Mary Carter

The recent decision of the Ontario Court of Appeal in Laudon v. Roberts¹ has raised some questions about the usefulness of Mary Carter Agreements. On Nov. 5, 2009, leave to appeal to the Supreme Court was dismissed without reasons, leaving the Court of Appeal decision binding.

The potential for the use of a Mary Carter Agreement (MCA) arises when a plaintiff has sued at least two parties as joint and several tortfeasors and where at least one of the defendants wants to settle with the plaintiff and the other defendant does not. A plaintiff who enters a MCA with one of the parties receives a guaranteed amount and maintains the chance for a better recovery in proceeding against the remaining defendant(s). The settling defendant — in exchange for a cap on liability, and an agreement to indemnify from the cross claims of the non-settling defendant(s)– receives peace of mind as the exposure has been capped. In addition, there is an opportunity to recover a portion of the money paid to the plaintiff if the plaintiff succeeds in recovering more than the settling defendant has paid. The MCA must contain a clause requiring the plaintiff to partially reimburse the settling defendant if more was paid under the MCA than what was awarded at trial.²

The plaintiff, regardless of the finding of liability by the trier of fact, receives a predetermined amount of damages and also benefits from the fact the settling defendant is now co-operating with the plaintiff, placing more pressure on the non-settling defendant( s). The MCA Pre-Laudon chart illustrates the positions of each of the parties pre-Laudon based on the hypothetical percentages of liability assessed at trial, assuming the plaintiff and defendant entered into a $3 million MCA and the plaintiff is later awarded $6 million at trial.

Laudon

The May 7, 2009 decision of Laudon changed the roles of plaintiffs and non-settling defendants involved in a MCA. The plaintiff, Rick Laudon, was injured in a boating accident when the boat he was in, operated by Keith Sullivan, collided with a boat operated by Will Roberts. Laudon and Roberts entered into a partial settlement agreement; Roberts made a payment to Laudon in the predetermined amount of $365,000.

The case proceeded to trial and a jury assessed the plaintiff’s damages at $312,021. The jury found Laudon 11 per cent contributorily negligent, and assessed 50 per cent against Roberts and 39 per cent against Sullivan. The trial judge refused to deduct the amount paid to Laudon by Roberts under the Mary Carter Agreement from the damages award and instead awarded the plaintiff judgment against Sullivan for $121,688.19 (39 per cent of $312,021). Sullivan, the non-settling defendant, appealed. Regardless of the 39 per cent finding of liability assessed against Sullivan, the Court of Appeal found the plaintiff had been fully compensated by the settling defendant’s payment under the MCA, excusing Sullivan from making a payment to the plaintiff. To make matters worse for Laudon, in allowing Sullivan’s appeal, the Court of Appeal not only issued a judgment dismissing the action against Sullivan, but also ruled Laudon was liable for Sullivan’s costs. In following Justice Beverley McLachlin’s decision in Ratych v. Bloomer⁴, the Court reasoned: “It is the fundamental principle of tort law in this country that an injured plaintiff should be neither over nor under, but fully compensated by way of damages for injury sustained by the negligence of others.”

Why settle?

Courts have consistently favoured the settlement of lawsuits, and there is an overriding public interest in favour of settlement⁵. The Court of Appeal decision of Justice John Callaghan in Sparling reasoned that public policy promotes the interest of litigants generally by saving them the expense of trial, while reducing the strain on an already overburdened court system.

Further, Rule 2.02 (2) of The Rules of Professional Conduct enacted by the Law Society of Upper Canada encourages settlement, and provides that: “A lawyer shall advise and encourage the client to compromise or settle a dispute whenever it is possible to do so on a reasonable basis and shall discourage the client from commencing useless legal proceedings.” [emphasis added]

The unanimous decision of Justices Jean MacFarland, Karen Weiler and Russell Juriansz in Laudon places the non-settling defendants and plaintiffs on an equal playing field and may entice the non-settling defendant who has a meritorious defence to try the case instead of being bullied by the settling defendant and plaintiff. If a nonsettling defendant is successful on the issue of liability and/or damages, they will benefit from the MCA that the settling defendant and plaintiff entered into. This is the reward for going to trial to defend a claim instead of settling.

Another option to the MCA as a form of settlement is the Pierringer Agreement. The purpose is to completely remove the settling party from litigation. The plaintiff is paid a set amount in full satisfaction of the claims against the settling defendant, in exchange for the discontinuation of the action against that party. The action then continues against the nonsettling defendant(s). The settling defendant is assured by the plaintiff it will be indemnified for any contribution paid to the non-settling defendants.

Pre-and post-Laudon

Payments made under a MCA are deductible from any damages awarded at trial, based on the principle that plaintiffs are not entitled to double recovery. The non-settling defendant will therefore not owe any monies to the plaintiff if payment from the MCA is higher than the amount of damages awarded at trial. This is regardless of whether or not the non-settling defendant was liable as was the case in Laudon.

Prior to the Court of Appeal decision in Laudon, MCAs were criticized as being unfair to non-settling defendants. It had the effect of aligning the interests of the settling defendant with those of the plaintiff, eliminating the normal adversarial relationship. The Laudon decision changes that, so it is now possible for the non-settling defendant to benefit from not entering into the MCA.

Future of MCAs

The settling defendant must make sure the MCA contains a clause requiring the plaintiff to partially reimburse the settling defendant if more is paid under the MCA than what is awarded at trial. If the non-settling defendant determines success is likely at trial on the issue of damages and/or liability, trying a case will likely be in the best interest.

Laudon will motivate lawyers involved in litigation to more carefully weigh the risks and benefits to their clients, considering all the possible outcomes at trial that plaintiffs and defendants post-Laudon may expect.

Joanne Blacklock, Blouin, Dunn LLP, has practiced exclusively in the area of insurance defence for more than 10 years.

Mona Gobran is articling with Blouin, Dunn LLP. She is working in several areas of insurance defence litigation.

1 Laudonv. Roberts, [2009]O. J. No. 1824.

2. Most MCAs contain a clause requiring the plaintiff to partially reimburse the settling defendant if he had paid more under the MCA than what was awarded at trial. The MCA in Laudon was not a typical MCA, but indeed an “atypical” MCA because it did not contain such a clause. The plaintiff ended up receiving $52,979 more than the damages assessed at trial because the clause was omitted.

5 figures are based on Pettey

6 Ratychv. Bloomer, [1990]1S. C.R. 940at94.