The Ontario Superior Court of Justice has determined that a release that an insurance adjuster obtained from an unsophisticated claimant is unconscionable and should be set aside. 

The plaintiff, Brandon Jones, was the driver of a motorcycle that was involved in a collision with a car driven by the defendant Jack Jenkins.  An adjuster for Mr. Jenkins’s insurer, ING Insurance Company of Canada, contacted Mr. Jones and asked him to make a proposal for settlement.  Mr. Jones submitted a proposal totalling some $241,000, broken down by different heads of damages such as disfigurement, pain and suffering, future pain, and future loss of employment. 

In a counter-proposal, the adjuster applied a $30,000 deductible to the general damages, then further reduced the offer on the basis that the plaintiff was 75% responsible for the accident.  The total amount of the counter-proposal was a little over $19,000. 

The adjuster’s letter setting out the counter-proposal confirmed that if the offer was accepted it would constitute a final release, and stated that Mr. Jones was free to consult a lawyer.  The plaintiff accepted the offer, but later changed his mind and brought an action against ING’s insured.  The defendant moved for summary judgment on the basis of the release.

Madam Justice MacPherson stated that the test for setting aside a release on the grounds of unconscionability is whether or not the transaction is so unconscionable that it requires the intervention of the court.  She applied a three-part test:

a)         There must be inequality of bargaining power arising out of the ignorance, need, or distress of the weaker party;

 b)         The plaintiff must establish that the stronger party has unconscientiously used its position of power to obtain an advantage; and

c)         It must be shown that the agreement reached is significantly unfair to the weaker party, or is so divergent from community     standards of commercial morality that it ought to be set aside.

The judge took note of the fact that the plaintiff was uneducated, unsophisticated, and unskilled with words.  He was in difficult circumstances at the time release was signed.  He had been unemployed for a year, and was living out of his car and relying on a food bank.  The birth of his third child was imminent, and his debts amounted to some $15,000.  It was unclear on the evidence how much knowledge the adjuster had regarding the plaintiff’s circumstances.

At the time of the release, the adjuster had access to medical information that he did not disclose to Mr. Jones indicating that the injuries were much more serious than the plaintiff understood.  The fact that information about the extent of the injuries was withheld from the plaintiff was described as by the judge as “significant”.  This was compounded by the fact that the $30,000 deductible is not applicable to general damages in excess of hundred thousand dollars, another fact that was not disclosed to Mr. Jones.

The factor most troubling to the judge was that the adjuster reduced the general damages and future economic loss claim by 75%, purportedly on the basis of the plaintiff’s contributory negligence.  There was no evidence, however, to support such a high level of contributory fault.

In conclusion, the judge found that there was inequality of bargaining power between the adjuster and Mr. Jones, and that the adjuster had used his position of power to achieve an advantage.  The agreement between the parties was so divergent from community standards of commercial morality that it was unconscionable, and had to be set aside.

Richard Hayles, B.A., J.D.

Link: Jones v. Jenkins, CanLII – 2011 ONSC 1426 (CanLII)

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.

Lynne Boulanger sued The Great West Life Assurance Company for disability benefits, damages for mental distress, and punitive and aggravated damages.  The case was settled at the conclusion of a one-day mediation conducted February 21, 2008, and both parties signed a written settlement agreement.

Notwithstanding the settlement agreement, Ms. Boulanger refused to sign a release or to consent to the dismissal of the action.  Since the settlement agreement did not specifically refer to her claims for mental distress and punitive and aggravated damages, she alleged that she had not agreed to settle those claims, and sought to continue her action with respect to the claims for mental distress and punitive damages.

On a motion by Great West Life to enforce the settlement agreement, Mr. Justice Maranger granted an order dismissing Ms. Boulanger’s action, and this order was upheld in a recent decision of the Ontario Court of Appeal.

The Court of Appeal took note of the fact that Ms. Boulanger was represented by counsel throughout the mediation, and that she personally signed the settlement agreement at the conclusion of the mediation.  After that agreement was executed, Ms. Boulanger accepted benefit payments provided to her by Great West Life under the terms of settlement.  Those benefits were never returned to Great West.

The settlement agreement expressly provided that Ms. Boulanger was to deliver “a release of all claims under this Policy up to today’s date”.  The settlement agreement did not exempt any of Ms. Boulanger’s claims for mental distress or for punitive damages.  According to the motions judge, the language of the settlement agreement was clear and left no room for doubt.  He stated that references to the release of “all claims” and to the “dismissal of the action” were unequivocal, and the Court of Appeal agreed.

In a second ground of appeal, Ms. Boulanger argued that counsel representing her at the mediation did not have her authority to agree to the terms of settlement.  Since there was no evidence that any limitation of authority regarding Ms. Boulanger’s lawyer was ever communicated to Great West Life or its representatives, and in fact there was no evidence that any such limitation existed, the Court of Appeal did not accept this ground of appeal.

On a motion to enforce the terms of a settlement agreement, the judge can refuse to enforce the agreement if he concludes that the circumstances of the case or the interests of justice demand it.  The motions judge declined to exercise his discretion in favour of the plaintiff, however, and the Court of Appeal refused to interfere with that decision.  The appeal was therefore dismissed.

Under the terms of the settlement agreement, Ms. Boulanger was called upon to execute a release of all claims under the insurance policy in a form “reasonably satisfactory to counsel for both sides”.  Counsel agreed on a form of release, but Ms. Boulanger repeatedly declined to sign it.  Mr. Justice Maranger refused the defendant’s request for an order enforcing the parts of the settlement agreement requiring a release from the plaintiff, and Great West submitted a cross-appeal from this portion of the motion judge’s decision.

The motion judge did not provide any reasons for his decision to refuse enforcement of the release provisions of the settlement agreement.  Given his conclusions regarding the enforceability of the settlement agreement, the Court of Appeal concluded that Great West was entitled to relief concerning the release.

The Court of Appeal did not order Ms. Boulanger to sign a release, however.  Instead, it varied the motion judge’s order by adding a paragraph stating that the dismissal of the action was an absolute bar to any subsequent proceedings by the plaintiff against the defendant, or by the plaintiff against any entity that could claim contribution or indemnity from Great West with respect to the claims raised in the action.

Richard Hayles, B.A., J.D.

Link: Boulanger v. Great West Life Assurance Company, 2011 ONCA 20

Brief informational summaries about commercial litigation matters in the courts of Ontario and other developments are periodically published on this website. They are intended to be a general comment or general discussion, not legal advice and should not be relied upon as legal advice. Should you require legal advice, please contact info@heydary.com or 416 972 9001.