GOOD, THE BAD FAITH AND THE UGLY

P. Wheeler Neil & Associates LLP Lerner Adelaide Street West 130 2400 Suite Box 95 P.O. ON Toronto, No. (416)601-2384 Tel. No. (416) 867-9192 Fax THE BILL 59 ACCIDENT BENEFITS CLAIM: SETTLING GOOD, THE BAD FAITH AND THE UGLY THE M5H 3P5 OTLA 2002 SPRING CONFERENCE

SETTLING THE BILL 59 ACCIDENT BENEFITS CLAIM" THE GOOD, THE BAD FAITH AND THE UGLY 1. The Problem Your phone rings. It's counsel for the accident benefits insurer calling you about one of plaintiffs' Bill 59 motor vehicle files. The insurer's counsel has read the file and your expert reports. You have convinced insurer's counsel that your client's entitlement the to accident benefits is significant. The insurer's counsel gets right to the point and puts a number to you to settle your client's accident benefits claim on a full and final basis. You want to recommend this settlement to your client. The number is reasonable. Your client is in financial distress and the settlement funds will reduce this distress. Your client finds it stressful and humiliating attending insurer examinations and DACs, and will be pleased to have nothing further to do with the accident benefits insurer. You have commenced a tort action against the defendant driver and you recognize the advantage of closing the accident benefits file and eliminating the risk that any strategic negative insurer examinations or DACs could be produced in the tort action. further the tort action is a long way from resolution and there are thorny liability and Finally, hurdles in that action. damage The phone call is welcome but nonetheless carries with it potential danger. You that the advantages of the proposed accident benefits settlement must be recognize against the risk that this settlement will adversely affect your client's recovery weighed in the tort action. In particular, you are concerned that defence counsel will argue at trial that your client impaired his entitlement to accident benefits by settling in bad faith to the detriment of the tort defendant.

offers a solution to the problem. This paper focuses on the problem in Bill 59 cases, but for background touches briefly to s. 267 of the Insurance Act, R.S.O. 1990, c. I. 8 as amended ("the Act"), Pursuant in the tort action were reduced by, among other things, "all payments that the damages The problem for you and other plaintiffs' counsel, then, is how to minimize the risk that a Bill 59 accident benefits settlement is found to be a "bad faith" settlement in the good tort action. The goal is to avoid the ugliness associated with that finding, including reduction or elimination of the damage award at trial. This paper considers the current legislation and case law pertaining to this problem and 2. The Law on the OMPP and Bill 164 regimes. (a) OMPP person has received or that were or are available for statutory accident benefits and by the present value of any statutory accident benefits to which the person is entitled". This provision created uncertainty for plaintiff's counsel. It created the risk that an accident benefits settlement could be attacked as improvident by the tort defendant, on the theory that the plaintiff could have recovered more from the accident benefits insurer and should have taken further steps to pursue the entitlement. (b) Bill 164 The risk of settling the accident benefits claim while a tort action was ongoing was essentially removed in the Bill 164 regime because the defendants were only exposed

of the income loss and the loss of earning capacity"' [s. 267.8(1)1, emphasis respect The plaintiff's entitlement to health care expenses is to be reduced by statutory added]. surrounding the meaning of "available" payments by enacting s. 267.8(21), ambiguity provides that for the purpose of s. 267.8(1) income loss and loss of earning which to non-pecuniary damages and not to damages for loss of income and health care expenses. (c) Bill 59 Legislation The Bill 59 legislation significantly changes how to approach the problem of settling the accident benefits claim while a tort claim is ongoing. Subsections 267.8(1) to (6) deal with reductions in tort awards up to trial to account for accident benefits (and other collateral benefits). The plaintiff's entitlement to statutory for income loss and loss of earning capacity is to be reduced all payments damages "that the plaintiff has received or that were available before the trial of the action in accident benefits that the plaintiff has received or that were available before the trial of the action for health care expenses [s. 267.8(4)1]. Similarly, the plaintiff's entitlement to loss other than income loss, loss of earning capacity and health care pecuniary is to be reduced by all payments that the plaintiff has received or that were expenses available before the trial of the action for statutory accident benefits in respect of pecuniary loss, loss of earning capacity and health care expenses [s. 267.8(6)]. The meaning of payments "received" is clear. The legislature tried to resolve the capacity damages), s. 267.8(4) health care expenses) and s. 267.8(6) (pecuniary loss

other than income loss, Accidents on or after November 1, 1996, O. Reg. 462/96 as amended ("the Schedule- Sections 32 and 69 of the Schedule provide some details concerning Schedule"). term "denied" is not defined but is also relatively clear. The insurer will usually The a denial on an "Explanation of Benefits Payable" form or otherwise simply by confirm of earning capacity and health care expenses), "a payment loss be deemed not to be available to a plaintiff if the plaintiff made an appfication for shall the payment and the application was deniecf'. Subsection 267.8(21) makes life considerable easier for plaintiff's counsel by removing as to what plaintiff's counsel must do to meet the argument at trial that the uncertainty did not do enough to pursue accident benefits. The plaintiff simply must apply plaintiff for the benefit and be denied. term "application" is not defined but is reasonably clear. The plaintiff should apply The the benefit on the appropriate application form under the Statutory Accident Benefits for forms. Nonetheless, a clear written request that the insurer pay or provide a application benefit may suffice if the insurer does not object to that format. specific If the insurer refuses to respond to repeated requests for a benefit then plaintiff's letter. may want to write to the insurer confirming that it will be treating the silence as counsel a denial. Plaintiff's counsel should try to have something in writing clearly confirming a denial. s. 267.8(21) only requires the plaintiff to apply for a benefit and be denied to Although that a benefit was not "available" from the accident benefits insurer in the tort establish the plaintiff is of course free to pursue the accident benefits insurer in a Financial action, Commission of Ontario ("FSCO") mediation, FSCO arbitration or litigation. Services

by the person to whom the application was made and that was required by requested or law; settfing in bad faith his or her entitlement to the payment to the detriment of a person (c) fiable for damages in the action for loss or damage from bodily injury or death found defence counsel that was not present previously. the plaintiff assign to the defendants or the defendants' insurer "all rights in respect that all payments to which the plaintiff who recovered damages is entitled in respect of the of The deeming provision in section 267.8(21) is helpful to plaintiff's counsel but, as there are exceptions to its application. Subsection 267.8(22) provides that always, (21) does not apply "if the court is satisfied that the plaintiff impaired his or subsection her entitlement to the payment by" (emphasis added) a) failing to give any notice required by law of the application for the payment; (b) failing to make himself or herself reasonably available for any examination that was directly or indirectly from the use or operation of the automobile" (emphasis arising added). This paper does not consider s. 267.8(22)(a) and (b), only 267.8(22)(c). The Act does not define "bad faith" or "impair", but 267.8(22)(c) suggests that an accident benefits settlement will only affect the tort action if the plaintiff settles in bad faith to the detriment of the tort defendant. Subsections s. 267.8(21) and (22) do not have comparable predecessors in the OMPP or Bill 164 versions of the Act, and the subsections provide clarity for plaintiff's and Where a plaintiff recovers damages for income loss, loss of earning capacity, health care expenses or other pecuniary loss in the tort action, the plaintiff is obliged to hold accident benefits received after trial in trust, to be paid to the tortfeasors in the statutory that they paid damages s. 267.8(9)]. Alternatively, the Court may order proportions incident after the trial of the action" for statutory accident benefits [s. 267.8(12)(a)] and

is noteworthy that the legislation may require the plaintiff to cooperate in litigation It the accident benefits insurer following the trial of the tort action, but does not against that the plaintiff "cooperate with the defendants or the defendants' insurer in any claim or proceeding brought by the defendants or the defendants' insurer in respect of a payment made pursuant to clause (a)" [s. 267.8(12)(b)]. require the plaintiff to take any steps to litigate or otherwise protect the expressly periods against the accident benefits carrier prior to trial of the tort action. limitation Case Law v. Gravina [2001] O.J. No. 1208,.2060 and endorsement dated January 28, Morrison (S.C.J.) appears to be the principal case considering the impact of an accident 2002 benefits settlement on a Bill 59 tort claim. In Morrison, the plaintiff sustained a variety of injuries in a motor vehicle collision. She received certain accident benefits but did not receive income replacement benefits or non-earner benefits given her employment status at the time of the collision. The eventually settled her entitlement with the accident benefits insurer for plaintiff in addition to the sum of approximately $9914.00 already paid by the $11,000.00, insurer. She executed the standard closing documents in a full and final accident benefits release. The plaintiff latter obtained different representation and commenced a tort action against the owner and operator of the vehicle that struck her vehicle. The action proceeded to a jury trial at which Madam Justice Greer presided. The jury found the defendants 100% liable for the collision and awarded $20,000 for non-

no appeal date yet. After the jury provided its verdict, the defence sought to bring a motion to reduce or Plaintiff's counsel also submitted that the proposed defence position that the plaintiff have been entitled to accident benefits for economic loss due to injury would in the collision was contradictory to the defence position during the sustained trial. At trial, the defendants took the position that the plaintiff's injuries were Statement of Defence filed by the defendants did not plead the s. 267.8(22) the or bad faith. Plaintiff's counsel further submitted that the proposed defence damages and $36,000 for past loss of income prior to reduction for the non- pecuniary damage deductible and the 80% net past loss of income calculation. Justice pecuniary Greer also ruled on several motions regarding special damages, the "threshold", the "improvident" accident benefits settlement and costs of the trial. A copy of allegedly Greer's rulings are attached to this paper. Justice Greer's rufings, other than Justice her special damages and threshold rufings, are under appeal by the defendants. There is eliminate the plaintiff's past loss of income award on the basis that the plaintiff entered an "improvident" settlement with her accident benefits insurer. The plaintiff brought a preliminary motion objecting to the proposed defence motion. Plaintiff's counsel submitted, inter aria, that the plaintiff had not been cross-examined at trial in significant detail on the issues relevant to the proposed defence motion. Plaintiff's counsel also submitted that the defendants did not adduce extrinsic evidence relevant to a consideration of bad faith during the trial and that the plaintiff had not been informed prior to closing the plaintiff's case of the defendants' intention to bring their motion. "minimal" and that she had no economic loss. Plaintiff's counsel submitted that defence motion was prejudicial given the importance of the economic loss award

Greer stated that the defence counsel did not cross-examine the plaintiff in any Justice at all about the interaction between the plaintiff and the accident benefits detail matter had been dealt with at trial in only a cursory fashion. Citing Q'Brien v. (1998), 167 D.L.R. (4 th) 132 (Ont. C.A.), she noted that "Fairness Shantz, that the plaintiff be given an opportunity to explain the inconsistencies required accident benefits adjuster had not been called by the defendants to give deliberately and with malicious conduct to try to defeat the defence something position. Justice Greer further noted that, at trial, the defence took the position that the plaintiff's to the overall recovery in the tort action. Justice Greer granted the plaintiff's preliminary motion. insurer or the steps taken to appeal the insurer's decision. She found that the before his credibility could be impeached by them". Greer stated that the plaintiff had not been given the opportunity to present Justice on the issue of what had happened with her application for non-earner evidence benefits and that it had not been an issue at trial. She stated that, to be faced with facts after the jury delivered its verdict which the plaintiff was unable to to and which had not been put to her on cross-examination, left the respond in a vulnerable and unfair position. Justice Greer further noted that the plaintiff evidence at trial. Juistce Greer noted the defence position that the plaintiff ought to have mediated the issue of non-earner benefits. She stated that these issues had not been raised at trial and that the issue of bad faith had not been pleaded. She stated that the defence attempt to rely on bad faith left the plaintiff looking as though she did

damages any loss of past or future income. She stated that, to take the position after the for verdict that the plaintiff had an obligation to pursue her non-earner benefits jury mediation, arbitration or litigation "defies logic." She noted that the through that the defence had no obligation to call the adjuster, any expert in the area or the benefit of the plaintiff. She further noted that the plaintiff applied for benefits, assessment. She found that the plaintiff, therefore, fell within the provisions DAC Section 267.8(21). She stated that the plaintiff did not act in bad faith or make of injuries were not severe or serious and that she was not entitled to plaintiff had been turned down for these benefits four times. Justice Greer noted the defence arguments that Bill 59 was similar to the OMPP and the lawyer who acted for the plaintiff on her settlement. The defence took the it was only required to prove, on a balance of probabilities that the position were available to the plaintiff. benefits Justice Greer examined the Bill 59 legislation and determined that it was "somewhat different" from the OMPP legislation. She referred to s. 267.8(21) and that it deemed that a benefit was not available. She questioned how the plaintiff could be said to have entered a bad faith settlement of her other benefits. Justice Greer accepted that the rule in Browne v. Dunn (1893), 6 R. 67 (H.L.) applied to was turned down and had undergone independent insurer examinations and a an improvident settlement with the accident benefits insurer. Justice Greer proceeded to consider the defence motion in the event her ruling on the motion was subsequently overturned. She dismissed the defendants' plaintiff's seeking a reduction in the jury's past loss of income award due to the motion alleged improvident settlement with the accident benefits insurer.

Greer noted that, Justice there had been an improvident settlement, she would then have to consider if and assessed by DAC physicians. She noted that the plaintiff's experts insurer consider her to be disabled and that she chose to pursue her tort rights. did bad faith settlement were one and the same. She noted that, in Coffee v. ]0 The defence sought, among other things, a determination of whether the full and final release constituted an improvident settlement of the plaintiff's entitlement to income replacement benefits and non-earner benefits. whether the defendants were entitled to a reduction in the amount of the benefits the plaintiff would have obtained from the accident benefits insurer but for the improvident settlement. Justice Greer reviewed the settlement notice from the accident benefits insurer dated 27, 1998. That notice allocated nothing for income replacement and non- May benefits. The plaintiff received $11,000.00 in addition to the amounts earner paid for accident benefits, and this was allocated $9,000.00 to medical already and $2,000.00 to "other expenses." benefits Justice Greer stated that there was no obligation on the plaintiff under the Act to mediate or arbitrate after she had been turned down by the accident benefits Justice Greer noted that both Hansard and prior articles confirmed that Section marked a significant difference from the OMPP and that, under the 267.8(21) the plaintiff had to adduce evidence that he pursued his claim for OMPP, accident benefits through mediation or litigation to establish that the benefits were not available and to avoid deduction. Justice Greer disagreed with the defence proposition that improvident settlement and Kyriacou (1996), 31 O.R. (3d) 558, the Court held that an "improvident"

Greer considered the meaning of "bad faith". She noted that bad faith implied Justice conscious doing of a wrong or dishonest act and a state of mind affirmatively the [citing Rogers v. Faught [2001] O.J. No. 850, Court File No. 00-CV- judgment 197590CM]. probabilities [citing Baillargeon v. Murray [2001] O.J. No. 148] and had not done so. of malice, bad faith or intent when she entered into the settlement, nor did they issue her as to how the release impacted on the tort claim or why she did not question ]! settlement was a settlement that was unreasonable in the circumstances. with ill will or an improper or illegal design citing Campitelli v. Ajax (Town) operating O.J. No. 4684]. She noted that bad faith had been held to be different from [1999] in that bad faith involved intent [citing Starline Entertainment Centre Inc. v. negligence, (1995) 41 C.P.C. (3d) 99]. She further noted that bad faith was not simply bad Ciccarelli Justice Greer stated that the onus was on the defendants to prove bad faith and that had not done so. She noted that they would also have to prove that income they or non-earner benefits were available to the plaintiff on a balance of replacement Justice Greer again noted that the defendants did not cross-examine the plaintiff on the arbitrate or mediate. She noted "the Act puts no positive obligation on the plaintiff to take these steps after four denials by the SABs carrier". Justice Greer concluded that there was "no evidence" that the plaintiff made an settlement or acted in bad faith in signing the release. She found that the improvident did not settle her claim in bad faith or to the detriment of the defendants. plaintiff Comment

The Solution (Maybe) you as plaintiff's counsel may want to take some or all of the steps Nonetheless, below to further reduce the risk to the client of accepting the proposed outlined a three way global settlement meeting or mediation involving you, Propose benefits counsel and tort counsel. You must of course consider issues accident ]2 both s. 267.8 of the Act and Morrison (as it currently stand prior to appeal)it Given that it will be very difficult for defence counsel to establish that a plaintiff's appears accident benefits settlement is a "bad faith" settlement. Morrison also suggests that defence counsel will be forced to choose between the position that the plaintiff is not injured and has no entitlement to damages, or the position that the plaintiff significantly seriously injured, was entitled to substantial accident benefits and settled the accident is benefits claim in bad faith. Morrison suggests that defence counsel will not likely be to take a hardline position on damages during trial and then, if the Judge or jury able significant damages, take the opposite position by attacking the accident assesses benefits settlement to obtain a reduction in the assessment at trial. In Justice Greer's endorsement regarding costs of the trial, she referenced the defence motion regarding the "improvident" settlement and stated that the motion was "not reasonable." The current legislation and jurisprudence suggest that plaintiff's counsel should be confident in recommending an appropriate settlement of an accident reasonably claim to their clients because the risk that this settlement could impair recovery benefits in the tort action is relatively low. settlement.

will make it more difficult for defence counsel to argue that any proposal accident benefits settlement was improper since defence counsel subsequent participated in, or was asked to participate in, a discussion of the proposed either of your client's accident benefits entitlement. settlement tort action with written particulars of the proposed the benefits settlement, and ask defence counsel to consent to the accident for them to attack the settlement at trial while simultaneously maintaining difficult your client is entitled to nothing, and that there may be some benefit to the that weaken any defence argument that the settlement was improper. ]3 such as the extent to which you will permit the tort counsel to access documents the possession of the insurer's counsel. Regardless of whether the meeting in or whether defence counsel rejects the proposed meeting, your proceeds Provide defence counsel in settlement or to confirm that the defence will not suggest at trial that the accident settlement was improper. Some defence counsel will consent, benefits that the settlement may reduce their exposure at trial, that there may recognizing be little value in a trust/assignment of future accident benefits, that it will be defendants when it comes to costs of the trial if they did not stand in the way of client obtaining some relief prior to the trial. Most defence counsel will be your about endorsing the proposed settlement and will likely refuse to uncomfortable do so. Nonetheless, seeking prior consent to the proposed settlement will further Invite defence counsel to pay your client the sum of money involved in the accident benefits settlement in lieu of you settling the action with the proposed benefits insurer. If defence counsel agrees, the tort defendant will accident the right to a trust/assignment arrangement with respect to future preserve pursuant to s. 267.8(9) and (12) of the Act. It will be more difficult for benefits defence counsel to argue that the settlement has resulted in detriment to the

alive and declines to do so. To further entice defence counsel, trust/assignment may want to confirm the applicable limitation periods arising from denials of you This will assist defence counsel in agreeing to a trial date that precedes benefits. limitation dates and ensures that a trust/assignment arrangement will have the the tort action. This will make it all the more appropriate for your client to accept ]4 defendant if the defendant is given a chance to keep the entitlement to a value to the defendant. Alternatively, as part of the negotiation you may wish to consider agreeing to apply for a Financial Services Commission of Ontario mediation or issuing an action against the accident benefits insurer if the applicable limitation dates arise before trial. Offer to settle the tort action, and include terms in the offer that your client will retain all rights to past and future accident benefits and that the offer expires by a date. The amount of the offer should be reduced to reflect the fact that specified client retains the right to pursue statutory accident benefits after settlement. your This offer may provide some evidence that your client was making good faith to settle the matter with defence counsel before proceeding to settle attempts the accident benefits insurer. with Serve a Request to Admit that the defendants are liable for the collision and that client's impairments meet the "threshold" If the defendants refuse to make your admissions, they are refusing to reduce the risk that your client will fail in these the offer that is "on the table" from the accident benefits insurer. Ask the defendants to make an advance payment to your client pursuant to s. of the Act. If the defendant refuses to make an advance payment to 258.5(2) your client's immediate needs, it will be more difficult for the defendant address to subsequently argue that the accident benefits settlement is a bad faith

not get any deduction from a loss of income award for health care expenses will by the accident benefits insurer unless the client is catastrophically paid The second allocation will reduce the exposure to the defence, impaired. by the value of the 25% allocation to income replacement benefits. probably settlement. If you agree to a settlement with the accident benefits insurer, make the settlement conditional on your agreeing to the allocation of the award in the documents. This will be in addition to the other rights your client has closing the applicable legislation, such as the "cooling off" period. There are under a variety of ways that settlement proceeds can reasonably be allocated usually the categories of statutory accident benefits. It may, for example, be among reasonable to allocate 100% of an accident benefits settlement to perfectly care" benefits (i.e. medical, rehabilitation and attendant care benefits) or "health to allocate 75% to health care benefits and 25% to income replacement benefits. The first allocation increases the exposure to the defence, since the defendant Nonetheless, the defence will have more difficulty attacking the second allocation than the first allocation because the second allocation expressly references of direct benefit to the defence that your client obtained from the something benefits insurer accident Prior to settling the accident benefits claim, you should recommend for or against the settlement and ensure that your client understands the risks and benefits of settling the claim. This paper assumes that the proposed accident benefits settlement is a good one for client. You may, however, encounter a situation where a client has settled the your benefits claim and you think it is likely the settlment will be considered a bad accident

4. Summary Attachments s. of the Insurance Act. 267.8 v. Gravina Morrison faith settlement in the tort action. In that circumstance, you may want to try and set aside the accident benefits settlement to protect your client from a substantial reduction in the tort award. In summary, it appears that you as plaintiff's counsel should not be deterred from a good Bill 59 accident benefits settlement to your client by the risk that recommending settlement will be considered a bad faith settlement and will reduce your client's tort the award. While the implications of a bad faith settlement can be ugly, the current legislation and jurisprudence suggest that very few accident benefits settlements will be labelled as bad settlements in the tort action. In addition, this paper outlines a number of steps you faith take to further reduce the risk to your client of settling the accident benefits claim. can risk cannot be eliminated but it should not be exaggerated and should not frighten The from exercising your good judgment. you the next time your phone rings and you have an insurer's counsel ready to Therefore, settlement of the accident benefits claim, you may want to respond promptly and talk politely with "I'm listening". May 8, 2002 Neil P. Wheeler