Limitations and deadlines
Advance loans: A risk to the plaintiffs bar
Health Care Costs Recovery Act
Allegations of "bad faith" and negligence in personal injury defence
 

Advance loans: A risk to the plaintiffs bar

This material is based on 'Advance loans: A risk to the plaintiffs bar', reported through E-Brief, July 2012.

'Advance loans' are loans given to your plaintiff clients in anticipation of a settlement or judgment relating to a personal injury or other tort claim. Although the typical loan is small, the amount owing by the time the litigation resolves may be much more because of high interest rates and fees.

This lending practice may provide some financial relief to your plaintiff clients. However, it puts you at significant risk if the loan is outstanding. The lender will likely require your client to give it an irrevocable assignment of the litigation proceeds, and then give you notice of the assignment. Just as with a direction to pay, if you do not pay the lender the amount outstanding, you are personally liable. Even receiving notice of your client’s promise to pay the lender and failing to comply may leave you exposed.

If you are actually involved in your client’s loan application, you face additional risks. The lender may ask you to give undertakings — including undertaking to pay the outstanding amount from the litigation proceeds, advise of a change in counsel and disclose privileged information about the litigation — and get you to agree that you hold the litigation proceeds in trust. Failing to comply with an undertaking given or trust condition accepted puts you at risk both legally and ethically. If the lender asks you for an opinion on the merits of a claim or other information that turns out to be wrong, you may face a claim that you breached a duty of care. A client, unhappy with the loan or your disclosure of privileged information, or facing a claim for repayment — despite a loss at trial — because of non-compliance with certain terms, may allege that you failed to give proper advice.

If liable, expect to pay your insurance deductible ($5,000 or $10,000), surcharge ($1,000 for 5 years) and lose eligibility for the part-time discount. So, appreciate the risks and take steps to avoid them.

  • Use a system to record, track and ensure compliance with any notice of assignment you receive, undertaking you give or anything else that requires you to take steps in relation to your client’s loan. As part of your system, consider:
    • adding a note in a prescribed area of the file cover to record receipt of an assignment;
    • adding a check-box to your trust withdrawal form that requires you to check, then confirm, that you have complied with any obligations in relation to those proceeds before your client is paid; and 
    • adding a flag before a file is transferred that requires you to check if you have undertaken to notify the lender or take any other steps before the file is transferred.
  • Make sure that any systems you use are incorporated into your practice or case management software. 
  • Ensure that multiple requirements on one file are effectively managed as you may, for instance, receive notice of several assignments from several lenders in relation to the same client. 
  • Consider designating a specific person in your office responsible for ensuring records are created, maintained and provide the appropriate flags. 
  • Educate your staff about assignments, directions to pay and undertakings, and why recording and tracking them are so important.
  • If you are leaving a firm or transferring a file, alert your successor to the existence of any assignment or other commitments.
  • If you inherit a file, read the transferred file from the bottom up. Once your review is complete, you should have seen – and considered – every single document in the file. This will ensure that a notice of assignment, for instance, is seen and added to your own firm’s systems.
  • Ask yourself why you are giving undertakings to or accepting trust conditions from the lender, when the lender can protect its position simply by giving you notice of the assignment. A refusal may well be appropriate. 
  • If you are prepared to take these steps, make sure that you are able to comply with any promises you make and obtain informed consent from your client. And then make sure that your systems will protect you from overlooking or forgetting compliance.
  • Read any assignment, direction to pay, undertaking you give or any other document you sign in relation to the loan carefully and thoroughly. Then comply.
  • Do not rely on your client to give you the amount outstanding or to pay the lender. Obtain a pay-out statement directly from the lender and pay the lender directly.
  • Ask the lender to acknowledge payment in full and final satisfaction of the debt, when payment is sent. Do not pay your client until you receive that confirmation.
  • Confirm in writing that your opinion or anything you provide is prepared for and only to be relied on by your client, not the lender.
  • If you are involved in your client’s loan application, either advise on the loan or confirm that you are not giving advice. If you are not, confirm your client is agreeing to terms and conditions that will affect their interests and recommend they read the agreement carefully and consult with the lender, as needed, so that their interests are not prejudiced.
  • If you are asked to take any steps, confirm the client’s instructions. For instance, before you agree to disclose privileged information to the lender, obtain informed consent from your client.
  • Keep notes of your advice and your client’s instructions.

Health Care Costs Recovery Act

The following was published as 'New Legislation impacts personal injury lawsuits,' and reported through Notice to the Profession, April, 2009.

Lawyers should be aware of the Health Care Costs Recovery Act and Regulation, which came into force on April 1, 2009.

The Act applies to personal injury and wrongful death actions except those that arise from motor vehicle accidents where ICBC insures the defendants. Some provisions of the Act apply to actions started before April 1, 2009. The Act may also apply to settlements where litigation has not been commenced.

The Act creates obligations on a plaintiff to claim in the action past and future "health care services" as defined in the Act. There are requirements to give notice to the provincial government of such actions and to obtain the consent of the government to the settlement of such actions. There are other obligations created by the Act that affect plaintiffs, and some that affect defendants and insurers of defendants.

The Health Care Costs Recovery Act and associated regulations are available online at bclaws.ca.


 

Allegations of "bad faith" and negligence in personal injury defence

The following was published as 'Avoiding allegations of "bad faith" and professional negligence in defending third-party liability claims,' reported through Alert! October 2003.

Note: This Alert! was issued because of a concern about the rising number of significant claims against defence counsel by insureds who found themselves facing judgments in personal injury actions in excess of their policy limits. The material that follows shoud be read in that context.

A lawyer appointed by an insurer to defend a third-party liability claim has two clients: the insurer and the insured. The lawyer owes obligations to both clients, and the insurer owes obligations to the insured. Care must be taken by the lawyer to identify and avoid conflicts of interest between the two clients and to ensure that they are both fully protected.

The words "bad faith" might conjure up the image of an uncaring lawyer who allows an insurer to disregard the interests of an insured when handling the defence of a claim. Such an approach by a lawyer is in fact very rare - almost without exception, counsel who are appointed to defend third-party liability claims recognize their obligations to both clients and do their best to provide thorough and timely advice as well as competent service. However, with the increasing size of damage awards, situations where there is inadequate insurance are becoming more frequent.

Although allegations of bad faith and professional negligence can arise in various circumstances, the risk is greatest when the insured faces a potential claim for damages for an amount greater than the available third-party insurance policy limits. Claims against insurers and defence counsel by insureds who find themselves facing large judgments in excess of their policy limits tend to fall into two broad classes:

  • failing to settle the case before trial for an amount within the policy limits, or
  • failing to provide a full defence and thus minimize the extent of the excess judgment.

It is almost invariably the insurer who has the ultimate power to make decisions about settlement and conduct of the defence. However, when an insured claims that the insurer has breached its good faith obligations in this regard, the insured and in some cases even the insurer may seek to shift blame for this to defence counsel.
 

Staying out of hot water

The Lawyers Insurance Fund has received increasing numbers of reports in recent years relating to the defence of actions arising out of motor vehicle accidents. A review of them gives rise to a number of observations and suggestions. These may help BC lawyers avoid being drawn into bad faith litigation if there is a judgment in excess of the available insurance limits:

  • Write to the insured at the outset to advise of the retainer, its scope and its limitations. Be sure that the insurer is also aware of the scope and limitations of the retainer.
  • Once appointed to defend, do not advise either party on insurance coverage issues. Do not act on behalf of the insurer in any action relating to insurance coverage issues (including Part 7 actions). Be aware of what the coverage issues are, so that you can identify conflicts and avoid them.
  • If there is a possibility of a claim exceeding the limits, write to the insured advising of the risk of an excess judgment and the insured's personal exposure to execution, recommend independent legal advice, advise of the possibility of conflicts of interest and explain your limited role - the defence of the case only. Instructions from the insurer are not required to send this letter. If the insurer has already provided such notice to the insured, review it for sufficiency.
  • Consider recommending that the insurer obtain independent legal advice on any coverage issues and its obligations to its insured. Many insurers will be well aware of the need to do so, but there may be circumstances where it is appropriate to remind the insurer that such matters are not part of your role as defence counsel.
  • Consider recommending that the insurer pay for independent counsel for the insured where there is significant uninsured exposure and where the insured is unable or unwilling to pay for counsel.
  • Keep the insurer and the insured or insured's independent counsel fully informed of all material information and developments. This includes providing copies of all reports to the insured or independent counsel.
  • As with any case, conduct an investigation and assessment of liability and quantum and be alive to the need to revisit these issues with the emergence of additional information. If expert evidence may be helpful, seek instructions to obtain it. If there may be contributory negligence, seek instructions to develop the evidence to prove it.
  • Be aware of and advise the insurer and the insured or independent counsel of all possible sources of recovery, including other insurance and third-party claims. It may be appropriate to advise independent counsel or the plaintiff's lawyer that other possible sources of recovery could be pursued.
  • Insurers are becoming increasingly concerned to limit defence costs. As an outgrowth of that concern, counsel are often put on a "short leash." Be vigilant to ensure that the duties owed to the insured are not compromised by paying too much attention to the insurer's concern with the "bottom line." Most often these matters are capable of being resolved through a frank and open dialogue with the insurer. In those rare cases when a disagreement remains between counsel and the insurer on what is required to provide a full defence, advise the insurer and the insured or independent counsel of those concerns.
  • Avoid making any admissions without the informed consent of the insured.
  • With respect to settlement negotiations, advise both the insurer and the insured, or the insured's independent counsel, of all offers made by other parties. Provide recommendations on all offers received and on offers that could be made on behalf of the insured. Address settlement at all stages of the litigation, even the early stages if it is apparent that the claim is likely to exceed the limits. When offers are extant, follow up to obtain instructions promptly.
  • Be alive to the possibility of conflicts at all times. When acting for more than one defendant, consider whether there are any conflicts between them.
  • Record your advice, instructions and steps taken in writing.

Most cases settle shortly before trial, a time when you will be preoccupied with preparation for trial. By addressing the issues outlined above well in advance, you will help ensure that the insurer and the insured are better prepared to address their relationship with respect to coverage and settlement issues should these arise immediately before trial.

 

The insurer's duty to the insured

The leading two cases in BC respecting "bad faith" claims against insurers are Fredrikson v. Insurance Corporation of British Columbia (1990) 44 BCLR (2d) 303 (SC) and Shea v. Manitoba Public Insurance Corp. (1991) 55 BCLR (2d) 15 (SC). Both decisions arise out of motor vehicle accident claims, although most of the principles will likely apply in the handling of other liability cases. Defence counsel should be familiar with each case. As noted, when insurers breach their duties of good faith, defence counsel may be drawn into ensuing bad faith litigation for alleged failure to prevent this from happening.

In Shea, Finch, J. (as he then was) recognized the legitimate interest of an insurer to try to effect a saving on the policy limits if there exists a reasonable prospect of settling the claim for less than the limits (as was the case in Fredrikson). However, the insurer has no legitimate interest in trying to settle a claim for less than the policy limits when it is clear (as it was in Shea) that the claim will exceed the available coverage.

The obligations of an insurer to its insured, where the insured faces an excess exposure, were summarized by Finch J. in Shea, as follows:

I would summarize my view of the law touching on the insurer's duty to its insureds in the circumstances of this case as follows:

1. The relationship between insurer and insured is a commercial one, in which the parties have their own rights and obligations;

2. Within the commercial relationship, special duties may arise over and above the universal duty of honesty, which do not reach the fiduciary standard of selflessness and loyalty;

3. The exclusive discretionary power to settle liability claims given by statute to the insurer in this case, places the insured at the mercy of the insurer.

4. The insureds' position of vulnerability imposes on the insurer the duties:

a) of good faith and fair dealing;

b) to give at least as much consideration to the insureds' interests as it does to its own interests; and

c) to disclose with reasonable promptitude to the insured all material information touching upon the insureds' position in the litigation and in the settlement negotiations;

5. The fact that the insured is at the mercy of the insurer for the purposes of settlement negotiations gives rise to a justified expectation in the insured that the insurer will not act contrary to the interests of the insured or will at least fully advise the insured of its intention to do so;

6. While the commercial nature of the relationship permits an insurer to assert or defend interests which are opposed to, or are inconsistent with, the interests of its insured, the duty to deal fairly and in good faith requires the insurer to advise the insured that conflicting interests exist and of the nature and extent of the conflict;

7. The insurer's statutory obligation to defend its insured imposes on the insurer, where conflicting interests arise, a duty to instruct counsel to treat the interests of the insured equally with its own; and where one counsel cannot adequately represent both conflicting interests, an obligation to instruct separate counsel to act solely for the insureds, at the insurer's own cost;

8. The insurer's duty to defend includes the obligation to defend on the issue of damages, and to attempt to minimize by all lawful means the amount of any judgment awarded against the insured. In this case, that would include arguing that court order interest and no fault benefits are payable in addition to the policy limits, where such an argument is available in law; and

9. Defence preparations and settlement negotiations must take place in a timely way and, where last minute negotiations are required, advance planning must be made to ensure that the insureds' interests are given equal protection with those of the insurer.


If an insurer complies with these guidelines, there is little likelihood that a claim will be advanced against the insurer for bad faith or against counsel for professional negligence.

 

Last updated: December 2017