The Alberta Court of Appeal recently examined the law regarding when an advance payment for damages can be made under the Fair Practices Regulation of the Insurance Act. It is important to note this section only applies to claims arising from motor vehicle accidents.
In Shannon the plaintiff was injured in a rear-end motor vehicle collision. The plaintiff alleged he was unable to work, had few savings and lots of debt. As a result he brought an application for an advance payment pursuant to the Fair Practices Regulation of the Insurance Act.
As the Court of Appeal noted, "The Fair Practices Regulation is new legislation, and so bears sparse judicial interpretation in Alberta. It gives almost no tests or specifics, except to say that inability to pay for the necessities of life is one possible ground for an advance."
Section 581 of the Insurance Act and Section 5.6(3) of the Fair Practices Regulation collectively provide the court with discretion to order an advance payment to a plaintiff:
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
(a) as a result of the injuries of the claimant, the claimant is unable to pay for the necessities of life, or
(b) the payment is otherwise appropriate.
Conditions for advance damage payment
The court held that for an advance payment to be ordered, plaintiffs must meet two key pre-conditions:
- they must show on the balance of probabilities that they are likely to be awarded a higher amount at trial; and
- they must show an inability to pay for the necessities of life or show they will not be able to prosecute their claims.
Once the pre-conditions are met, the court must then weigh the likelihood of the plaintiff's loss without an advance payment against the likelihood of the defendant overpaying. Finally, if an award is ordered conditions should be imposed, such as the posting of security, to mitigate against the risks of overpayment.
We anticipate that insurance companies are likely to be confronted by a flood of "Shannon" applications. We note that prior to Shannon, plaintiffs were extremely hesitant to bring these applications – likely based on both the novelty of, and the lack of clarity within, the legislative framework. Plaintiffs may now be bolstered by the Court of Appeal's decision and it is likely defendants will now have to face more of such applications.
As a word of caution, insurers should be particularly wary of admitting liability prior to questioning, as these early admissions may cause the plaintiff to bring an application for preliminary damages. Insurers should also prepare for being compelled to make advance payments and should canvass this issue with counsel upon opening any new files so they can adequately prepare for same.