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How an insurer in an “underinsured” auto case reduced its exposure by more than $452K


July 7, 2020   by David Gambrill


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An Ontario auto insurer in an underinsured accident case is entitled to make a subrogated claim against a third party – in this case, a bartender who was found 11% responsible for a fatal car crash — even though its policyholder did not sue that third party for compensation, the Court of Appeal for Ontario has ruled.

The Appeal Court thus overturned the decision of a trial judge, who originally ruled that the insurer’s subrogated action against the bartender did not make the bartender’s $1-million policy limit “available” to the insurer’s policyholder, Gregory Tuffnail.

Including the bartender’s policy limit essentially reduces the amount that State Farm Mutual Automobile Insurance Company has to pay to its policyholder, Tuffnail (the plaintiff), in excess of the underinsured policy limit of driver Steven Meekes (the defendant). As the result of the Appeal Court’s decision, State Farm has to pay Tuffnail $347,454.71 instead of $800,000.

“This decision should give insurers and plaintiffs some comfort when faced with potential excess claims in over-limits cases,” Tamara Tomomitsu and Jeremy Ablaza of Borden Ladner Gervais LLP commented in a blog for Mondaq. “Plaintiffs are no longer required to name every potential tortfeasor [wrongdoer] in an effort to qualify for OPCF-44R coverage while allowing auto insurers with some potential avenues to reduce their exposure.”

Tuffnail was seriously injured in a single-vehicle crash on Sept. 13, 2009, following a rural wedding reception. The other passenger, Kristopher Petrie, was killed. Tuffnail and the driver, Steven Meekes, had been served alcohol at the reception. The groom, Thomas Bolton, had hosted the reception. Steve Coulthard was the bartender.

Tuffnail and his family sued Meekes, Bolton and State Farm, Tuffnail’s automobile insurer. Tuffnail did not sue Coulthard.

Tuffnail claimed the collision and resulting injuries were caused by Meekes’ and Bolton’s negligence, and/or, in the case of Bolton, a breach of the provisions in the Ontario Liquor Licence Act.

Tuffnail also sought a declaration that they were entitled to coverage under the OPCF 44R (Ontario Policy Change Form 44R–Family Protection Coverage endorsement), the optional underinsured motorist coverage Tuffnail had purchased from State Farm.

State Farm defended Tuffnail’s claim for a declaration that Tuffnail was entitled to coverage under the OPCF 44R and brought a third-party claim against Coulthard for contribution and indemnity in respect of amounts it was required to pay under the OPCF 44R. Bolton also brought a third-party claim against Coulthard. Both State Farm and Bolton alleged that Coulthard’s negligence and/or breach of the Liquor Licence Act caused or contributed to the accident.

After a six-week trial, on May 10, 2017, the jury awarded damages and apportioned liability, finding Meekes (the driver) to be 65% liable for the crash, Bolton (the host) 20.03% responsible, Coulthard (the bartender) 11.12%, and Tuffnail (the plaintiff) 3.85%.

The jury awarded Tuffnail just over $3.4 million.

But Meekes was an underinsured driver, carrying just the legal minimum liability coverage of $200,000. Bolton’s policy was for $2 million. So, taking into account Tuffnail’s liability for the crash, Tuffnail was entitled to $189,780 from Meekes and just under $1.9 million from Bolton, which was well short of the $3.4-million awarded by the jury.

Essentially, State Farm launched a subrogation action against Coutlhard on Tuffnail’s behalf, thereby making Coulthard’s $1-million policy limit available to Tuffnail.

In Ontario, if an underinsured motorist is involved (and assuming an underinsurance policy endorsement is purchased), an insured can make a claim against his or her own insurer for amounts in excess of coverage available from underinsured motorists.

Under s. 7 of the OPCF 44R form in Ontario, the amount payable by an insurer (State Farm) to an eligible claimant (Tuffnail) is excess to “an amount received by the eligible claimant from any source.” The nine sources listed in the law include “the insurers of a person jointly liable with the inadequately insured motorist.”

The trial judge reasoned that Coulthard, although found 11% liable, was not “jointly liable” because he had not been included in Tuffnail’s original lawsuit.

“In summary, in the trial judge’s view, because Tuffnail had not commenced a claim against Coulthard in their own name and named Coulthard as a defendant, the proceeds of Coulthard’s policy were not ‘available’ to Tuffnail within the meaning of s. 7 of the OPCF 44R,” as the Ontario appellate court characterized the trial judge’s decision.

But the subrogated claim by the insurer was not in the insurer’s own name, but rather on behalf of Tuffnail, the Appeal Court ruled. In essence, the insurer’s subrogated claim made Coulthard’s policy available to Tuffnail.

And since Tuffnail’s policy paid out only after all other available policies had been taken into account, this effectively reduced the amount that State Farm’s underinsured motorist policy was required to pay Tuffnail.

“The legal consequence of State Farm’s [subrogated] claim is that Coulthard’s liability to Tuffnail was effectively put in issue,” wrote Ontario Court of Appeal Justice Alexandra Hoy. “In finding that State Farm had a right of subrogation against Coulthard under s. 20 of the OPCF 44R, the trial judge necessarily found that Coulthard is jointly liable with Meekes.”