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.