Rising insurance rates will cost taxpayers in Sudbury $300,000 this year alone, and will get even more expensive unless the province acts, says the president of the largest municipal insurance company in Ontario.
Larry Ryan, of Frank Cowan Insurance, said as the size of damage awards are exploding, lawyers and the courts are increasingly looking to municipalities to pay up. Ryan said a damage award of $5 million was considered massive 15 years ago. Now awards have gone well past $20 million.
“And courts are also holding municipalities to a higher standard of responsibility,” he said.
At one time, they might have been held liable for 20 per cent of a roads claim. Today, cities are now being forced to pay as much as two-thirds of damage awards, substantially raising their exposure to lawsuits.
“Municipalities are sued a lot,” Ryan said. “They're a high-risk client. And society is becoming more litigious overall.”
And Ontario's joint and several liability rules — in which a party found to be one per cent at fault in a lawsuit can be forced to pay the full amount of the damage award — has led to deep-pocketed cities being targeted.
Robert Walz, Greater Sudbury's co-ordinator of insurance and risk management, said corporation-wide, insurance rates are up 12 per cent this year, which follows a seven per cent increase last year.
Municipalities are involved in a number of areas where there is potential for risk, Walz said. For example, fire, police, leisure services, snow plowing, drinking water, road maintenance and construction, bridges and culverts are city services where there's potential for a lawsuit in connection with a tragedy leading to long-term injury.
“It's like a jewelry store that has to pay higher rates because of the potential losses,” he said. “Municipalities are no different ... The potential for risk is high, and our premiums are based on that.”
Cities are a target, in part, because of limits placed on general damage awards by the Supreme Court of Canada. Intended to stem the increase in the size of awards, the $100,000 limit — now at $330,000 with inflation factored in — led plaintiff lawyers to look for avenues to compensate severely injured victims.
Ontario's no-fault insurance system also limits the size of damage awards, meaning divers normally only carry $1 million to $2 million in liability coverage.
That led to an expansion in claim categories in civil suits, and to municipalities being named in more lawsuits. Victims can now sue for loss of future income, long-term health-care costs, loss of relationships, etc. Family members can also sue for loss of relationship with the victim.
Walz cites a case in which a woman in hospital — not in Sudbury — was injured by a folding bed that cracked her spine. The general damage award was $175,000, but lawsuits filed for claims related to the original accident exceeded $2.5 million.
“The husband received $60,000 and the kids received $25,000 each,” he said.
All those factors drive up the size of awards. But the biggest single factor is future health care costs. Walz says a municipality in Ontario had to pay a $25-million award to a couple injured in a car accident. Even though the other driver was at fault, the city was ruled partially responsible because of the state of the road.
The bulk of the award — $16 million combined for both of them — was for future health costs, since both the husband and wife will require 24-hour care for the rest of their lives.
“So that's one car accident and $25 million in liability — and I doubt you'll find a driver with that much coverage,” Walz said. “The lawyers and the courts, with these huge damage amounts, are looking for others who can pay.”
In another case, a severely injured nine-year-old who requires constant care for the rest of his life, at a cost of $304,000 a year, was awarded $16 million. Another victim was award $100,000 to compensate for the fact she may never get married as a result of her injuries.
A change in legislation also allows OHIP to take part in lawsuits to sue to recover increased health-care costs. So, potentially, taxpayers in a municipality could be reimbursing the province.
“In the end, really, we're all paying for it, whether through increased OHIP premiums, higher municipal taxes or higher insurance rates,” he said. “You can't blame the courts, or the lawyers or the judges. They're trying to compensate some seriously injured people.
“But at some point you would have to look at how much is too much, and how we can better serve these individuals.”
Through the Association of Municipalities of Ontario, Ontario's 444 municipalities are lobbying the province to change joint and several liability laws, so that cities only pay the percentage they are actually responsible for in any lawsuit.
“Because if you're 10 or 20 per cent responsible for something, should you have to pay 100 per cent of the damages?” Walz said. “Right now, we're carrying $50 million in liability coverage, because of these high awards.”
Increasing liability coverage also increases the cost of premiums, he said.
For his part, Ryan says cities such as Sudbury end up paying more in premiums because of damage awards elsewhere. When a judge awards someone a bigger amount than anyone has received before, that sets a new bar for future settlements, increasing everyone's exposure to risk.
Smaller municipalities can't bear the brunt of higher premiums by themselves, so everyone pays more.
“So there is some pooling of that risk that typically happens for all insurance companies,” he said. “So everyone shares the pain.”
Ontario's Attorney General John Gerretsen is currently considering changes, Ryan said. And at its next meeting, city council in Sudbury will hear a motion from Ward 11 Coun. Terry Kett in support of AMO's efforts for joint and several liability reform.