Canadian Underwriter

Nova Scotia appeal court finds evidence of settlement relevant in RSA’s subrogated auto claim against uninsured motorist

April 14, 2015   by Canadian Underwriter

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The Nova Scotia Court of Appeal recently decided in favour of Royal & Sun Alliance Insurance Company of Canada when it ruled that a lower court erred in dismissing a motion for assessment of damages against an uninsured driver involved in a collision with RSA auto policyholders.

The Royal & Sun Alliance Insurance Company of Canada successfully appealed a court ruling in Nova Scotia over an vehicle accident with an uninsured driverThe issue was whether damages in a subrogated claim – against a defendant who fails to file a defence or show up in court – have to be proven, or whether plaintiffs are only required to show that their settlement with the insurance carrier is reasonable.

In July, 2007, Cindy MacKean and her son Dalton Holley were injured in a vehicle accident, allegedly caused by Joseph Goodall, who was driving without the required insurance.

The following year, MacKean and Holley started an action against RSA for coverage under Section D of Nova Scotia’s standard auto policy. That section covers victims of accidents caused by uninsured and unidentified vehicles. Goodall was later named as a defendant.

Court records indicate that Goodall had fled the scene of the accident, did not appear in court and did not defend liability or damages.

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“In January, 2010, a consent order was issued reciting that the plaintiffs had settled their claim against RSA and dismissing the action against the insurer without costs,” wrote Mr. Justice Michael Wood of the Supreme Court of Nova Scotia, in a ruling released Jan. 30, 2014. “The order included a recital that the plaintiffs’ claim against Mr. Goodall would continue. At the same time Ms. MacKean signed a release in favour of RSA and assigned the plaintiffs’ claims to the insurer.”

In his ruling, Justice Wood dismissed a motion brought for assessment of damages against Goodall on the grounds of insufficient evidence to quantify the damages. His ruling did not prejudice the plaintiffs’ right to bring a new motion, with more evidence, for assessment of damages.

But in a decision released April 10, 2015, the province’s appeal court overturned Justice Wood’s decision, finding he had “erred in law when ruling that settlement of the plaintiff’s Section D claim was irrelevant to the assessment of damages against the defaulting tortfeasor.”

The case is now being sent back to the province’s Supreme Court “to assess damages, which should take into account the settlement amount to determine whether it was reasonable.”

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The evidence originally before the court consisted of two affidavits, one of which was deposed by an RSA claims examiner. That examiner confirmed in her deposition that RSA had settled for $500,000, provided information on the extent of the plaintiffs’ injuries, and provided reports dealing with future care and potential loss of income.

An assessment for damages in such a case “ought to be carried out by the judge based upon the evidence presented,” Justice Wood ruled. “No deference should be given to the amount that the insurance adjuster has decided should be paid in settlement of their insured’s claim on the insurance contract. There may be contractual terms that entitle the party to money which could not be recoverable damages and there may be economic factors, such as risk assessment and litigation costs, which may factor into the adjuster’s analysis. The defendant who may be called upon to reimburse the insurer through the subrogated action should be entitled to insist on strict proof of actual damages caused by his negligence, and not have the onus of establishing that the insurer’s decision was not reasonable.”

RSA successfully argued on appeal that Justice Wood erred by “adopting a standard of strict proof on a balance of probabilities, rather than the standard based on the reasonableness of settlement.”

RSA “relied heavily” on a ruling by the English Court of Appeal, in 1951, in the case of Biggin & Co. Ltd. versus Permanite Ltd., wrote Mr. Justice Peter Bryson of the Nova Scotia Court of Appeal. In Biggin, “the Dutch government sued the plaintiff for damages arising out of defective goods purchased from Biggin, which settled with the Dutch government and then brought legal proceedings against Permanite from whom Biggin had purchased the goods for resale to the Dutch.” The English appeal court found that Biggin could use its settlement with the Dutch government as the measure of damages against Permanite, Justice Bryson noted.

Justice Wood found that in MacKean, the case the defendant has to make “differs depending upon whether it is a subrogated claim after compensation by an insurer or not.”

Justice Wood “distinguished Biggin because it did not involve a subrogated or assigned insurance claim,” wrote Justice Bryson. “He characterized it as completely different from a claim by an insurer seeking recovery of a subrogated loss paid to its insured. In the judge’s view the insurance settlement amount was irrelevant to the claim for recovery against Mr. Goodall. He buttressed that point with comment that in civil litigation, the existence, amount or payment of insurance was irrelevant and was routinely withheld from juries in jury trials.”

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But Justice Bryson noted the fact “that an insurer paid the settlement does not change the nature of what occurred.”

RSA “was liable to its insureds for damages they suffered at the hands of an uninsured motorist,” Justice Bryson added. “It paid an amount in settlement of that claim. By the assignment and subrogation under s. 149 of the Insurance Act, [RSA] is entitled in law to recover from the wrongdoer. The fact of subrogation does not distinguish Biggin. Biggin settled with a party it was legally obligated to pay, and sought to recover from a third party who was obligated to it. Whether the obligation of the third party arises by tort, contract or statute does not change the analysis.”

The other two judges hearing the appeal – Madam Justice Linda Oland and Mr. Justice David Farrar – concurred.

“In situations where the claim is defended, the third party is clearly challenging liability or damages, or both,” Justice Bryson wrote. “In such cases, the right to indemnification cannot be assumed. But settlement remains relevant.”

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