Personal liability settlements on rise in Canada; how to arm yourself

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Canada may not be known for astronomical personal liability settlements, but claims are rising.

“A $5 million case 10 years ago would have been rare. Now it is not,” says Erik Knutsen, professor at the Queen’s University faculty of law who focuses on insurance, torts and civil liability. The insurance firm Chubb Canada is seeing escalating costs of liability claims because of inflation and the growing size of compensatory awards, says Melanie Wilcox, senior vice president.

High-net-worth families who have liability risk on their radar may not fully comprehend the possible implications of a big claim, says Cynthia Kett, co-founder of Toronto-based Stewart & Kett Financial Advisors Inc.

“It’s people like the family office that bring it to their attention and tell them it’s really a big deal and we need to protect you,” she says.

High-profile individuals with more disposable income, a large home, property or assets that can be converted to cash are at higher risk of large claims, says Knutsen.

Wilcox says the most common claims come from car accidents. But are your children engaged in social media? Do family members volunteer for a charity or serve on a non-profit board that can present an unexpected exposure to liability?

“Other incidents in which successful individuals can be held legally liable are such things as dog bites, pool and trampoline accidents, a trip on the sidewalk or a fall down the stairs,” she says.

And the risk isn’t just about what happens in Canada. Canadians like to travel, and they may encounter risks in locations where settlements run higher.

Kett says, “If I have property outside of Canada, if I entertain anywhere, if my children entertain. Sometimes teenagers or young adults have a whole bunch of friends up at the cottage and you just never know what kind of things they might get into.”

Victim’s lawyer will check your assets

The obvious line of defence is insurance, but high-net-worth clients should have more than the average homeowner or auto insurance policy in their corner. The size of a claim will mount well above a regular consumer policy worth $1 million or $2 million depending on who is injured, says Knutsen. An umbrella policy or secondary level of insurance is worthwhile if people have assets they care about.

The victim’s lawyer will look to the insurance policy first in a claim, he says. But if the party who may have liability in an accident doesn’t have a lot of coverage, but does have assets such as property or boats or other assets that can be liquidated, they could be targeted as well.

A lawsuit can go on for years, sometimes even decades. Are you willing to put your family through that?

Cynthia Kett, Stewart & Kett Financial Advisors Inc.

The company that the wealthy keep is also a risk factor in terms of a claim’s size. If the accident victims are high-net-worth individuals themselves, and they are unable to continue in their job, the claim will be high, says Knutsen.

Similarly, younger accident victims represent a higher risk. Large amounts that are awarded when young people are injured reflect the length of time that has been robbed of them, he says. The amounts also cover the cost of future care to help put them back in the place they were before the injury.

“If you knock somebody out of the workforce, and they can’t work for the next 55 years, that’s pretty expensive,” Knutsen says. “If you knock out somebody who’s just walked out of law school or med school, run those numbers for 30 or 40 years.”

Your salary can be targeted

An umbrella policy, which pays above and beyond homeowner or auto insurance, is relatively inexpensive per amount insured, say Knutsen and Kett.

“It is really in place for catastrophic types of situations, which is what we’re talking about here,” says Kett. “The reason it tends to be relatively inexpensive is the chances of one of these things happening is remote, but if it happens it’s going to be big.”

Wilcox says insurance clients should regularly review their excess coverage limits to make sure assets aren’t at risk. Chubb, for example, offers worldwide coverage from $1 million to $100 million, as well as protection for libel and slander, identity theft and legal coverage outside the policy’s coverage limit.

Even if enormous assets aren’t at stake, high income earners need to consider their exposure in terms of salary, says Knutsen. A lawsuit can result in the garnishing of wages. “Let’s say you’re a physician and you don’t own a lot, or you’re in debt, but you have a salary of seven figures. That’s a steady stream of money to support poor injured Mary,” he says.

Hiding assets comes with difficulty

What if wealthy clients consider trying to hide assets? Kett says it’s possible to have holding companies or offshore trusts take assets outside of jurisdiction, but that’s also an inconvenient option.

“You’d have to be exposed to a high degree,” she says. “It’s like putting a lock on your bike. It makes things more difficult, and it may deter people who are less serious about making a claim, but it won’t stop the ones who really want to dig in and make a deal about it.”

The amount of stress involved should be considered when deciding whether to settle a claim or go all the way to court.

“A lawsuit can go on for years, sometimes even decades. Are you willing to put your family through that?” asks Kett. “Even though you do want to defend your reputation, maybe the cost to your family is greater than the cost to your reputation.” Knutsen says 99 per cent of cases are settled.

Ultimately, preventing an accident is the first line of defence against liability.

Family members with a penchant for dangerous behaviour, whether young or not, should consider starting a discussion with an advisor from a family office, suggests Kett.

“Sometimes an advisor, rather than a parent, is in the best position to talk about stuff like that. Sometimes if your mom or dad, husband or wife is telling you something, you’re not as receptive to it. But if it’s a third party advisor … you’re more likely to listen because they’re speaking from a professional perspective.”

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