On November 24, 2014, the Alberta Court of Appeal released its decision in Shannon v 1610635 Alberta Inc, 2014 ABCA 393 [“Shannon”]. The decision sets out the legal test to be met in an application for an advance payment pursuant to the Insurance Act.
In Shannon, the plaintiff had few savings and much debt. He was injured in a rear-end motor vehicle collision. He applied to the Court for an order of advance payment under section 581 of Alberta’s Insurance Act, RSA 2000, c I-3 [the “Act”]. That section provides the Court with discretion to make an order requiring an insurer to make payment to a claimant in advance of any judgment. Section 5.6 of Alberta’s Fair Practices Regulation, Alta Reg 128/2001 [the “Regulation”], sets out the circumstances under which an order under Section 581 of the Act may be made. Section 5.6 came into force on July 1, 2012. It reads as follows:
5.6(3) The Court may make an order under section 581 of the Act, on any conditions it considers appropriate, requiring the insurer to make a payment to a claimant who applies to the Court under subsection (2) of this section where the Court is satisfied that
- as a result of the injuries of the claimant, the claimant is unable to pay for the necessities of life, or
- the payment is otherwise appropriate.
In Shannon, the chambers judge allowed the application and ordered the defendants’ insurance company to pay the plaintiff $10,000 immediately and $4,000 on the first of each month until further order of the Court. The Court also imposed a condition that two pieces of unimproved land owned by the plaintiff be mortgaged to the defendants to secure repayment of any excess of the advance payments above his ultimate trial award or settlement. The defendants appealed this order.
The Alberta Court of Appeal dismissed the appeal and held that the chambers judge appropriately balanced the competing considerations and removed most of the risk to the appellants.
The Court also clarified the test required to obtain an order of advance payment. First, the applicant must satisfy two preconditions, on a balance of probabilities standard:
- That the defendant is probably liable to the plaintiff for the amount requested (or more); and
- Without that payment, the plaintiff is likely to go without necessities of life (or things broadly analogous) or unlikely to be able to prosecute his or her claim for damages.
If the two preconditions are satisfied, the Court will then weigh the plaintiff’s likely loss without an advance payment against the defendant’s risk of overpaying. In both cases, the Court will analyze probabilities and monetary amounts. Explained another way, an order will likely be granted in cases where the plaintiff is likely to lose a strong (%) and worthy ($) claim without advance payment and the defendant is not likely (%) to overpay ($) if advance payment is awarded.
To diminish risks to both parties, the Court may impose terms and conditions on an order for advance payment. For example, the applicant may need to promise to repay any ultimate overpayment with interest, or the Court may set a fixed date on which advance payments will be reviewed to ensure they are still accurate and reflective of the case.
While the Court did not provide a detailed analysis of subsection 5.6(3)(b), providing for payment when it is “otherwise appropriate”, we view that subsection as a catch all provision providing the Court with broad discretion to allow advance payments when justifiable.
This decision has not been appealed to the Supreme Court of Canada and therefore will remain as an important decision which could impact insurers and Alberta insurance policies. Please feel free to contact any one of our BLG professionals if you have questions or concerns.