Off-Coverage Positions: The Requirement for Reasons

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Written By: Dale Orlando and William Harding

Off-Coverage Positions: The Requirement for Reasons | McLeish Orlando Personal Injury Lawyers

During the trial of a personal injury case, the defence lawyer will do their best to leave the members of the jury with the impression that the Defendant in the case will have to pay personally whatever judgment is awarded.  This, of course, is almost never the case.  Auto insurance is mandatory in the Province of Ontario and it makes no sense to pursue a significant personal injury case against a person without insurance as it is exceedingly rare that an individual has the assets to pay a judgment personally.  Unfortunately, lawyers for the Plaintiff are prohibited from telling jurors that the person being sued will not have to pay the judgment personally as they have access to an auto insurance policy that will pay the award.

In some circumstances, auto insurers will take the position that, despite the negligent party having a contract of insurance in place, they are not required to defend and indemnify the Defendant.  This is called “taking an off coverage position”.  Instead, they seek to add themselves as a statutory Third Party to the action, pursuant to section 258(14) of the Insurance Act. There are multiple reasons an insurer may give for denying coverage to their insured, such as when a material misrepresentation is made or when there is a lack of cooperation from the insured. Ordinarily, little if any information is given to the Plaintiff and his or her lawyer as to the reason behind the insurance company’s position.

An insurance company denying coverage and adding themselves as a statutory third party can have major implications on an injured plaintiff’s ability to recover adequate compensation for their injuries. The effect of being named a statutory Third Party means that the insurer is now only required to contribute a maximum of the statutory minimum insurance of $200,000 towards any award made by the Court. With the standard liability insurance policy being $1,000,000, this is a significant reduction in available funds.  When the Defendant’s insurer takes an off coverage position, the injured party can seek to add their own auto insurance company to the claim (if they have an auto policy available to them) pursuant to the Uninsured/Underinsured coverage offered by their insurer in an endorsement to the auto policy called the OPCF-44R.  The OPCF-44R allows the Plaintiff to claim from their own insurance company the difference between insurance money available from the Defendant’s auto insurance and the maximum of their own auto policy.  However, the onus is on the Plaintiff to satisfy their auto insurer that there are insufficient funds available under the Defendant’s auto policy to satisfy the claims of the plaintiff.

We are currently dealing with this very issue in a tragic case involving the death of a mother and her two young passengers. Here, the insurance company for the Defendant has advised that they will be taking an off-coverage position and naming themselves as a statutory Third Party. This will result in the Defendant’s insurer only being required to pay a maximum of $200,000 to the surviving family suffering this tragic loss.

Thankfully, some case law has emerged that is helpful to Plaintiffs when this issue arises. In Lica v Dhaliwal (2015 ONSC 3888), the court held that in some instances, an insurer will be required to give reasons for the off-coverage position they are taking. In Lica, the Plaintiff was claiming through the OPCF-44R endorsement of his own insurance policy as a result of the Defendant’s insurer taking an off coverage position and limiting their exposure to $200,000 which was insufficient to satisfy the Plaintiffs claim for damages. The Plaintiff’s OPCF-44R insurer then took the position that they would not respond to the claim as it was unclear if the Plaintiff was indeed underinsured, without knowing more about the off-coverage position being taken by the Defendant.

The Court ruled that reasons for the off-coverage position taken by the Defendant’s insurer were required in order to satisfy the requirements of the OPCF-44R that the Plaintiff was indeed underinsured.

Lica is an important case for Plaintiff counsel to be mindful of when dealing with a party adding themselves as a statutory Third Party. If an insurer is added to a claim pursuant to an OPCF-44R endorsement, it may allow the Plaintiff to assess the merits of an off-coverage position at an earlier stage in the proceeding.

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