While the notion of giving
money to a plaintiff without a
final settlement may seem
counter-intuitive, an advance
payment can provide significant
benefits to both sides. In motor
vehicle cases, advance payments
to an injured plaintiff by a tort
defendant are a statutory right
in eight provinces and all three
territories. This well-established device can be extended to
non-auto cases with the use of
appropriately worded agreements between the parties, and
in some instances, interim
funding orders can be made by
the courts.
It is not hard to understand
why a plaintiff would welcome
an advance payment in an automobile accident case. Often a
serious injury deprives the victim and his or her family of
employment income, which is
only partly compensated by no-fault income replacement benefits. Injury and disability often
also impose extra expenses for
families that may already be living from pay cheque to pay
cheque. A lump sum advance
payment made pursuant to s.
256 of the Insurance Act (Ont.)
or similar legislation in other
provinces can relieve this financial burden and permit accident victims and their families
to focus on maximizing the
benefit of available rehabilitation resources.
Benefits of an advance pay-
ment may be less obvious from
the defendant’s point of view,
but they are tangible and
CRAIG
BROWN
“
A generous and timely
payment can engender
significant goodwill
from the plaintiff
in favour of the
defendant, which
can result in a
more co-operative
relationship between
the parties.
immediate. The enabling legislation provides a statutory release
for the amount paid, and of
course, prejudgment interest
will stop running on the amount
of the advance payment.
Of equal importance is the
effect such a payment can have
on the relationship between the
parties in the litigation. A generous and timely payment can
engender significant goodwill
from the plaintiff in favour of the
defendant, which can result in a
more co-operative relationship
between the parties.
An advance payment based
on a realistic appraisal of the
value of the plaintiff’s case will,
at the very least, reduce the
amount at stake in the litigation
and lower the incentives acting
on the plaintiff and his counsel
to pursue the litigation. A well-timed advance payment becomes
a stepping stone to settlement
discussion and resolution.
The defendant does not need
the plaintiff’s consent or agreement to make an advance payment in a motor vehicle case.
Section 256 of the Ontario
Insurance Act (and its equivalent in the insurance legislation
of all provinces and territories,
save for Saskatchewan and Quebec) provides that, where an
insurer makes a payment pursuant to its obligations to its
insured under a motor vehicle
liability policy, the payment constitutes, to the extent of the payment, a release by the person to
whom the payment is made. The
statute also provides that any
payment is without prejudice to
the defendant or his insurer, and
cannot be taken as an admission
of liability or disclosed to the
judge or jury during the trial.
In general liability cases, the
defendant does not have the
benefit of the statutory release
and other protections found in
motor vehicle claims. However,
effective advance payments can
be made by agreement between
the parties, or even unilaterally
with an appropriately worded
covering letter. Any agreement
for an advance payment should
include a provision that the pay-
ment is made on a completely
without prejudice basis and
without admission of liability;
the amount of the payment will
be deducted from the plaintiff’s
award at the end of trial and
before a judgment is entered;
and prejudgment interest will
not run on the amount of the
payment from the date of deliv-
ery to the date of settlement or
judgment. These conditions can
be agreed to in writing by the
parties and a partial release
delivered for the amount of the
advance payment.
Craig Brown is a partner at
Thomson, Rogers in Toronto. He
practises in the firm’s personal
injury and class action groups.
Auto insurance policies are regulatory documents — like statutes
Contract
Continued From Page 9
393, has created a convoluted, extra-
contractual doctrinal test for giving
that coverage clause meaning in an
accident context.
Courts must first ensure that the
motor vehicle is indeed being used as a
motor vehicle (the “purpose” test).
Next, courts must conclude that the
motor vehicle’s use caused the loss (the
“causation” test). In determining causa-
tion, courts interpret third party liabil-
ity coverage more narrowly than cover-
age for first-party accident benefits.
This approach breeds unpredict-
ability in court decisions, because it
forces coverage questions into a com-
plex causal narrative to sort out insur-
ance coverage. Courts have produced
conflicting coverage decisions in a var-
iety of common accident situations,
such as when drivers drop off passen-
gers from the vehicle, when projectiles
are thrown and injure car occupants,
and in some assault situations involv-
ing vehicles.
The second problem with the text-
centric contractual approach is that it
ignores the effect of a coverage deci-
sion on the broader insurance com-
pensation network. The “use or oper-
ation of an automobile” coverage
clause in automobile liability insurance
policies exists as a mirror-image exclu-
sion clause in other types of liability
insurance, such as homeowners or
commercial liability policies. What
automobile insurance covers, other lia-
bility insurance products exclude in an
attempt to segment the insurance
coverage market.
Yet a narrow interpretation of the
automobile coverage clause may lead
to a corresponding offloading of risk to
a different liability insurance policy
that relies on the same language in its
exclusion. Other insurers may be
forced to absorb a risk they did not
expect to absorb. Worse still, not being
attuned to the overall effect of a deci-
sion about automobile insurance
coverage could lead to an insured’s
complete inability to trigger any cover-
age under either an auto or non-auto
policy, simply because coverage and
exclusion clauses cancel each other
out, despite an insured having the
maximum possible coverage available
on the market.
Erik Knutsen is an assistant pro-
fessor at the Faculty of Law, Queen’s
University. He teaches insurance, torts,
and civil procedure.
