Past settlements must be deducted from tort awards

The recent British Columbia Court of Appeal decision of Ashcroft v. Dhaliwal, 2008 BCCA 352 September 16, 2008, clarifies that past settlements will be deducted from judgments.  The settlement has to be to compensate the plaintiff for a tortious act, and the injury must be related to the injury sustained at trial.

Ms. Ashcroft was involved in two motor vehicle accidents and was awarded $400,000 for her injuries at trial. The first accident was very serious, and Ms. Ashcroft had not yet recovered from the first accident at the time that the second motor vehicle accident occurred. The second accident was not as serious, but aggravated and exacerbated the injuries sustained in the first accident. Because the second accident was relatively minor, Ms. Ashcroft settled with that tortfeasor prior to the trial. The trial judge directed that the net proceeds from the settlement of the second accident be deducted from his award to ensure that Ms. Ashcroft would not be overcompensated for her loss. The trial judge did not know the amount of the second settlement. In addition, the trial judge determined that if he were wrong in deducting the settlement funds, he would follow the percentage method of apportionment initially set out in Pryor v. Bains (1986), 69 B.C.L.R. 395 (C.A.) and apportion 70 percent of the total loss to the first tort motor vehicle accident and 30 percent to the second.

After the decision, it was revealed that Ms. Ashcroft had recovered $315,000 from the second tortfeasor, which was significantly more than the 30 percent that the trial judge attributed to the fault of the second tortfeasor. On appeal, Ms. Ashcroft argued that the court should ignore settlement proceedings in the circumstances to encourage the settlement of claims. When Ms. Ashcroft settled with the second tortfeasor, they estimated the amount remaining to be recovered from the first tortfeasor. By settling with the second tortfeasor, Ms. Ashcroft took the risk of undercompensation, that the trial judge would make a less favourable award against the first tortfeasor than the settling parties had anticipated.  In addition, Ms. Ashcroft also took a risk of settling for too little against the second tortfeasor. The British Columbia Court of Appeal noted that the converse of this risk is that a trial judge can make a more favourable award against the first tortfeasor than the settling parties had anticipated, and thus Ms. Ashcroft would be overcompensated for her loss. Ms. Ashcroft argued that, in order to encourage settlement, she must be entitled to profit from overcompensation in order to offset the risk of undercompensation if settlement is to be encouraged in multiple tortfeasor situations. The British Columbia Court of Appeal disagreed with this argument and noted that it would be wrong to promote settlement by encouraging parties to seek out double recovery in breach of the fundamental privilege of damages. The British Columbia Court of Appeal noted that this was consistent with their decisions in Dos Santos v. Sun Life Insurance Company of Canada, 2005 BCCA 4, Dixon v. British Columbia (1980), 24 B.C.L.R. 382 (B.C.C.A.), and Bryanston v. Finance Limited and DeVries, [1975] Q.B. 703 (C.A.).

The result of Ashcroft is that injuries suffered by a person from a tortious act could be taken into account, and result in a reduced award many years after a settlement has occurred. In certain circumstances this could place the risk of being undercompensated in a settlement solely on the plaintiff’s shoulders, and bar the plaintiff from receiving the reciprocal benefit of being overcompensated by the settlement.

The ramifications of Ashcroft are that a plaintiff’s counsel should be careful in agreeing to a settlement in a situation where their client has been injured by more than one tortfeasor. If your client settles with one tortfeasor, the second tortfeasor may reap the benefit of that settlement, whereas your client may pay the cost of underestimating the impact of the other accident on her injuries.

Insurance counsel should be sure to inquire and insist on full disclosure of all past settlements and claims to ensure that they will be deducted from current claims.

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