Canada: Case Summary: Scale Estate v The Cooperators General Insurance Company

(4) The right of a person who is entitled under subsection (1) to have insurance money applied in or toward the person's judgment or claim is not prejudiced by

1. an assignment, waiver, surrender, cancellation or discharge of the contract, or of any interest in or of the proceeds of the contract, made by the insured after the event giving rise to the person's claim under the contract,
2. any act or default of the insured before or after that event in contravention of this Subpart or of the terms of the contract, or
3. any contravention of the Criminal Code (Canada) or a statute of any province or territory or of any state or the District of Columbia of the United States of America by the owner or driver of the automobile,

and nothing mentioned in clause (a), (b) or (c) is available to the insurer as a defence in an action brought under subsection (1).

(7) When a person has recovered a judgment against the insured and is entitled to maintain an action under subsection (1) and the insurer admits liability to pay the insurance money under the contract, and the insurer considers that

1. there are or may be other claimants, or
2. there is no person capable of giving and authorized to give a valid discharge for payment who is willing to do so,

the insurer may apply to the Court ex parte for an order for payment of the money into Court, and the Court may make an order accordingly on any notice it thinks necessary.

(8) The receipt of the proper officer of the Court is a sufficient discharge to the insurer for the insurance money paid into Court under subsection (7), and the insurance money must be dealt with as the Court orders on application of any interested person.

[42] The defendant's position in this action is that it was entitled to negotiate a settlement of the three actions for those other deceased and injured parties and pay out the total amount of its policy limits of $1 million to them on a pro rata basis plus costs. It states that as no formal claim had been made by the Scale family members for their damages and it was not aware of any action having been commenced by them, it was entitled to settle the other claims on the "first come, first served" basis until the policy limits were paid out without any risk to it of the Scale family members claims also having to be paid against those limits of the policy.

[43] The evidence establishes, as indicated above, that Cooperators knew of the death of the passenger Amanda Scale in the accident from the outset and knew that she had surviving family members who had made a claim for statutory accident benefits. It made no attempt to investigate the matter further and there is no evidence that the settlement of the three other actions at that time was on their understanding that no claims would be advanced by them. The evidence establishes that the initial tentative settlement of the three other claims was actually made within the time frame that the Scale statement of claim was issued and could be served.

[44] In the circumstances, was Cooperators entitled to settle those three actions exhausting its policy limits without risk that it may also have to pay out the additional claims of the Scale family members when they came to fruition?

[45] In my view, Cooperators on the evidence was always aware of the risk of the Scale claims being advanced from the outset which they also would have known at the time of the settlement discussions on November 5, 2008 with the parties in the three other actions. No doubt those plaintiffs were also aware of Amanda Scale's death throughout. Cooperators chose to settle those three actions without requiring any of those plaintiffs to proceed to judgment at which point it could have applied under s. 258(4) of the Insurance Act to have the total proceeds paid into court. The court could then have required the appropriate evidence to determine whether and to what extent any other potential claimants against the policy including the Scale family members should be included for the purpose of this distribution of the total policy limits on a pro rata basis to all of the claimants. Again, Cooperators did not impose a term of the three settlements reached that they were on the basis of the Scales not being entitled to a claim against the policy limits.

[46] The Court asked Cooperators' counsel whether Cooperators would have proceeded in the same fashion as it did if the accident had involved to Cooperators knowledge a catastrophically injured minor passenger who had not yet formally notified the defendant driver or Cooperators of his claims potentially exceeding $10 million instead of the remaining Scale family members' claims. Mr. Rachlin in his usual candour admitted that Cooperators would not likely have settled the three other actions without consideration of that minor's claims being included against the policy limits.

[47] In my view, it should make no difference in the approach Cooperators ought to have taken in this case with respect to the surviving Scale family members.

[48] Cooperators suggests that the common law "first past the post" principle applies to the Scale plaintiffs' claims against its policy. It states that Cooperators is required to settle injured parties claims expeditiously and is entitled to settle and pay those claims as they are made reducing or eliminating the policy limits and its obligations under the policy if it has no knowledge of any further claim and where those settlements are concluded after the Scale family claims limitation period expired and the time under the rules for service of their statement of claim had expired.

[49] I disagree with that submission for the following reasons.

[50] Firstly, Cooperators was aware of the potential claims of the Scale family members from the outset of the accident or shortly thereafter. It did nothing to follow up on that acquired knowledge to ascertain whether in fact those claims were being pursued. The Scale action was commenced within two years of the date of the accident.

[51] The settlements of the three actions were reached without consideration of the potential Scale claims.

[52] Cooperators made no search or inquiries with respect to the potential issuance of the statement of claim of the Scale family members.

[53] As indicated above, Cooperators would not likely have settled those three actions had it known of the potential claim not yet advanced of a catastrophically impaired minor if there had been one. In my view, the Scale Family Law Act claimants should have been treated the same way
.

[54] Secondly, allowing for insurers to pay out competing claims on a "first past the post" basis until their limits are exhausted does not apply in my view to s. 258 of the Insurance Act involving motor vehicle liability policies. S. 258, as indicated above, provides for the statutory claim of entitlement of injured persons against the policy proceeds.
. . .

[59] I accept that at common law and in the context of non-automobile claims, it has been held that the prevailing rule is "first past the post" under which claims may be paid out as soon as they have been determined by settlement or judgment. Hilliker, Liability Insurance Law in Canada page 91. I also agree with the learned author's statement that in the case of automobile claims, however, it has been held that the pro rata approach should generally prevail and that the rule should not be departed from except in special circumstances.

[77] Lastly, in balancing the competing claims of the Scale family members and the interests of Cooperators, it must be remembered that s. 258 of the Insurance Act is remedial consumer protection legislation which crystallizes the rights of the Scale family members in the Cooperators policy funds available immediately at the time of the accident. The obligation of Cooperators under the policy is to investigate all of the potential claims against its insured and attempt to resolve them for the purpose of avoiding any potential exposure of its insured claims in excess of the policy limits.