Sandstrom v. Hornsby

2002 BCSC 680 Citation: Sandstrom v. Hornsby et al Date: 20020503 2002 BCSC 680 Docket: 00-0180 Registry: Victoria

IN THE SUPREME COURT OF BRITISH COLUMBIA BETWEEN:

JOCELYN SANDSTROM

PLAINTIFF AND:

LUKA HORNSBY AND MICHAEL HORNSBY

DEFENDANTS

REASONS FOR JUDGMENT

OF THE HONOURABLE MR. JUSTICE HUTCHISON Counsel for the Plaintiff: A. Sheane Counsel for the Defendants: M. R. Scherr Dates and Place of Hearing/Trial: March 27, 2002 Victoria, BC [1] The defendants make application for a dismissal of the plaintiff's claim with costs. They say the claim was settled in July 1997 for the sum of $9,000.00 for a complete release of all claims. [2] Strangely, the defendants brought an application before Downs J. in August 2001 under Rule 18A for a dismissal of the plaintiff's claim, not on the basis it was a settled claim but on the basis it was barred by the Limitations Act, R.S.B.C. 1996, c. 266. [3] Why the present application was not heard at the same time, or at the very least heard prior to the limitation argument, was not satisfactorily explained. [4] There is little use in my repeating the facts of the case when they have been summarized by Downs J. in her judgment, even if she was not persuaded to suggest that the release was ineffective under the case law. Her oral judgment reads in part as follows: [4] The plaintiff sustained injuries in a motor vehicle accident which occurred on November 27th, 1996. On the day of the accident the plaintiff reported the collision to the defendants' insurer, and on the following day met with an adjuster for that insurer, Ms. Edwards. [5] All of the plaintiff's direct dealings with the defendants' insurer

were with Ms. Edwards. At Ms. Edwards' request, the plaintiff signed an authorization to obtain medical information. The plaintiff and the adjuster spoke on the telephone and corresponded regularly. It is clear from the evidence before me that the relationship between them was cordial and open. [6] In early February of 1997 the adjuster informed the plaintiff that liability for the collision was admitted by the defendants. The plaintiff continued to undergo medical treatment for her injuries and saw a specialist, a neurologist, on June 23rd, 1997. [7] On June 25th, 1997, Ms. Edwards initiated settlement discussions with the plaintiff, offering five thousand dollars and said to the plaintiff that that was a very good offer. The plaintiff said she wanted to wait before discussing settlement. On July 25th, 1997, the plaintiff faxed Ms. Edwards a copy of the neurologist's report which she had obtained. [8] On July 29th, 1997, the plaintiff and the adjuster met. The plaintiff said she did not wish to settle because she did not feel she had recovered, but she needed money as she wished to move from Vancouver to Victoria. After much discussion she agreed to accept eight thousand dollars "new money" -- she had previously received a one thousand dollar advance -- in full settlement of her claim, including her claim for medical benefits. Thereafter a release was signed by the plaintiff

and she received the settlement funds. [9] At the time of the settlement Ms. Edwards knew the plaintiff had ongoing problems, was continuing to have treatment and among other things, had an abnormality in her cervical spine documented in an x-ray report. [10] The plaintiff had not received legal advice. Ms. Edwards had not suggested she seek such advice. [11] On October 9th, 1997 the plaintiff spoke to Ms. Edwards on the telephone. She advised she had continuing neck and knee problems and said she should not have settled her claim. Ms. Edwards said she would look into re-opening the claim and that, if it were up to her, she would re-open it, but she would have to speak with a manager about it. [12] On October 10th, 1997, the adjuster called the plaintiff and said she required further information. The plaintiff then provided a further authorization to obtain medical information, following which the adjuster obtained clinical records from the plaintiff's family doctor and her chiropractor. [13] In December of 1997 the adjuster called the plaintiff and told her the insurer would not cover ongoing chiropractic treatments. However, the adjuster then told the plaintiff if she required something more serious, such as surgery, the insurer would "look at the situation again". [14] In June, 1999, the plaintiff's family doctor again referred her to a neurologist. In July of 1999 an MRI of

the plaintiff's neck identified a disc herniation. She was then referred to a neurosurgeon whom she saw in February, 2000. [15] Because surgery had been predicted as a result of the MRI, the plaintiff wrote to Ms. Edwards in October of 1999 to advise that surgery was required. She enclosed a copy of the MRI report with her letter. She requested that her claim be re-opened because of the likelihood of surgery and referred to their previous discussion in this regard. [16] On October 8th, 1999, the adjuster wrote to the plaintiff saying the matter had been resolved in July of 1997, when the release was signed. That brief letter concluded as follows: We suggest you consult legal counsel regarding re-opening your claim. [17] The plaintiff retained legal counsel, who requested documentation from the insurer. As that documentation was not provided, a writ was filed on January 14th, 2000. [18] I find in these circumstances the limitation period was postponed until October 11th, 1999, three days after the adjuster's letter of October 8th was mailed, and therefore deemed to have been received. [19] Section 64 of the Limitation Act provides: Time does not begin to run against a plaintiff with respect to an action referred to in s.s. 3 until the identity of the defendant is known to the plaintiff and those facts within the plaintiff's means of knowledge are such that a reasonable person,

knowing those facts and having taken the appropriate advice a reasonable person would seek on those facts, would regard those facts as showing that: a) an action on the cause of action would, apart from the effect of the expiration of a limitation period, have a reasonable prospect of success; and, b) the person whose means of knowledge is in questions ought, in the person's own interest and taking the person's circumstances into account, to be able to bring an action. [20] Subsection 5 of s. 6 of the Limitation Act provides: For the purpose of s.s. 4: a) appropriate advice in relation to facts means the advice of competent persons, qualified in their respective fields, to advise on the medical, legal and other aspects of the facts as the case may require. [5] Some of the facts which are relevant to the issue before me are contained in the above quotations from Downs J. in the discussions surrounding the settlement. That is that the plaintiff revealed she needed money to move from Vancouver to Victoria, but that she did not wish to settle her claim because she had not yet recovered. Further, the adjuster, Ms. Edward, knew the plaintiff had ongoing problems, was continuing to have treatment and among other things, had an abnormality in her cervical spine documented in an x-ray report. As well, Ms. Edwards concedes she knew the plaintiff had grown to trust her and was relying on

her rather than independent advice. Ms. Edwards, in order to waylay the concerns of the plaintiff, showed her a computer printout of similar, or allegedly similar, cases which were designed to show that the $9,000.00 figure was a fair settlement. [6] I have to ask myself, without the aid of hindsight, if it was. [7] I find that it was not. Thus, I have concluded that it was not a fair bargain and was indeed a substantially unfair bargain. [8] In the case of Harry v. Kreutziger, (1978) 9 B.C.L.R. 166 (B.C.C.A.), McIntyre J.A. (as he then was), after an exhaustive review of the cases, has this to say at page 173: From these authorities, this rule emerges. Where a claim is made that a bargain is unconscionable, it must be shown for success that there was inequality in the position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain. When this has been shown a presumption of fraud is raised, and the stronger must show, in order to preserve his bargain, that it was fair and reasonable. [my emphasis] [9] The unfairness in this bargain was the knowledge of Ms. Edwards that there were ongoing problems, which if they materialized, could, and would, make the proposed settlement unfair. She had the medical reports and knew full well that the plaintiff could not

be expected to fully appreciate their contents nor what would be a proper monetary assessment of her complaints. The report of Dr. Prout, a neurologist, to whom the plaintiff's family physician had referred her, completed his June 23, 1997 report in these words: Should she be failing to settle, the question of further imaging of her neck could be considered. I think she should give this another two to three months. [9] However, the plaintiff was anxious to move to Victoria for personal reasons not known to the adjuster with whom she had established a working relationship founded on trust and confidence. The adjuster, Ms. Edwards, knew that she was being relied on, and from Dr. Prout's letter, knew that the injuries had not yet settled. She also knew she had the plaintiff to her economic advantage. Herein lay "the inequality in the position of the parties due to ignorance, need or distress of the weaker party", leaving the plaintiff in the power of the adjuster. [10] All that having been said, the defendants take the position that there was at that point no substantial unfairness in the settlement reached. The unfairness, the defendants contend, only arose after the settlement when the injuries failed to settle down and subsequent diagnosis led to the requirement of surgery. [11] Should the letter from Dr. Prout have alerted a skilled adjuster to this possibility and in fairness

settlement should have been delayed? Similarly, should she have pointed to a computer printout of cases designed to support her offer of $8,000.00 "new money"? Finally, should the dominant party, knowing the subservient party is unadvised and unrepresented, suggest a final settlement be entered into in these circumstances? [12] One of the relevant circumstances here is whether the reasonableness of the agreement is affected by evidence of subsequent events that could have been reasonably foreseen by the adjuster at the time of settlement. As I read Ward v. Zackon, [1999] B.C.J. No. 828 (Q.L.)(S.C.) aff'd [2001] B.C.J. No. 346 (Q.L.); 2001 BCCA 58, if the plaintiff "by virtue of ignorance, need, or distress, [...] was not on an equal footing with the adjuster", and "judged on the circumstances existing at the time the settlement was made, it was sufficiently unfair, unjust, and unreasonable, or sufficiently divergent from community standards of commercial reality" then the settlement may be set aside. [13] Subsequent events may be considered in some cases. As was said by Esson J.A. in McCullogh v. Hilton, [1998] B.C.J. No. 1928 (Q.L.) at paragraph 27: ... That is not to say that there will never be cases when events subsequent to the settlement will have some relevance. But that can be so only if the events are of a kind which, on the basis of the facts known at the time of

settlement, could be regarded as at least a reasonable possibility. [14] In the case at bar there was a reasonable possibility that the plaintiff's injuries would become worse over time. [15] The leading case on the standard applicable to I.C.B.C. was set out by Taylor J.A. in Smyth v. Szep, [1992] 2 W.W.R. 673 at 684: ... The community should, in my view, be taken to expect adherence to a high standard of commercial morality of a Crown corporation exercising a monopoly function of this sort in settling claims with members of the public which it serves. [16] In Gindis v. Brisbourne, [2000] B.C.J. No. 162 (Q.L.); 2000 BCCA 73 at paragraph 48 (per Prowse J.A., Saunders J.A. concurring), leave to appeal to S.C.C. refused, [2001] S.C.C.A. No. 145 (Q.L.), the majority describes the appropriate conduct of an adjudicator that accords with the high standard of commercial morality posited in Smyth: ... The adjuster's role in circumstances such as these is to provide fair compensation to members of the public who have had the misfortune to be injured in a motor vehicle accident. That will entail a careful assessment of all the information available and, in some cases, the delay of settlement until adequate information is obtained upon which to assess proper compensation. It will involve an estimate and consideration of the range of damages such an insured would be likely to obtain in

court based on the information reasonably available to the adjuster. [my emphasis] [17] In a situation somewhat analogous to the present, in Chavarria v. Antoniuk, [1998] B.C.J. No. 2410 (Q.L.), Skipp J. applied Smyth to set aside a release based upon what that adjuster knew, or should have known about the plaintiff's condition as of the settlement date. [18] Smyth will not apply to every case where a plaintiff seeks rescission of a release. In McCullogh v. Hilton, supra, at paragraph 29, Esson J.A. distinguished Smyth by the facts surrounding the settlement: [29] I do not take that case as laying down a general principle that no valid settlement can be reached directly between the corporation and an injured person at a time when the injuries are not fully resolved. The injuries in Smyth, supra, as indicated by the facts known at the date of settlement were much more significant than those sustained by this plaintiff as known at May 17, 1994. Here, the adjustor had, in the form of the information given him by the plaintiff, a reasonable basis on which to assess the present condition and future prognosis. The plaintiff had sought a settlement in the sense of initiating contact with I.C.B.C. before leaving on her vacation and being in touch with Mr. Vetter in early May to make it clear that she wished to advance a claim. As a result, he went to see her on May 17. In this case,

the plaintiff was offered an opportunity to consider the offer and get advice but chose not to do so. She took advantage of the settlement by cashing the cheque and there was no element here of her being overborne by the adjustor as was found to be the case in Smyth. The future possibilities referred to in Smyth were all ones based upon the facts known at the date of settlement. In this case, had it not been for the subsequent events which were neither foreseen nor reasonably foreseeable at the date of settlement, there would be no basis for suggesting that this settlement was unreasonable. [my emphasis] [19] When judging the fairness of the bargain thus made as the only means for the subservient party to obtain needed funds, and a predicted exacerbation of the plaintiff's injuries materializes, can the court look at the ultimate damage when assessing whether the early settlement was fair? Put another way, when a doctor suggests the possibility of future difficulties and they become reality, can the trier of fact take the reality into account? [20] I conclude that in assessing the fairness of the settlement I may look at all the surrounding circumstances as to how it was entered into and I may look only at the future developments reasonably foreseeable when settlement is made. When deciding whether it was appropriate for the adjuster to in effect urge the plaintiff to settle,

the trier of fact may consider reasonably foreseeable developments. Thus, when I look objectively at the surrounding circumstances and the reasonably foreseeable developments, the settlement here was not only unfair but also sufficiently divergent from community standards of commercial morality that it should be rescinded. [21] The settlement was arrived at by the adjuster's use of her dominant position and the trust she had instilled in the plaintiff. Such behaviour is unfair. The adjuster herself recommended a re-opening of the file but was rebuffed by her manager. [22] In his argument, Mr. Scherr suggests that $9,000.00 all in was fair and reasonable and thus, the test in Kreutziger, supra, of proof of substantial unfairness in the bargain is missing in the case at bar. I disagree. Even in his argument, Mr. Scherr takes refuge in suggesting that payment of $9,000.00 "without the need to go through discoveries, trial or any litigation, and incur legal fees is frankly fair and reasonable". Put another way, Mr. Scherr is suggesting that the court should look at wholesale prices, not retail prices, when judging the monetary worth of the bargain. [23] He went on in his argument to say a disc injury was not diagnosed until July 1999. "If all the treating physicians missed this diagnosis until 2 full years after the settlement of this claim, how is it reasonable to conclude that an

insurance adjuster should have foreseen such diagnosis?" he asks. [24] Of course the adjuster should not be expected to foresee such a diagnosis, but is it fair to the plaintiff knowing she is anxious for money, to show her a computer printout to justify her offer and then urge her to settle for $8,000.00 "new money"? Not, I find, when the doctor knows of an abnormality in her cervical spine and is suggesting that more time should be taken before a proper diagnosis can be made and that the future may hold further damages occurring. That substantial possibility made the present value of future damages coupled with her past known damages worth a sum substantially in excess of $9,000.00. Thus, I find the settlement to have been substantially unfair. [25] In the result, then, I find that the settlement entered into between the parties should be rescinded and the plaintiff's application allowed with costs to follow the event on Scale 3. "R.B. McD. Hutchison, J." The Honourable Mr. Justice R.B. McD. Hutchison