The benefits of advance payments

While the notion of giving money to a plaintiff without a final settlement may seem counter-intuitive, an advance payment can provide significant benefits to both sides. In motor vehicle cases, advance payments to an injured plaintiff by a tort defendant are a statutory right in eight provinces and all three territories. This well-established device can be extended to non-auto cases with the use of appropriately worded agreements between the parties, and in some instances, interim funding orders can be made by the courts.

It is not hard to understand why a plaintiff would welcome an advance payment in an automobile accident case. Often a serious injury deprives the victim and his or her family of employment income, which is only partly compensated by no-fault income replacement benefits. Injury and disability often also impose extra expenses for families that may already be living from pay cheque to pay cheque. A lump sum advance payment made pursuant to s. 256 of the Insurance Act (Ont.) or similar legislation in other provinces can relieve this financial burden and permit accident victims and their families to focus on maximizing the benefit of available rehabilitation resources.

Benefits of an advance payment may be less obvious from the defendant’s point of view, but they are tangible and immediate. The enabling legislation provides a statutory release for the amount paid, and of course, prejudgment interest will stop running on the amount of the advance payment.

Of equal importance is the effect such a payment can have on the relationship between the parties in the litigation.

A generous and timely payment can engender significant goodwill from the plaintiff in favour of the defendant, which can result in a more co-operative relationship between the parties.

An advance payment based on a realistic appraisal of the value of the plaintiff ’s case will, at the very least, reduce the amount at stake in the litigation and lower the incentives acting on the plaintiff and his counsel to pursue the litigation. A well-timed advance payment becomes a stepping stone to settlement discussion and resolution.

The defendant does not need the plaintiff ’s consent or agreement to make an advance payment in a motor vehicle case. Section 256 of the Ontario Insurance Act (and its equivalent in the insurance legislation of all provinces and territories, save for Saskatchewan and Quebec) provides that, where an insurer makes a payment pursuant to its obligations to its insured under a motor vehicle liability policy, the payment constitutes, to the extent of the payment, a release by the person to whom the payment is made. The statute also provides that any payment is without prejudice to the defendant or his insurer, and cannot be taken as an admission of liability or disclosed to the judge or jury during the trial.

In general liability cases, the defendant does not have the benefit of the statutory release and other protections found in motor vehicle claims. However, effective advance payments can be made by agreement between the parties, or even unilaterally with an appropriately worded covering letter. Any agreement for an advance payment should include a provision that the payment is made on a completely without prejudice basis and without admission of liability; the amount of the payment will be deducted from the plaintiff ’s award at the end of trial and before a judgment is entered; and prejudgment interest will not run on the amount of the payment from the date of delivery to the date of settlement or judgment. These conditions can be agreed to in writing by the parties and a partial release delivered for the amount of the advance payment.

Where agreement on the terms cannot be achieved, it is still possible for a defendant to make a unilateral payment, with terms of acceptance spelled out in an escrow letter requiring that the payment be returned if the conditions are not accepted by the plaintiff.

Where plaintiff ’s counsel requests an advance payment that is not forthcoming, it may be worth applying to the court for an order for an advance payment by way of partial summary judgment. The court will only make such an order where the plaintiff ’s prospects of recovery are real and beyond reasonable doubt (see Moore v. Vandenbosch, [1989] O.J. No. 1987 (Ont. S.C.); and Johnson v. Bates, [1994] O.J. No. 2517).

In Ontario, the recent reduction in the amount of medical, rehabilitation and attendant care benefits available to non-catastrophic automobile accident victims provides another opportunity for tort insurers to step up to the plate. With only $50,000 of medical/rehabilitation benefits available to him, a plaintiff may be reluctant to ask the no-fault insurer for a significant capital expenditure — for example, accessibility modifications to his home and vehicle — for fear of running out of treatment funding. A tort insurer (where liability is undisputed) can then step in with an advance payment to fund that expense, and enhance the plaintiff ’s rehabilitation efforts and ultimately reduce its insured’s exposure in the litigation.

When an advance payment is proposed to an insurer, there may be valid concerns that the money will be used to fund the litigation and will serve to encourage the plaintiff to continue with his claim. That concern can often be resolved by agreement with plaintiff ’s counsel that the advance payment will be given in its entirety to the plaintiff, without deduction for fees and disbursements.

Defence counsel interested in developing a constructive relationship with plaintiffs and their lawyers will find an advance payment an effective tool for doing so, while concurrently helping to manage their client’s litigation risk.

View this article as it originally appeared in the October 29, 2010 issue of The Lawyers Weekly

Craig Brown is a partner at Thomson Rogers in Toronto. He practises in the firm’s personal injury and class action groups.