Client Update: A Return to Reasonableness – Assessing Damages after Section D Settlements

An uninsured driver strikes another vehicle, injuring its occupants. These injured persons obtain a settlement from their own motor vehicle insurer (pursuant to Section D of the standard policy), and they assign their action against the tortfeasor to their insurer.

Default judgment is awarded against the tortfeasor. The insurer then seeks a recovery of the settlement amount from the tortfeasor. A motion for an assessment of damages is set down, and the insurer points to the reasonableness of the settlement as the appropriate threshold for judicial consideration.

The above had long been a routine event in civil litigation in Nova Scotia. That was, until the Supreme Court of Nova Scotia concluded in January 2014 that the settlement between the insurer and insured is entirely irrelevant to the assessment of damages. InMacKean v Royal & Sun Alliance Insurance Company of Canada, 2014 NSSC 33, the motion judge concluded that damages must be strictly proved on a balance of probabilities, with complete evidence, as at the time of the assessment.

But in a unanimous decision released by the Nova Scotia Court of Appeal on April 10, 2015, the “reasonableness” approach has now been reaffirmed: MacKean v Royal & Sun Alliance Insurance Company of Canada, 2015 NSCA 33.

In reasons written by the Honourable Justice Bryson, the settlement between a Section D insurer and their insured is noted to be clearly relevant to the assessment of damages in an undefended case. This is particularly because motor vehicle insurers are quite experienced and adept at examining the circumstances of a case. In Justice Bryson’s words:

Automobile insurers are very experienced personal injury litigants, whose routine business is to evaluate accident claims. They are not in the business of liberally distributing largesse to undeserving claimants. The Court should not defer to the insurer’s calculation, but because the principle by which settlement is effected is the same as that by which the Court would calculate damages, it is relevant.

While the court must have sufficient evidence from which to assess the reasonableness of the settlement, it does not require – in an undefended case – a complete package of evidence for review on a balance of probabilities, such as would be required at a defended trial. In reaching this conclusion, the Court of Appeal was persuaded by policy reasons of access to justice and a concern for the preservation of scarce judicial resources. On this point, the Court of Appeal wrote:

It is obvious that proving damages on the standard insisted upon by Justice Wood in this case would be more time consuming, expensive, and slower, than tendering evidence of the reasonableness of the settlement.

…

So there is nothing wrong in principle with a simpler, quicker, less expensive and proportional basis for assessing damages in undefended cases such as this one, where the damage claimed is based on a settlement whose calculation depends on what is legally recoverable from the defaulting third party.

The Court of Appeal also noted that the practice of filing evidence from the insurer’s representatives is appropriate as these representatives can best speak to the basis on which the settlement is made. However, the Court of Appeal also noted that some evidence from the Plaintiff would be appropriate so the court may have confidence that the settlement is reasonable.

The Court of Appeal also cautioned that where the settlement was reached a long time before the court is asked to assess damages, some contemporary evidence may be required in order to determine whether the settlement continues to be reasonable. For this reason, it will be prudent to seek an assessment of damages as soon as possible after a settlement is reached with an insured.

The Court of Appeal’s decision is a welcome and practical clarification of the law in this context. Congratulations to C. Patricia Mitchell and Leah Grimmer, both of Stewart McKelvey, who successfully represented the appellants in this case.