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Court Clarifies Payout Mechanism for Insurance Claims

Canadian Lawyers Insurance Association v. Drover, 2023 CarswellNfld 190, 2023 NLSC 106

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By: Alexandre Doucet (Articled Clerk)

The Canadian Lawyers Insurance Association (CLIA) provides errors and omissions insurance to the Law Society of Newfoundland and Labrador and its members. The insurance indemnifies lawyers from claims made when they make errors in the course of professional services to clients. Michael Drover (the Defendant) made 5 errors against various clients; each claim was reported between July 1, 2014, July 1, 2015, and August 2015.  The Policy defines an error as an “Occurrence,” with two or more errors that are “substantially related” being treated as a single occurrence [para 5]. CLIA’s liability to clients is limited to an aggregate amount of $2 million, but each occurrence is limited to $1 million. The issue in this case stems from CLIA’s policy’s payout mechanism and the language which informs it.

The court first dealt with how many occurrences the claims represented, asking the question: did each error constitute a single occurrence, or does the collection of errors constitute a catch-all occurrence. In this case, the answer was clear, because each claim represented clients with different litigation goals. The court decided there was not sufficient relation between the claims to create a catch-all occurrence.

Pro rata vs. first-past-the-post?

The court then dealt with how CLIA should make payments to the Claimants: whether on a first-past-the-post basis, or a pro rata basis. According to Cox v. Bankside Members Agency Ltd., [1995] 2 Lloyd’s Rep. 437, a decision of the Court of Appeal of England and Wales, first-past-the-post is usually the norm; however, s. 14(3) of the Insurance Contracts Act, RSNL 1990 says that where several people in a claim are interested in insurance money, that it will be apportioned, suggesting pro-rata. CLIA argues that the claim could not fall under section 14(3) because the claims were for pure economic loss which is unrelated to losses associated with damages to a person or their property.

The court decided to adopt the dissent in Perry v. General Security Insurance Co. of Canada (1984), 1984 CanLII 2146 (ON CA), which broadened the interpretation to include damage to the pecuniary interests of a third party. This happens to include, within its operation, the claim of a client against a solicitor pursuant to a professional liability insurance policy. CLIA was therefore ordered to make payments to the Claimants on a pro-rata basis. Certain conditions were set for each claimant. The court also allowed CLIA to make early advances of funds to claimants as their claims are resolved, but this had to be done via application.

Link: 2023 NLSC 106 (CanLII) | Canadian Lawyers Insurance Association v. Drover | CanLII

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