The Math - Another Reason The Ontario Legal System Favours Insurance Companies

The law of averages has been a key component in my life for many years.  For a number of years before I went to law school I made my living in sales.  I sold life insurance for a period of time.  I left that business to sell conveyor belts.  During my sales days I was continually told to get out there and rely on the law of averages.  In other words, see enough people and the result will be sales. 

My personal injury practice involves many car accident victims in Ontario.  In the ordinary course of almost all of those files the time comes when settlement discussions take place.  Recently I was reflecting back to the law of averages and it struck me that the insurance companies can rely on their own versions of the law of averages but my clients cannot.

An insurance company that underwrites car insurance in Ontario will have various claims each year.  Lets say XYZ Insurance has 1000 drivers in a given year that are involved in accidents and are ultimately sued by the other driver.  XYZ Insurance can spread the risk of losing and winning over all 1000 cases.  Oversimplifying the numbers - lets say 10 of the cases are similar in risk assessments.  So - as an example - lets say XYZ has determined that they have a 60% chance in each of those 10 cases that their insured driver is found to be legally responsible for causing the collision.  XYZ further assesses the damages in each of those cases to be $100,000.00.  If XYZ offered to pay each driver $60,000.00 to settle each case - they would essentially be in a no lose position.  If all 10 plaintiffs accepted the offer XYZ would pay $600,000.00.  If all 10 refused to settle, XYZ would go to trial and, presumably lose 60% of the cases and have to pay $600,000.00. 

XYZ could spread the risk over all of those cases. But the drivers can't spread any risk.  In the above oversimplification - if all 10 people accepted the settlement it really means they are taking a 40% discount on their damages.  If all 10 people go to trial - 6 people get compensated adequately and 4 people get nothing. 

No lawyer can say with 100% certainty in all their cases whether a client will win or lose at trial.  There are always unknowns.  So take the numbers above and now, instead of XYZ offering to settle for $60,000.00 they only offer $50,000.00  Many plaintiffs will take 50% of the value of their case as a sure thing rather than risking a trial.  After all, the injured person frequently doesn't have any income because their injuries have taken their ability to work away.  They can't afford to lose at trial. 

Now lets assume that of the 10 cases, 5 plaintiffs decide to take the risk and go to trial while 5 plaintiffs decide to take the settlement.  XYZ pays out $250,000.00 to the five that settle.  It loses 60% of the other 5 cases (or 3 cases) and pays $100,000.00 to each of those plaintiffs.  Now XYZ has paid only $550,000.00 and has actually profited by offering to settle for a lesser amount than the risk they have taken. 

I know this is an oversimplification but it does show why insurance companies might choose to be unreasonable in the offers they make to plaintiffs.  Our legal system is simply not geared towards providing justice to car accident victims in Ontario.  It is designed around the premise that each party is equal in its ability to either accept or not accept the risks of a trial.  Clearly that is not the case when it is an insurance company against a car accident victim.

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