When Should the Insurance Company of the Person Who Caused Harm Be Named Within a Lawsuit?
Subject to Very Rare Exceptions, Unless An Insurance Company Contractually Agreed to Provide Compensation Directly to An Injured Person or Actually Involved and Blameworthy In Causing the Harm, Which Is Unlikely, Only the Party Who Is Blameworthy For the Harm Should Be Sued.
A Helpful Guide For How to Determine and Understand When Naming An Insurance Company In a Third Party Claim Is Proper
Unless an employee of the insurance company was driving the car that caused damage to your non-automobile property, among only a few other examples, there are very rarely any circumstances where the insurance company of the person who caused an accident is properly named as a party to the lawsuit. For example, when a neighbours tree falls onto your house, it is extremely unlikely that the insurance company of the neighbour was negligent, and therefore is at fault, for the failure to maintain the tree. As another example, When a roofing company fails to perform workmanship properly, it is extremely unlikely that the insurance company of the roofing company was negligent, and therefore is at fault, for the poor work. While these examples sound almost ridiculous, these examples are, strangely, necessary whereas it seems as a common, albeit improper, belief that the insurance company of a third party should be named within a lawsuit.
When a person is harmed due to the fault of another person, the legal issues arising from that fault and harm are legal issues between those people and, as above, it is extremely unlikely that the insurance company of the person at fault was somehow involved in the fault. Additionally, unless there was a contractual connection to the insurance company of the person whose fault caused the harm, the person who has suffered harm and the insurer of the person who caused the harm, are almost always legal strangers to each other.
It is difficult to refer to the law that says a person is unable to sue the insurance company of the person who caused an incident. This difficulty is ironic as the legal reasoning is actually a very trite issue, meaning such a basic legal concept, to legal practitioners; and yet, to adequately explain and cite a full answer would require that the person asking why naming the insurance company is improper read and understand a few textbooks. Rather than provide an lengthy answer, the concept may be simply summed up, as per the examples above and below, by stating that the insurance company is without fault. The insurance company was without a contract with the person harmed; and accordingly the harmed person is unable to allege that the insurance company breached such a non-existing contract. Additionally, the insurance was uninvolved in the incident that caused the harm whereas the harm was, allegedly, caused negligently by the client of the insurance company rather than the by the insurance company. Accordingly, the law that says it is improper to sue the insurance company of the person who caused the harm, is essentially all the legal textbooks that say the person who caused the harm is who to sue. The legal textbooks are pretty much silent on teaching that it is improper to sue a person, including an insurance company as a 'legal entity' person, simply because it is plain and obvious, or should be, that suing someone that was without any involvement in the cause of an incident is improper.
Unless the insurance company of the person who caused harm actual did participate and therefore cause or contribute to the harm, the insurance company of that person is without blame for the incident and is therefore improperly named if included as a part to a lawsuit. As further examples to those above, take note that the insurance company of the property owner who failed to salt a parking lot and caused you to slip and fall, or the insurance company of the dropped an air-conditioner onto your car from a 40th floor window, was likely uninvolved in causing the situation; and accordingly, suing the insurance company of the person who is at fault is highly improper in almost all circumstances.
As an exception to the concept above, where suing the insurance company of the person who caused the harm is improper, there is a rare circumstance when doing so is appropriate and legally permissible. This exception arises when the owner of an automobile fails to report a liability claim to the insurance company providing applicable liability insurance coverage. For example, if an owner of an automobile, or driver of that automobile with the consent of the owner, causes damage or injuries from which a liability claim is legally allowable in Ontario (which is quite limited due to the 'no-fault' concepts within the Ontario automobile insurance system), then the injured party may name the relevant insurance company within the lawsuit.
As a specific case example, this could occur when a driver of an automobile loses control of the vehicle and causes an accident that damages property such as trees, bushes, fences, among other landscaping, of a property owner. If the property owner is unable to obtain attention and recourse from the driver or owner of the automobile involved in the incident, the property owner may then include the insurance company providing coverage for that automobile as a party to the legal claim despite that the insurance company was without any blame for causing the incident.
The statutory right to include an insurance company as an additional party to a lawsuit brought against an owner or driver of an automobile that was involved in an accident is prescribed by section 258(1) of the Insurance Act, R.S.O. 1990, c. I.8 which specifically says:
258 (1) Any person who has a claim against an insured for which indemnity is provided by a contract evidenced by a motor vehicle liability policy, even if such person is not a party to the contract, may, upon recovering a judgment therefor in any province or territory of Canada against the insured, have the insurance money payable under the contract applied in or towards satisfaction of the person’s judgment and of any other judgments or claims against the insured covered by the contract and may, on the person’s own behalf and on behalf of all persons having such judgments or claims, maintain an action against the insurer to have the insurance money so applied.
As abover, per section 258(1) of the Insurance Act, there is a rare exception to the rule that the insurance company of a third party is without blame for the incident and therefore would be improperly named as party in a liability lawsuit. As indicated, section 258(1) applies only to an automobile accident.
For persons harmed by a third party in an incident that is other than an automobile incident, unless there is a direct contractual arrangement with the insurance company of the third party, a lawsuit against the insurer of the third party may only be brought after a Judgment is obtained against the third party and that Judgment is unsatisfied. Accordingly, this type of case must only be brought after a legal case was brought, and won, against the third party and the third party failed to financially resolve the Judgment. This right, which is essentially the right to sue after successfully suing yet failing to receive payment despite all other efforts, is prescribed in section 132 of the Insurance Act which states:
132 (1) Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person’s liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.
(2) This section does not apply to motor vehicle liability policies.
Interestingly, section 132 of the Insurance Act refers specifically to "... liability for injury or damage ..." without including liability that may result in a pure financial loss such as an economic loss due to the mistakes of professionals. For example, the mistakes by an engineer or architect or consultant within the design, among other things, that may result in construction delays and therefore financial harm but without a resulting injury or damage. Another example could be failures by a lawyer that result in financial harm without injury or damage as occurred within the case of Perry et al. v. General Security Insurance Co. of Canada et al., 1984 CanLII 2146, where the Plaintiff sought to sue the insurer of a lawyer when the lawyer failed to access available insurance coverage. In Perry, the Court of Appeal found against a right of action against an insurer of an errors and omissions policy carried by the lawyer; albeit stating that the outcome is unfair to the innocent yet stating that section 132 does limit such a claim directly against an insurer to only those insurers providing coverage applicable to, "... liability for injury or damage ...". This issue arose again in the context of a Motion to Dismiss within the case of Quik-Run Courier Ltd. v. Abbe Insurance Brokers Ltd., 1993 CanLII 8524; however, this case was distinguishable from the Perry decision in that Quik-Run was alleging that the insurance was directly applicable to Quik-Run as a beneficiary of a trust.
Only in very rare circumstances is it appropriate to sue the insurance company of a third party. Unless there was a contractual connection with the insurance company of the third party, or the insurance company was actually involved and blameworthy in causing the harm, the insurer of the third party is merely an entity who will pay on behalf of the third party. Very careful review is required to determine whether a situation falls into the categories of rare circumstances where suing the insurance company of the third party is appropriate and permitted.