C.A. Encourages Auto Insurers to Make Offers Without Applying IA Deductible

Cushion.jpg Some very good news for the plaintiff’s bar today, from the Court of Appeal: insurers’ offers to settle in MVA cases should contain “cushions” against the statutory deductibles.

In Rider et al. v. Dydyk, the Court (Justices Jurianz, MacPherson and Sharpe) overruled the Divisional Court’s decision in Wicken v. Harssar. The latter case had held that for purposes of evaluating whether or not an offer to settle engaged the costs consequences of Rule 49, the court should consider the net award to the plaintiff, after applying the deductibles mandated by Rule 3 of s. 267.5(7) of the Insurance Act. That is no longer the law; the Court of Appeal has now held that in assessing offers to settle under Rule 49, the statutory deductibles are not to be taken into account.

In this case, the defendant had offered to settle, under Rule 49, by payment of $5,000 to each of two plaintiffs, together with prejudgment interest and costs. Following an 11-day trial before a jury, after applying the then-applicable deductibles of $15,000 for the injured parties and $7,500 to Family Law Act claimants, the net amount of the award was $5,000.

The defendant argued that it was entitled to costs because the judgment was more favourable to it than was its offer to settle. The plaintiffs contended that the deductibles should not be taken into account for purposes of this analysis and that when the pre-deductible amount of the jury award was considered, the award was more favourable than the offer.

The trial judge had refused to award costs to the defendant. He relied on s. 267.5(9) of the Insurance Act, which he referred to as “the saving provision”. It reads as follows:

In an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the determination of a party’s entitlement to costs shall be made without regard to the effect of paragraph 3 of subsection (7) [the deductibles] on the amount of damages, if any, awarded for non-pecuniary loss.

(The Court of Appeal’s reasons do not indicate what costs, if any, were awarded by the trial judge, but the plaintiffs had been seeking costs totalling $176,188.40.)

The Court of Appeal acknowledged that the trial judge had failed to apply the Divisional Court’s decision in Wicken, but then held that the latter case was wrongly-decided.

In Wicken, the Divisional Court had rejected the argument, that s. 267.5(9) of the Insurance Act means that insurers should “cushion” their offers by $15,000 per injured claimant in order to trigger Rule 49 costs consequences. In today’s ruling by the Court of Appeal, this argument found favour:

[I]nterpreting s. 267.5(9) to require that insurance companies “cushion” their offers to plaintiffs by $15,000 in order to rely on Rule 49 is not, as I see it, an “arbitrary benefit” to plaintiffs. Rather, such an interpretation encourages insurance companies to make offers of settlement that are based on an assessment of the damages actually suffered by the plaintiff. Offers of settlement that fairly reflect the plaintiff’s actual damages, without deduction, will encourage settlement. Plaintiffs with small claims who have received such offers will be faced with the choice of proceeding to trial where the statutory deductible of $15,000 will reduce any judgment they might obtain and settling and avoiding the certain elimination of all or a large part of their damages.

The Court of Appeal did not comment on the fact that as of October 1, 2003, the deductibles under the Insurance Act were increased, to $30,000 for injured persons and $15,000 for FLA claimants. Applying the Court’s reasoning to a contemporary claim, the “cushion” that an insurer will now have to build into its offers is much larger. Thus, in a typical case involving the so-called “nuclear family” (two parents and two children), where one family member is injured and the others have FLA claims, the insurer would have to offer $75,000 more than the plaintiffs recover at trial, in order to get any protection from Rule 49!

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1 Response to C.A. Encourages Auto Insurers to Make Offers Without Applying IA Deductible

  1. David Cheifetz says:

    If the insurance industry wants the Ont CA to apply legislation as written in it’s favour, it’s going to have to put up with the Ont CA applying the legislation as written when it’s not in the industry’s favour.

    Whatever the drafter(s) of the legislation intended, s. 267.5(9)as written is just a bit too on the point to duck what it says: without regard to the effect of the deductibles on the entitlement to costs. “Without regard to” is rather compelling, no? It has to mean: ignore, do not take into account, do not make use of etc.

    Is the result odd? As you say, in light of the increased deductibles –

    in a typical case involving the so-called “nuclear family” (two parents and two children), where one family member is injured and the others have FLA claims, the insurer would have to offer $75,000 more than the plaintiffs recover at trial, in order to get any protection from Rule 49!

    It’s odd only if it turns out that the defence guess of the value of the case is in the range of the assessment. It’s not odd, of course, if the defence is way light on that assessment.

    I suspect that this panel saw the problem you mention. The use of “cushion” permits no other conclusion. The panel’s view was that this cushion was there to encourage settlement. The counter would be that the legislature has said that the plaintiff can’t recover this cushion, so it’s a version of doing indirectly what one can’t do directly if one attempts to justify one’s interpretation of the legislation by using the cushion rationale. At least to me, it’s not logical to assume that one should pay, to settle – because of the social value of fostering settlement – amounts which one could never be held liable to pay. In any event, the legislation says what it says, and it’s explicitly clear on that, so rationales and justifications don’t matter.

    What’s odd, to me, is that the CA seems to think they didn’t neuter Rule 49 in small mva cases because it’s forced the defence to offer so much more than the the plaintiff can legally recover in order to put settlement pressure on the plaintiff.

    We could ask why mva personal injury plaintiffs should have so much of a Rules of Practice tactical advantage over non mva plaintiffs. The answer is that problem isn’t caused by the Rules of Practice. It’s caused by the legislation which the Ontario gov’t will now have to amend, assuming the result is not what was intended when the legislation was enacted. That won’t be the first time in the past few years that situation has occurred.

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