The Court enforced a settlement agreement between the Plaintiffs and the Defendant Insurer where, after the agreement was made, but before court approval of the settlement was obtained, the Ontario Court of Appeal released a decision excluding an insurer’s coverage in circumstances similar to the present case

Richard v. Worth, [2004] O.J. No. 4340, Ontario Superior Court of Justice

Elke Richard, the spouse of one Plaintiff and the mother of the others was killed in a motor vehicle accident in which she was a passenger. The vehicle was operated by the Defendant, Wayne Worth, and owned by the Defendant, Mary Wyatt. Wayne Worth was intoxicated at the time of the accident. Mary Wyatt’s position was that she did not give Wayne Worth permission to drive her vehicle. At the time of the accident, the Plaintiff, who was the husband of the deceased, was living with a woman who owned a vehicle insured by Kingsway. The husband was listed as the driver on that policy. Early in the proceedings an issue arose whether Kingsway was liable under the policy for the loss, or whether the Motor Vehicle Claims Fund (the “Fund”) should defend the action against Wayne Worth, who was allegedly an uninsured driver.

Counsel for the Fund advised Kingsway that based on the case law at the time, which affirmed that a listed driver was an insured for the purpose of uninsured automobile coverage, the Fund required the Plaintiffs to proceed against Kingsway. As a result, Kingsway admitted that the Plaintiffs were entitled to coverage under Kingsway’s policy and served a Statement of Defence and cross-claim. Kingsway conceded that there was likely no consent for the operation of the vehicle by Wayne Worth and agreed to let the Defendant, Mary Wyatt, out of the action.

The Plaintiffs and Kingsway met on June 21, 2004 and negotiated a settlement which was subsequently confirmed. All that remained for the Plaintiffs to do was obtain Court approval of the settlement under Rule 7, since three of the Plaintiffs were under the age of majority.

On September 3, 2004, before the Plaintiffs could bring the motion for Court approval of the settlement, the Ontario Court of Appeal released a case in which it ruled that a passenger in a vehicle operated without the owner’s consent is excluded from the uninsured automobile coverage under an Ontario Automobile policy. This decision overturned the previous law.

On September 7, 2004, counsel for Kingsway wrote the Plaintiffs’ counsel and advised him that in view of the new case law, Kingsway could no longer consent to the judgment.

Counsel for the Plaintiffs argued that a change of heart, even if based on a change in the law, is not justification for resiling from an agreement. The Plaintiffs argued that, in the absence of evidence that the settlement was unfair, unreasonable, or obtained by fraud, policy favours upholding and enforcing settlements agreed on by litigants.

Counsel for Kingsway submitted that based on Milios v. Zagas, [1998] O.J. No. 812 (Ont. C.A.), the Court should exercise its discretion not to enforce the settlement. Kingsway argued that the agreement was based on a mutual mistake that the Plaintiffs were entitled to uninsured automobile coverage from Kingsway. Kingsway further argued that there would be no prejudice to the Plaintiffs if the settlement was not enforced because they would still have recourse against the Fund. On the other hand, there would be prejudice or inequity to Kingsway if the settlement were enforced because Kingsway would be required to pay money it did not owe under the insurance contract, which should be paid by the Fund.

Lack, J. found that there was no evidence of mistake in the present case. The parties concluded their agreement on the basis of their respective views of the law. They knew and must be expected to take into consideration that future pronouncements of what the law is may prove their views to have been wrong.

If the Court did not enforce the settlement, the Plaintiffs’ action would proceed against Wayne Worth, with the Fund having to resume its representation of Mr. Worth. Counsel for the Fund advised the Court that he was not ready to proceed to trial.

The Fund ceased to be involved in this action in 2003 because of Kingsway’s admission of coverage. Implicitly, Kingsway was seeking to resile from that admission in favour of the Fund. Because the Fund would be affected as a third party, the Court concluded that the Fund would be significantly affected and prejudiced if the settlement was not enforced.

Because the policy of the Court is to promote settlement, and in light of the fact that this was not a situation where there was error, bad faith or an unconscionable transaction and weighing the potential prejudice to those concerned, the Court concluded that this was not an appropriate case in which to refuse to enforce the agreement.

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