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Joint and Several Liability - Why Insurance Premiums are Hurting Canadian Municipalities

From British Columbia to Newfoundland, Canadian municipalities have garnered mainstream media attention for the incredibly high insurance premiums that they have been confronted with at renewal – some seeing their premium almost double. Coupled with increased exclusions and deductibles, it seems that insurance for municipalities have reached a breaking point.

While the rising trend of cyberattacks and natural disasters has certainly contributed to rising premiums, the ultimate culprit is Joint and Several Liability, otherwise known as the 1% rule. In light of the Association of Municipalities Ontario (AMO)'s most recent request for the Attorney General's support, we're taking a deep dive into the 1% rule and highlighting the options available to municipalities in Canada.
What is Joint and Several Liability? Why is it referred to as the 1% rule?

Joint and Several liability is a legal term found in Canadian tort law that benefits the plaintiff. In other words, it increases the chance that a plaintiff will be compensated, in full, for the damages they are seeking from defendants. Should they be named in a suit, a defendant can be mandated to pay the majority of damages, irrespective of the degree of responsibility for damage caused to the plaintiff.

This means that, even if a defendant is found to be liable for as little as 1%, they can still be mandated to cover the difference (in full) of damages owed to a plaintiff that another defendant cannot fully fund.
What is the impact of the 1% rule on the insurance market?

The 1% rule amplifies the liability exposure of an insured. In particular, those who are considered to be “deep-pocket” defendants. Entities in the public sector, such as municipalities, are considered to be deep-pocket because of their government funding. This makes them targets for trial lawyers, on both sides of the bench, to name them in a suit. One is looking to ensure that the plaintiff receives all of the damages that they are seeking, the other looking to mitigate the amount that their client owes.

By increasing their liability exposure, the 1% rule heightens the risk profile of organizations in the public sector, resulting in higher premiums, deductibles, and exclusions.
Who has been impacted the most? What has been done?

For the reasons previously mentioned, municipalities have been impacted the most by the 1% rule, often being named in suits where they bear minor responsibility and ultimately serve as an insurer of last resort.
A common example is auto accidents. Catastrophic claims may arise which auto-insurance policies cannot fully cover, leaving a municipality to foot the bill for negligent drivers – even if those drivers were inebriated. In fact, the AMO cites two examples of this taking place in their 2019 submission to the Attorney General, calling for amendments to the 1% rule, which was a follow-up to their submission in 2010.

Ontario was close to changing the 1% rule in 2014, but, so far, only Saskatchewan has successfully ratified amendments. Consequently, the 1% rule continues to cost municipalities tens of millions of dollars, both in terms of settlements and insurance premiums. Moreover, the 1% rule forces municipalities to reallocate their budget toward risk management and insurance programs, to the detriment of social welfare programs and the constituents who benefit from them.

Recent events

Throughout 2020, and now in 2021, municipalities continue to feel the brunt of an extremely difficult insurance market. Punished further by the 1% rule, municipalities are facing incredibly high premiums, often with less coverage than they had prior to renewal. These circumstances are not restricted to a single province or region. Most recently, significant increases have been documented in Northern Ontario, Newfoundland, and British Columbia.The circumstances are so unsustainable that the AMO has now made its third plea to the Attorney General, outlining seven recommendations:
  • Replace Joint and Several liability with Full Proportionate Liability
  • Implement enhancements to the existing limitations period including the continued applicability of the existing ten-day rule on slip and fall cases, with consideration to a one-year limitation period.
  • Implement a cap for economic loss rewards
  • Increase the catastrophic impairment default benefit limit to $2 million and increase the third-party liability coverage to $2 million in government regulated automobile insurance plans
  • Assess and implement additional measures to support lower premiums, or provision alternatives, such as non-profit insurance reciprocal
  • Compel the insurance industry to supply all necessary financial evidence which support its, and municipal arguments as to the fiscal impact of joint and several liability
  • Establish a provincial and municipal working group to consider the above and put forward recommendations to the Attorney General
Even if these recommendations were implemented, political lag is an unfortunate reality that will prolong the hardships that municipalities are experiencing. As seen in 2014, even if commitments are made, pledges can quickly deteriorate in a single political cycle. Evidently, municipalities across Canada need immediate relief.

Immediate Liability Insurance relief for Canadian Municipalities

We’ve listened, and we understand the need of our communities. Our incredible relationships in the insurance market have allowed us to create a unique and highly competitive liability insurance solution for municipalities that is exclusive to EQUA.

Our program offers broader coverage, along with a greater variety of endorsements and included policies at a competitive rate.

Click here for a downloadable copy of our program, outlining coverages, endorsements, policies, and retroactive dates.

Email to get started today. We look forward to hearing from you.