Waiver of tort troubling for insurers

Waiver of tort is going to be the bane of insurers’ existence until it’s dealt with in the courts, Robert B. Bell of Borden Ladner Gervais LLP told delegates at an Insurance Institute of Canada seminar on June 17 in Toronto.
As defined on Stikeman Elliott’s Web site, a “waiver of tort” describes a situation in which a plaintiff gives up the right to sue in tort and pursues a restitutionary claim instead to recoup profits a defendant has derived from its wrongful conduct.
“Waiver of tort has not traditionally been seen as a cause of action, but merely as a choice of remedy where an actionable wrong has been established,” the Web site notes.
Insurers are concerned because when a tort claim is being certified as a class proceeding, it would ordinarily be covered under CGL coverage. However, because there are no damages when tort is waived, the actual coverage is unclear.
In Serhan v. Johnson & Johnson, Ontario Superior Court Justice Maurice Cullity certified a class action under the Class Proceedings Act on the basis that the claim disclosed a cause of action known as waiver of tort.
In his decision, Cullity said the basis of the doctrine was encapsulated in a U.S. decision, which stated: “The point is not whether a definite something was taken away from plaintiff and added to the treasury of defendant. The point is whether the defendant unjustly enriched itself by doing a wrong to plaintiff in such manner and in such circumstances that in equity and good conscience the defendant should not be permitted to retain that by which it has been enriched.”
In Serhan, Johnson & Johnson had manufactured the SureStep System for diabetics. The system turned out to be defective, but the company continued to sell them regardless. They were charged criminally and pleaded guilty in the United States, Bell said.
A class action was commenced in Canada. Johnson & Johnson responded by saying it cannot be certified because the plaintiff, Ahmad Serhan, had not sustained any damages as a result of the SureStep System.
Johnson & Johnson argued there can be no tort if there are no damages.
Cullity certified the action nonetheless, as a common issue. His decision was upheld in the divisional court, in the Court of Appeal and leave to appeal to the Supreme Court of Canada was refused.
“Waiver of tort is alive and well, and has to be tried before it disappears,” Bell said. “But it’s just a clear example of a procedural statute and an unwavering need to litigate on the part of a defendant giving rise to something that’s just causing endless nightmares in litigation because now you have claims with no damage.”