Report to/Rapport au:
Finance and Economic Development Committee
Comité des finances et du développement économique
21 March 2011 / le 21 mars 2011
Submitted by/Soumis par : M. Rick O’Connor
City Clerk and Solicitor / Greffier et Chef du contentieux
Contact Person/Personne ressource : D. White, Manager, Litigation and
Labour Relations /Gestionnaire litiges et Relations de travail
(613) 580-2424 x21933, david.white@ottawa.ca
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Ref N°: ACS2011-CMR-LEG-0005 |
SUBJECT: |
claim settlements for the period of 1 October to 31 december 2010 |
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OBJET : |
demandes de remboursement traitÉs pour la pÉriode du 1er OCTOBRE AU 31 DÉCEMBRE 2010 |
That the Finance and Economic Development Committee receive this report for information.
Que le Comité des finances et du développement économique prend connaissance du présent rapport.
BACKGROUND
As a result of the three-phased corporate realignment that occurred between October 2008 and March 2009, the City Clerk’s Branch and the Legal Services Branch were merged into a single department. In response to these changes, and in keeping with the general principle enunciated in the City’s Accountability and Transparency Policy that, “every new delegation of power authority will have a corresponding accountability mechanism”, the Delegation of Authority By-Law was revised accordingly as part of the Mid-Term Governance Review in June 2009. Therefore, the purpose of this report is to provide a summary to the Finance and Economic Development Committee of claim settlements made in the fourth quarter of 2010 pursuant to Section 44 of Schedule “A” of the revised Delegation of Authority By-law, No. 2009-231.
DISCUSSION
Claim Settlements
This report summarizes the payments made by the City to settle claims that were finalized in Q4 2010. The payments include all costs borne by the City in finalizing a settlement, such as court costs, legal fees, investigative costs, etc. Furthermore, claim settlement payments include payments made pursuant to negotiated settlements as well as any court-ordered damages awarded at trial.
(a) Legal Liability
The criteria used to assess claims made against the City are: (a) whether there is legal liability on the part of the City, and, if so; (b) whether the amount claimed is supported at law. In general, legal liability will be found where there exists an obligation, arising either under the applicable statute law or the common law, to compensate a claimant for damages suffered. The “legal liability” criteria for payment of claims is consistent with the provisions of the City's insurance policies and reflects the same considerations that would inform a legal assessment in the court system.
It should also be noted that there are various instances where there can be liability on the part of the City even where the City is not "at fault" in the traditional sense. The most obvious example of this type of situation is the payment of no-fault benefits payable for personal injuries arising out of accidents involving City vehicles. There may also be instances where the City’s potential exposure to damages exceeds its apparent degree of fault for those damages, as detailed more fully below. Consideration of settling a claim without formal proceedings will be influenced by these factors, as well as the general emphasis that Ontario courts place on settling most claims. Taken from the original “Litigation Record” report received by Council on April 9th, 2009, (Ref. ACS2009-CMR-LEG-0008), the following observations accurately characterize the rationale as to why the courts favour settlements between the parties:
As noted above, the support for negotiated settlements is founded in the view that a resolution mutually achieved by the parties is preferable than one imposed by an external, third party. In addition, settlement serves to minimize the cost of litigation for parties, as well as preserving scarce judicial resources.
(b) Joint and Several Liability
Another significant factor influencing the settlement of claims is the legal concept of joint and several liability, as set out in the Negligence Act. Also known as the 1% Rule, the legislation provides that a claimant can recover all of his or her compensation from any party found even partially liable for the damage suffered, even if this level of liability is as little as “1%”. The public policy rationale underlying joint and several liability is the belief that a plaintiff, who has done nothing wrong, should be fully compensated for his or her loss and not forced to accept less because one of the defendants does not have the financial means to satisfy his or her portion of a judgment. In a practical sense, this means that the City may find itself included in litigation where there exists a risk that other potentially responsible parties have little or no means to pay compensation. The City may thus be placed in a position where it faces the risk of having to pay the entire amount of compensation awarded, even if it is only minimally liable for the incident. Despite the laudable principle underlying joint and several liability, City Council has expressed its support for reform in this area of the law. On August 25th, 2010, Council unanimously endorsed “the efforts of the Association of Municipalities of Ontario [“AMO”] to seek joint and several liability reform in Ontario and to call on the Provincial Government to pursue much needed changes to the Negligence Act.” In the earlier report on this matter (ACS-2010-CMR-LEG-0014), staff provided a comprehensive review of the AMO paper entitled, “The Case for Joint and Several Liability Reform in Ontario”. In particular, the following analysis was provided to Council in support of reforming the so-called 1% Rule:
In Ottawa, joint and several liability has had a major impact on the City’s approach to managing risk and defending litigation as it arises. The significance of the rule on the City flows from the fact that the City is what is known as a “deep pocket” defendant. A deep pocket defendant is one that owns or controls a large number of assets, has the means available to it to raise additional funds as necessary, and carries large insurance policies.
The City faces an additional challenge with respect to joint and several liability; it has very limited, if any, ability to re-arrange its business affairs to avoid judgment. In other words, unlike a commercial entity, the City can never dissolve or go bankrupt in response to a potential lawsuit.
As a consequence of these converging factors, joint and several liability has created two separate, but inter-related, problems when managing risk and defending actions against the City:
1. The City ends up paying more than its fair share when named in litigation with multiple defendants because of the other defendants’ inability to pay (or ability to avoid payment); and
2. The City gets targeted in litigation that has only a seemingly tangential connection to it because plaintiffs (and more specifically, counsel for plaintiffs) know that they only have to show the minimal fault on the part of the City to access its “deep pockets”.
Finally, where it finds itself in such circumstances, the City must properly manage this risk by negotiating a settlement that may be in excess of its actual liability but is still less than the total potential damage award. It should also be noted that the City’s claims settlement costs can be significantly impacted by decisions made about insurance coverage. A summary of that topic is set out below.
Insurance Implications and History
The City’s original insurance program at the time of amalgamation was a three-year guaranteed premium arrangement with a per-occurrence deductible of $650,000 and an annual aggregate deductible of $3 million. Simply put, the City was required to pay the first $650,000 of any individual claim but its total exposure for all claims in any given year was capped at $3 million. In 2003, Council gave authority to the City Treasurer to negotiate the Integrated Risk Insurance Policy renewal expecting a potential annual insurance cost of $2 million. Unfortunately, this was the first opportunity to renegotiate the City’s insurance following the tragic events of September 11, 2001, which caused widespread changes to insurance pricing. As such, the proposed terms presented by the City’s insurer for renewal of the municipality’s insurance in January 2004 included a 60% overall increase in premiums, an increased per-occurrence deductible of $1 million, and the elimination of the annual aggregate deductible. The proposed premium increase on the layer of insurance between $25 million and $50 million was almost 800%.
Given the City’s then-current budget situation, staff proposed two significant changes to the Integrated Risk Insurance Policy in a report dated January 12, 2004 (ACS2004-CRS-FIN-0006). Firstly, that the deductible, or self-insured, portion of the City’s insurance scheme be increased to $5 million from $1 million, and; Secondly, that the limits of liability insurance be reduced from the then-current $50 million to $25 million. These changes were approved by City Council on January 28, 2004, and were put into effect as of February 1st of that year.
The adoption of these recommendations reduced the budget pressure for insurance premiums by $636,000 in 2004.
Further adjustments were made to the City’s Integrated Risk Insurance Policy in 2005, with a reduction in the deductible to $3 million from the $5 million that had been in place as of February 2004. This refinement of the City’s insurance policy was based on a review commissioned by the City’s then-current insurance broker of data from the Insurance Information Centre of Canada, the City of Ottawa, Aon Reed Stenhouse Inc. and Statistics Canada.
Overall, the changes to the City’s Integrated Risk Insurance Policy since amalgamation reflect the significant increases in insurance premiums charged to municipalities and efforts by the City to contain those increased costs while balancing appropriate risk exposure.
As noted above, the claim settlement amounts set out in the attached documents are generally attributable to decisions by the City to avoid costly litigation by the negotiation of mutually-agreeable out-of-court resolutions. However, there are also some occasions where the City may be required to contribute significant sums to settlements over which it has little or no control, due to industry-standard terms of its insurance policies.
Control of Claims and Litigation as between the City and its Insurer
The policies of insurance issued to the City by its insurer require that the City report to the insurer on certain types of very serious and potentially costly claims, notably those that exceed the City’s deductible. Though the City typically handles through its in-house legal counsel most claims made against it that are within its $3 million deductible, carriage of claims above the deductible may be assigned to external lawyers appointed by the insurer. In those circumstances, the City’s insurer has the final say as to whether a matter will be settled. Though it may, and usually will, consider the City’s input in such circumstances, the insurer will ultimately direct its legal counsel to protect the insurer’s interests in litigation. This ability to direct litigation in which the insurer has a substantial financial interest is a standard provision in any policy of insurance. Thus, in a case that presents exposure to significant potential liability, the City may be required to pay the full amount of its deductible as a result of the insurer’s decision to settle a claim out-of-court, rather than pursuing a litigated outcome.
Significant Cases
In Q4 2010, the City’s Insurer resolved a significant claim involving the Ottawa Paramedic Service.
The claim had its origins in a very unfortunate incident involving a resident who suffered an anaphylactic reaction in late 2004. The paramedics who attended on scene were unable to prevent the progression of the anaphylactic reaction and the patient suffered a cardiac arrest which caused a serious brain injury. The patient has been confined to a long-term care facility since late 2004. The patient’s family subsequently brought a $20M claim against the City alleging, among other things, that the delay in providing timely treatment was the cause of the patient’s injuries and seeking damages for future care costs, loss of a very substantial amount of future income and loss of care and companionship. As this claim exceeded the City’s insurance deductible (which was $5 million in 2004), the case was handled by the City’s Insurer and their legal counsel.
Following two judicial pre-trials and on the eve of trial, the Insurer settled the claim for an amount in excess of the City’s insurance deductible. In keeping with standard insurance industry practice, as noted earlier in this report, the Insurer has full control over litigation where the amount claimed exceeds the City’s deductible. As such, the Insurer, in this case, determined that a mutually-agreeable and confidential settlement was the most effective way in which to manage the risks that are inherent in this case.
This matter involved a claim for historical environmental contamination on a property previously owned by the Ottawa-Carleton Regional Transit Commission and sold in 1981. A subsequent purchaser of the property discovered subsurface hydrocarbon deposits which were ultimately traced back to the use of the property as a bus maintenance and fuelling depot.
The claim potentially exposed the City to damages in excess of $4.5 million for cleanup costs and the reduced value of the property, as well as legal costs and interest. In light of the very high onus placed on property owners in cases of environmental contamination, the City Clerk and Solicitor Department concluded a settlement of the case for the sum of $1.95 million. The settlement effectively capped the City’s exposure in respect of this or any future claim in relation to the property and saved the costs associated with a three week trial.
Conclusion
In summary, this report sets out aggregate information for claim settlements in Q4 2010 where the claim settlement amount was less than $100,000.00, including the number of claim settlements finalized in Q4 2010 grouped by operational department, the number of claims associated with each operational department and the average value of those claims (see Document 1). Where the claim settlement payment exceeded $100,000.00, the specifics of each claim settlement have been provided separately (see Document 2).
For comparative purposes and in an effort to offer some historical context for the Q4 2010 figures, similarly-formatted claims information has been provided for settlements in excess of $100,000.00 finalized in 2009 (see Document 3).
CONSULTATION
As this is an information report, public consultation was not required.
LEGAL/RISK MANAGEMENT IMPLICATIONS:
There are no significant Legal/Risk Management concerns arising from this report. Some settlements are subject to the confidentiality requirements that commonly form part of a claim resolution and, as such, further details on those matters would require in camera discussion.
FINANCIAL IMPLICATIONS
“Insurable claims” are funded from the City’s Self-Insurance Fund whereas “non-insurable” claims are funded from various departmental budgets.
DOCUMENTS
Document 1 - Claims Concluded in Q4 2010 with Payments Less Than $100,000
Document 2 - Claims Concluded in Q4 2010 with Payments Over $100,000
Document 3 - Claims Concluded in 2009 with Payments Over $100,000
DISPOSITION
Subject to any direction by the Finance and Economic Development Committee, the City Clerk and Solicitor will continue to produce the City’s record for all claim settlements on a quarterly basis
Document 1
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Claims Concluded In Fourth Quarter of 2010 With Payments Less Than $100,000.00 |
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Department |
Category |
# |
Paid |
Average |
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Emergency & Protective Services |
Bodily/Personal Injury |
2 |
$ 24,100.78 |
$ 12,050.39 |
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Emergency & Protective Services |
Property Damage or Loss |
3 |
$ 17,050.20 |
$ 5,683.40 |
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Environmental Services |
Property Damage or Loss |
38 |
$ 117,101.59 |
$ 3,081.62 |
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Parks, Recreation and Cultural Services |
Property Damage or Loss |
1 |
$ 303.97 |
$ 303.97 |
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Planning & Growth Management |
Property Damage or Loss |
3 |
$ 16,665.50 |
$ 5,555.17 |
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Police Services Board |
Bodily/Personal Injury |
7 |
$ 212,447.69 |
$ 30,349.67 |
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Police Services Board |
Property Damage or Loss |
2 |
$ 1,023.54 |
$ 511.77 |
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Public Works |
Bodily/Personal Injury |
13 |
$ 291,982.09 |
$ 22,460.16 |
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Public Works |
Property Damage or Loss |
16 |
$ 64,654.57 |
$ 4,040.91 |
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Transit Services |
Bodily/Personal Injury |
39 |
$ 436,384.88 |
$ 11,189.36 |
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Transit Services |
Property Damage or Loss |
11 |
$ 23,399.66 |
$ 2,127.24 |
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TOTALS |
135 |
$ 1,205,114.47 |
$ 8,926.77 |
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Document 2
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Claims Concluded In Fourth Quarter of 2010 With Payments Over $100,000.00 |
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Department |
Category |
Claim Type |
Net City Cost* |
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Emergency & Protective Services |
Bodily/Personal Injury |
TP BI or PD Due to Paramedic Services |
$ 5,000,000.00 |
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Emergency & Protective Services |
Property Damage or Loss |
T/P Losses from Fire Fighting Activities |
$ 87,941.99 |
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Parks, Recreation & Cultural Services |
Bodily/Personal Injury |
Other T/P BI (Limit Use) |
$ 129,272.49 |
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Planning & Growth Management |
Property Damage or Loss |
Building Inspections - E&O |
$ 150,238.88 |
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Planning & Growth Management |
Property Damage or Loss |
Building Regs. & Permits - BI/PD |
$ 175,127.00 |
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Police Services Board |
Bodily/Personal Injury |
Damage/Injuries - Arrest/Detainment |
$ 232,855.51 |
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Police Services Road |
Bodily/Personal Injury |
MVA, Accident Benefits (AB) |
$ 123,527.04 |
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Public Works |
Property Damage or Loss |
Damage from Tree Roots (excluding Services) |
$ 123,439.65 |
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Public Works |
Property Damage or Loss |
Damage from Tree Roots (excluding Services) |
$ 199,909.24 |
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Public Works |
Property Damage or Loss |
Damage from Tree Roots (excluding Services) |
$ 321,521.03 |
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Transit Services |
Bodily/Personal Injury |
Losses Onboard City Veh. (not MVA) - AB |
$ 159,273.39 |
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Transit Services |
Bodily/Personal Injury |
Losses while onboard City Vehicle (involving Auto) |
$ 15,958.75 |
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Transit Services |
Bodily/Personal Injury |
Losses Onboard City Veh. (not MVA) - AB |
$ 583,124.64 |
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Transit Services |
Environmental Liability |
Soil Contamination – Historic |
$ 1,950,000.00 |
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TOTALS |
$ 9,252,189.61 |
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Document 3
The following is the specific information with respect to those claims settlements finalized in 2009 where the total cost to the City was in excess of $100,000.00.
The following are the abbreviations used in this table: AB = Accident Benefits; BI = Bodily Injury; E&O = Errors and Omissions; MVA = Motor Vehicle Accident; PD = Property Damage; T/P = Third Party
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Claims Concluded in 2009 with Payments Over $100,000 |
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Department |
Category |
Claim Type |
Net City Cost |
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Planning & Growth Management |
Property Damage or Loss |
Building Inspections - BI/PD |
$ 133,752.03 |
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Planning & Growth Management |
Property Damage or Loss |
Building Inspections - E&O |
$ 130,064.65 |
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Planning & Growth Management |
Property Damage or Loss |
Building Regs. & Permits - E&O |
$ 270,321.52* |
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Public Works |
Bodily/Personal Injury |
City Vehicle Hitting Pedestrian/Cyclist - No AB |
$ 126,610.65 |
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Public Works |
Bodily/Personal Injury |
MVA, City and Third Party Vehicle - No AB |
$ 117,666.84 |
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Public Works |
Property Damage or Loss |
Building Inspections - E&O |
$ 244,112.03 |
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Public Works |
Property Damage or Loss |
City Vehicle Hitting Pedestrian/Cyclist - AB |
$ 361,920.98 |
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Public Works |
Property Damage or Loss |
Fire – Accidental |
$ 103,661.34 |
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Public Works |
Property Damage or Loss |
MVA, City and Third Party Vehicle - No AB |
$ 164,200.00 |
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Public Works |
Property Damage or Loss |
$ 212,521.99 |
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Transit Services |
Bodily/Personal Injury |
Losses Onboard City Veh. - No AB (not MVA) |
$ 103,906.91 |
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Transit Services |
Bodily/Personal Injury |
Losses Onboard City Veh. - No AB (not MVA) |
$ 136,959.61 |
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Transit Services |
Bodily/Personal Injury |
Losses Onboard City Veh. (not MVA) - AB |
$ 101,011.08 |
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Transit Services |
Bodily/Personal Injury |
Losses Onboard City Veh. (not MVA) - AB |
$ 349,661.00 |
$ 349,661.00 |
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Transit Services |
Bodily/Personal Injury |
Losses Onboard City Veh. (not MVA) - AB |
$ 146,783.43 |
$ 146,783.43 |
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Infrastructure Services Department |
Contract |
Construction Costs |
$ 421,300.00 |
$ 421,300.00 |
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Infrastructure Services Department |
Contract |
Construction Costs |
$ 1,551,942.00 |
$1,551,942.00 |
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TOTALS |
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$ 4,885,967.21 |
$4,676,396.06 |