In Abdullah v. Mursal, the Ontario Superior Court held that an insured person cannot set aside a consent settlement on the basis that he did not authorize his insurance company’s appointed defence lawyer to settle the litigation on his behalf. In such cases, the standard OAP-1 terms of an insurance policy guarantee an insurer’s right to appoint counsel, and they permit the insurer’s appointed defence lawyer the authority to settle litigation. As well, distinct common law requirements for setting aside Court orders must also be satisfied. In this case, the Court determined that the OAP-1 terms applied, and that none of the legal requirements to set aside the Order were satisfied.
In the litigation, the defendant Mursal was the driver of a vehicle in which the plaintiff Abdullah was a passenger. That vehicle was struck by an ice cream truck, owned by Donkey Kone Inc. and operated by Apostolou. The plaintiff Abdullah sustained catastrophic injuries from the collision. Three court actions ensued. Abdullah and his parents commenced an action claiming over $4 million in damages against all three defendants (the “Abdullah Action”). Donkey Kone and Apostolou brought a second action for damages against Mursal (the “Apostolou Action”), and Mursal brought a third action against Donkey Kone and Apostolou (the “Mursal Action”).
The Abdullah Action settled. The consent judgment ordered $2.4 million to be paid to the Abdullah plaintiffs, and directed that the defendants in that action could continue their crossclaims against Mursal. Mursal’s insurer, Intact, through its defence counsel acting on behalf of Mursal, agreed to pay $940,000 as part of the settlement. Intact also agreed to pay $60,000 on behalf of Mursal to settle the Apostolou Action, which maximized Mursal’s $1 million policy limit. Mursal was offered a without costs dismissal to resolve the Mursal Action.
Mursal’s personal lawyer claimed that the settlements were completed without Mursal’s knowledge or consent. Mursal then brought a motion to set aside the consent judgment in the Abdullah Action. Mursal maintained that his personal lawyer, whom he had hired to represent him in his own action as a plaintiff, was not informed of the settlement agreement. Mursal argued that he was therefore exposed to greater liability because the crossclaims remained after the consent judgment was concluded in the Abdullah Action.
The Court dismissed Mursal’s motion. It cited the standard terms of his policy that gave Intact the authority to appoint defence counsel on his behalf, handle the defence of the action, and settle the litigation on Mursal’s behalf. Specifically, subsection 3.3.1 of the OAP states in part: “By accepting this policy you and other insured persons irrevocably appoint us to act on your or their behalf in any lawsuit against you.” Further, subsection 3.4 of the OAP-1 sets out the insured person’s responsibility “…not to interfere in any legal proceeding or in any negotiations the insurer conducts to settle any claim.”
The Court found that the defence lawyer’s authority to settle the action was also underpinned by three important factors: 1) the settlement amount was within Mursal’s policy limit of $1 million; 2) Intact’s defence lawyer advised Mursal that he would handle the defence of the litigation; and 3) Intact’s defence lawyer advised Mursal to retain his own legal counsel, as the combined damages claims in the Abdullah Action and the Apostolou Action exceeded Mursal’s $1 million policy limit.
Furthermore, the Court refused to set aside the consent settlement Order because Mursal’s personal lawyer had notice of the motion for Court approval of the settlement. The Court did recognize that the settlement prejudiced Mursal in the Mursal Action because of the excess claims. However, it noted that the issue of contribution and indemnity in the crossclaim was as yet undetermined. As well, the Court determined that setting aside the consent judgment would cause prejudice to the other litigants, and that it was not in the interests of justice to do so. Finally, the Court held that Mursal had not satisfied the legal test as set out in Rule 37.14 of the Rules of Civil Procedure to set aside or vary an Order. The Court noted that the consent settlement motion was made with notice to the parties, and that Mursal’s personal lawyer did not fail to appear on the motion through accident, mistake or insufficient notice. Further, the Court found no basis to set aside the Order because of any fraud or facts arising after the consent judgment was rendered, pursuant to Rule 59.06(2).
Mursal argued as to how damages should be assessed. He pointed out that he was potentially liable to pay up to $1,460,000 back to Donkey Kone and Apostolou (their contribution amount in the Abdullah Action settlement). He argued that the damages should first be assessed by the Court, and then the Court should determine liability as between Mursal, Donkey Kone and Apostolou.
The Court flatly rejected this approach. It held that the issue of contribution and indemnity in the crossclaim had not yet been determined, and that Donkey Kone, Apostolou and Mursal could still pursue their respective claims for contribution and indemnity. It noted that section 2 of the Negligence Act also required a defendant claiming contribution and indemnity to prove that the settlement was reasonable, and that if the Court found the settlement to be excessive, it could fix the amount at which the claim ought to have been settled. In short, the Negligence Act did not require the Court to assess damages then determine liability as a precondition to the Court’s acceptance of a consent settlement.
Abdullah v. Mursal is an important decision. It reaffirms the principle of privity of contract, where in this case Intact and Mursal were both bound by the standard terms of the policy agreement. The Court points out clearly that Mursal’s personal lawyer, who handled only Mursal’s own action for damages, had no standing in the other actions. The decision also states decisively that consent judgments are “final and binding.” They can only be set aside in limited circumstances, where the judgment does not express the real intentions of the parties or where fraud is involved.
Jonathan White is a lawyer at ZTGH and author of this blog. If you have a question about this decision or a similar file, please contact Jonathan at 416-777-5204.
