Since the Parveen and AVIVA decision (and its companion Fredric and AVIVA) was published on March 30, 2012 there has been considerable confusion regarding the adequacy of the Settlement Disclosure Notice (“SDN”). Prior to that time, the SDN has been understood to have been adequate to the degree that insurers were relying upon its wording. Understandably, insurers have been caught off guard by the contradictory views taken by the Superintendent of FSCO and Arbitrator Alves (see Ashleigh Leon’s blog of April 23, 2012 below) and have struggled with the issue of the settlement claims going forward. Of course, the specter of rescissions of past claims has arisen creating no small amount of concern. The feeling in the industry is that the decision undermines the settlement process in its entirety.
It has been my view that this anxiety may very well be an overreaction. The case is wrongly decided for a number or reasons: the SDN is not inadequate and any purported inadequacies were not material to the rescission. But I leave this criticism for another time. For now we will look at how to proceed with settlements going forward.
It is obvious that the facts of the case are unique. The Applicant executed an SDN. Over a month later she executed a Release. Three days later, the insurer received a letter rescinding the settlement. Settlement funds were then forwarded, and then duly returned. The arbitrator took issue with the fact that the current SDN does not provide both examples regarding when the cooling off period begins, only when the SDN is executed following the release (despite the clear wording on the first page).
Typically, the SDN and Release are executed contemporaneously. This allows for a predictable 48 hour cooling off period to be calculated and for funds to be delivered. Upon settlement, counsel and client want to know when the funds would be delivered. Insurers want to know when the file can be closed. It is cumbersome and confusing if the closing documents are not executed at the same time.
1. To be on the safe side (for now) Releases should be executed first, or at the same time as the SDN.
While it is trite to state that the Release is a key document in settling a file, one must not lose sight of its purpose: to effectively and permanently terminate the accident benefits relationship between the insured and the insurer. This is the reason why the SDN, in and of itself is not viewed as adequate to bring about an end of the relationship. It should be noted that this is even reflected in the SDN itself: it refers to an accompanying Release. Insurers are also aware of this. The adequacy of closing documents is their responsibility since they are the parties that wish to rely upon them.
Standard releases contain extra information to ensure that the insured is completely aware that he or she is terminating the accident benefits relationship with insurer, permanently. They typically contain references to and repeat information contained in the Settlement Regulation and SDN.
Assuming the Release is properly drafted, the only practical issue becomes the timing of its execution. The purported inadequacies in Parveen relate to the fact that the Release was executed second. The SDN makes an example of only the other scenario, when the SDN is executed second. Practically speaking, the SDN could not be inadequate if the Release is always executed first or at the same time as the SDN. Thus, Releases should always be executed first. This can be acknowledged in the Release itself.
2. The current Settlement Disclosure Notice continues to be the form approved by the Superintendant in accordance with the Settlement Regulation.
Despite the reaction to the Parveen decision, the current SDN has never been removed from the FSCO site nor has there ever been any information from the Superintendant’s office to suggest that it was no longer “approved”. The regulation does not require the SDN to be approved by the dispute resolution branch of FSCO, only by the Superintendent.
In order to emphasize this point, the Superintendant of FSCO issued a Notice on May 4, 2012 confirming the view that the SDN continues to be the approved form. Indeed, the Notice also takes the position that the form is adequate, contrary to the Arbitrator’s decision.
3. Still skittish? Add additional information to the SDN.
This is what the Superintendent suggests in the May 4, 2012 Notice. This has been our view since the decision was released. We would recommend the following wording be added to the text box on page 2:
IF YOU CHANGE YOUR MIND: you may, within two business days after the later of the day you sign the disclosure notice and the day you sign the release (whichever is signed last), rescind the settlement by delivering a written notice to our office [address] OR the office of our representative [address] and return any money you received by you as consideration for the settlement;
I conclude by confirming that the current SDN is adequate but the following steps should be taken to ensure an effective settlement: the SDN should be accompanied by a properly drafted Release that should be executed before the SDN. The SDN should also contain the extra notice as described above.