Insurance Policy Limits 101

The Role of Insurance Policy Limits:

Let’s start at the beginning.  A Plaintiff can sue for any quantum of money s/he desires, irrespective of how many Defendants are pursued or whether those Defendants are insured, individuals, or even living.  The amount of money recoverable from a Defendant’s insurer is, however, dependent on the relevant insurance policy available to respond to a claim.  In other words, while a Plaintiff can sue for any quantum of money, an insurer will not pay more than required by the policy (with the exception of an insurer’s rejection of a Rule 49 offer within the policy limits preceding judgment in excess of said limits).  For example, if Judgment is obtained for $1.1 million plus party-in-party costs and reasonable disbursements against a single Defendant whose insurance policy limits are $1 million, the Plaintiff will be limited to collecting from the Defendant’s insurer only $1 million of the $1.1 million awarded.  Whether a Plaintiff will seek to recover any sum of money in excess of policy limits (and thereafter be able to collect that excess) is an entirely separate matter and not a focus of this article.  On the contrary, the focus of this article is on the pursuit of remedies when insurance policies inadequately respond to a Plaintiff’s claim for damages.

Unidentifiable and Uninsured Motorists:

Regrettably, a Plaintiff may be injured and have a valid claim as against an unidentifiable (e.g., in a “hit and run” motor vehicle accident”) at-fault motorist or a motorist without any insurance coverage.  Examples of the latter include an at-fault motorist who cancelled his/her policy prior to a collision or where the at-fault motorist is operating the subject motor vehicle without consent.  The Plaintiff is afforded protection by section 265(1) of the Insurance Act, which states:

Every contract evidenced by a motor vehicle liability policy shall provide for payment of all sums that,

(a) a person insured under the contract is legally entitled to recover from the owner or driver of an uninsured automobile or unidentified automobile as damages for bodily injuries resulting from an accident involving an automobile;

(b) any person is legally entitled to recover from the owner or driver of an uninsured automobile or unidentified automobile as damages for bodily injury to or the death of a person insured under the contract resulting from an accident involving an automobile;
…
subject to the terms, conditions, provisions, exclusions and limits as are prescribed by the regulations.

Pursuant to section 265(1), where the sole negligent motorist is unidentifiable or uninsured, the Plaintiff is permitted to bring an action against the automobile insurer of the motor vehicle in which s/he was an occupant, who will defend the claim for up to $200,000 in policy limits.  If the Plaintiff was a pedestrian, then the Motor Vehicle Accident Claims Fund must respond to the claim – similarly with policy limits of $200,000.  No such mandatory provision is regulated in policies responding to claims under the Occupiers Liability Act or Dog Owners’ Liability Act.  Section 265(1) affords protection to the public more beneficial than the alternative: “S.O.L” – and I don’t mean “Statute of Limitations”.

Inadequate Insurance Policy Limits:

The inadequacy of insurance policy limits can be a barrier to the justice Plaintiffs seek in civil litigation.  This inadequacy can arise from a Defendant having purchased a policy of insurance with a less expensive premium (offering less coverage), a Defendant being without any insurance coverage at all, or the above-noted unidentifiable motorist pursuant to section 265(1) of the Insurance Act.  Additionally, where a Plaintiff is injured in a motor vehicle accident as a result of the negligence of a negligent motorist in breach of his/her Ontario Automobile Policy (OAP 1), the insurance policy limits available to the Plaintiff from the Defendant committing said breach will be limited to $200,000.  In these situations (e.g., where a G1 driver is operating a motor vehicle without the regulated supervision or during hours not permitted by his/her G1 licence), the Defendant’s insurer will seek to add itself as a Statutory Third Party.

In the above-noted situations arising from a motor vehicle accident, one remedy available to a Plaintiff is to look to his/her OPCF-44R Family Protection Coverage. Family Protection Coverage provides additional insurance to an individual (or his/her spouse or eligible family members) in the event the policy limits available to respond to a claim are inadequate.  However, Family Protection Coverage is only available where the “insured person” (i.e., injured party) has a policy of insurance and if so, where third party liability coverage limits in the policy of said “insured person” exceed the policy limits of any negligent Defendants.  That latter condition is of fundamental importance.  Where Plaintiff X’s recovery is reduced on a pro rata basis given the requirement to apportion the policy limits of a negligent Defendant as between multiple Plaintiffs, the difference is only recoverable if Plaintiff X’s third party liability coverage limits exceed the policy limits of a negligent Defendant.  Some specific examples are helpful in illustrating this principle.

Example One: Suppose Plaintiff X is severely injured in a motor vehicle accident in which the Defendant has policy limits of $1 million.  Should Plaintiff X’s damages exceed $1 million, s/he will be permitted to bring an action against his/her own automobile insurer (pursuant to OPCF-44R coverage) for the difference between a) the $1 million in the Defendant’s available policy limits; and b) the Court’s assessment of Plaintiff X’s damages, only if Plaintiff X has third party liability coverage limits in excess of $1 million.

Example Two: Plaintiff X sustained the same injuries, but a passenger in his/her vehicle, Plaintiff Y, sustained equally severe injuries (such that each Plaintiff is awarded $1.5 million in damages).  The Plaintiffs will be required to split the Defendant’s insurance policy limits 50/50 (or whatever the pro rata split is based on the assessment of each Plaintiff’s damages).  Thus, each Plaintiff will receive only $500,000 from the Defendant’s insurer and can “top up” the shortfall so long as s/he can access an OPCF-44R policy.  Since Plaintiff X has third party liability coverage limits of $2 million, s/he will be permitted to claim the complete difference of $1 million ($1.5 million in damages minus the $500,000 paid by the Defendant’s insurer).  Plaintiff Y, however, has third party liability coverage limits of only $1 million and so s/he will be unable to claim his/her shortfall.

There is a common misconception that so long as a Plaintiff’s pro rata recovery falls below the quantum awarded, s/he can claim the difference from the OPCF-44R carrier (assuming the third party liability coverage limits exceed the quantum received).  That is inaccurate.  A Plaintiff’s third party liability coverage limits must exceed the policy limits of any negligent Defendants, even if the latter is split one thousand ways.  If it does, the full difference between the Plaintiff’s third party liability coverage and what the Plaintiff received is recoverable.  The Court’s decision in McGrath v. Arshadupheld this legal principle in the face of a Defendant’s argument that only the difference between the Plaintiff’s third party liability coverage and the total amount recoverable from the Defendant (i.e., his/her insurance policy limits) was recoverable.  McGrath had third party liability coverage of $2 million while the Defendant had policy limits  of only $200,000, which McGrath split amongst other Plaintiffs (and thus received only $20,000).  The Defendant argued that McGrath was limited to a recovery of $1,800,000 (the $2 million in third party liability coverage less the Defendant’s policy limits of $200,000), while the Plaintiff argued that the complete shortfall of $1,980,000 was recoverable.  The Court sided with McGrath and held:

In my view the defendant is required to make up any shortfall between the actual amount a claimant received from an inadequately insured motorist for damages to which the claimant may be legally entitled up to the limit of coverage under the OPCF-44R (in this case, $1,800,000).

Another remedy available to the Plaintiff where insurance policy limits are inadequate (and in some instances, non-existent), is not limited to motor vehicle accidents.  It is known as the “One Percent Rule”.  The basis for this principle is found in section 1 of the Negligence Act, which speaks to joint and several liability.  Section 1 states:

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.

For motor vehicle accidents, the “One Percent Rule” is established under section 267.7 of the Insurance Act.  This legal principle ensures (in some circumstances) that injured parties are not “short-changed” by Defendants with inadequate policy limits.  This is especially equitable given society’s preference for insurance companies, which are billion-dollar corporations,  to “pick up the cheque” rather than leave an injured party with inadequate compensation.  For the One Percent Rule to be applicable, there must be at least two negligent Defendants.  In a simple scenario, each Defendant is responsible for his/her apportionment of the Plaintiff’s damages, which falls within his/her policy limits.  If, however, any one Defendant’s policy limits are inadequate to fund its apportionment of damages, the other negligent Defendant(s) is/are required to do so, so long as the total payment falls within its/their insurance policy limits.

Example One: Plaintiff X (with damages of $1.5 million) was injured by two Defendants, each of whom is 50% at fault.  As a result, each Defendant is responsible to pay $750,000.  If, however, Defendant A has only $500,000 in insurance policy limits available and Defendant B has $5 million, it is Defendant B’s insurer who will pay an additional $250,000 ($750,000 owed by Defendant A less the $500,000 paid by Defendant A).

Example Two: Assume the same data above, save for the apportionment of liability.  In this example, Defendant B is only 1% negligent and Defendant A, whose policy limits are inadequate, is 99% negligent for Plaintiff X’s injuries.  In this situation, Defendant B’s insurer will be required to pay its several share of the damages, $15,000 (1% of $1.5 million), plus the portion which Defendant A’s insurer is unable to pay to make Plaintiff X whole.  You’ll recall that Plaintiff X is owed $1.5 million, of which Defendant A’s insurer is responsible to pay $1,485,000 (99% of $1.5 million).  That would leave a shortfall of $985,000 ($1,485,000 owed less $500,000 in Defendant A’s available insurance policy limits), which would become payable by Defendant B’s insurer (so long as it does not exceed that Defendant’s insurance policy limits).

Where adequate insurance policy limits are unavailable from (a) target Defendant(s), it behooves counsel to establish, where possible, a finding of 1% negligence against (an) additional Defendant(s) so as to avert the outcome where the Plaintiff’s actual recovery is insufficient in light of the Court’s assessment of damages.  In motor vehicle litigation, Family Protection Coverage is always available to the Plaintiff where his/her third party liability coverage limits exceed the largest quantum of policy limits of any Defendant who is at least 1% negligent.  Where available and necessary, Plaintiff’s counsel would be negligent in failing to access it.

As I stated at the onset of this article, “Personal injury litigation is not simple”.  I have attended CLE conferences where presenters presented on this very topic and did so inaccurately, so you are not alone if the subject matter is overwhelming and confusing.  I urge you to continue reenforcing these difficult concepts with self-education, to reach out to others within our personal injury bar with questions, and to challenge (and be challenged by) colleagues with mock fact pattens requiring the application of the principles addressed herein.  This article was intended to cover only the most basic concepts pertaining to insurance policy limits and the most practical and ordinary applications of those concepts.  However, there is no shortage of curveballs in the dynamic and ever-changing field of personal injury litigation.  Be sure to have a full appreciation of all of the moving parts in each file in your cabinet so that a fact-specific approach can be implemented.

I hope and trust this necessary refresher and repetition keeps you on the right path as you navigate these complicated claims.  For others, I hope and trust it serves as much-needed redirection to set you on the right path.