Court Reaffirms UM Coverage Unavailable Until Tort Limits Exhausted

Recently, in Kovacevic v ING Insurance, 2015 ONSC 3415 (CanLII) the Court was asked to determine whether underinsured motorist coverage was available (from the Kovacevics insurer, ING Insurance) where the Kovacevics settled their liability claim with the at-fault vehicle owner for $300,000.00, which was less than his available policy limits of $1,000,000.00. The underlying Kovacevic action arose after the Kovacevics were injured when their car was hit by the tractor/trailer combination owned by C.A. and N.D. respectively. Significantly, on the date of settlement, there were concerns over the solvency of N.D.’s insurer, Lincoln General Insurance Company, which was essentially winding up its insurance business through a ‘voluntary solvent run-off,’ while C.A. had been defaulted in the action.

The Kovacevics claim against N.D. was settled at mediation and a Release was executed. The Release specifically provided that:

The claim was being settled for less than the “full value of the claim”, due to the Kovacevics’ “concerns over the potential insolvency of Lincoln General Insurance Company”, and further, that the Kovacevics had “not relied on any representations made” by N.D. or his lawyers (i.e. as to the insolvency of Lincoln General).

Through the settlement of their action against N.D., the Kovacevic’s (and more importantly their lawyers) failed to inform ING Insurance of the action, or to seek ING’s approval prior to entering into the settlement agreement. As indicated above, the settlement with N.D. was not a ‘limits agreement’, i.e. an agreement for the full amount of the policy limits.

Thereafter, the Kovacevics brought an action against their insurance company, ING Insurance for underinsurance coverage. ING Insurance subsequently moved for summary judgment, arguing that underinsurance coverage was unavailable given the Kovacevics had not proven that N.D. was underinsured, that N.D.’s policy limits were unavailable and had otherwise settled for less than N.D.’s policy limits. The Kovacevics opposed ING’s motion, relying on the factually very similar case of Petrasso v. State Farm Insurance Company, 2010 ONSC 3085 (CanLII) (where the Court declined to grant State Farm summary judgment in a claim for underinsured motorist coverage where Petrasso had settled her underlying case for less than the policy limits).

The Court accepted ING’s arguments, granted summary judgment and dismissed the Kovacevics claim, largely in reliance upon the case of Sadhu v. Driver, 2009 CanLII 18669 (ON SC), and the general proposition that:

Where the plaintiff has not obtained the consent of his own insurer prior to settling the underlying claim, the plaintiff is not entitled to pursue a claim against his own insurer for underinsurance coverage after settling for less than the tortfeasor’s insurance policy limits.

Interestingly in reaching this decision, the Court made no efforts to distinguish Petrasso.

The Court in Kovacevic was further critical of the lack of evidence adduced as to the unavailability of N.D.’s insurance coverage (i.e. evidence that Lincoln General Insurance Company was unable to pay claims in whole or part, see also the above cited language of the Kovacevics Release) along with the fact that no evidence was presented as to attempts to enter into a ‘limits agreement.’

The Kovacevic case serves to remind counsel that tort settlements may preclude further UM claims, especially where express provision is not made with regards to underinsurance coverage. The Kovacevic case also serves to remind injured parties of the importance of hiring a lawyer experienced with insurance law, both to maximize the value of any claim, and to minimize the likelihood of having to pay the insurance company’s legal fees (the likely outcome for the Kovacevis).

Do you have a similar case or are wondering how Underinsured Motorist insurance may affect a recent car accident you were involved in?

Contact Michael Lesage, a trusted car accident lawyer serving Toronto and Hamilton. I’d be happy to provide a case evaluation. Remember, there are no fees unless I win or settle your case.