Tort insurers who have or may wish to take an assignment of a plaintiff’s accident benefit claim as part of a settlement of the tort claim should be aware that such assignments were recently found to be impermissible at law. In D’Ettorre v. Coachman Insurance Co., 2012 ONSC 3613, the Superior Court of Justice ruled that, short of a trial or judicial assessment of damages, such assignments are not permissible under Ontario insurance legislation.
In attempting to settle a tort claim, tort insurers will often not be satisfied with the “credit” that a plaintiff is prepared to provide the tort insurer for accident benefits not yet received by the plaintiff. The tort insurer may be tempted to enter into a full and final settlement of the tort action by having the plaintiff assign his/her outstanding accident benefits to the tort insurer. The tort insurer would then be free to pursue the plaintiff’s available accident benefits. Although, the tort insurer would ordinarily have no claim in law for the insured’s accident benefits, such assignments allow the tort insurer to seek recovery directly from the accident benefit insurer.
The Superior Court of Justice has concluded such arrangements are not permissible under Ontario’s Insurance Act.
In 2001, the plaintiff in D’Ettorre v. Coachman was injured in a motor vehicle accident when a timber-hauling tractor trailer veered off course and collided with his truck. The plaintiff sued the owners of the truck, who were insured by the Nordic Insurance Company of Canada (“Nordic”). The claim was settled in 2008. Due to the presence of a minor plaintiff, the settlement was court-approved. Included in the approved terms was an assignment of the entirety of the plaintiff’s unclaimed accident benefits.
In the meantime, the plaintiff claimed and received benefits from his accident insurer, Coachman Insurance Company (“Coachman”). In 2005, Coachman stopped paying the plaintiff’s income replacement benefit. After mediation attempts failed, the plaintiff applied to the Financial Services Commission of Ontario for arbitration. Nordic took the plaintiff’s place at the eventual arbitration as a result of the earlier assignment.
Coachman, however, objected to the arrangement. It argued that under the Insurance Act, specifically the Statutory Accident Benefits Schedule (the “Schedule”), an assignment of accident benefits was only permissible following a trial. The argument was based on s. 65(1) of the Schedule, which makes the assignment of a statutory accident benefit void.
The only applicable exception to this rule is found in s. 267.8(12) of the Insurance Act:
The court that heard and determined the action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of the automobile, on motion, may order that, subject to any conditions the court considers just,
(a) the plaintiff who recovered damages in the action assign to the defendants or the defendants’ insurers all rights in respect of all payments to which the plaintiff who recovered damages is entitled in respect of the incident after the trial of the action.
Coachman argued that as no trial had taken place, the assignment was barred by the statute. The plaintiff and Nordic argued that the equivalent of a trial had taken place when the Court reviewed and approved the settlement through the consent order.
The Ontario Financial Services Commission agreed with Nordic and the plaintiff, finding (at para. 75) that a “consent order is still an order of the court. A hearing, however brief, disposed of the matter.”
Coachman appealed to the Commission’s Office of the Director of Arbitrations. The appeal was heard by the Director’s Delegate who looked to the case law but could find no support for equating a consent motion with a trial. The closest case law involved cases where the court had performed an assessment of damages. That was not enough (at paras. 19-23):
The repetition of the phrase “the trial of the action” through s. 267.8 sends a strong message.
An assessment of damages by a court means that the parties do not know beforehand what damages will be awarded, so even in an ex parte hearing the plaintiff has to prove them. That is not what happened here, as the parties agreed to the damages and settled them before going to court.... To paraphrase what Smith J. stated in Stokes, the legislature chose not to include the words “or after settlement of the action” in s. 267.8(12) when drafting the section and is presumed to have intended to mean what was said in the section as written, namely that the section only applied here a plaintiff recovered damages after a trial of the action.
The Director’s Delegate therefore overturned the initial decision at arbitration.
Nordic and the plaintiff appealed to the Superior Court of Justice. The matter was heard before a panel of three justices, who unanimously sided with the Director’s Delegate. The court agreed that the Schedule required a judicial determination and that the approval of a consent judgment was not a judicial determination. For an assignment to be valid, short of through a trial, a defendant’s tort insurer must seek the court’s guidance through an assessment of damages.
For insurers, this represents a more uncertain avenue. A court may not agree with the parties’ own assessment of damages, and the end determination may differ greatly from the proposed settlement (potentially to the detriment of the defendant’s insurer). In the face of such risk, an assessment of damages may not be attractive.
However, the only alternative short of settling without an assignment of accident benefits is to not settle at all, ultimately requiring a trial. It seems that there is a resulting new calculus for tort insurers – if accident benefits must be assigned, then an assessment of damages (or a trial) is unavoidable.