Independent insurance adjusters face unprecedented professional pressures and competing demands from stakeholders. As the front-line representatives of insurance companies in the aftermath of an accident or loss, they deal directly with accident victims, property owners and insurance service providers. Many unnecessary disputes erupt over misunderstandings about the adjuster’s role as an intermediary. As I explained in a 2014 article in Claims Canada, “Addressing E&O Exposures: How adjusters can avoid the squeeze of professional liability claims,” there are useful litigation-prevention strategies for training adjusters to explain their role to stakeholders.
Despite the practical and principled impediments to parties suing insurance adjusters, litigants and their lawyers in insurance cases often sue them, preferring to draw their weapons first and to ask the important questions later. What insurance adjusters have lacked in cases where parties have sued them in breach of contract cases together with insurers is a specific legal precedent barring many such actions against adjusters before they are brought, or at least before they advance to trial.
In AACR Inc. v. Lixo Investments Limited, 2018 ONSC 2774 (CanLII), the Ontario Divisional Court, sitting on appeal from a Superior Court decision, applied an arcane doctrine of agency law called the ‘rule of alternative liability’ to hold that a plaintiff cannot sue an adjuster for breach of an agreement, if the identity of the insurer is known. Because adjusters invariably respond to cases where the insurer is identified up-front, this principle can be of wide application to all instances where adjusters properly identify themselves to policyholders and contractors. The court unanimously held:
Indeed, in accordance with the law respecting a disclosed principal, the agent … cannot be held liable in contract to the appellant (Lang Transport Ltd. v. Plus Factor (1997), 1997 CanLII 1904 (ON CA), 32 O.R. (3d) 1 (C.A.)).
The ‘rule of alternative liability’ can be traced back in English law to the 1860’s. It arose from shipping law as a protection to parties doing business with undisclosed ship owners. The English courts, by holding that parties should be able to elect suing principals or agents, relieved plaintiffs from having to track down undisclosed principals, often shipping companies registered in foreign jurisdictions. However, the same courts also prevented double civil jeopardy by stating that a party can sue an agent or a principal but is barred from bringing a subsequent suit against the other.
This “either but not both” alternative liability theory evolved into a hard principle that agents are immune from suit if, at the time of entering the contract, the identity of the principal was known to the contracting party. As the Ontario Court of Appeal stated in Lang Transport:
The contract is the contract of the principal, not the agent, and prima facie at common law the only person who can sue is the principal and the only person who can be sued is the principal.
Gilbertson Davis LLP represented the successful insurance adjusters in AACR. The case is, to our knowledge, an original precedent for the application of the rule to the adjuster-insurer relationship. The precedent, as well as the costs award imposed on the plaintiff, stand as powerful deterrents against suing insurance adjusters as a matter of course in insurance litigation.