Financial Services Commission of Ontario

Commission des services financiers de l’Ontario

Neutral Citation: 2010 ONFSCDRS 95

Appeal P09-00029

OFFICE OF THE DIRECTOR OF ARBITRATIONS

COACHMAN INSURANCE COMPANY Appellant

and

ALEX D'ETTORRE Respondent

BEFORE: David Evans

REPRESENTATIVES: Stanley C. Tessis for Coachman Insurance Company Chantal Brochu for Mr. D'Ettorre

HEARING DATE: January 18, 2010

APPEAL ORDER

Under section 283 of the Insurance Act, R.S.O. 1990, c.I.8, as amended, it is ordered that:

1. This appeal is allowed and paragraphs 1 and 2 of the Arbitrator’s July 7, 2009 order are rescinded and replaced with the following:

   1. The Nordic Insurance Company of Canada is precluded from proceeding in the name of Mr. Alex D’Ettorre.

2. If the parties are unable to agree about expenses of this appeal, an expense hearing to determine the parties’ legal fees and disbursements may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

July 28, 2010

David Evans Director’s Delegate

Date

REASONS FOR DECISION

I. NATURE OF THE APPEAL

Coachman Insurance Company appeals the Arbitrator’s order that The Nordic Insurance Company of Canada (The Nordic) is not precluded from proceeding in the name of Mr. Alex D’Ettorre.

II. BACKGROUND

Mr. D’Ettorre was injured in a motor vehicle accident on November 7, 2001 in a collision between his pickup truck and a tractor-trailer. Coachman Insurance Company insured him, and The Nordic insured the tractor-trailer. Mr. D’Ettorre received income replacement benefits under the SABS–1996¹ from Coachman until it ceased payment in October 2005. Mr. D’Ettorre sought their reinstatement in mediation and then in arbitration.

Mr. D’Ettorre also commenced a third-party tort claim — “an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile,” to use the phraseology of ss. 267.3 – 267.12 of the Insurance Act — against The Nordic’s insureds.

On August 22, 2008, Mr. D’Ettorre settled his tort action, entered into minutes of settlement with The Nordic and signed a release. The release included an assignment to The Nordic of his SABS claims against Coachman. The Nordic then obtained a consent judgment dated September 5, 2008, which repeated the terms of the settlement and the assignment and dismissed the action. The order was required because the settlement included an infant’s Family Law Act claim.

The Nordic purported to pursue the arbitration proceeding in Mr. D’Ettorre’s name pursuant to the assignment, despite the provision in s. 65(1) of the SABS that the assignment of the right to pursue an arbitration proceeding is void. It relied on s. 65(2)(a) of the SABS, which provides an exception for assignments under s. 267.8 of the Insurance Act: in particular, s. 267.8(12) provides that, after the trial of the tort action, the court that heard and determined the action may assign the plaintiff’s right to future collateral benefits to the tort insurer.

Coachman moved to prevent The Nordic from proceeding, on the basis that there had been no trial of the tort action but merely a consent order, so the purported assignment was void.

The Arbitrator held that “[a] consent order is still an order of the court. A hearing, however brief, disposed of the matter.” He found that the consent judgment constituted an assignment pursuant to s. 267.8(12) and that Coachman’s motion was an invalid collateral attack on the order. He concluded that The Nordic could continue with the arbitration in Mr. D’Ettorre’s name.

Coachman then filed an appeal. I acknowledged it, even though it was from a preliminary decision, because the decision in Stokes v. Desjardins groupe d’assurances générales, 2009 CanLII 45320, [2009] O.J. No. 3608 (ON S.C.), further discussed on p. 5 below, suggested that there was strength to the appeal.

For the reasons that follow, I find that there was no assignment pursuant to s. 267.8(12) of the Act that allows The Nordic to pursue the arbitration in Mr. D’Ettorre’s name and that the motion by Coachman was not a collateral attack on the consent order.

III. ANALYSIS

In the course of reaching his decision, the Arbitrator discussed the hybrid nature of the compensation system in place in Ontario for the victims of motor vehicle accidents and the complex mix of statute, regulation and common law relating to the assignment of insurance benefits, including statutory accident benefits. He noted that Nordic’s interest in advancing Mr. D’Ettorre’s claim could be interpreted as an assignment of a bare cause of action against Coachman, which the courts generally deemed to be undesirable based on the public policy against maintenance, champerty, or otherwise trafficking in litigation for the purpose of profit. However, those rights may be assignable provided The Nordic had an interest in the proceedings beyond the mere assignment. The Arbitrator then noted the similarities with subrogation, which also entitles the paying party to pursue a claim but only to the extent that the paying party has compensated the claimant. He noted that s. 278(1) of the Act allows for subrogation and the bringing of an action in the name of the insured to enforce those rights and that the settlement with Nordic squarely addressed the overall intent of the SABS to provide benefits promptly. However, he accepted that s. 65(1) of the SABS removed the principle of subrogation from insurance law as it relates to accident benefits, and added:

Restricting section 65 to judicially authorized assignments has the advantage of addressing an important consumer protection function…. Court orders inherently have different effects on the actions of non-parties, depending on their nature. This court order was “in personam,” rather than “in rem,” meaning that while it bound the parties to the proceeding, it was not necessarily binding on all the world. As such, to insist that Coachman, a stranger to the litigation, should be bound by it would be unfair.

Nonetheless, the Arbitrator found that, “[w]hile there can be some unfairness to Coachman being caught by an order made in a matter to which it was not a party,” Coachman could not collaterally attack the order because “[t]he order is clear,” “[i]t is clear, however, that Coachman is aware of the order,” and “[a]lthough Coachman also explained away the order as only a means of approving an infant settlement, it is clear from the order itself that such was incidental to the disposition of the entire claim against Nordic and its insureds.” He concluded that the order qualified as an order made under s. 267.8 of the Act and as an exception to the general ban on assignment pursuant to s. 65 of the SABS.

However, the legislative context of the SABS and the Act does not provide that a consent order constitutes a judicially authorized assignment for the purposes of the exception to the assignment ban. Coachman’s motion to defend its rights was therefore not a collateral attack on the order.

Section 267.8 appears in the portion of the Act entitled “Court Proceedings for Accidents on or after November 1, 1996” (ss. 267.3 to 276), and ss. 267.3–267.12 deal with tort actions. Section 267.8 sets out the rules for the interface between tort claims and collateral benefits for pecuniary loss. Collateral benefits in this context means benefits payable to the tort plaintiff by law or by a medical or other plan or pursuant to the SABS, independent of the tort claim. Subsections (1), (4) and (6) of s. 267.8 deal with claims for income loss and loss of earning capacity, health care expenses, and other pecuniary loss, respectively. They require that damages awarded in a tort action for such pecuniary claims shall be reduced by all payments for pecuniary statutory accident benefits — as well as payments from income continuation, sick leave, or medical plans or laws — “that the plaintiff has received or that were available before the trial of the action.”²

The phrase “before the trial of the action” appears a total of six times in those subsections.

Subsection (9) provides that future pecuniary collateral benefits shall be held in trust. It requires that a plaintiff in a tort action who has recovered the pecuniary damages noted above shall hold in trust all first-party pecuniary payments “that the plaintiff receives after the trial of the action.”

The phrase “after the trial of the action” appears a total of six times in this subsection.

Subsection (12) provides that claims for future pecuniary collateral benefits may be ordered assigned to the tort defendants or their insurers on motion, and subject to any conditions the court considers just, by “[t]he court that heard and determined the action … after the trial of the action.”³

The repetition of the phrase “the trial of the action” throughout s. 267.8 sends a strong message.

The Arbitrator found that this consent order met the conditions of subs. (12). He relied on the statement by Ewaschuk J., in Woodside et al. v. Gibraltar General Insurance Co. et al. (1988), 1988 CanLII 4650 (ON HCJ), 66 O.R. (2d) 630 (H.C.J.)⁴ that “a court assessment of damages, even ex parte, constitutes an actual trial.” Significantly, however, and unlike in this case, there had been an actual assessment of damages by a court, as discussed in Woodside. The Woodsides sued Gibraltar for indemnification after a prospective property purchaser, Franz Doba, had been injured on their property and obtained judgment against them. As noted by Ewaschuk J.,

On January 27, 1984, Doba appeared before the Honourable Judge Donna Haley of the District Court for an assessment of damages. Her Honour assessed Mr. Doba’s damages at $150,000 and Mrs. Doba’s damages under the Family Law Reform Act, R.S.O. 1980, c. 152, at $10,000 together with $3,000 in costs and $18,872.25 in interest. The insurer, Gibraltar, did not defend the actions on behalf of the Woodsides, nor did the Woodsides defend the actions on their own behalf. [Emphasis added.]

The heart of the matter is that in Woodside, the Dobas had obtained an assessment of damages by a judge in a court. This situation is entirely different from a court simply approving a settlement, since then there is no actual assessment of damages by the court and thus no actual trial.

Rather, I agree with Smith J.’s analysis in Stokes v. Desjardins groupe d’assurances générales. Stokes dealt with subs. (9) of s. 267.8, which requires the plaintiff to hold collateral funds received after the trial of the tort action in trust for the tort insurer. The parties in the tort action in Stokes reached an agreement and settled without a trial. The plaintiff then started a first-party action, and the tort insurer sought to apply subs. (9), meaning that any funds Mr. Stokes obtained in his first-party action would have to be held for Group Desjardins. However, Smith J. held that subs. (9) only applies where a plaintiff recovers damages after a trial of the action:

[A] plaintiff who receives payment for statutory accident benefits, etc., after the trial of the tort action, must hold all such payments in trust. I find that the wording of s. 267.8(9) is unambiguous. In order for the provisions of s. 267.8(9) to apply, a plaintiff must (a) have recovered damages; and (b) have received payments for accident benefits “after the trial” of the action.... When an action is settled there is often a compromise on the amount of damages recovered, to account for the risk involved in proving negligence and causation of injuries as well as the costs and delay involved. These are factors which the parties consider when negotiating a settlement and make a settlement different from a full assessment of damages after a trial.... An amount paid pursuant to a settlement agreement is different from an amount awarded by a court for damages after trial of an action. [Emphasis in the original.]

As already set out above, the requirement for there to be a trial of the tort action in which the court awards damages is identical in subs. (12). An assessment of damages by a court means that the parties do not know beforehand what damages will be awarded, so even in an ex parte hearing the plaintiff has to prove them. That is not what happened here, as the parties agreed to the damages and settled on them before going to court. By its very nature, a settlement is different from a full assessment of damages, as noted in Stokes. Considering the information that was missing in the materials, the court could not have conducted a full assessment of the damages anyway, as in the documentation there was only a partial medical brief, and there were no economic reports or future care reports or loss of income information. I see no practical difference between the situation in Stokes and that in this case where the tort insurer took the additional pro forma step of obtaining a court order to, in essence, approve an infant settlement. To paraphrase what Smith J. stated in Stokes, the legislature chose not to include the words “or after settlement of the action” in s. 267.8(12) when drafting the section and is presumed to have intended to mean what was said in the section as written, namely that the section only applied where a plaintiff recovered damages after a trial of the action.

Furthermore, as the Arbitrator himself put it, “to insist that Coachman, a stranger to the litigation, should be bound by it would be unfair.” The legislation, by requiring the plaintiff to have the damages fully assessed by a court through the crucible of a trial, helps alleviate that unfairness. The process followed here does not achieve that goal.

It is also not necessary to interpret the consent order as an order made after the trial of the action as part of the goal of preventing double recovery. Since Mr. D’Ettorre settled his claim, he presumably did not receive full recovery for the reasons mentioned by Smith J., so he should retain the right to obtain further recovery from Coachman on his own behalf.

I do note that the court in Stokes was looking at a settlement that had not included any reference to future collateral payments. The settlement in this case did include the provision for the assignment of future collateral benefits. However, the terms of the settlement are irrelevant for the purpose of proceeding in Mr. D’Ettorre’s name if the criteria of subs. (12) are not met.

I also disagree with the Arbitrator’s finding that Coachman’s motion was a collateral attack on the decision of the court. The order still stands, but the Commission decides whether The Nordic may continue prosecuting Mr. D’Ettorre’s claim in his name pursuant to the assignment in that order. I find The Nordic may not do so because the assignment order was not made after the trial of the action by the court that heard and determined the action since there was no such trial.

The Arbitrator therefore erred in finding that the consent order qualified as an order made under section 267.8 of the Act and thus qualified as an exception to the general ban on assignment under s. 65 of the SABS. The appeal is allowed, and the order is amended to show that The Nordic is precluded from proceeding in Mr. D’Ettorre’s name.

IV. EXPENSES

If the parties are unable to agree about expenses of this appeal, an expense hearing to determine the parties’ legal fees and disbursements may be arranged in accordance with Rule 79 of the Dispute Resolution Practice Code.

July 28, 2010

David Evans Director’s Delegate

Date

Footnotes

1. 1The Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
2. 2OHIP payments do not reduce the health care damage award: subs. (5). Damages for non-pecuniary loss are not reduced by any such payments or benefits: subs. (8) In order for the scheme to work, subs. (17) provides that the first-party payers under subs. (1), (4) or (6) are not themselves subrogated to an insured’s right of recovery for those payments, with the exception of the Ministry of Health and Long-Term Care: subs. (18).
3. 3Such an order also means that the trust requirement under subs. (9) no longer applies: subs. (13).
4. 4Subsequently reversed by the Court of Appeal in Woodside v. Gibraltar General Insurance Co. (1991), 1991 CanLII 7357 (ON CA), 1 O.R. (3d) 474, on the basis that the lower court had misinterpreted the homeowner’s insurance policy in issue.