Don’t Bite Off More Than You Can Chew – Settling For A Defendant’s Minimum Limits

Every car being driven on a road in Ontario is required to carry liability insurance. Owners can contract for various amounts of liability coverage with the minimum limits being $200,000. We often see cases where owners carry $1M to $2M in liability insurance.

In most cases, you may have an OPCF44R Endorsement on your policy. This protects you in the event that you are injured in an accident by an at-fault driver, and the at-fault driver is either uninsured, underinsured or has committed a statutory breach of the conditions of the insurance policy, thereby reducing his/her liability coverage to the minimum limits of $200,000 as opposed to the $1M or $2M liability coverage that a person may have on their insurance policy.

Every Ontario Insurance Policy has statutory conditions. Some examples of breaches of statutory conditions are as follows: knowingly allowing an excluded driver to operate your vehicle; operating a vehicle when not authorized by law, such as without a license, with a suspended license, while impaired, resulting in a criminal conviction; or using the vehicle in a race or as a taxi.

We often see cases where the injured party sues the at-fault driver for damages, and the insurer for that at-fault driver takes the position that only the $200,000 minimum limits are available to be paid towards the injured person’s damages. In those circumstances, the injured person may seek to recover additional damages against his/her own insurer under the OPCF44R Endorsement of his/her policy. This OPCF44R claim can be made by either adding your own insurer as a defendant in the same action commenced against the at-fault driver, or after the trial, against the at-fault driver when judgment is obtained in excess of $200,000 (see Schmitz v. Lombard).

However, there are some pitfalls one needs to be aware of if you as the injured party try to settle with the at-fault driver for the minimum limits of $200,000 with the hope of then pursuing your own insurer under your OPCF44R for any damages in excess of $200,000. These pitfalls were highlighted in a decision of the Ontario Court of Appeal called Maccaroni v. Kelly.

In that case, the owner of the car at fault in the accident permitted a Mr. Kelly to drive her car. Maccaroni was injured as a result of Kelly’s negligence. Maccaroni sued Kelly, and the owner of the car. Maccaroni also sued her own insurer Intact under the OPCF44R Endorsement. Co-operators, who insured the owner of the at-fault vehicle driven by Kelly, denied coverage on the basis that the owner permitted Kelly to drive her vehicle when she knew Kelly’s license was suspended; that is, Kelly was not authorized by law to drive. Maccaroni settled with the at-fault driver’s insurer (Co-operators) for the minimum limits of $200,000 and signed a full and final release in favour of the defendants and Co-operators. However, Maccaroni did not seek Intact’s consent before settling with Co-operator’s for the $200,000.

Maccaroni then tried to pursue the balance of her damages against her own insurer (Intact) under the OPCF44R Endorsement. Intact denied any obligation to pay any damages to Maccaroni, as she had failed to obtain Intact’s consent before settling with Co-operators. By doing so, Maccaroni also prevented Intact from pursuing any subrogated claim it may have had against the defendant owner and driver of the at-fault vehicle.

Intact brought a motion to dismiss Maccaroni’s action against it and was successful. Maccaroni appealed to the Ontario Court of Appeal. The Court of Appeal reinstated Maccaroni’s action against Intact but it also held that Maccaroni now had the onus of proving Kelly drove with a suspended license, that the owner knew Kelly had a suspended license when she permitted him to drive her car, and that Co-operators was entitled to rely on only being obligated to pay the minimum limits of $200,000 to Maccaroni for her injuries. 

Considering Maccaroni had already signed a full and final release against Kelly, the owner and Co-operators, and dismissed her claims against them, she was now in a situation where she might not get the cooperation of Kelly, the owner, or Co-operators to assist her in proving those aspects of her case. If they were not inclined to assist her, then Maccaroni faced the prospect of recovering nothing in excess of the $200,000 she obtained from Co-operators.

When in similar circumstances, the following should be considered:

• Obtain consent of your own insurer before agreeing to settle with the at-fault insurer for the minimum limits of $200,000. By doing so, you will have given your own insurer the opportunity to advise of its position, and if it consents to the arrangement then you will not be faced with having the onus of proving the at-fault driver/owner breached the statutory conditions of that policy.
• If you do settle with the at-fault party after seeking the consent of your insurer who refused to give such consent, then make sure that any terms of settlement with the at-fault party and his/her insurer contain provisions that require them to assist you and co-operate with you in proving that they were in breach of the statutory conditions of their own policy, and any subsequent refusal to co-operate invalidates your settlement agreement with them.
• If your insurer is already part of your action for damages, but refuses to consent to the settlement for the minimum limits of the at-fault driver’s policy, then insist on your insurer bringing a motion or application to the court against the at-fault driver for a determination of the issue before trial. If your insurer is not part of the action, then consider other options, such as now adding them to your personal injury action, or bringing a separate application on the issue.

Bottom line is to exercise caution in settling for the minimum limits of any defendant’s liability policy. Proceeding without your own insurer’s knowledge or consent may lead to some pitfalls you would have liked to avoid.