Leave a comment

Creative Legal Strategies Transfer Risk to Insurers

By Andy Schwartze

Two events have taken place recently, and each has again underscored the peculiar mix that makes up the common law legal system that regulates our society and how we relate to one another. Just recently an insurance broker received a statement of claim from a former client. The client had clearly advised the broker not to insure something and had done so in writing. A serious loss destroyed the uninsured property and now the former client was alleging that the broker had a higher duty of care than to simply accept the client’s instructions not to insure.
On another front, an individual engaged in a sporting activity had instructed the technical personnel at the sporting goods shop to set the equipment being used to a certain standard. A serious injury occurred that same day resulting in hospitalization. The equipment setting was clearly the cause of the injury. There is talk of legal action against the sporting goods shop.

In both cases the plaintiff (assuming an expected action is commenced in the injury case) would have to convince a court that it should ignore the clear instructions given to the service provider and take the position that, in spite of these clear instructions, the service provider should have acted otherwise. How? That’s not yet clear and won’t be for a while.

A generation ago, cases like these would have been laughed out of court and the lawyer for the plaintiffs given a verbal spanking by the presiding judge. Today, this attempt to stretch the responsibility of defendants—in many new and different directions—has become the norm. The assumption of responsibility for one’s personal decisions and actions is being tested on many fronts as individuals try to find new and creative legal strategies to transfer their problems to the pocketbooks of others or, better yet, their liability insurers.

We seem to be breeding a new set of attitudes that make it ever more acceptable to settle grievances in practical ways, as opposed to using the adversarial court system to argue, present and wade our way through to a decision that (hopefully) recognizes the true facts and brings them to a sensible conclusion. Court confrontations are expensive and, in moving ever more towards such “solutions” as negotiated settlements, mediation and arbitration, we are creating avenues that make it increasingly attractive to be a plaintiff and much tougher to be a successful defendant. For the liability insurers of this world, such a trend could not be more unpleasant.

There is no more common lament from building owners and their managers, than the one that consists of high-pitched indignation that an insurer has settled a slip and fall claim with a plaintiff who did not deserve a settlement or, better yet, was a fraud. It’s always interesting to find out that building owners and managers seem to have that special sixth sense about who is a “legitimate” claimant and who is not. So, their immediate question is: How could the insurer be so stupid? Why didn’t they fight the claim? They settled without the owner either knowing or agreeing! Slip and fall claims are the biggest source of disagreement between the insurance buyer and his or her insurer. Nothing heats up the conversation more than this topic. Let’s try to understand just how the insurance system deals with these situations, keeping in mind the trends referred to earlier.

Typically, a slip and fall situation is not serious. People fall all the time and the causes can be many. The mismatching of weather and attire is probably the most frequent cause of falls that impact a building’s insurer. Alcohol consumption is also not uncommon. In most cases the on-site building staff knows about the situation and files an internal report. The matter is considered closed. How we wish it were so. Within 12 to 24 months the owner is presented with a statement of claim.

Courts frown on lawyers who wait years to file a claim, hoping that the building’s records have been stored, that there has been staff turnover and, better yet, the building sold to new owners. Years ago lawyers would sometimes wait six years to file a claim. In those situations the insurer who held the liability policy when the accident happened, found itself with no records, no witnesses and perhaps even a former building owner no longer interested in any of what happened back then. The insurer, in such a situation, had no choice but to settle and add that loss to the rate adjustments that inevitably follow. If you have no defence, you have no way out.

With the shorter notification periods insisted on by judges, one would have expected an evening of the odds for building owners (and their insurers) in slip and fall cases. Alas, this was not to be in that the world of mediation and arbitration was rapidly expanding. The problem remains that building owners and insurance companies make terrible defendants. Not only are they perceived (often correctly) as being financially strong, we have seen a gradual shift, over the years, to a more defendant accommodating court system.

Political winds tend to drive court attitudes in the same direction. So, while we have shortened significantly the notification timelines for serving a building owner with a statement of claim, we have brought in more conciliatory options that enable a quicker settlement process that usually results in the insurer having to write a cheque.

We need to remember that insurance companies do not lead jurisprudence, they react to it. Very few court cases are initiated by an insurer wishing to establish new legal principles. Unless the case is a “floodgate” issue (one that can open an insurance clause to new interpretation and a flood of new claims) insurers will quietly settle and add the cost to our collective insurance bills the following year. As long as court procedures remain expensive and biased, this reality will not change.

Andy Schwartze, BSc, MBA, CIP, is an insurance broker specializing in property management and real estate. He is a former President of the Insurance Institute, has taught in the community college system and provides continuing education to other brokers. He can be reached at 905.271.2070 or at andy@takecover.ca.