Court File and Parties

COURT FILE NO.: 3724-11

DATE: 20190123

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Gregory Alan Tuffnail, Patricia Diane Tuffnail, David Alan Tuffnail and Michael Alan Tuffnail, Plaintiffs

AND:

Steven Andrew Meekes, State Farm Mutual Automobile Insurance Company, Sharon Carlene Drown as Litigation Administrator for the Estate of Thomas Michael Bolton, Defendants

AND:

Steve Coulthard, Third party

BEFORE: Rady J.

COUNSEL: James D. Virtue and Rasha El-Tawil, for the Plaintiffs Joseph Masterson, for State Farm Mutual Insurance Company James K. Brown, for Steve Coulthard

HEARD: October 16, 2018

ENDORSEMENT

Introduction

[1] The parties seek rulings on two further issues in this personal injury matter that resulted in a verdict in the plaintiffs’ favour in May 2017.

[2] The first issue has to do with State Farm’s subrogation rights and its obligation to the plaintiffs. The second is the third party’s liability to the plaintiffs and the nature of the liability.

Issue

1) Subrogation

[3] The first issue can be briefly stated: is State Farm required to share with the plaintiffs on a pro rata basis any sums it recovers through its subrogated claims against the Bolton Estate and Mr. Coulthard? The plaintiffs say it must; State Farm says no.

[4] State Farm submits that its right of subrogation is contractual by virtue of OPCF 44R. The contract does not require pro rata sharing and therefore s. 278 has no application. In the alternative, it submits that s. 278 applies only to property loss claims.

[5] Its second alternative argument is that even if s. 278 applies to a personal injury claim, because the maximum amount owing under State Farm’s policy is “payable” to the plaintiffs, they will receive full indemnity for what is owing under the OPCF 44R endorsement.

[6] Finally, it says the case law makes it clear that State Farm is only obliged to share its recovery on its subrogated claims if it were to recover more than what it owes the plaintiffs under the contract.

[7] The plaintiffs rely on s. 278 (1) and (2) of the Insurance Act, which provide:

278 (1) An insurer who makes any payment or assumes liability therefor under a contract is subrogated to all rights of recovery of the insured against any person and may bring action in the name of the insured to enforce those rights.

(2) Where the net amount recovered whether the action or on settlement is, after deduction of the costs of the recovery, not sufficient to provide complete indemnity for the loss or damage suffered, the amount remaining shall be divided between the insurer and the insured in the proportion in which the loss or damage has been borne by them.

[8] At common law, an insurer’s right of subrogation does not arise until its insured has been fully indemnified for its losses. The contract of insurance can modify that right and permit an insurer to commence a subrogation action before an insured has been fully indemnified. The quid pro quo is that any recovery by the insurer must be shared with the insured pro rata. See Zurich Insurance Co. v. Ison J.H. Autosales Inc., 2011 ONSC 1870; aff’d 2011 ONCA 663.

[9] The plaintiffs’ submission is that the OPCF 44R endorsement on which the plaintiffs claim against State Farm is a “creature” of the Insurance Act. It is a standard industry-wide contract approved by FSCO by virtue of s. 227(1) of the Act. The section provides:

227 (1) An insurer shall not use a form of any of the following documents in respect of automobile insurance unless the form has been approved by the Superintendent:

1. An application for insurance
2. A policy, endorsement or renewal
3. A claims form
4. A continuation certificate

[10] The plaintiffs say that the OPCF 44R is silent on the issue of sharing of subrogation proceeds and as a result, s. 278(2) prevails.

[11] They also reject as unsupported State Farm’s alternative position that s. 271 applies only to property damage.

Analysis

[12] By way of background, Somersall v. Friedman, 2002 SCC 59 contains the following comments about the purpose of the OPCF endorsement. The court was dealing with the timing of an insurer’s right to pursue an action for subrogation, but its comments are pertinent to this case:

17 The specific purpose of the SEF 44 Endorsement is to provide coverage, in exchange for a premium paid by the insured, for injuries sustained by the insured or whose liability limits are insufficient to compensate the injuries suffered by the claimants. Although the form of the SEF 44 is standardized, it is an optional coverage for which the premium paid is in addition to the premium paid for the coverage purchased under the standard automobile policy.

18 The essence of this endorsement is that the insured protects himself, by making the extra payment, from the risk of being injured by an inadequately insured motorist. The insured pays a fee to the insurer to make direct compensation in the event that such an accident occurs. Since motor vehicle insurance is mandatory for all drivers in Ontario, and was at the time of the accident at issue here, this risk is, relatively speaking, small. It has been reduced further since the introduction of the generally first-party compensation system of automobile insurance in Ontario. Since the apportionment of fault is now, in most cases, a matter to be determined between the involved insurance companies, the class of inadequately insured drivers has been reduced, so far as the insured person is concerned, to those drivers who do not carry insurance at all.

47 The applicable principle of interpretation is that we interpret insurance contracts contra proferentem, or in favour of the insured. In Sansalone v. Wawanesa Mutual Insurance Co., 2000 SCC 24 at para. 70, in comments reaffirmed in Derksen v. 539938 Ontario Ltd., 2001 SCC 72, the court said:

Since insurance contracts are generally adhesionary, the standard practice is to construe ambiguities against the insurer…A corollary of this principle is that “coverage provisions should be construed broadly and exclusion clauses narrowly” … Therefore, one must always be alert to the unequal bargaining power at work in insurance contracts, and interpret such policies accordingly.

See also July v. Neal (1986), 1986 CanLII 149 (ON CA), 57 O.R. (2d) 129 (Ont. C.A.). There is little doubt that this is an adhesionary contact. The insurance industry was intimately involved in the development of the SEF 42 and subsequently the SEF 44, while the insured was simply presented with the standard endorsement on a “take it or leave it” basis.

48 Therefore, if we find that there is any ambiguity in the subrogation clauses as to whether or not the insurer has a right that the Limits Agreement could have interfered with, such an ambiguity must be resolved in favour of the insured. In other words, only a clear and unambiguous obligation upon the insured to maintain a claim in tort and not waive it in exchange for a payment, can, in my view, support an interpretation favourable to the appellant.

50 First, it is important to keep in mind the underlying objectives of the doctrine of subrogation which are to ensure (i) that the insured receives no more and no less than a full indemnity, and (ii) that the loss falls on the person who is legally responsible for causing it: see Birds’ Modern Insurance Law (5th ed. 2001), at pp. 289-90; R. H. Jerry, Understanding Insurance Law (2nd ed. 1996), at p. 602. The doctrine of subrogation operates to ensure that the insured received only just indemnity and does not profit from the insurance: see Castellain v. Preston (1883), 11 Q.B.D. 380 (Eng. C.A.), at pp. 386-87; A.F.G. Insurances Ltd. v. Brighton (City) (1972), 126 C.L.R. 655 (Australia H.C.); C. Brown, Insurance Law in Canada (loose-leaf), at p. 13-1; E. R. H. Ivamy, General Principles of Insurance Law (6th ed. 1993), at p. 494; MacGillivray on Insurance Law, (9th ed. 1997), at p. 531. Consequently, if there is no danger of the insured’s being over-compensated and the tortfeasor has exhausted his or her capacity to compensate the insured there is no reason to invoke subrogation. Similarly, if the insured enters into a limits agreement or otherwise abandons his or her claim against an impecunious tortfeasor the insurer has lost nothing by the inability to be subrogated.

56 Equitable insurance principles of subrogation, though not the principle of interpretation contra proferentem, may be altered by the terms of the contract between the parties.

[13] The essence the Somersall decision is that the relevant contractual language can alter the common law. So here, as in Somersall, the language alters the common law by providing a right of subrogation before a claim is made by an insured. However, there is nothing in the contractual language that ousts or supercedes or modifies the language of s. 278(2) of the Insurance Act. Silence on the point is an insufficient basis to conclude that s. 278(2) does not apply, given the doctrine of contra proferentem.

[14] It is possible that I have misunderstood the issue but it seems to me that State Farm cannot recover more by way of subrogation than what it must pay the plaintiffs under their contract. This would be a windfall to the insurer. Its subrogation rights are limited to what it is obliged to pay the plaintiffs. However, the plaintiffs cannot recover more than what State Farm is obliged to pay them under the contract. But until the insureds receive what they are entitled to under the terms of the contract, s. 278 applies.

[15] Consequently, State Farm is obliged to share with the plaintiffs on a pro rata basis anything it recovers by way of subrogation until the plaintiffs receive full indemnification pursuant to the terms of the OPCF 44R endorsement.

2) The Third Party’s Liability to Pay

[16] The plaintiffs seek a determination that the third party is jointly and severally liable to the plaintiffs for the full amount of the damages awarded by the jury; and that the defendant Bolton Estate is entitled to recover from him a proportionate share of the plaintiffs’ damages as contribution indemnity.

[17] State Farm says Mr. Coulthard is liable to make contribution and indemnity to the Bolton Estate only to the degree that he was found to be at fault.

[18] Mr. Coulthard concedes he is a joint tortfeasor and would be jointly and severally liable to the plaintiffs, had he been named as a defendant. However, he was not sued by the plaintiffs but rather was added as a third party by State Farm and the Bolton Estate. Following the trial, the Bolton Estate settled its liability with the plaintiffs and in return, assigned its cause of action against Mr. Coulthard. Obviously, the plaintiffs’ rights against Coulthard under the assignment are no greater than those of the Bolton Estate itself.

[19] However, the plaintiffs say that he is jointly and severally liable by virtue of s. 1 of the Negligence Act and because he defended the main action.

[20] The issue raises difficult questions respecting the nature of the liability of an at fault “person” in the language of s. 1 of the Negligence Act, the impact of s. 4 of the Act, and the implications of an at fault person not being a defendant.

The Law

[21] The Negligence Act R.S.O. 1990, c.N.1 provides:

1. Where damages have been caused or contributed to by the fault or neglect of two more persons, the court shall determine the degree in which each of such persons is at fault or negligent, and, where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence, but as between themselves, in the absence of any contract express or implied, each is liable to make contribution and indemnify each other in the degree in which they are respectively found to be at fault or negligent.

[22] The plaintiffs’ position is, first, that s. 1 of the Act renders Mr. Coulthard liable to the plaintiffs and he is jointly and severally responsible. Second, Mr. Coulthard is a party in this proceeding, having been made a third party. He made the decision to participate in the main action by delivering a defence to the claim. He also participated fully in the trial, cross-examined the plaintiffs’ liability and damage witnesses and called his own evidence. His other option would have been to simply await the outcome of the trial and be bound by it.

[23] On the latter point, the plaintiffs rely on the decision in Cuillerier v. Andrés Furnace, 2011 ONSC 5310, which discusses the effect of the delivery of a defence to the main action as follows:

[19] Rule 29.01 provides the mechanism by which a defendant may both defend against a main action and simultaneously claim over against another party in the event the defence fails. The main purpose of such a claim (as distinct from a separate action) is to ensure that one way or another a third party will be bound by the determination of the issues in the main action. Once served with such a claim, the third party cannot avoid this consequence. It is faced with an election. It may defend the main action under Rule 29.05(1) and thus effectively become a party to that action or it may elect to stay out of the main action and defend only the third party claim under Rule 29.03. A third party which does not defend the main action has no right to participate in the proceeding as between the plaintiff and the defendant and pursuant to Rule 29.05(5) will be bound by any determination made between the plaintiff and the defendant which issued the third party claim. Of course if the third party joins issue with the plaintiff directly, it will also be bound under Rule 29.05(2)(b) but in that case the third party has discovery rights against the plaintiff and more importantly could seek summary judgment directly against the plaintiff under Rule 20 in a forum that would bind the plaintiff.

[24] Interestingly, there was a third party motion for summary judgment in this case. Originally, there were several other third parties besides Mr. Coulthard named in the action. They moved for summary judgment dismissing the claim against them. The plaintiffs consented to a dismissal; one of the defendants did not. Ultimately, the motion for summary judgment was successful and the claim and third party claims were dismissed.

[25] The argument is that if a third party avails itself of the benefits of its participation in the main action – one of which is to reduce its exposure – it must bear the concomitant burdens, including judgment and costs and joint and several liability.

[26] In my view, the fact that the third party defended the main action does not render him liable for damages to the plaintiffs under Rule 29. Put another way, the third party is not jointly and severally liable to the plaintiff.

[27] The Rule provides as follows:

29.01 A defendant may commence a third party claim against any person who is not a party to the action and who,

(a) is or may be liable to the defendant for all or part of the plaintiff’s claim;

(b) is or may be liable to the defendant for an independent claim for damages or other relief arising out of,

(i) a transaction or occurrence or series of transactions or occurrences involved in the main action, or

(ii) a related transaction or occurrence or series of transactions or occurrences; or

(c) should be bound by the determination of an issue arising between the plaintiff and the defendant.

[28] It is noteworthy that the Rule speaks to the third party’s liability to the defendant for all or part of the plaintiff’s damages. It does not say liability for all or part of the plaintiff’s damages. Accordingly, a plaintiff cannot recover from a third party, absent a finding of fault against the defendant who commenced the third party claim.

[29] The decision in Martin v. Listowel Memorial Hospital, 2000 CanLII 16947 (ON CA), [2000] O.J. No. 4015 (C.A.) discusses and answers the issue.

[30] In Martin, the plaintiff, Steven Andrew Martin, was born at the Listowel Memorial Hospital on July 30, 1981. Due to the negligence of two attending doctors, the defendants Dr. Neable and Dr. Clunas, and of the attending Nurse James, who was a third party, as well as the lack of training of the ambulance personnel by the hospital (the hospital being vicariously liable for the nurse and directly responsible for the failure to train the ambulance personnel), the baby suffered brain damage at birth which left him with very serious physical and cognitive disabilities. The trial judge assessed his damages at $3,501,802.00. His family members were awarded significant amounts in respect of their care of the plaintiff, as well as for their claims under the Family Law Act.

[31] Several issues arose on appeal, including whether s. 1 of the Negligence Act required the trial judge to determine the degree of fault or negligence of Nurse James as a person who contributed to the plaintiffs’ damages, whether or not she was a party to the action.

[32] The court prefaced its analysis with this comment:

15 Normally, a plaintiff is not concerned about issues of apportionment of fault and liability among defendants or potential defendants. Because s. 1 of the Negligence Act makes all persons found at fault or negligent jointly and severally liable to the plaintiff for the plaintiff’s damages, the plaintiff may recover the full amount of the damages from any defendant found at fault, even if that person is only held to be less than 1% responsible for the damage suffered. It is then the concern of the defendants to ensure that the trial judge correctly apportion responsibility among the parties at fault so that they can collect from each other in accordance with that apportionment.

[33] It turned then to the issue raised on the facts; which first focused on the trial judge’s conclusions respecting s. 4 of the Act.

[34] The court continued:

31 The trial judge fully considered Nurse James’s involvement in the birth of the plaintiff Steven Martin, and made several findings of negligence against her, concluding that her negligence materially contributed to the damage he suffered. However, he did not go on to determine her degree of fault because he did not consider her to be a party to the action. The plaintiffs submit that because s. 1 refers to persons and not parties, he should have done so, even if she was not a party.

32 We would not give effect to that submission. There is no basis in s. 1 or anywhere in the Act for a judge to attribute a portion of fault to a non-party. Furthermore, although s. 1 refers to “persons”, in any particular action its effect is to impose joint and several liability to the plaintiff only on defendants found at fault or negligent, and not on any other person.

33 The use of the word “persons” in the section, where “parties” is used elsewhere in the Act, has led to the suggestion that the section is intended to apply to anyone at fault. However, the authorities which have considered the issue have consistently held that the section does not allow the court to apportion any degree of fault to a non-party. Furthermore, this interpretation is consistent with the proper operation of the Act.

34 The effect of s. 1 of the Negligence Act is to make all persons sued, who caused or contributed to the damage suffered by the plaintiff jointly and severally liable to the plaintiff for the damage. This is referred to by the Ontario Law Reform Commission in its Report on Contribution Among Wrongdoers and Contributory Negligence (Toronto: Ministry of the Attorney General, 1988) as “in solidum liability” (chapter 3). The purpose of the legislation is to facilitate full recovery of the loss for the plaintiff, while at the same time providing a mechanism for each of those who contributed to the loss to share the financial responsibility in the proportions of their respective degrees of fault.

35 It is therefore axiomatic that the plaintiffs’ judgment against each defendant found at fault to any degree, be in the amount of 100% of the damages suffered. Of course, the plaintiff cannot collect more than 100% in total from all defendants, so that satisfaction of any amount against one is satisfaction against all. However, as between themselves, the defendants are each entitled to contribution and indemnity to the extent of any overpayment to the plaintiff of their own proportionate share. Any defendant who successfully claimed over against a third party is also entitled to contribution from that third party to the extent of that party’s fault. (emphasis mine)

36 The effect of a finding of a degree of fault on a non-party could have significant consequences for the other defendants under this section. If the fault is apportioned only among the parties, then if there is a non-party who may also have been at fault and contributed to the damage, a larger percentage of the whole loss may be attributed to each party, so that the entire loss is divided for indemnity purposes, and no gap is left. But if a portion of the fault were attributed to a non-party, or to a party at fault but with a legal defence such as a limitation defence, the defendants who are liable to the plaintiff would be left with no-one from whom they could recover that portion of the claim.

37 Because it is in the interests of the parties to ensure that everyone potentially liable is joined in the action, in practice, it is therefore most unlikely that any solvent, known person with the potential to be found at fault, would not be joined in the action as a party in some capacity. Section 5 of the Act makes special provision for adding parties, again to ensure that all parties who should be contributing to compensate the plaintiff for the loss are joined in the action which fixes everyone’s responsibility.

48 In our view, the effect of s. 1 of the Act is to define the legal effect of a finding of fault by concurrent wrongdoers. The effect is to change the common law, and impose on concurrent wrongdoers joint and several liability to the plaintiff. It is the only section of the Act which imposes liability, as opposed to apportioning fault. The section is substantive, not procedural. Therefore when applying the section to any specific action, it is understood that joint and several liability to the plaintiff can and will attach only to a party defendant, although others who may also have been at fault could potentially have been found jointly and severally liable had they been sued by the plaintiff. Because procedurally the section only affects defendants, under this section the court is to apportion degrees of fault only to defendants. The court must also apportion fault to the other parties, the plaintiff and third parties, not under s. 1 of the Act but rather pursuant to ss. 3 and 4 of the Act, and in accordance with the requirements of the pleadings. (emphasis mine)

[35] The decision in Taylor v. Canada (Attorney General), 2009 ONCA 487 is also relevant. In that case, the court dealt with the question whether a defendant in a negligence action can maintain a third party action for contribution and indemnity against alleged tortfeasors if the plaintiff had limited her damages to only those attributable to the defendant’s degree of fault.

[36] The hypothetical posed by Justice Laskin, writing for the court, is helpful:

[16] Take a case where a plaintiff is injured and three tortfeasors, T1, T2 and T3, caused the injuries. Assume that their respective [page 566] degrees of fault are 20 per cent, 30 per cent and 50 per cent. If the plaintiff sues only T1, then even though T1 is only 20 per cent at fault, as between it and the plaintiff, it will be liable for 100 per cent of the plaintiff's damages. As Major J. said, at para. 25 of Athey v. Leonati, any tortfeasor who caused a plaintiff's injuries must fully compensate the plaintiff:

In the present case, there is a single indivisible injury, the disc herniation, so division is neither possible nor appropriate. The disc herniation and its consequences are one injury, and any defendant found to have negligently caused or contributed to the injury will be fully liable for it.

[17] To limit the amount of its loss, T1 is entitled to exercise its statutory right to apportionment of fault by adding T2 and T3 as third parties under s. 5 of the Negligence Act:

5. Wherever it appears that a person not already a party to an action is or may be wholly or partly responsible for the damages claimed, such person may be added as a party defendant to the action upon terms as are considered just or may be made a third party to the action in the manner prescribed by the rules of court for adding third parties.

[18] The court will apportion fault under s. 1 of the Negligence Act, so that among themselves, T1, T2 and T3 will indemnify each other in accordance with their respective degrees of fault:

1. Where damages have been caused or contributed to by the fault or neglect of two or more persons, the court shall determine the degree in which each of such persons is at fault or negligent, and, where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence, but as between themselves, in the absence of any contract express or implied, each is liable to make contribution and indemnify each other in the degree in which they are respectively found to be at fault or negligent.

[19] In this example, T1 may still have to pay the plaintiff 100 per cent of the plaintiff's damages, but it can recover 80 per cent of that amount from T2 and T3. It has a right to contribution from T2 and T3 under the Negligence Act.

[37] On the facts of Taylor, because the plaintiff had limited her claim to only those caused by the defendant, no issue of contribution arose. Although the plaintiffs seek to distinguish the case on that basis, the basic principles seem to apply to this case.

[38] As a result, I have concluded that the fact that Mr. Coulthard is a third party and he participated in the main action does not render him jointly and severally liable to the plaintiffs. Rather, on the strength of Martin and Taylor, Mr. Coulthard’s liability is several vis-à-vis the Bolton Estate.

“Justice H. A. Rady”

Justice H. A. Rady

Date: January 23, 2019