When settling third party claims arising from a single incident, the insurer may adopt the “first past the post” approach as opposed to a pro rata scheme. However, the insurer must make reasonable attempts to notify potential claimants that insurance funds are being distributed.
Aviva Canada Inc. (“Aviva”) issued a comprehensive owner’s policy (the “Policy”) to the Dewhirsts (the “Insureds”). On March 1, 2003, the Insureds’ daughter held a party on the Insureds’ deck. Unfortunately the deck collapsed. Approximately 45 people were on the deck. As a result of the collapse, seven parties have commenced actions against the Insureds. Many of the people injured in the collapse were minors at the time and consequently, the limitation dates for commencing actions may not commence until they reach the age of majority. Aviva wished to enter into settlement negotiations with the existing claimants. However, Aviva wished to be credited for funds paid under the policy such that it would not be liable for future claims in excess of its policy limits.
Aviva took a variety of steps to locate additional potential claimants, including obtaining a list of the individuals at the social event, phoning each individual on the list and leaving messages for them, writing letters to the individuals, placing ads in newspapers, and asking individuals who had been contacted to pass on Aviva’s adjuster’s name and number on to people whom they knew or suspected having had been at the social event. Despite these efforts, a number of people who attended at the social event have not been contacted.
Aviva sought a declaration that it is entitled to pay settlements and judgments on behalf of the Insureds in chronological order in which defendants’ costs, settlements and judgments incur, that the amounts paid will reduce the limits of liability specified in the policy, and that no additional relief for the incident will be available once the policy limits have been exhausted.
Wong J. noted that Aviva sought a declaration that British Columbia courts adopt the “first past the post” approach in regards to the allocation of insurance policy limits in the non-automobile context. The “first past the post” approach means that insurers pay insurance proceeds to judgment creditors in the order in which the creditors obtain judgment. It also applies to settlements negotiated on behalf of the insured. As such, insurers are free to pay judgment creditors as soon as judgment is obtained and to settle with claimants with the knowledge that the insurer’s aggregate policy limits will be reduced accordingly. Once the policy limit has been realised, the insurer’s liability would be extinguished.
In British Columbia, the Courts have interpreted the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231 and Part 6 of the Insurance Act, R.S.B.C. 1996, c. 226 to mean that insurance proceeds, in the automobile context, are to be distributed to successful third party claimants on a pro rata basis. Wong J. noted that Bartkow and Walker v. Merit Insurance Co., [1962] I.L.R. 336 (B.C.C.A.), Henry v. Zurich Insurance Co. (1998), 50 C.C.L.I. (2d) 35 (B.C.S.C.) and Regency Plymouth Chrysler Inc. v. ICBC (1999), 11 C.C.L.I. (3d) 94 (B.C.S.C.) support this proposition. However, Wong J. stated that in contrast to the automobile context, third party claims in the non-automobile context are governed solely by s. 24 of the Insurance Act. Wong J. determined that s. 24 of the Insurance Act does not use the same limiting language present in s. 21 of the Insurance (Motor Vehicle) Act and s. 159 of the Insurance Act.
Wong J. noted that in Ontario, the Ontario Superior Court of Justice in Solway v. Lloyd’s Underwriters (2005), 22 C.C.L.I. (4th) 138 (Ont. S.C.J.) and the Alberta Queen’s Bench in Commerce & Industry Insurance Co. of Canada Inc. v. Singleton Associated Engineering Ltd., 2005 ABQB 500, have applied the “first past the post” approach in the property insurance context. Applying a pro rata obligation in this context would require claimants who have diligently brought their claims forward to wait until all potential claimants have come forward and had their cases heard. In addition, Aviva took steps to ensure that all potential claimants were identified and provided with an opportunity to initiate their claims.
Wong J. determined that public policy suggest that British Columbia should adopt the “first past the post” approach, as it encourages early settlement that lessens the burden on the Courts, rewards claimants who diligently move their claims forward, and affords judgment creditors the opportunity to realize the fruits of their judgments as soon as possible.
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