A Peril of Subrogation
A cautionary note for insurers looking to recover amounts paid out to insureds from alleged tortfeasors in subrogated actions.
In a recent decision of the Nova Scotia Supreme Court, an insurer’s motion for an assessment of damages in a subrogated action was dismissed. The case of MacKean v. Royal & Sun Alliance Insurance Company of Canada, 2014 NSSC 33 underlines that the rules of proof in a subrogated claim are the same as those that apply in any claim by a plaintiff against a defendant.
In MacKean, the Plaintiffs sustained injuries in a motor vehicle accident and, after learning that the person responsible for causing the accident had no insurance, they then sought recovery from their insurer under the Section D provisions of their own automobile insurance policy. The insurer settled with the Plaintiffs and then took an assignment of the Plaintiffs’ lawsuit against the uninsured tortfeasor. The insurer thus stepped into the shoes of its insureds and continued the Plaintiffs’ action against the Defendant tortfeasor in an attempt to recover the amount paid out to its own insureds.
Because the tortfeasor did not file a Defence, the insurer was able to enter a default judgment against him and it subsequently proceeded with a motion for an assessment of damages.
At the motion, the insurer argued that the only issue for the Court to consider was whether or not the amount of the prior settlement with the insureds had been fair and reasonable. Other than a transcript of an oral discovery, the insurer submitted no evidence from the Plaintiffs themselves and instead relied largely on copies of medical reports and expert reports providing opinions on the cost of future care and the loss of valuable services.
In dismissing the motion, the judge held that an assessment of damages in a subrogated action is no different from any other action seeking damages – the damages have to be proven on a balance of probabilities using admissible evidence without regard to the insurance element in the case. The amount for which the insurer had settled its own insureds’ claims was deemed to be irrelevant.
Further, the judge concluded that not only had the insurer presented stale evidence (there was no information for the period between the settlement itself and the motion for the damages assessment – a period of more than three years) but also that some of the evidence was inadmissible for a variety of technical legal reasons such as the rule disallowing the use of hearsay evidence.
As a result of these conclusions, the motion for an assessment of damages was dismissed but without prejudice to the ability of the insurer to come back to court at a later date with another motion for an assessment of damages supported by admissible evidence.
What Is the Insurer to Do?
There is no reason to abandon attempts to recover payouts to insureds by way of subrogated claims against other parties responsible for causing the losses. The insurer should obviously take steps, however, to avoid the result in the MacKean case. Given that the decision is consistent with the previous, albeit limited, Canadian caselaw on the point, attempting to argue that the decision ought not to be followed in a future case is likely doomed to fail.
If the limitation period has not passed, an insurer might consider filing its own claim against the tortfeasor and phrase it as a Notice of Action for Debt. Uninsured defendants typically do not file defences so default judgments would routinely be available. The prothonotary, as opposed to a judge, can grant a money judgment for a debt as a matter of course without proof of the amount.
There are, however, serious potential pitfalls with this approach. If a judgment granted by a prothonotary were appealed by the uninsured tortfeasor (however unlikely that might be), the judgment would almost certainly be set aside. It is also possible that the prothonotary might refuse to issue a default judgment for the amount sought and refer the matter to a judge.
The problem arises because the prothonotary is not authorized by the Civil Procedure Rules to assess “damages” as opposed to entering a judgment for a “debt” or a “liquidated demand.” In contrast to a claim for an outstanding balance on an unpaid bill (the classic example of a “debt” or a “liquidated demand”) which generally requires no investigation beyond a mere mathematical calculation of what is owed, the assessment of “damages” for bodily injury is fixed by opinion or by what might be judged reasonable.
Ultimately one comes back to the fundamental problem in subrogated actions where an insured is really a nominal plaintiff only. The insured has little interest in assisting the insurer in the pursuit of other parties after the insured has already been compensated for the loss. Even if an insured does assist, one can expect tepid support at best.
A possible solution is to secure an affidavit from each insured, at or just before settling the insured’s claim against the insurer, with sufficient detail in the affidavit concerning when, where and how the loss occurred and what damage the insured sustained as a result. Using the example of a bodily injury claim, better co-operation from an insured may be forthcoming if the insured understands that part of the terms of the potential settlement arrangement with the insurer requires that the insured swear an affidavit setting out his or her injuries, treatment and extent of recovery.
Should the party responsible for the loss not enter a defence, the insurer can proceed with default judgment and, when it comes time to make a motion for a damages assessment, the insurer can present the insured’s affidavit to the Court along with other relevant and admissible evidence, including opinion evidence, if appropriate.
Of course, it is clear that the insurer should move with all reasonable speed to pursue its right of subrogation. If any significant amount of time passes, the Court may be reluctant to grant a judgment for damages if there is little or no information presented to it in order for the Court to be able to assess damages based upon Plaintiffs’ current situation as at the date of the damages assessment itself.
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