Automobile Insurance C14

Chapter 2 - Legal Concepts

Introduction

·         Various legal concepts regulate the settlement of auto accident claims

·         These concepts may be over-ridden in those provinces and/or situations where no-fault legislation applies

Negligence

·         Negligence – the failure to do what a reasonable and prudent person would do, or doing what such a person would not do, resulting in property damage or injury

·         Each province has passed legislation which states that the negligent person in an auto accident is liable for the damages caused – the owner of the vehicle is also liable

·         An important provision in determining the owner’s liability for a driver’s negligence is that the driver must be operating the vehicle with the consent of the owner

Onus of proof (onus probandi)

·         Onus of proof – burden or responsibility of proof

·         The one who alleges the other motorist is negligent is required to prove that negligence

·         An accident involving a pedestrian or cyclist, the motorist is presumed to be liable and it is up to the motorist to prove he was not negligent

·         Currently fault charts are used only for vehicle physical damage not injury settlements

Subrogation

·         Subrogation – the right to recover from responsible party

·         The right of subrogation can be removed or limited by legislation as has been done in several provinces like Ontario

Absolute liability

·         If an innocent third party is injured due to a violation of a policy condition on the party of an insured, the law extends some rights to the third party where there is auto liability insurance

·         Third parties are given a direct right of action against the insurer to have the insurance money under the policy paid directly to them after a judgment has been obtained

·         Absolute liability law – provides that the right of third parties to have the insurance money under a policy applied to their judgment against an insured shall not be prejudiced by:

o    An assignment, waiver, surrender, cancellation or discharge of the policy by the insured after the event giving rise to the claim

o    Any act or default of the insured before or after the event in contravention of the Act or the policy

o    Any violation of the criminal code or statute of any province by the owner or driver of the auto

·         The insurer would only be required to pay up to the minimum limits even though the policy might have higher limits

·         The insurer has a legal right to recover from its own insured any amount paid by reason of absolute liability

·         Once coverage is bound, the insurer cannot deny its existence and it cannot deny a claim by a third party claimant on the grounds that coverage was obtained by misrepresentation

·         Ab initio – from the beginning

·         Insurer’s best defense against absolute liability claims is to do through research before they bind coverage

Summary

·         An insurer may be liable for third party judgments even when the insured has violated a policy condition or obtained the insurance by misrepresentation

·         Maximum paid under absolute liability provision is the minimum limits

·         If an insurer pays a third party judgment under the absolute liability provision, it has the right to recover its outlay from the insured

·         Legal cases dealing with absolute liability often relate to the issues of ‘insurable interest’ and ‘consent’

Sample Review Questions -  Automobile Insurance (Part 1)

1.     Negligence – the failure to do what a reasonable and prudent person would do, or dong what such a person would not do, resulting in property damage or injury.

2.     Onus of proof – burden or responsibility of proof.

3.     Onus of proof is determined by the one suing (the plaintiff).  The plaintiff must satisfy the court that there is enough evidence to uphold the allegation that the defendant’s negligence caused the plaintiff’s damages.

4.     Onus of proof is usually on the one who alleges the motorist is negligent and is required to prove that negligence.  The one exception is accidents involving a pedestrian or cyclist.  The motorist is presumed to be liable and it is up to the motorist to prove he was not negligent.

5.     The consequences of negligence in the operation of a motor vehicle are physical damage and injury.

6.     Subrogation – the right to recover from the responsible party.

7.     An insurer who pays to repair an insured’s vehicle that was damaged by a third party has the right to pursue subrogation from the at-fault third party.

8.     The insurance act gives the right of subrogation its validity.  Legislation provisions can be made for any exceptions.

9.     Absolute Liability – innocent third parties are given a direct right of action against the insurer to have the insurance money under the policy paid directly to them after a judgment has been obtained.

10.   The absolute liability law is necessary to protect innocent third parties otherwise they could end up recovering nothing.

11.   The innocent third parties derive the greatest benefit from the absolute liability law.

12.   When an insurer pays a third party judgment under the absolute liability provision of a policy that is not the end of the matter as far as the insured is concerned.  The insurer has a legal right to recover from its own insured any amount paid by reason of absolute liability.

13.   The issues often disputed when claims are presented under the absolute liability provision are insurable interest and consent.

14.   Courts decisions are not clear-cut on the matter of absolute liability.  It depends on the interpretation of the Act.

15.   Insurer’s best defense against absolute liability claims is to do thorough research before they bind coverage.  This is best achieved by getting a properly completed application and reviewing the answers to all questions.  If there is doubt about anything it should be resolved at this time.