2006 BCSC 1578 Re: Aviva Canada Inc.

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:	*Re: Aviva Canada Inc.,*
	2006 BCSC 1578

Date: 20061026
Docket: S066053
Registry: Vancouver

RE: Aviva Canada Inc.

Before: The Honourable Mr. Justice Wong

Reasons for Judgment

Counsel for the Petitioner:	David K. Plunkett
(No other Appearances):
Date and Place of Hearing:	October 3, 2006
	Vancouver, B.C.

I. BACKGROUND

[1] The Petitioner, Aviva Canada Inc. (“Aviva”), issued a comprehensive homeowners policy (the “Policy”) which named Dawn and Dale Dewhirst as insureds (the “Insureds”). On or about March 1, 2003, a deck collapse occurred on the Insureds’ premises while the Insureds’ daughter was hosting a social event. The accident resulted in injuries to several known and unknown potential claimants.

[2] As a result of the accident, seven parties have commenced actions against the Insureds. There were approximately 45 persons on the deck at the time of the collapse. Many of the persons in attendance were minors at the time and, consequently, their limitation dates for commencing actions may not commence until they reach the age of majority.

[3] With the consent of the Insureds, Aviva wishes to enter into settlement negotiations with the existing claimants; however, Aviva wishes to avoid any potential repercussions which could arise if it is determined that Aviva owes any obligations to future claimants.

[4] The following steps have been taken by Ms. Dunbar, an insurance adjuster, in an attempt to locate additional potential claimants:

a. Ms. Dunbar interviewed the Insureds and others to obtain a list of all individuals who attended the social event.

b. Ms. Dunbar then phoned each individual and left messages asking them to contact her.

c. Some of the families had moved and could not be located.

d. Ms. Dunbar wrote letters to the individuals identified.

e. Ads were placed in local newspapers from the Comox Valley to Port Hardy in an effort to obtain a response from those involved.

f. Ms. Dunbar provided each individual she interviewed with a business card, and asked those individuals to pass her name and number on to anyone they knew who had been at the social event and to contact Ms. Dunbar.

II. THE NATURE OF THE PROCEEDING AND THE RELIEF SOUGHT

[5] Aviva seeks the following declarations:

a. Aviva is entitled to pay settlements and judgments on behalf of the Insureds under the Policy in the chronological order in which such defence costs, settlements and judgments are incurred, agreed to or obtained, without increasing Aviva’s obligations to make payments beyond the limits of liability specified in the Policy;

b. amounts paid by Aviva in accordance with the declaration sought in paragraph “a”, shall constitute, to the extent of such payment, full and complete satisfaction of Aviva’s obligations under the Policy, and shall consequently serve to reduce the limits of liability specified in the Policy;

c. the Insureds under the Policy, all those who have commenced claims against the Insureds under the Policy, and any party who may in the future initiate a claim or action against the Insureds under the Policy, seeking relief which would have been potentially recoverable under the Policy but for the exhaustion of the liability limit of the Policy, shall be bound by the declarations sought in paragraphs “a” and “b” above; and

d. such further and other relief as counsel may advise and the Court may permit.

III. ANALYSIS

[6] Essentially, Aviva seeks a declaration that British Columbia courts adopt the “first past the post” approach (also known as the “common law” approach) in regards to the allocation of insurance policy limits in the non-automobile context. Rather than dictate the distribution of insurance proceeds on a pro-rata scheme (as is done in the automobile insurance context), the “first past the post” approach means that insurers pay insurance proceeds to judgment creditors in the order in which the creditors obtain judgment. It also applies to settlements negotiated on behalf of the insured. As such, insurers are free to pay judgment creditors as soon as judgment is obtained and to settle with claimants with the knowledge that the insurer’s aggregate policy limits will be reduced accordingly. Once the policy limit has been realized, the insurer’s liability would be extinguished.

[7] Currently in British Columbia the obligations an insurer may owe to future claimants in the non-automobile context are uncertain as British Columbia courts have yet to deal with the allocation of policy limits in that context. For the reasons which follow, I have concluded that in the non-automobile context the “first past the post” approach should apply.

A. Automobile Context

[8] Automobile insurance in British Columbia is a highly regulated scheme which confers significant obligations on insurers operating in the Province. In this context, claims are governed by the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231 (“IMVA”), and Part 6 of the Insurance Act, R.S.B.C. 1996, c. 226 (“IA”).

[9] The courts have interpreted the provisions found in what are now s. 159 of the IA and s. 21 of the IMVA to mean that insurance proceeds in the automobile context are to be distributed to successful third party claimants on a pro-rata basis: Bartkow and Walker v. Merit Insurance Co., [1962] I.L.R. 336 (B.C.C.A.); Henry v. Zurich Insurance Co. (1998), 50 C.C.L.I. (2d) 35 (B.C.S.C.); and Regency Plymouth Chrysler Inc. v. ICBC (1999), 11 C.C.L.I. (3d) 94 (B.C.S.C.).

[10] In Bartkow, the insurer, Merit, settled three of five claims arising out of an automobile accident before judgment for a total of $15,000. The settlements were authorized by the policy in question, which provided for a maximum coverage of $20,000. Subsequently, the two remaining claimants recovered judgments against the insured for $5,587 and $7,848 respectively, and brought action against the insurer to recover these amounts. The whole question was the interpretation of s. 242(1) of the Insurance Act, R.S.B.C. 1960, c. 197 (the root predecessor of s. 21 of the IMVA), which provided that any claimant recovering judgment against the insured was "entitled ... to have the insurance money payable under the policy applied in satisfaction of his judgment". Sheppard J.A., in dissent, found that the proper interpretation of s. 242(1) would limit the amount of indemnity available to the claimants to the amount owing to the insured at the time an action is brought, i.e. “first past the post”. Under the circumstances, the amount of indemnity remaining was only $5,000, and the claimants would be limited to that amount in satisfaction of their judgments. However, Norris J.A., speaking for the majority, adopted a purposive interpretation and held that s. 242(1) provided that a claimant has an immediate and actionable interest in the full amount of the policy from the time of his/her accident. As such, if the insurer is aware of other potential claimants, any voluntary settlements which the insurer enters into with existing claimants cannot be taken to prejudice these other potential claimants. In other words, the insurer is bound to ensure that all potential claimants will be able to participate in sharing in the total insurance monies available under the policy. As a result, the plaintiffs were not limited to the $5,000 remaining under the policy in satisfaction of their judgments.

[11] Bartkow was subsequently distinguished in Henry. In Henry, each of the two plaintiffs held unsatisfied judgments totalling $800,000 against a company which was insured by Zurich through a policy having a limit of $500,000. Zurich had already paid $400,000 into court under a number of judgments before any action against it had been brought, and argued that s. 150 of the IA (now s. 159) meant that only the balance of the insurance proceeds should be paid into court for the plaintiffs to share rateably. The plaintiffs sought an order that the defendant was required to pay the full amount of the unsatisfied judgments regardless of the policy limit. The Court held that Zurich was not required to pay the plaintiffs any monies in excess of the policy limit; rather, the remaining $100,000 was to be paid into court and the plaintiffs would share in the full $500,000 available under the policy on a pro-rata basis with the other judgment creditors. The Court distinguished Henry from Bartkow. In Bartkow, the majority of the proceeds available under the policy had been paid under settlements to persons who were not judgment creditors. In Henry, however, the entire amount available under the policy would be available to the two plaintiffs (i.e. two judgment creditors) as there were no other potential claimants.

[12] Regency essentially confirms the pro-rata scheme set out in Henry. Regency was insured by ICBC for third party claims under a policy with a limit of $2 million. A vehicle owned by Regency was involved in an accident which generated seven actions against it and, as required under the policy, ICBC defended Regency in all seven actions. Two of the judgments resulted in judgments for the plaintiffs; and although liability was admitted in the other five, damages had not yet been assessed. After the two judgment creditors demanded payment from Regency and threatened execution proceedings, Regency in turn demanded that ICBC satisfy the judgments. ICBC, however, refused to pay and instead paid the full $2 million available under the policy into court under what is now s. 21(13) of the IMVA. ICBC argued that because the total of the seven claims would undoubtedly exceed the policy limit, it was required to pro-rate the $2 million policy limit among all seven plaintiffs, and was unable to do so at the time because of the outstanding, unquantified claims. The Court agreed with ICBC’s position; under s. 21 of the IMVA, ICBC’s liability was not to exceed the policy limit, and the seven plaintiffs were left to share in the monies on a pro-rata basis.

B. Non-Automobile Context

[13] In contrast to the automobile context, third party claims in the non-automobile context are governed solely by s. 24 of the IA. S. 24 provides that a third party claimant who has received judgment against an insured is entitled to pursue his/her claim against the insured’s insurer.

[14] As noted above, the courts have determined that s. 21 of the IMVA and s.159 of the IA provide an injured party with an immediate and actionable interest against an insured. By contrast, s. 24(1) states that an injured party’s claim against an insurer only arises once he/she has obtained a judgment against an insured:

24 (1) If a judgment has been granted against a person in respect of a liability against which the person is insured and the judgment has not been satisfied, the judgment creditor may recover by action against the insurer the lesser of

(a) the unpaid amount of the judgment, and

(b) the amount that the insurer would have been liable under the policy to pay to the insured had the insured satisfied the judgment

Section 21 of the IMVA and s. 159 of the IA do not use such limiting language. Rather than beginning with “If a judgment has been granted … the judgment creditor may recover by action against the insurer” as s. 24 does, both sections instead use “a person having a claim against an insured … may, on recovering a judgment … against the insured …”, suggesting, as Bartkow concluded, an injured party has an immediate and actionable interest against the insured, i.e. there is no need to obtain judgment in order to establish a right to compensation. Furthermore, s. 24(3) specifically states that s. 24 does not apply “in the case of a contract of automobile insurance”. These differences in language make an insurer’s obligations to third parties under s. 24 clearly distinguishable from those which the courts have determined apply in the automobile context. An insurer in the non-automobile context only owes an obligation to those third party claimants who have obtained judgment or those with which it has negotiated a settlement.

[15] The conclusions the courts have come to regarding the obligations of insurers in the automobile context stem from the purposive interpretation of automobile insurance legislation that Norris J.A. outlined in Bartkow at p. 340-341:

The effort of the Legislature has been, with reference to the operation of motor vehicles, to provide through the medium of the Insurance Act and the Motor-vehicle Act, a code covering what is referred to in the Motor-vehicle Act as safety responsibility, that is to say, provision for the safeguarding of automobile drivers, their passengers and other persons using the highways, and provision for compensation through the medium of third party insurance for persons suffering damage as a result of motor vehicle accidents whether such persons are insured or not.

We are concerned with the interpretation to be placed on a remedial statute providing for safety-responsibility in the public interest.

I think the legislature did not intend for a similar interpretation to be imposed on s. 24.

[16] Automobile insurance is a compulsory scheme where all drivers are required to maintain insurance. This is premised on the notion that all individuals injured in a motor vehicle accident should receive compensation. Moreover, the public expectation is that they should be compensated given the ubiquitous nature of automobiles and the risks inherent with their operation. Unlike s. 24 of the IA, the language of ss. 21(4)(b) of the IMVA even goes so far as to provide that even if the insured commits some act or default under the policy, either before or after the accident, the third party claimant’s entitlement to insurance proceeds is not prejudiced.

[17] The language of s. 24 of the IA suggests that this “public interest” rationale should not be applied to third party insurance claims in the non-automobile context, and there is no public expectation that it should be. Automobile insurance is a unique creature, one that is governed by legislation that contains different language and serves different purposes than that which governs claims outside its compass. This is why all claimants share pro-rata, i.e. if the insurer was permitted to satisfy a particular judgment or enter into early settlement to the detriment of those claimants who have not yet been compensated, the purpose of the automobile insurance legislation would be compromised.

C. Alberta, Ontario and U.K. Law

[18] Ontario and Alberta have both dealt with the allocation of policy limits in the non-automobile context. Both provinces have applied the “first past the post” approach in the property insurance context.

[19] In Solway v. Lloyd’s Underwriters (2005), 22 C.C.L.I. (4th) 138 (Ont. S.C.J.), the Ontario Superior Court of Justice held that the insurer (Lloyd’s) was not required to delay pay out of the entire policy limit of $500,000 to Solway’s simply because a second claimant, who had commenced but not proceeded with its action, had not yet had its case heard. The effect was that the second claimant would not be compensated for its loss, in whole or in part.

[20] The Court relied heavily on the earlier decision of Laidlaw Inc. Re (2003), 46 C.C.L.I. (3d) 263 (Ont. S.C.J.), where Farley J. stated at ¶13-14:

I do not see that there is any provision in the subject Policies which would allow or require [the insurer] to consider claims or potential claims which have not been finally determined by judgment or settlement as opposed to its obligation to pay claims which have been finally determined. To impose a requirement on [the insurer] (and a restriction on a successful claimant's direct right) which would oblige [the insurer] to defer payment (and the claimant collection) until such time as all claims and potential claims under the subject Policies are known and finally determined would constitute an unwarranted rewriting of the subject Policies.

It seems to me that at common law as discussed in Cox v. Bankside Members Agency Ltd., [1995] 2 Lloyd's Law Reports 437 (C.A.) that the "first past the post" or "first come, first served" principle was determined to be appropriate and in the interests of overall fairness. See Sir Thomas Bingham M.R.'s view, especially at pp. 457-60. He stated at p. 457:

It was inherent in the Judge's approach that he considered chronological priority to be the basic rule, from which any departure must be justified. This approach was not challenged, and is plainly correct. In the absence of a stay, a successful plaintiff may enforce his judgment against the defendant as soon as it is given, and if an insured defendant is insolvent he may seek to be indemnified (subject to the terms of the policy) directly by the insurer. There must be some good reason for departing from the basic rule that a successful plaintiff is entitled to the fruits of his judgment.

Saville, L.J., added at pp. 466-7:

I can see no reason why equity should intervene to require that those first to call on the policy should have to share their recoveries with later claimants if and when the insurance became exhausted.

[21] The Alberta case of Commerce & Industry Insurance Co. of Canada, Inc. v. Singleton Associated Engineering Ltd., 2005 ABQB 500, similarly applies the “first past the post” approach, noting only that it might not apply in cases where one of the parties has acted in bad faith in regards to the chronological priority of claims. The Court noted that the “first past the post” approach encourages “reasonable settlement at an early stage of a claim” and that a pro-rata scheme would “likely thwart any reasonable possibility of achieving this objective” (¶41).

[22] The Ontario and Alberta decisions were based on the law of the United Kingdom which adopts the “first past the post” approach. In the leading case of Cox v. Bankside Members Agency Ltd., [1995] 2 Lloyd’s Rep. 437 (C.A.), Sir Thomas Bingham, Master of the Rolls, stated (at p. 459) that in a small scale insurance case it could be possible for a judge trying one case to delay giving judgment until judgment was rendered in a second related case. However, in large scale litigation with complex factual scenarios it would be very difficult to follow a pro-rata scheme. While he acknowledged that the “first past the post rule” could involve hardship for those plaintiffs who are not the first to receive judgment, if the “first past the post” rule were not followed an equal or greater hardship would be imposed on those who had obtained judgment but were denied the fruits of that judgment while other related claims were pending.

[23] British Columbia courts should follow the precedent set by Ontario, Alberta and the United Kingdom and adopt the “first past the post” approach to non-automobile insurance claims. Given that there is no public expectation that all accidents which occur in a non-automobile context should be compensated, there is no underlying public interest rationale for the imposition of a pro-rata scheme. By contrast, as the judgments above have determined, any discussion of public policy suggests that the “first past the post” approach is preferable. Such an approach is the fairer option as it encourages early settlement which lessens the burden on the courts; it rewards those claimants who diligently move their claims forward; and it affords judgment creditors the opportunity to realize the fruits of their judgments as soon as possible.

IV. APPLICATION

[24] Aviva wishes to enter into settlement negotiations with those parties who have come forward with their claims. While doing so may affect the amount of insurance monies left available for future claimants, the language and purpose of the applicable legislation, the case law of other jurisdictions, and over-all public interest all suggest that this Court should adopt the “first past the post” approach.

[25] Should those claimants who have diligently brought their claims forward and now wish to negotiate settlements with Aviva be forced to wait until all potential claimants have come forward and had their cases heard? To deny those claimants who wish to enter into negotiated settlements in order to receive their just compensation as soon as possible is to impose upon them a profound unfairness. This is particularly so in this case where some of potential claimants are currently minors and the limitation period for their claims will not begin to run for quite some time.

[26] Furthermore, as discussed earlier, Aviva has gone to great lengths to ensure that all potential claimants have been ascertained and provided with the opportunity to come forward and initiate their particular claims. Only eight claimants have come forward, seven of them having commenced actions. Aviva is unaware of any other potential claimants at this point in time and simply wants to be able to enter settlement negotiations in order to resolve the claims against it in a timely manner that does not expose it to liability over and above the limits established under the Policy.

V. CONCLUSION

[27] Just as the courts in Ontario, Alberta and the United Kingdom have done, British Columbia should adopt the “first past the post” approach to the allocation of insurance policy limits in the non-automobile context.

[28] While the British Columbia courts have determined that the legislation governing insurance claims in the automobile context contemplates a pro-rata distribution scheme, the legislation applicable to non-automobile claims suggests otherwise. For one, the language used in s. 24 of the IA is significantly different from that found in s. 21 of the IMVA and s. 159 of the IA, thus making an insurer’s obligations clearly distinguishable from the automobile context. Likewise, the objective of s. 24 of the IA is not informed by the public interest concerns which mandate a compulsory scheme and led the courts to conclude that a pro-rata distribution scheme was required in the automobile context.

[29] Public policy suggests that British Columbia should adopt the “first past the post” approach. Such an approach is the fairer option as it encourages early settlement which lessens the burden on the courts; it rewards those claimants who diligently move their claims forward; and it affords judgment creditors the opportunity to realize the fruits of their judgments as soon as possible.

[30] For all these reasons, in the interests of fairness and justice, Aviva is entitled to the relief sought. The “first past the post” approach should apply to the allocation of insurance policy limits in the non-automobile context.

“R.S.K. Wong, J.”
The Honourable Mr. Justice R.S.K. Wong