This is a decision overturning a finding of a chambers judge who decided on an application that the most seriously injured of three tort claimants should take 100% of the available third party insurance proceeds rather than share those proceeds with the other two claimants on a pro rata basis

Insurance Corp. of British Columbia v. Kushneriuk, [2004] B.C.J. No. 1776 British Columbia Court of Appeal

The matter arose from a single vehicle accident involving a car driven by the insured’s son, Beazley, in which Spehar, Pozzi and Kushneriuk were riding as passengers. All three were seriously injured. Ms. Spehar suffered permanent brain damage which renders her unemployable. The defendants admitted liability in Ms. Spehar’s action. The quantum was determined at trial, and damages were awarded in the amount of about $7.5 million. Ms. Pozzi settled her claim for about $200,000, and Mr. Kushneriuk settled his claim for about $750,000. ICBC paid into court $1,000,000 sufficient to discharge its liability under the policy limits at issue. The motions court held that although it was the usual course to distribute funds pro rata it was acceptable to consider that two injured could recover the balance of their claims from their own UMP coverage, but Spehar could not. The Appeal court held that UMP was a different scheme and an irrelevant consideration, and pro rata distribution was appropriate.

The insured policy limit for third party coverage was $1,000,000. ICBC moved to pay that sum into court in order to discharge its statutory obligation to make insurance monies available to the claimant. This was pursuant to the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231.

The UMP coverage for each claimant was $1,000,000. The UMP scheme required deduction of recovery from other insurance. Ms. Spehar’s deductions exceeded $1,000,000 so she could get nothing from UMP. With respect to Ms. Pozzi and Mr. Kushneriuk, their recovery from the liability insurance proceeds (the amount paid into court) would have to be deducted from their UMP entitlement. Ms. Pozzi and Mr. Kushneriuk had sufficient net UMP coverage to recover their entire settlements. Ms. Spehar, on the other hand, could only get whatever portion of those liability proceeds that the court decided to give her, with the result that the insurance available satisfied only a small fraction of her judgment.

The issue of distribution went to a judge in chambers. The judge decided that he had the discretion to depart from the usual pro rata formula and fashion a just result to ensure that Ms. Spehar’s judgment would be satisfied as best as possible. He reasoned that since the Pozzi and Kushneriuk claims would be satisfied fully regardless of the outcome, it was just that Ms. Spehar have the entire liability proceeds.

The Court of Appeal held that the chambers judge erred in law by taking into account an irrelevant factor, the UMP coverage, in deciding the matter. At issue was a discrete fund related to third party insurance to which three claimants were entitled. The chambers judge held, in effect, that two of them were disentitled because they had other insurance. The Court of Appeal held that liability insurance and UMP coverage are distinct coverages with different rules: when third party coverage is first loss insurance, UMP is last to pay. Each is governed by separate enactments, and they have different appeal processes.

The court also considered whether the decision to distribute the funds according to a formula other than pro rata was a proper exercise of the chambers judge’s discretion. While the Court of Appeal did not pronounce definitively as to whether the chambers judge had the discretion to choose a different formula, the Court of Appeal stated that the distribution in this case was not a valid exercise of discretion. The usual method of distribution is pro rata, and there is no circumstances in the instant case that justify a departure from the usual course. The settlement entered into by Ms. Pozzi and Mr. Kushneriuk obliged them to apply for their share of the liability proceeds and to remit them to ICBC. They were contractually bound to pursue their right and their entitlement. Their UMP entitlement was held to be irrelevant.

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