Common $1M liability coverage not enough this day and age: lawyer

Insurance companies need to do a better job of informing clients about liability coverage — or risk the possibility of a negligence ruling.

“In the right case, we would absolutely pursue a broker for giving bad advice, especially in this day and age,” says Darcy Merkur, a partner at Thomson Rogers.

He says the legal community is trying to “raise the ante” by monitoring and pursuing insurance brokers who are selling $1-million liability policies to people who don’t appreciate that it’s inadequate to protect them against liability for causing a serious accident.

“We’ve contemplated it, we’ve put insurance brokers on notice. We’ve never taken the case to trial, but we have pursued and we will continue to pursue insurance brokers for giving bad advice to customers.”

When the Ontario government went to a no-fault system and set up a framework for mandatory insurance with a $200,000 minimum for liability insurance, the insurance companies banded together and said that, even though there’s a minimum, that amount doesn’t make any sense — let’s do $1 million minimum as the common purchase. So, although, theoretically speaking, you could buy a car and get a $200,000 liability policy, nobody realistically does that. The lowest you’ll see is $500,000, Merkur says, with almost everyone having a $1-million liability policy.

“Realistically, when we take these cases and we get them far, there’s often very generous offers that come forward because no insurance brokers want to see a judgment that says it’s negligence for an insurance broker to sell a $1-million policy without warning to the person that it’s inadequate,” he says. “That would cause major problems for their industry because every insurance broker would be potentially sued for selling a $1-million policy without having a sign-off against a $2-million policy.” 

However, law or not, Merkur says insurance brokers should make sure that, when somebody chooses a $1-million liability policy, it’s expressly against their advice. The staple should be $2 million and the right number is $5 million, but something in between the two numbers would be reasonably acceptable, he notes, adding that, if he was a broker, he would insist that every person to whom he sold insurance sign a document saying that, despite the advice given, I’ve elected to purchase a $1-million liability policy.

Merkur gives the example of a client who was struck by a car and estimates her damages at $3 million to $5 million dollars, but the driver has the common $1-million liability policy.

“So, we said to the insurance company, pay your million but it’s not going to be enough,” he says. He notes that lawyers can have asset searches done and go after the driver’s house and car or have wages garnished.

“It has the potential to have a major, life-changing impact on persons who cause accidents,” he says. “It doesn’t usually come to that, because lawyers are pretty practical. If I know the person I’m pursuing personally has almost no assets, it’s not a good use of my time and resources. It doesn’t happen that often, but if somebody has any assets or a good job, they should be worried about lawyers at good firms pursuing them personally for amounts over their insurance limits.

“It really frustrates us,” Merkur says. “There’s nothing I hate more than having to explain to someone who suffered major life-changing injuries that I’m going to do the best job in the world and that means getting you a million bucks.”

Ian Furlong, also a partner at Thomson Rogers, notes that, particularly with auto insurance, there’s one standard policy to purchase if you’re not a commercial business and it’s “a take-it-or-leave-it situation.”

He says that when an insurer sells somebody insurance, they’re entering into a fiduciary relationship with that person — they are their insured, not a stranger.

“The insurer has all the knowledge. I do think, in that context, given that the insurer has a duty of good faith to its insured, that there is an obligation to tell the insured about optional benefits and what it would cost to increase third-party insurance limits.”

Furlong adds that the price difference between the $1-million and $2-million policies is modest, with the vast majority of the cost being for the first million — because most of the claims that come forward are under that limit, there’s not a huge amount of risk to the insurer to provide that extra million. But a lot of times that conversation never happens.

“Once the policy is placed, you get a package in the mail that tells you about optional benefits. I think brokers and insurers that are selling directly to the public need to have those conversations early on before the policy is purchased.”

Furlong notes that, with most insurers, auto policies include a family protection endorsement. It’s relatively inexpensive, but it means that if you’re injured by somebody in a car accident and they don’t have insurance or have less than you, your insurance company will make up the difference. That’s an important piece of information — and coverage — for a person to have. It comes down to not enough communication.

“They’ve got to spend some time telling potential customers what it is they are actually buying,” he says.

Furlong says he’s not being critical of insurers, but he thinks it’s easier to put the obligation on them rather than the public “because these are their products and they know how their products are designed to work.”

Having extra coverage is especially important since the government cut the benefits available to the catastrophically injured community in 2016 — there’s only $1 million available to somebody who is quadriplegic when there used to be $2 million — “so, automatically, legal liability for causing an accident involving a seriously injured person goes up by that extra million dollars that’s no longer available in the accident benefit claim,” Merkur explains.

Even though the most recent provincial budget, released in April 2019, announced the government’s intention to reverse the cuts, the lower limits still apply to all cases until those changes are officially introduced.

Most of these cases take three to five years to get to trial, Merkur says, so when you go back five years, it wasn’t as common for larger policies, but nowadays it should be the norm. The word is out, especially since the 2016 cuts — the probability of a case going to trial is much higher.

“Consumers should be told that — at a minimum — they need $2 million of coverage to have any confidence that they have insurance protection,” he says. But he notes that there doesn’t seem to be “any consistency in terms of widespread support” for the industry to say it’s the norm even though it would mean more revenue for insurers so they should theoretically have an interest in encouraging the jump.

“They’re all trying to compete with each other and there seems to be an implicit understanding between insurance companies that the basic insurance quote will include $1 million of liability coverage so when people compare prices, they’re basing it on $1 million versus $1 million. They know the consumer, generally speaking, will go for the lowest quote and not necessarily compare apples to apples.”

But, he says, whatever the reasons for keeping the status quo, the time has come for the insurance companies to come to an understanding among themselves that the norm should be a higher liability policy.

The government won’t change the legislation, Merkur says, and even if it did, it would never jump to a $2-million minimum limit.

“Nobody has even thought about the concept of the government shifting to a minimum limit that would be acceptable. That’s not in the cards.”

It’s coming up more and more because the one other issue with insurance is that, when multiple people are injured in the same accident, they must share the insurance policy available to the defendant, Merkur says. The benefits limit and the dynamics associated with them being inadequate also becomes even more blatant.

For example, Thomson Rogers represents some of the victims in the case of the infamous van attack at Yonge & Sheppard in 2018 that left 10 dead and 16 injured. Merkur says that dynamic is part of the discussion because, even if there is an insurance policy for the driver, it will have to be split among the victims.

Merkur also had a recent case go to mediation, where eight people were injured and the entire effort is “how we split up this crappy $1 million when the claim is actually worth $10 or $12 million.” Accident victims are getting pennies on the dollar, he says.

Furlong also notes that none of this has ever been adjusted for inflation or the increase in the cost of living, but he says that, while it’s easy to talk about what things ought to look like, “to actually transition from here to there I appreciate is more complex.”