*Since the writing of this blog the decision has been reversed in part.
In Hartley, OPCF-44R insurers secure a minor victory, and the Plaintiffs’ protective armour is slightly dented.
In this case, it was held that a Plaintiff who obtains a settlement in a foreign jurisdiction may seek indemnity in Ontario under OPCF-44R coverage, if recovery is capped below the value of their damages. The value of the foreign settlement (before legal fees) is to be deducted from the proven damages and the Plaintiff is ostensibly saddled with the legal fees without redress for same in the OPCFF-44R claim.
However, the decision provides a new wrinkle to the issue: it confers a right on the Plaintiff to recover those legal fees as special damages , albeit with a slight disadvantage. Rather than automatically requiring an OPCF-44R insurer to absorb the legal fees incurred in pursing the foreign settlement, which foreign settlement, after all, inures to the benefit of the underinsured carrier, the Plaintiff has the burden of proving those fees were reasonably incurred. Rather than automatically requiring an OPCF-44R insurer to absorb the legal fees incurred in pursing the foreign settlement (net deduction), the Plaintiff has the burden of proving those fees were reasonably incurred.
The Plaintiffs, Glen Hartley and Theresa Hartley, were injured by an at-fault motorist in Minnesota. They retained attorneys in Minnesota, who achieved settlement for them. Victory was sweet, but not complete. Minnesota statute limits recovery against an at-fault motorist to $500,000 per claimant. Glen Hartley and Theresa Hartley settled for $500,000 and $100,000, respectively. After legal fees and expenses, the Hartley’s aggregate settlement was slashed to $463,889.
The Hartleys pursued an action against their insurer in Ontario. They brought a motion to resolve two legal issues: (1) whether the at-fault motorist from Minnesota was an “underinsured motorist”, such that they could assert a claim against their OPCF-44R insurer; and (2) whether they could recover the legal fees incurred in their Minnesota action.
Justice Taylor determined that the at-fault motorist from Minnesota was an underinsured motorist in respect of Glen’s claim, but not in Theresa’s – as her settlement fell short of the statutory limit. This comported with the purpose of the OPCF-44R: to provide compensation to an injured person (who pays a premium in consideration for extra-protection) in the event an at-fault driver inadequately compensates them. This inadequacy was imputed to Minnesota’s statutory limit of recovery. Glen Hartley could claim for indemnity to the extent his damages were proven in excess of his $500,0000 settlement.
The major issue was whether the gross amount obtained from Glen’s settlement ($500,000), or the net amount after legal fees (his portion of the $463,889), should be deducted from his proven damages. If the former, Glen Hartley would absorb the legal fees. This tied directly into the second issue: whether the legal fees were recoverable as special damages.
Hartley followed the ruling in Green et. al. v. State Farm Mutual Automobile Insurance Company, 2009 CanLII 33049 (“Green”), where the gross settlement from a motor vehicle accident in Florida was deducted from the Plaintiff’s OPCF-44R coverage in Ontario. Justice Boswell interpreted section 7 of the OPCF-44R with reference to its plain and literal meaning, concluding that “the amount received” was the gross amount delivered to the attorneys, and held in trust for the Plaintiffs.
Green was also rooted in practicalities. The OPCF-44R insurer would have no idea what legal fees and expenses were reasonably incurred to prove the damages claim in the foreign jurisdiction – and thus, would have every reason to fight the Plaintiff tooth and nail. Justice Boswell decided to deduct the gross amount, and leave it to the parties to negotiate the quantum of reasonable legal fees – failing which, the Plaintiff had recourse to sue for special damages.
In Anand v. Belanger, 2010 ONSC 5356 (“Anand”), Justice Stinson rejected Green on the basis of a policy rationale. It would be inequitable for the Plaintiff to shoulder the necessary legal costs to obtain settlement, while the OPCF-44R insurer received the credit for the gross amount of recovery. Also, because the trial had already concluded by the time this issue became clear in the post trial discussions of appropriate deductions, there was no mechanism to assess the legal fees as special damages.
In Hartley, Justice Taylor came down on the side of Green. Severing the dispute over legal fees from the claim for compensatory damages simply makes more sense. It is not a wash if net receipts are deducted, or alternatively, gross receipts are deducted and special damages are available. In the latter scenario (i.e. Hartley), the Plaintiff has the onus of proving the legal fees were reasonable, rather than having the OPCF-44R insurer simply be obliged to pay them blindly.
As Justice Taylor rightly points out, the portion of the settlement intended to cover the Plaintiff’s costs, will typically be less than the plaintiff counsel’s contingency fee. Parsing what amounts of the settlement correlates to costs versus compensation is challenging. Determining what costs were reasonably incurred, even more so. This is something the Plaintiff is better suited to adduce evidence on and prove – rather than subjecting the OPCF-44R insurer to guesswork.
Based on the Hartley decision and the Anand decision before it, it now seems more clear that plaintiffs pursuing an OPCF-44R recovery in Ontario after having purported to maximize their recovery in another jurisdiction will need to lead evidence at the Ontario trial on all components of that extra jurisdictional recovery, including the basis upon which their legal fees were calculated.