Recently, the Ontario Superior Court of Justice considered the “discoverability principle” in the context of a dispute between insurers over which should pay damages arising out of a car accident in Economical Insurance v. Nationwide Mutual Insurance.

In March of 2003, Sandra Williams and her passenger, Paul Betts, were injured when their vehicle was struck by a car driven by Ginger Lee Fink.  For reasons unknown, Ms. Fink reported to investigating police officers that she did not have insurance at the time of the accident (when in fact, she did).  Accordingly, she was charged with operating a motor vehicle without insurance.

As Ms. Fink purported to be uninsured at the time of the accident, Ms. Williams commenced an action against her own insurer, Economical Mutual Insurance Company, in respect of the injuries and losses she sustained as a result of the accident (“the Williams Action”).  Economical settled this claim for $186,296.04 and commenced an action against Ms. Fink to recover the amount it paid to settle with Ms. Williams (“the Fink Action”).  Economical ultimately obtained default judgment against Ms. Fink, but was unsuccessful in locating her for the purpose of enforcing the judgment.  Eventually, Economical closed its file without recovering on its judgment against Ms. Fink.

Subsequently, Mr. Betts sued both Ms. Williams and Ms. Fink in respect of the injuries and losses he sustained as a result of the accident (“the Betts Action”).  Economical responded to this action on behalf of its insured, Ms. Williams. 

During the course of defending the Betts Action, Economical learned that Ms. Fink did, in fact, have insurance at the time of the accident.  However, the Economical personnel and counsel handling the Betts Action were unaware that it had an unsatisfied judgment against Ms. Fink arising out of the Fink Action.  It was not until the conclusion of the Betts Action in July of 2010 that Economical personnel handling that action learned that Economical had a judgment in the Fink Action to which Ms. Fink’s insurer, Nationwide Insurance Company, should respond.  Accordingly, Economical sought to collect on its judgment from the Fink Action from Nationwide pursuant to s. 258(1) of the Insurance Act.  Nationwide refused to pay.

At issue was whether Economical had commenced its recovery efforts from Nationwide in time.  In addressing this issue, the Court noted that the applicable limitation period for such a claim was two years, which began to run on the date Economical knew, or in the exercise of reasonable diligence ought to have known, of its claim against Nationwide.  The Court also pointed out that a claim of this nature is not “discovered” until the plaintiff discovers “that the at-fault driver…was in fact insured pursuant to a valid policy of motor vehicle insurance”.

Nationwide did not dispute the foregoing principles, but asserted that Economical did not exercise proper diligence in trying to locate Ms. Fink and determine whether she had insurance.  It also argued that during its defence of the Betts Action in 2007, Economical actually learned that Ms. Fink had insurance, such that the actual date of discovery was in 2007, not 2010 upon the resolution of the Betts Action as was asserted by Economical.

In dismissing Nationwide’s argument that Economical did not exercise proper diligence in trying to locate Ms. Fink to determine whether she had insurance, the Court held that Economical’s efforts to locate her were reasonable in light of the police information that Ms. Fink did not have insurance.  The Court accepted Economical’s argument that since an insured driver involved in a serious accident almost invariably discloses his or her insurance status so his or her insurer will respond to any claims, it was reasonable for Economical to accept at face value Ms. Fink’s statement to police that she did not have insurance at the time of the accident.  The Court held that Economical had no reason to take further steps or incur further expenses in confirming Ms. Fink’s apparent lack of insurance.

The more difficult question was whether Economical was fixed with knowledge of Ms. Fink’s insured status once it learned of same during its defence of Ms. Williams in the Betts Action.  In considering this issue, the Court was mindful that when adjusting and defending personal injury claims in insurance cases, insurer’s keep cases separate to protect privacy interests and to defend or advance claims diligently.  The Court specifically noted that implying or requiring communication among persons and counsel on different, but related, claims could compromise these principles.  With that in mind, the Court noted that the Economical personnel involved in defending the Williams Action and pursuing the Fink Action were different than those involved in defending the Betts Action.  As such, the “left hand” did not know what the “right hand” was doing, and for good reason, rather than lack of diligence. 

In light of the foregoing, the Court accepted that although Economical learned that Ms. Fink had insurance sometime in late 2007 while defending the Betts Action, its employees involved in defending that action did not know there was an unsatisfied judgment against Ms. Fink to which her insurance could respond.  It was not until the Betts Action resolved when, as part of the file closing process, a team leader at Economical reviewed the Betts file and discovered the judgment.  As fate would have it, this team leader turned out to be the person that adjusted the Williams Action and Fink Action. Recognizing the names of the various parties, this team leader realized that Economical had an unsatisfied judgment against Ms. Fink to which Nationwide ought to respond.  The Court therefore held that it was not until this point in July of 2010 that Economical “discovered” Ms. Fink was insured for the purposes of the Williams Action and Fink Action.

The Court ultimately held that Economical was entitled to collect on its judgment in the Fink Action from Ms. Fink’s insurer, Nationwide, as it had taken steps to do so within the applicable limitation period.

See Economical Insurance v. Nationwide Mutual Insurance, 2014 ONSC 2080 (CanLII)