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Court paves path for pro rata distribution in insurance dispute with several claimants

September 27, 2023

The court determined that multiple claims brought against one lawyer were separate occurrences and that payments to claimants should be on a pro rata basis.

Insurance law – Errors and omissions policies – Interpretation of policy – Statutory provisions – Apportionment and contribution of claims – First past the post approach

Canadian Lawyers Insurance Association v. Drover, [2023] N.J. No. 150, 2023 NLSC 106, Newfoundland and Labrador Supreme Court – General Division, July 19, 2023, A. MacDonald J.

The Canadian Lawyers Insurance Association provides errors and omissions insurance to the Law Society of Newfoundland and Labrador and its practicing member lawyers. Four claimants made claims against a lawyer with respect to negligent certification of marketable title to a property. The Policy defined an error as an “Occurrence” but stated that two or more errors that are “substantially related” are a single Occurrence even if arising from more than one retainer. The insurer sought direction from the court with respect to how many Occurrences the claims represented and whether payment should be made to the claimants on a first-past-the-post or pro rata basis.

The court held that, because there was insufficient association or connection between each of the claims to render them “substantially similar”, each was a separate Occurrence under the Policy. In reaching this conclusion, the court was swayed by the fact that each claim was brought by unrelated clients who each held a different interest in the property for different reasons; the lawyer had different instructions from each client; and the lawyer gave each client a different title certificate at different times. The court found that the only commonality was that the underlying land title was not marketable and each client had the same insured as counsel.

The court then considered whether the insurer should make payments to the claimants on a first-past-the-post or pro rata basis. The court found that s. 14(3) of the Insurance Contracts Act, RSNL 1990 c. I-12 (the “ICA”) provided a statutory basis upon which pro rata distribution could be ordered. The insurer argued, however, that s. 14(3) of the ICA only applied in circumstances where the claims concerned damages to a person or their property and that, as the claims were for pure economic loss, s. 14(3) of the ICA did not apply. Although that argument found support in some authorities, the court rejected it, favoring instead the position supported in earlier dissenting views as well as by the Manitoba Court of Appeal in Reznick v. Zitzerman (1994), 28 C.B.R. (3d) 234 that the word “property” in the ICA was wide enough to include damage to the pecuniary interest of a third party with the result that it included within its operation the claim of a client against a solicitor pursuant to a professional liability insurance policy.

The court then considered whether, having found a statutory basis upon which to order pro rata sharing, it should do so. The court identified the following factors as favoring an order for pro rata distribution: the claims arose from the same factual circumstances – namely, the lawyer’s negligent title certifications; the claimants had all pursued their claims with diligence; there was nothing preventing the claims from being resolved expeditiously; and the first-past-the-post distribution would allow the insurer to settle matters as it saw fit in a manner that may benefit it, to the detriment of unresolved claimants, which was inconsistent with the purpose of the insurance.

This case was digested by Tricia M. Milne, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Tricia M. Milne at [email protected].

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Important Notice: The information contained in this Article is intended for general information purposes only and does not create a lawyer-client relationship. It is not intended as legal advice from Harper Grey LLP or the individual author(s), nor intended as a substitute for legal advice on any specific subject matter. Detailed legal counsel should be sought prior to undertaking any legal matter. The information contained in this Article is current to the last update and may change. Last Update: September 27, 2023.

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