necessary, decide who would choose defence counsel: the insurer or the insured?

Having concluded that the insurer did not establish that the exclusions applied in a clear and unequivocal manner at this stage of the proceedings, the Court held that the insurer had the duty to defend its insured. The Court then considered the second issue, noting that:

[translation] “[T]he fact that an insurer had initially wrongfully refused to defend its insured does not cause it to automatically lose its right to appoint counsel and control the defence where the court subsequently orders it to defend its insured. For the insurer to lose this right, the circumstances must be such that the insured can no longer have confidence in the grounds of defence that the insurer will put forth.”

Given that the insurer justified its position on the exclusions by its own investigation of the circumstances of the accident rather than its analysis of the allegations contained in the statement of claim, the Court held that [translation] “the insured was justified in losing confidence in the defence that his insurer will now be forced to provide him following this ruling.” The insurer was thus [translation] “in a conflictual situation regarding the specific performance of its duty to defend“.

The Court therefore left the choice of attorney and the control of the defence up to the insured. It also ordered the insurer to pay the defence costs incurred to date by the insured and those to come, except for those incurred for the Wellington motion.

This decision highlights that it is in the interest of liability insurers to wait for the statement of claim before taking a final position on insurance coverage if they wish to retain control of the defence. Indeed, it seems that a denial of coverage based solely on a factual investigation before a claim is made against the insured might allow the latter to later invoke its loss of confidence in the insurer in regard to the control of the insured’s defence. It will be interesting to see if the courts find other circumstances amounting to the legitimate loss of confidence in the insurer that allow the insured to gain control of its defence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Source: Mondaq

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