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Legal Update LEGAL UPDATE May 2007 Official publication of the McInnes Cooper Insurance Defence Group MESSAGE FROM THE EDITOR I am pleased to be filling in for Blair Pritchett as editor of this issue of D-Fence, the official newsletter of the McInnes Cooper Insurance Defence Group. This newsletter is our way of keeping you up to date with the most recent and relevant developments in Insurance Law in the Atlantic Provinces. We’ve moved! We’re very proud of our new Halifax premises, which occupy 6 floors of Purdy’s Wharf, Tower Two. Our Moncton office also moved to its new location in the South Tower of the Blue Cross building, located at 644 Main Street. If you’re in the neighbourhood of either office, feel free to drop by for a tour—any one of our Insurance Group members would be happy to show you our new client conference centres and give you a peek “behind the scenes”. PS: The McInnes Cooper Insurance Defence family is growing!! We are happy to announce that three of our Halifax Insurance Group members are new parents since the date of our last newsletter. Blair Pritchett welcomed his son, Benjamin, in October, Melanie Comstock welcomed her daughter, Willoughby, in October and Tracy Pasley (née Bastow) welcomed her daughter, Violet, in March. Many thanks to those of you who wrote in to wish them well. We hope you enjoy our latest issue. Jennifer Biernaskie IN THIS ISSUE In this edition, you will find summaries of significant new decisions and an update on the Charter challenges to the New Brunswick and Nova Scotia caps on minor motor vehicle personal injury claims. Those of you working in New Brunswick will be particularly interested in Richard Costello’s article on the very recent case of Rossignol v. Rubidge, which provided clarification on the meaning of “permanent and serious impairment of important bodily functions” in that province’s legislation. As always, your input into this publication is valued. If you have suggestions for topics or improvements, please drop us a note at email@example.com. You can also email us at that address to let us know of anyone we should add to our distribution list. We hope you find this wide range of topics to be useful and timely. If any of our readers have additional questions about any of these topics please feel free to contact any of the members of our Group. Article One LaPierre v. General Accident Territorial Limitations in S.E.F. No. 44 Claims by John Kulik Article Two Two Steps Backwards, One Step Ahead: The Appeal Decision in Sharpe v. Abbott by Jennifer Biernaskie Article Three Rossignol v. Rubidge by Richard Costello Article Four Guardians ad litem Beware! Case Comment: Rowe (Guardian ad litem of) v. Raleigh Industries of Canada, 2006 CarswellNfld 331 (NL. S.C.(T.D.)) by Stacey Grant Article Five “The Cap”: A Brief Update on Current Constitutional Challenges in Nova Scotia and New Brunswick by Peter Rogers and Wendy Johnston Contact Us Insurance Defence Legal Update 2 LAPIERRE V. GENERAL ACCIDENT TERRITORIAL LIMITATIONS IN S.E.F. NO. 44 CLAIMS by John Kulik, Q.C. There appears to be some inconsistency and confusion across Canada as to whether or not the territorial limitation provisions found in most standard automobile insurance policies apply to endorsements such as the Family Protection Endorsement, commonly referred to as an S.E.F. No. 44. Justice Warner has resolved this issue in Nova Scotia with his recent decision in LaPierre v. General Accident (2007). The Plaintiff LaPierre was in Guyana when an accident occurred, in which Mr. LaPierre received significant personal injuries. Mr. LaPierre did not commence a tort action in Guyana against either the driver or owner of the mini-bus in which he was traveling, even though the driver was solely at fault for the accident and the identity and the whereabouts of both the driver and the owner of the mini-bus were known. Mr. LaPierre had automobile insurance with the Defendant General Accident Insurance Company of Canada. As part of his auto insurance coverage, he had an S.E.F. No. 44 which provided coverage for amounts that he was “legally entitled to recover from an inadequately insured motorist as compensatory damages in respect to bodily injury or death sustained by [Mr. LaPierre] by accident arising out of the use or operation of an automobile”. On November 10, 1998, Plaintiff’s counsel wrote to General Accident advancing a claim under the S.E.F. No. 44. In particular, counsel stated that “Our preliminary investigations have revealed that the motor vehicle in which my client was a passenger was grossly under-insured”. On November 23, 1998, General Accident responded by advising Plaintiff’s counsel that: The S.E.F. No. 44 is subject to all terms, limits, conditions, and provisions of the S.P.F. No. 1 Policy which forms part of and is attached to. One of these conditions is “Territory” which binds the coverage of the policy to accidents occurring in Canada or the United States or on vessels flying between their ports. This unfortunately excludes the claim in question. What the insurer did not do is question the assertion that the mini-bus was in fact “grossly under-insured”. This eventually became an issue at trial. In October, 1999, Mr. LaPierre commenced an action against General Accident. It should be noted that Plaintiff had also named his broker as a defendant in the action on the basis that if there was no coverage (due to the territorial limitation clause), then his broker should have secured other coverage in the circumstances. The Plaintiff dropped all claims against his broker prior to trial. It appeared from the discovery evidence that the Plaintiff LaPierre had no knowledge of the insurance status of the mini-bus in question. Therefore in February 2003, Defence counsel wrote to Plaintiff’s counsel seeking confirmation that the mini-bus was indeed under-insured. Plaintiff’s counsel produced a copy of a letter from a solicitor in Guyana which did not directly address the insurance status on the mini- bus in question, but rather stated that, in Guyana, most insurance companies only give limited insurance coverage for third party claims (the maximum of which is equivalent to approximately $3,000 CDN) and commenting that it was unlikely that a taxi would be covered by the one insurance company that gives greater coverage. Defence counsel raised objections to the quality of this evidence. Plaintiff’s counsel responded by questioning why this issue was not raised earlier. The only evidence presented at trial with respect to the insurance status of the mini-bus was two letters from the Guyanese lawyer which contained the information described above. At trial, there were two issues: 1. Was the Plaintiff’s claim pursuant to his S.E.F. No. 44 excluded by the operation of the territorial limitation contained in the Standard Form Auto Insurance Policy for Nova Scotia (“S.P.F. No. 1”)? 2. In the alternative, was the Plaintiff able to establish that the mini-bus in question was under-insured? Insurance Defence Legal Update 3 With respect to the territorial limitation, Plaintiff’s counsel took the position that that clause did not apply to S.E.F. No. 44 claims, arguing that in the Insurance Act, R.S.N.S. 1989, c.231, there is a territorial limitation provision (s.117) with respect to Section A claims and therefore, in order to place territorial limits on any other type of claim under an auto insurance policy, there would have to be a similar provision in the Act. Furthermore, Plaintiff’s counsel relied on two cases in which the territorial limitation had been held not to apply: an Arbitration decision from Alberta (Shulakewych v. Alberta Motor Association Insurance Company (December 21, 1999)) and the very recent decision of the Ontario Supreme Court in Sutherland v. Pilot Insurance (2006) CarswellOnt 4090, both of which found that in similar situations, the territorial limitation clause did not apply. In response to the territorial limitation clause arguments, defence counsel cited two cases, the Ontario Court of Appeal’s decision in Ortiz v. Dominion of Canada General Insurance Co. (2001), 24 C.C.L.I. (3d) 25 and Radu v. Hartford Fire Insurance Co.,  O. J. No. 6356. Again, these cases dealt with similar fact situations, but in both cases the territorial limitation clause was held not apply. Justice Warner rendered a 52 page decision comprehensively dealing with each of these issues, plus some that had not been raised at trial. With respect to the territorial limitation clause issue, His Lordship held that the absence of a provision in the Insurance Act setting out territorial limits for underinsured motorist claims was irrelevant. The Act provides practically none of the policy terms, provisions, definitions, limits or exclusions that are found in auto policies and endorsements. To the contrary, the Insurance Act specifically authorizes the Superintendent of Insurance to approve the terms of policies and endorsements which by necessity are not fully set forth in the Insurance Act or Regulations. His Lordship quickly dismissed the argument that “the automobile” referred to in the territorial limitation clause referred to the insured’s own auto, only, as per S.P.F. No. 1. In particular, the term “automobile” is indeed defined “to the contrary” in the S.E.F. No. 44 which defines “automobile” as meaning “a vehicle with respect to which motor vehicle liability insurance would be required if it were subject to the law of the Province governing the policy”. The major issue in LaPierre, and indeed in both the Radu and Sutherland cases, was the question of ambiguity. In this respect, Justice Warner’s decision is extremely helpful in dealing with the issue of when an ambiguity in an insurance policy arises. His Lordship held that a true ambiguity only arises when there are two reasonable but differing interpretations of the policy. The court should not strain to create an ambiguity where none exists. Having ruled that the territorial limitation clause applied to the S.E.F. No. 44, the Plaintiff was therefore unable to make a claim under his policy. Hence, the issue of whether the Plaintiff had established whether or not the mini-bus was underinsured was moot, though Justice Warner provided a very detailed analysis on this issue. Justice Warner’s decision has definitively resolved the issue of whether the territorial limitation clause applies to S.E.F. No. 44 claims. In particular, the court was not prepared to create an ambiguity where none exists simply to allow a Plaintiff to advance a claim which would have resulted in an unanticipated recovery and an unrealistic result which was not commercially sensible. The other lesson to be learned from this decision is that when an insurer is denying coverage on a specific basis, the insurer should put in its letter of denial that it is not waiving any conditions precedent and that if the insured intends to pursue a claim, the insurer will insist on all terms and conditions of the policy being strictly met including any requirement to provide information. If such a clause is not included and the basis on which the insured denied the claim turns out to be incorrect, the insurer may be estopped from advancing other defences that it may have otherwise had under the policy. Insurance Defence Legal Update 4 It should be noted that the Sutherland case has been appealed and will be heard by the Ontario Court of Appeal in March 2007. It will be interesting to see if that court follows Justice Warner’s reasoning in LaPierre and if the law on this point will finally become more consistent throughout Canada. For more information, please contact: John Kulik, Q.C. 902.444.8571 firstname.lastname@example.org Insurance Defence Legal Update 5 TWO STEPS BACKWARDS, ONE STEP AHEAD: THE APPEAL DECISION IN SHARPE V. ABBOTT by Jennifer Biernaskie On January 18, 2007, the Nova Scotia Court of Appeal released its decision in Sharpe v. Abbot, (2007 NSCA 6). Many will recall last year’s Cape Breton jury trial of this matter, in which the Plaintiff was awarded $750,000.00 in damages. Most notably, this figure included a general damages award of $225,000.00 relating to soft tissue injuries, which had developed into chronic pain and reflex sympathy dystrophy. Additionally, the young woman received a $400,000.00 award for diminished future earning capacity, despite a spotty history of prior employment, all of which had been low- income/wage-based. This case was appealed by the Defendant on multiple grounds including that the trial judge incorrectly instructed the jury, and that the jury had arrived at a “perverse and wholly erroneous estimate” of damages. The unanimous decision of Justices Cromwell, Saunders and Oland upheld the jury’s decision, with the exception of its general damages award, which was reduced to $100,000.00. The Court of Appeal articulated a two-step test for determining whether to alter a jury’s award. First, the Court must consider whether the findings that led the jury to the conclusion were reasonable and whether those findings are capable of supporting its assessment of damages. Secondly, the Court must decide whether the award is the product of a palpable and overriding error of fact, which will be judged by comparing the amount of the award to other awards in similar cases. With respect to the latter factor, the Court adopted the comments of Chief Justice Finch in Dilello v. Montgomery, in which he said that an award would need to be “inordinate, out of all proportion, or wholly erroneous” before being capable of being overturned. The Court of Appeal concluded that the jury’s factual findings were reasonable, but the amount of the award reflected palpable and overriding error, as it was not in line with other similar cases. In reviewing comparable cases, the Court emphasized the need to take a functional approach in assessing general damages and found that the jury award in this case was 2.5-3 times as high as the awards in cases regarding similar functional limitations. With respect to the award for diminishment of future earning capacity, the Court commented that "one cannot divine the approach the jury took in calculating her loss,” as it did not conform to figures provided by the Plaintiff’s actuary. However, it nonetheless held that the award was reasonable, as the jury may have taken into account contingencies which the actuary had not included, such as “higher rates for disability by geographical region.” Despite the downward variation of the jury award for general damages, this case illustrates the difficulties that arise in attempting to overturn generous jury awards. The comments regarding the award for diminishment of future earning capacity evidence the wide amount of latitude given in determining the reasoning for the award. Similarly, this decision raises the question of whether the general damages award would have been overturned if it were, say, 50% higher than similar cases, which is arguably no less unjust for the Defendant. For more information, please contact: Jennifer Biernaskie 902.444.8621 email@example.com Insurance Defence Legal Update 6 ROSSIGNOL V. RUBIDGE by Richard Costello In July 2003, the Province of New Brunswick undertook the greatest balancing act since The Great Blondin crossed the Niagara Falls on a tight rope. As a result of considerable discontent from New Brunswick motor vehicle operators, who were required by statute to carry auto insurance and pay ever-increasing premiums for such coverage, the government amended the Insurance Act to restrict awards for injured individuals in regards to general non-pecuniary damages; that is, damages for pain and suffering. No restriction was imposed on pecuniary losses arising from injury. The restricted damages were further confined to soft tissue injuries and minor personal injuries sustained after July 2003. The theory was that reducing benefits or indemnity payments for the injured constituency would provide relief to the motoring public required to fund, through premiums, the insurance pool available for providing such indemnity. In short, it would provide a better balance to the respective burdens of victims and the insured public. On the 5th of March, 2007, the first Judicial review of this controversial legislation was delivered in New Brunswick, in the Decision of Rossignol v. Rubidge,  N.B.Q.B. 89. After review of the evidence, Russell, J. concluded that the Plaintiff, who suffered a slightly comminuted mid-shaft fracture of the tibia and an additional comminuted fracture of the mid to distal fibula, was restricted by the amendments to the Insurance Act in regards to general non-pecuniary damages, even though the Plaintiff was hospitalized for eight days and required surgical reduction of his fractures. Justice Russell accepted that the injury to the Plaintiff was serious and was not one where legislation involving soft tissue injuries had to be considered. Justice Russell also accepted that the Plaintiff’s injuries were also substantial with some physical limitations. However, he concluded that the Plaintiff, at the date of trial, did not suffer a physical limitation that excluded him from the limiting effects of the Insurance Act on general non-pecuniary damages. The award, in this case, was $2,500; the maximum permitted by Statute. In so holding, Justice Russell followed the analysis of similar cases in Ontario, particularly in Meyer v. Bright, a decision of the Ontario Court of Appeal, and determined that New Brunswick now similarly had valid restrictions for injuries that were not permanent as well as serious impairments of important bodily functions. While the wording in Ontario and New Brunswick is somewhat different, the result is the same. The Decision of Justice Russell was understandable and consistent with the intent of the Legislature to balance competing interests of victims and insured Defendants (policyholders). It was the subject of considerable comment in the media and by certain members of the Plaintiff’s bar who suggested that Plaintiffs like Rossignol are victimized twice over: by the negligent act of the Defendant; and secondly, by the government. This case confirms that policy decisions providing attribution of risk or burden in the Province is a function of the Legislative process. The Legislature determines what policies best achieve the appropriate balance of risk between members of the public who operate vehicles and members of the public who sustain relatively minor injury. Assessment of damages for personal injury is fact driven. Justice Russell has indicated that limiting words in the Insurance Act must be given the normal and plain meaning that one would expect. What remains undecided, however, since it was not raised by the parties in this litigation, is whether the Legislative scheme is contrary to the Constitution and flawed as being non-compliant with the equality provisions. In addition, Justice Russell was not required to consider restrictions on damages for soft tissue injuries which have not, as yet, been defined by Regulation and, therefore, may provide greater latitude for these Plaintiffs seeking to exclude themselves from such statutory limits. Time will tell whether the current balance is sustainable and whether Blondin can reach the opposite shore. Stay tuned. For more information, please contact: Richard Costello 506.643.6507 firstname.lastname@example.org Insurance Defence Legal Update 7 GUARDIANS AD LITEM BEWARE! CASE COMMENT: ROWE (GUARDIAN AD LITEM OF) V. RALEIGH INDUSTRIES OF CANADA by Stacey Grant A recent decision in the Supreme Court of Newfoundland and Labrador has rocked the issue of costs awarded against Guardians ad litem in unfounded claims. Since 1996, both the Trial Division and Court of Appeal of the Supreme Court of Newfoundland and Labrador have been dealing with the personal injury action of an infant plaintiff who suffered injuries allegedly as the result of the negligent manufacture of her bicycle. The action was commenced by the infant’s father, as guardians ad litem, against the retail seller of the bike and the manufacturer; however, the action against the retailer was later discontinued. At the end of the Plaintiffs case, the Defence made a successful motion for non-suit. Prior to the completion of the Plaintiffs case, the manufacturer made two separate Offers to Settle pursuant to Rule 20A of the Rules of the Supreme Court, 1986 R.S.N.L., c.42, Schedule D, which were rejected. Consequently, upon its successful non-suit motion, the Defendant manufacturer sought costs pursuant to the cost consequences provisions of Rule 20A. Costs were awarded on a party and party basis up to and including the date of the first Offer to Settle and thereafter on a solicitor and own client basis. Costs were varied on appeal to allow costs on a solicitor and client basis as opposed to solicitor and own client basis. The taxed bill of costs totalled at $83,473 and was registered with the Judgment Registry as against the infant plaintiff and her guardian ad litem, despite the fact that the Order itself did not explicitly state that the guardian ad litem was personally responsible for the payment of costs. Upon request by the guardian ad litem, his name was subsequently removed as a debtor, but was later reinstated upon the instructions of the Defendant. Pursuant to Rule 55.10 of the Rules, court-appointed guardians ad litem appear to be exempt from liability for costs. However, in the present circumstances the guardian was self-appointed and, consequently, Mr. Justice Hall held that Rule 55.10 had no application in the circumstances. In addressing the scope of the Rules, the guardian ad litem contended that the procedural rules of Nova Scotia and Ontario explicitly acknowledge the personal liability of guardians for costs, and since the Rules are not explicit in this respect, then it must be intention of the Courts in Newfoundland and Labrador not to hold guardians personally liable for costs. Furthermore, it was argued that infant plaintiffs must be parties for cost purposes and, absent any express provision in a costs Order, the implicit interpretation must be that costs are as against the infant plaintiff. The Plaintiff’s guardian ad litem also advanced a public policy argument contending that persons would be discouraged from acting as guardians if there is a risk they may be held personally liable for costs. Consequently, infants may encounter difficulties in finding persons to be their personal representatives when commencing actions. The response of the Trial Division to these arguments is progressive and shows the Court’s determination to prevent frivolous, abusive and unmeritorious claims. Mr. Justice Hall acknowledged the possibility that persons may be discouraged from acting as guardians ad litem; however, it was his decision that the larger detriment would be to successful defendants who, without the personal responsibility of guardians for costs, would be without relief in seeking their costs. Consequently, frivolous, vexatious and unmeritorious claims would abound. Consequently, it appears unnecessary to specifically name a guardian ad litem in an Order for costs in order to hold the guardian personally responsible. While this decision may cause individuals to be increasingly cautious in accepting positions as guardians, it will also force potential guardians to conscientiously and thoroughly assess of the merits of a claim prior to proceeding. For more information, please contact: Stacey Grant 709.724.8263 email@example.com Insurance Defence Legal Update 8 “THE CAP”: A BRIEF UPDATE ON CURRENT CONSTITUTIONAL CHALLENGES IN NOVA SCOTIA AND NEW BRUNSWICK From Wendy Johnston in Nova Scotia: The case of Hartling et al v. Attorney General (Nova Scotia) S.H. No. 236705, challenging the constitutionality of provisions of s. 113B of the Insurance Act, R.S., c. 231, and Automobile Insurance Recovery Limitation Regulations, continues to make its way through the Court. No date has been set for hearing of the constitutional issues. In March, 2007, solicitor Jamie MacGillivray, applied to intervene in Hartling in the case of John Alex McKinnon and Saquoia McKinnon, an infant, by her Litigation Guardian Kathryn Jean McKinnon v. Adam Thomas Roy, S.P. No. 217706. The Attorney General opposed the application arguing the application to intervene was in effect an application by the McKinnons to determine their own constitutional issues, which is in the nature of consolidation of their constitutional issues with the Hartling case. The Plaintiffs in McKinnon argue their case is distinguishable from Hartling, as there are allegations of psychological injury in McKinnon which is not the case in Hartling. The Application to Intervene scheduled for March 15th was adjourned without day. A case management judge is to be appointed to consider the matter and manner of proceeding with the constitutional issues in the Hartling and McKinnon cases, as well as six other cases where constitutional issues are raised. The actions in these additional cases will continue in the ordinary course with the constitutional issues stayed pending the outcome of the Hartling case. There are indications in the Hartling case that the Plaintiffs intend to call further evidence in which case any hearing on the merits will be further delayed, making it appear unlikely there will be any final determination of the constitutional and ultra vires issues in 2007. From Peter Rogers, in New Brunswick: There is nothing substantial to report in regards the New Brunswick cap challenge cases. The Court has indicated that the cases will be managed as a group. The Attorney General is attempting to clarify the extent of allowable participation in each action, an issue currently before the Court of Appeal. The Plaintiff bar is apparently waiting for that issue to be resolved before pressing for forward movement. For more information, please contact: Wendy Johnston 902.444.8433 firstname.lastname@example.org Peter Rogers 506.635.2232 email@example.com Insurance Defence Legal Update 9 As always, please feel free to direct any questions to your usual point of contact at McInnes Cooper. Inquiries relating specifically to this publication can be sent to firstname.lastname@example.org. Inquiries of a general nature can be directed to any of the following: mcinnescooper.com Contact Us Charlottetown: 902.368.8473 Moncton: 506.857.8970 Shannon Farrell Rémy Boudreau Tamzin Gillis Christa Bourque John Hennessey, Q.C. Marc-Antoine Chiasson John Friel, Q.C. Fredericton: 506.458.8572 Denis Thériault Shivani Chopra Patrick Hurley Q.C. Saint John: 506.643.6500 Greg King Marco Cloutier Ann Marie McDonald Richard Costello, Q.C. Leanne Murray Shane Dugas Howard Myatt Hillary Flaherty Peter Rogers Halifax: 902.425.6500 Deborah Watton Jeff Aucoin Michelle Awad St. John's: 709.722.8735 Robert Belliveau, Q.C. Susan Day Jennifer Biernaskie Stacey Grant Melanie Comstock Deborah Hutchings Ian Dunbar Blair Pritchett Charles Ford Doug Skinner Gavin Giles, Q.C. David Graves, Q.C. Marjorie Hickey, Q.C. Cheryl Hodder Wendy Johnston, Q.C. John Kulik, Q.C. Tracy Pasley Chris Robinson, Q.C. Peter Rogers Harry Wrathall, Q.C. McInnes Cooper’s newsletters are prepared for information only and are not intended to be either a complete description of any issue or the opinion of our firm. McInnes Cooper should be consulted regarding any situation to which any topic discussed herein might apply.