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