What do you know about frivolous lawsuits?

When reviewing your personal liability (part of a homeowner’s/tenant’s/condo owner’s policy) or your commercial liability, it’s important to remember it covers beyond just the “typical” liability scenario, such as a slip and fall. One of the most important aspects to liability insurance in Canada is that the courts, at the provincial and federal level, have long held that insurance companies have a duty to defend their policyholders from liability suits, even if those suits may be baseless or frivolous.

Under our legal system, anyone can sue anyone else, for any amount, for any reason, at any time. The only thing needed is for the plaintiff to go down to the courthouse, file some paperwork and pay the few hundred dollars in filing fees. No matter how ridiculous a suit may seem, such as suing the NFL for almost $89 billion over a controversial call, the court clerk does not have any ability to assess the case and so the only option is to put the case into the court system.

Unfortunately for the unlucky defendant faced with a frivolous suit, every court action requires some type of defense, otherwise the plaintiff will be able to obtain a default judgment and be able to begin the financial garnishment and recovery process. This can lead to serious legal costs, confusion and difficulty getting the ruling overturned. It is important to always respond to any court action.

Fortunately, your insurance company and the liability insurance you likely have with them will be able to assist. In numerous recent cases (such as Tedford v. TD Insurance Meloche Monnex), Canadian courts have held that if there is even a slight chance of whatever the lawsuit is about being something that would be covered under the policy, the insurer must fully fund a defense without any chargeback to policyholder even if it is eventually found that the judgment is in fact not covered under the policy wording.

So, if you’re faced with a lawsuit, it’s likely a good idea to report this to your broker and insurer so that you can get everything dealt with in a cost-effective and efficient manner.

Blog Author: Kevin Lea | Commercial Account Executive | Rogers Insurance Ltd.

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