Warner (Ramlochan) v. Balsdon et al. [Indexed as: Warner v. Balsdon]

91 O.R. (3d) 124

Ontario Superior Court of Justice,

Divisional Court,

Cunningham A.C.J., Carnwath and Ferrier JJ.

May 22, 2008

Torts -- Negligence -- Duty of care -- Insurers -- Defendant's liability insurer not having duty of care towards plaintiff in negotiating settlement of personal injury claim with paralegal retained by plaintiff.

The plaintiff was injured in a motor vehicle accident, and retained a firm of paralegals ("Yogi") to assist her. With Yogi's participation, she settled her claim against the owner and driver of the other vehicle (the "tortfeasors") without commencing an action. In exchange for a payment of $4,500, she released the tortfeasors and their insurer from any action, cause of action or claim for damages for personal injury as a result of the accident, and also agreed not to make any claim against any person who might claim contribution and indemnity from the tortfeasors. In negotiating the settlement, Yogi breached s. 398(1) of the Insurance Act, R.S.O. 1990, c. I.8. The plaintiff subsequently commenced an action against the tortfeasors for damages arising out of the accident, and also claimed against Yogi for negligence in failing to properly advise her. Yogi cross-claimed against the tortfeasors, alleging that their insurer, in settling the claim, was their agent, that they owed a duty of care to negotiate fairly and in accordance with the law, and that they breached that duty by negotiating with Yogi. The tortfeasors moved to strike out the cross-claim. The motion was dismissed. The tortfeasors appealed.

Held, the appeal should be allowed.

If the release was upheld, then by its very terms the plaintiff was barred from bringing an action against anyone who might claim contribution and indemnity from the tortfeasors or their insurance. The plaintiff's claim against Yogi would be dismissed and any cross-claim would fail, being moot. If the release was set aside, there would be no liability on the part of Yogi, and the cross-claim would be moot, as the only claim made by the plaintiff against Yogi was for the damages she would have recovered against the tortfeasors had the release not been executed.

The appeal should also succeed on the basis that the tortfeasors and their insurer owed no duty of care to the plaintiff. Even assuming that the circumstances disclosed a reasonably foreseeable harm and a sufficient proximity to establish a prima facie duty of care, there were policy considerations which justified denying liability. As an indemnity provider, a liability insurer is obligated to defend the interests of its insured and to limit its insured's liability. The insurer also owes a duty to its policy holders to minimize premiums. To place a duty of care on a liability insurer vis-à-vis the party making a claim would require the insurer to breach those duties, placing the insurer in an impossible situation.

APPEAL from an order dismissing a motion to strike out a cross-claim.

Cases referred to Anns v. Merton London Borough, [1978] A.C. 728, [1977] 2 All E.R. 492, [1977] 2 W.L.R. 1024 (H.L.), apld Other cases referred to D.M. v. Alberta Lawyers Insurance Assn., [2006] A.J. No. 983, 2006 ABQB 598, 271 D.L.R. (4th) 246, [2007] 2 W.W.R. 510, 66 Alta. L.R. (4th) 308, 398 A.R. 315, 152 A.C.W.S. (3d) 931; [page125] Edwards v. Law Society of Upper Canada, [2001] 3 S.C.R. 562, [2001] S.C.J. No. 77, 2001 SCC 80, 206 D.L.R. (4th) 211, 277 N.R. 145, J.E. 2001-2152, 153 O.A.C. 388, 34 Admin. L.R. (3d) 38, 8 C.C.L.T. (3d) 153, 13 C.P.C. (5th) 35, 110 A.C.W.S. (3d) 944 Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, s. 398(1) [as am.] Negligence Act, R.S.O. 1990, c. N.1

Alan L. Rachlin, for appellants/defendants Balsdon. Natalie Leon, for defendants Shields and Yogi Partners.

FERRIER J.: Introduction

[1] This is an appeal from an order dismissing a motion to strike out a cross-claim.

[2] The plaintiff was injured in an automobile accident. She retained a paralegal to assist her and with the paralegal's participation she settled her claim against the owner and driver of the other vehicle without commencing an action. The plaintiff subsequently retained counsel and this action was launched.

[3] The plaintiff claims against the defendants, the owner and driver of the other vehicle (the "Balsdons"), for damages arising out of the accident. She also claims against the paralegal for negligence in failing to properly advise her in pursuing her rights and entering into the settlement.

[4] The paralegal cross-claims against the Balsdons, alleging that their insurer, in settling the plaintiff's claim, was their agent, and that the Balsdons owed the plaintiff a duty of care to negotiate fairly and in accordance with the law. Further, that if the plaintiff suffered loss as a result of settling her claim, her damages were caused by or contributed to by the negligence of the insurer of the Balsdons.

[5] The Balsdons moved before Lederer J. to strike out the cross-claim. Lederer J. dismissed the motion. Gans J. granted leave to appeal.

Facts

[6] The "facts" referred to in these reasons are taken from the allegations in the pleadings.

[7] On July 9, 2002, a vehicle driven by the plaintiff and a vehicle driven by the defendant Megan Balsdon and owned by the defendant Marylyn Balsdon were involved in an accident in Toronto. [page126]

[8] Following the motor vehicle accident, the plaintiff retained Yogi & Partners, paralegals, to act on her behalf in respect of all matters relating to the motor vehicle accident, and to recover all losses and damages that she sustained or might sustain in the future arising from her injuries in the accident, including any claims against the defendants Balsdon.

[9] On March 18, 2003, Yogi & Partners, on behalf of the plaintiff, settled the plaintiff's claims against the defendants Balsdon arising from the accident. In consideration for a payment of $4,500, the plaintiff released the defendants Balsdon and their insurer Co-operators from any action, cause of action, or claim for damages for personal injury as a result of the accident. She also agreed not to make any claim or take proceeding against any person or corporation who might claim contribution and indemnity from the Balsdons or Co-operators.

[10] The plaintiff then commenced this action against the defendants for damages for alleged injuries arising from the motor vehicle accident.

[11] The plaintiff alleges in her reply that:

(a) she did not understand the contents or consequences of the release she signed;

(b) the contents or consequences of the release were not explained to her; and,

(c) the release should be set aside on the grounds that it is invalid.

[12] The plaintiff also pleads that the release is not binding by reason of s. 398(1) of the Insurance Act, R.S.O. 1990, c. I.8, as amended, which provides that:

398(1) No person shall, on the person's own behalf or on behalf of another person, directly or indirectly, (a) solicit the right to negotiate, or negotiate or attempt to negotiate, for compensation, the settlement of a claim for loss or damage arising out of a motor vehicle accident resulting from bodily injury to or death of any person or damage to property on behalf of a claimant; or, (b) hold himself, herself or itself out as an adjuster, investigator, consultant or otherwise as an adviser, on behalf of any person having a claim against an insured or an insurer for which indemnity is provided by a motor vehicle liability policy ...

[13] The plaintiff alleges that the defendants Yogi & Partners were negligent in their representation of her with respect to the [page127] settlement of her claims against the defendants Balsdon arising from the motor vehicle accident.

[14] The plaintiff has claimed no damages from the defendants Yogi & Partners, apart from damages for the full amount of compensation for her injuries arising as a result of the motor vehicle accident in the event that the release is upheld.

[15] The defendants Yogi & Partners subsequently crossclaimed against the defendants Balsdon for contribution and indemnity for all amounts which they may be held liable to pay to the plaintiff.

[16] The cross-claim of Yogi & Partners includes the following allegations:

These defendants state that the plaintiff was contacted by a representative of the Balsdons' insurer and asked about her financial circumstances. The plaintiff directed the representative to contact these defendants.

These defendants state that they were then contacted by a representative of the Balsdons' insurer who introduced the subject of settling the plaintiff's tort claim.

These defendants state that at all material times, the Balsdons' insurer was acting as agent on behalf of the Balsdons pursuant to the terms of the insurance policy between the Balsdons and the insurer and that the Balsdons are vicariously liable for the actions of their insurer.

These defendants state that the Balsdons entered into a settlement with the plaintiff in which the Balsdons' insurer provided $4,500.00 to the plaintiff and the plaintiff executed a Release in favour of the Balsdons and their insurer.

These defendants state that the Balsdons, by entering into negotiations with the plaintiff before she commenced a legal action or gave notice of one, put themselves in a position of proximity to the plaintiff and thus owed her a duty of care to negotiate fairly and in accordance with the law.

These defendants state that if the plaintiff suffered any damages as a result of having executed the Release and having settled her tort action with the Balsdons, those damages were caused by or contributed to by the negligence of the Balsdons' insurer, for whose actions the Balsdons are responsible at law, in that:

(a) it contravened the provisions of the Insurance Act by negotiating with a person not authorized at law to negotiate on behalf of the plaintiff;

(b) it knew or ought to have known that it was settling the plaintiff's claim for damages as a result of her injuries for an amount that was grossly unfair in the circumstances;

(c) it took advantage of the plaintiff by entering into settlement negotiations with her through a person not authorized at law to negotiate when it knew or ought to have known that she was motivated to settle as a result of financial stress; [page128]

(d) it instigated settlement discussions without insisting the plaintiff have proper legal advice even though it knew or ought to have known based on the medical information provided that the plaintiff was in a state of mental distress.

[17] The defendants Yogi & Partners plead and rely on the provisions of the Negligence Act, R.S.O. 1990, c. N.1, and the amendments thereto, in respect to their cross-claim against the defendants Balsdon.

[18] I note that the form of the cross-claim considered by Lederer J. was distinctly different from the pleading considered by this court, although Lederer J. did consider the matter on the basis of a claimed duty owed by the Balsdons through their insurer, to the plaintiff. Gans J., on the leave application, permitted Yogi & Partners to amend the cross-claim "in the interests of judicial efficiency" and made his ruling on a proposed amended cross-claim. The cross-claim was ultimately amended, on consent, to the form as it appears in the record in this court, which represents a further amendment made after the appearance before Gans J. Counsel for the Balsdons is commended for his professionalism and cooperation in expediting a determination of the substantive issue by consenting to these various amendments.

[19] Lederer J. held that "it is not plain and obvious" that the alleged duty of care does not exist.

[20] The question before this court is whether Lederer J. erred in law in so finding. The standard of review is correctness.

Analysis

[21] The issue on this appeal can be decided on the facts -- namely the allegations in the pleadings.

[22] I note that the terms of the release are, by reference, a part of the statement of claim.

[23] If the release is upheld, then by its very terms the plaintiff is barred from bringing an action against anyone who might claim contribution and indemnity from the Balsdons or their insurer. Thus, if the release is upheld, the plaintiff's entire claim against Yogi & Partners would be dismissed and any cross-claim would fall, being moot.

[24] Similarly, if the release is set aside, then there would be no liability on the part of Yogi & Partners, and once again the crossclaim would be moot, because a careful reading of the statement of claim reveals that the only claim made by the plaintiff against Yogi & Partners is for the damages she would have recovered against the Balsdons had the release not been executed. The relevant paragraph in the statement of claim is 9(e): [page129]

By reason of the misconduct, negligence and breach of contract of the legal consultants and [sic] the plaintiff has lost all prospects of recovering damages from the tort defendants and thereby has suffered loss and damage.

[25] This is sufficient to allow the appeal.

[26] The appeal should also succeed upon the application of the test in Anns v. Merton London Borough, [1978] A.C. 728, [1977] All E.R. 492 (H.L.).

[27] The test was explained in Edwards v. Law Society of Upper Canada, 2001 SCC 80, [2001] 3 S.C.R. 562, [2001] S.C.R. No. 77, per McLachlin C.J.C. and Major J., at paras. 9-10:

At the first stage of the Anns test, the question is whether the circumstances disclose reasonably foreseeable harm and proximity sufficient to establish a prima facie duty of care. The focus at this stage is on factors arising from the relationship between the plaintiff and the defendant, including broad considerations of policy. The starting point for this analysis is to determine whether there are analogous categories of cases in which proximity has previously been recognized. If no such cases exist, the question then becomes whether a new duty of care should be recognized in the circumstances. Mere foreseeability is not enough to establish a prima facie duty of care. The plaintiff must also show proximity -- that the defendant was in a close and direct relationship to him or her such that it is just to impose a duty of care in the circumstances. Factors giving rise to the proximity must be grounded in the governing statute when there is one. ...

If the plaintiff is successful at the first stage of Anns such that a prima facie duty of care has been established (despite the fact that the proposed duty does not fall within an already recognized category of recovery), the second stage of the Anns test must be addressed. That question is whether there exist residual policy considerations which justify denying liability. Residual policy considerations include, amongst other things, the effect of recognizing that duty of care on other legal obligations, its impact on the legal system and, in a less precise but important consideration, the effect of imposing liability on society in general.

[28] It is conceded by the respondents Yogi & Partners that Canadian law has not recognized a duty of care to be owed by a tortfeasor or its insurer to the plaintiff in negotiating a settlement of the tort claim; nor has such a duty been specifically ruled out.

[29] As noted above, s. 398(1) of the Insurance Act prohibits anyone from negotiating a settlement of a personal injury claim on behalf of a plaintiff or potential plaintiff. Yogi & Partners breached this provision and it is guilty of an offence under the Insurance Act.

[30] In the context of this prohibition, Yogi & Partners claim that the Balsdons and their insurer owed the plaintiff a duty of care not to have negotiated with Yogi & Partners. [page130]

[31] Nothing in the Insurance Act sheds light on the alleged duty of care. The duty of care here claimed is one between the tortfeasor and the plaintiff, the insurer being the agent of the tortfeasor in the settlement discussions.

[32] It is difficult to conceive how a duty of care could exist, but assuming, and without deciding that reasonably foreseeable harm can be shown, Yogi & Partners must also show proximity -- that the Balsdons were in a close and direct relationship such that it is just to impose a duty of care.

[33] I fail to see how the relationship between the plaintiff and the tortfeasor was such that any duty of care could arise. The plaintiff was claiming against the tortfeasor for damages. Clearly the insurer, on behalf of the tortfeasor, was entitled to try to keep the damages payable to a minimum.

[34] The prohibition in s. 398 is surely directed at paralegals, among others. The section is not a prohibition against insurers, but the respondent argues that the insurer owed a duty to the plaintiff not to negotiate with a paralegal because of the prohibition in s. 398. Further, the breach of the duty by the insurer as agent for the tortfeasor is a breach of duty by the tortfeasor -- a duty owed to the plaintiff.

[35] Even assuming, without deciding that the respondent's position passes the first breach of the test in Anns, that is that the circumstances disclose a reasonably foreseeable harm and a sufficient proximity to establish a prima facie duty of care, there exist policy considerations which justify denying liability.

[36] The description of residual policy considerations was stated by the Supreme Court in Edwards v. Law Society of Upper Canada, supra, per McLachlin C.J.C. and Major J., at para. 10, as follows:

Residual policy considerations include, amongst other things, the effect of recognizing that duty of care on other legal obligations, its impact on the legal system and, in a less precise but important consideration, the effect of imposing liability on society in general.

[37] A duty of care between a third party liability insurer and persons who have made claims against the insurer's insured would create conflicts of interest. As an indemnity provider, a liability insurer is obligated to defend the interests of its insured and to limiting the liability of its insured. That translates into an effort by the insurer to avoid paying out on claims or minimizing the amounts paid. The insurer also owes a duty to its policy holders to minimize premiums and one way of satisfying that duty is to minimize the number of claims paid, and the amount paid on any claims (D.M. v. Alberta Lawyers Insurance Assn., [2006] A.J. No. 983, 2006 ABQB 598, per Booker J., at paras. 58 and 59). [page131]

[38] To place a duty of care on a liability insurer vis-à-vis the party making a claim, would require the insurer to breach the duties described above, placing the indemnity insurer in an impossible situation, which would not advance the law or the public interest (D.M. v. Alberta Lawyers Insurance Assn., supra, at para. 60).

[39] I agree with the foregoing observations of policy considerations, leading to the conclusion that no such duty of care should arise.

Conclusion

[40] The appeal is allowed. The cross-claim is dismissed. If the parties cannot agree on costs, brief written submissions not exceeding two pages in length may be filed within seven days (appellant), and a further five days (respondent) with right of reply within a further five days.

Appeal allowed. Note: The foregoing text of this decision was unanimously agreed upon and was ready for signature when the court was advised that the action had been settled. Notwithstanding, counsel requested that the court release its decision (whatever the result) because a resolution of the central issue was important to the administration of justice. The court agreed to do so, even though the matter was technically moot.