Law Times

PAGE 8 NEW An online resource tool 1.800.263.3269 Bestcase earlug.indd 1 3/26/08 11:52:01 AM Focus On INSURANCE LAW Mary Carter ruling could have 'chilling effect' A BY DARYL-LYNN CARLSON For Law Times recent case could have somewhat of a "chill- ing eff ect" on the use of so-called Mary Carter agree- ments. Mary Carter agreements are used to resolve complex law- suits involving two or more de- fendants who hold a contract with a plaintiff that requires them to pay a specifi ed settle- ment. Th e idea behind them comes from a 1967 Florida case called Booth v. Mary Cart- er Paint Co. In a recent case that law- yers say could limit their use, a jury found the plaintiff in- volved should be awarded a lesser amount than the settling defendant paid out while leav- ing him without any losses to claim against the non-settling defendant. Th e case, Laudon v. Roberts, went before the Ontario Court of Appeal last May. An applica- tion for leave to appeal to the Supreme Court of Canada was dismissed. Th e case involved a boating accident in which the plaintiff , Rick Laudon, was injured and launched a lawsuit against both the driver of his boat and the driver of another boat involved in the crash. Before the trial, the defen- dant Will Roberts reached a settlement agreement with Laudon based on a Mary Cart- er agreement for $365,000. Laudon continued litigation against the other boat driver, which sent the matter to trial. A jury assessed Laudon's damages at $312,000 and ap- portioned liability at 50 per cent to Roberts, 39 per cent to the other driver, Keith Sul- livan, and 11 per cent to the plaintiff himself. Th e appeal court determined the agreement referenced in the case wasn't necessarily true to the traditional wording of such settlements because, al- though Laudon had collected an award, the second driver wasn't liable for anything. In its decision, the appeal court stated: "Th e plaintiff 's to- tal damages have been assessed by a jury at $312,000, which is less than the amount he re- ceived from Roberts, the con- tracting defendant. "To permit the plaintiff to recover any amount from Sul- livan would result in double recovery to the plaintiff . I am satisfi ed that the law in this country is well settled. Double recovery, save in a few narrow exceptions which have no ap- plication to the facts here, is not permitted." Noting that Mary Carter agreements are used relatively infrequently but are neverthe- less powerful tools in insurance defence litigation, David Con- tant, a lawyer at Smith Contant McBride in northern Ontario, expects the decision will have an impact on their use. "Th e court's ruling on the issue of double recovery will have a somewhat chilling ef- fect on the use of Mary Carter agreements because that aspect of the decision will likely be binding on future agreements of this nature," says Contant, whose fi rm has a signifi cant fo- cus on insurance litigation. "It will take the pressure off a non-settling defendant in that they may be allowed to escape from paying damages altogether. What you may see the plaintiff had already made and that there had to be a de- duction from that recovery so there wasn't a double recovery," says Howie. "I think the continued use of Mary Carter agreements will be advisable and usable in Ontario, but they will require careful drafting on the part of plaintiff and defence counsel so that you can deal with what the court did in Laudon," he says. Howie adds that his fi rm The Laudon ruling means law- yers will have to do a more accu- rate assessment of their cases, says Sudevi Mukherjee-Gothi. in the future are lawyers trying to distinguish the case on the basis that it didn't have a provi- sion dealing with recovery from the non-settling defendant." Contant, who recently wrote about the decision in his fi rm's newsletter, acknowledges that Mary Carter agreements are powerful settlement tools. He says companies could be reluctant to use them following this decision. "By and large, this deci- sion is going to limit the use of these agreements because there will be more uncertainty now as to whether they'll be inter- preted the way the parties had intended." James Howie, a partner at Howie Sacks & Henry LLP in Toronto, says the decision pro- vides valuable guidance. "In the Laudon case, we ac- tually ended up with the court making a determination of damages, and the court looked behind it to see what recovery January web specials recently received a favourable judgment from the Ontario Su- perior Court involving a Pier- ringer agreement, which also has origins in the United States but is slightly diff erent from a Mary Carter agreement. Under a Pierringer agree- ment, a plaintiff agrees to ac- cept an amount in a claim against one or more settling defendants and discontinues any actions against them. Howie's case involved a fam- ily's litigation against Hamilton Health Sciences Corp., a num- ber of doctors, and the Ontario Ministry of Health. "We were able to arrive at partial settlement of the liabil- ity of the hospital and minis- try," says Howie. "Representa- tives for the doctors refused to agree to the Pierringer agree- ment to settle the case, but the court agreed" that the settle- ment stood. "So that is a total buyout of their exposure or liability in the case, so there's no way the non- settling defendants can come back against them in the case." William Scott, a lawyer at Brown & Korte in Toronto, agrees that while the case doesn't break new ground, it provides valuable guidance. "It's basically principle that the plaintiff can't use a Mary Carter agreement to obtain more than 100 per cent of the damages as an un- derlying principle of tort com- pensation," Scott says. "A Mary Carter agreement is a very eff ective tool for both the plaintiff or the defendant," he notes, adding that the Lau- don case affi rms that "you have to be very careful in how you draft them." Sudevi Mukherjee-Gothi, a lawyer with the insurance de- fence group at Torkin Manes LLP, also says Mary Carter agreements can be very useful. "Th ey promote settlements, they shorten trials, and often non-settling defendants will feel pressure to settle," says Mukherjee-Gothi. Still, she agrees the Laudon case emphasizes the need for lawyers to ensure they know what they're doing when draft- ing such settlements, especially when assessing prospective amounts in the event there is an incident invoking the Mary Carter agreement. "I still think Mary Carter agreements are a useful tool, but what Laudon tells us is you need a much more accurate as- sessment," she says. "My question is, would the the same Court of Appeal have made the same decision had the plaintiff s been made to pay back the por- tion of the payment received from the non-settling defen- dants as that wasn't an element of the agreement," she asks. "So I think this says that counsel have to do a much more accurate assessment of the case so any quantum be- ing entered into is an actual refl ection of the quantum of the case." 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