Ontario Superior Court of Justice has enforced an out-of-court settlement awarded to an elderly victim who suffered serious injuries at a construction site The settlement was challenged in court after it was learned that Daniel Moses, the president of one of the defendant’s insurers, TruStar Underwriting Inc., was being sued for fraud.

In Hales, et al. v. Vaughan Build Ltd., et. al., 2026 ONSC 2161, released April 13, plaintiff Rosemary Hales, currently 89, was knocked to the ground by an unsecured fence around a Vaughan Build Ltd. construction site in Toronto, suffering life-altering injuries. A mediation settlement of $600,000, to be paid through monthly expenditures of $5,500 for assisted living expenses, was awarded on August 7, 2024.

The defendants, though their insurance broker, reported the claim to TruStar, the issuer of their wrap-up construction insurance policy. TruStar, in turn instructed a firm of established independent insurance adjusters to manage the claim and to appoint Dolden Wallace Folick LLP as legal counsel to defend the action. Kate O’Malley was the insurer-appointed counsel from Doldens.

As noted by the Superior Court, “The firm accepted the retainer on the understanding that a Lloyd’s of London syndicate was the insurer, with TruStar as the coverholder and the syndicate’s Canadian Managing General Agent.”

The litigation then proceeded through pleadings and discovery before being settled through mediation.

Everything appeared routine. The Superior Court noted that the defendants had no complaints about the handling of the defence by their insurer-appointed counsel, and were actually “relieved” that the claim had been settled. Furthermore, “They were indifferent to the quantum of the settlement within policy limits, and they introduced no evidence of any concern about the settlement’s effect on their insurance rating or increased premiums for future projects. They believed they had made adequate arrangements to compensate members of the public for construction injuries.”

Funds never materialized

The complications started after the mediation settlement had been reached, and O’Malley and the insurance adjuster repeatedly followed up with TruStar’s president Daniel Moses after the requisition for funds went unanswered. No Lloyd’s syndicate had wired the $600,000 to the law firm representing Vaughan Build.

The initial assumption was that the delay originated with the Lloyd’s insurance market in London. It wasn’t until December 30, 2024 that O’Malley learned from the adjuster that Moses had been sued by TruStar for fraud. It was alleged that Moses would issue fake insurance policies and pocket the premium, or sell genuine policies and issue false renewal notices misappropriating the renewal premiums, with Vaughan Build’s insurance policy being among the fakes.

Vaughan Build, along with the other defendants in this case, Dancap Private Equity Inc., Dancap Reality Inc., and Joe Doe Construction Fence Inc., argued there should be no liability insurance under the subsequent circumstances.

The defendants also did not wish to fund the settlement, and submitted that the Superior Court should allow legal action to continue as if there had been no initial settlement.

The defendants, and the plaintiffs, which included the injured party Hales, along with Megan Kavanagh, John Davidson and Patricia Thaw, both relied on rule 49.09 of Ontario’s Rules of Civil Procedure, which states that “Where a party to an accepted offer to settle fails to comply with the terms of the offer, the other party may, (a) make a motion to a judge for judgment in the terms of the accepted offer, and the judge may grant judgment accordingly; or (b) continue the proceeding as if there had been no accepted offer to settle.”

The Superior Court, with Justice R. Lee Akazaki penning the decision, noted that Ontario courts have applied a two-part test for rule 49.09. They must first determine whether a settlement agreement had been reached, based on ordinary contract law principles; and if so, they must enforce it, unless such enforcement would be unjust under the circumstances.

The defendants’ motion argued there had been no settlement agreement because it was tainted by fraud and because the agreement had been concluded by a lawyer they did not retain. Furthermore, they claimed that even if there had been an agreement it would be unjust to enforce it against defendants in an uninsured capacity.

Court rejects defendant arguments

Regarding the first test, Justice Akazaki wrote that the parties executed an agreement under mediator Frank Gomberg, with Gomberg warranting that the participating parties had authority to settle the case.

He noted that the defendants played no part in the mediation, and also said “The bona fide belief of all participants in a valid Lloyd’s policy empowered Mr. Moses to settle the case by the force of their perceived roles in the defence and negotiation process.”

His ruling also stated that “the deception of one of the parties by a stranger to the agreement does not affect the validity of the agreement,” and that a mistake of fact defence to a breach of contract claim based on a third party’s deception will generally be rejected.

Justice Akazaki said the defendants’ non-participation in the mediation enabled Moses of TruStar to instruct the adjuster and defence counsel. The ruling also noted that a lack of insurance cannot render the settlement unenforceable, and that the parties had exchanged valid promises to pay compensation and to release the defendants.

On the defendants’ claim regarding the second test, that they did not retain O’Malley to represent them as legal counsel at either the litigation or mediation, Justice Akazaki said that was “inconsistent with the fact they allowed her to plead their case on their behalf.”

He wrote that “Because of [O’Malley’s] role as lawyer of record in this settlement, Ms. Hales and her lawyers were entitled to rely on defence counsel’s ability to bind the defendants to a settlement of a proceeding before this court.”

Moreover, he noted that Hales and her family “were entitled to rely on the regularity of the retainer of defence counsel as in any instance of an agent with apparent authority or a company employee’s conduct without regard to problems of indoor management.”

The settlement and promise of incoming funds, said Justice Akazaki, allowed Hales to make plans for the future. Had that settlement been set aside by the court, “such an order would effectively transfer the defendants’ loss from the alleged fraud to the person hospitalized by the negligence of the defendants’ personnel or fence subcontractor.

“Such a transfer of the loss burden would be an injustice,” he wrote.

“In concluding that the court must enforce the settlement, I have found that the fraud alleged to have been committed by Mr. Moses jeopardizing the availability of liability insurance is not to be visited upon the innocent accident victim.”

Justice Akazaki’s ruling noted that the burden of litigating to indemnify the defendants for the burden of funding the settlement rested with the defendants, “because the source of the problem lay several layers within their management of the risk of a construction accident.”

He also said that Hales, as an elderly woman carrying home groceries, assisted by her private service worker, cannot be blamed for lacking agility to avoid a fence that was propelled into the sidewalk.

He further rejected the defendants’ argument that Hales could be returned to the position she was prior to the settlement announcement, saying this could not happen “especially having regard to proportionality of the time remaining in her life expectancy to endure uncertainty and financial strain.”

Judgment was thus issued in favour of the plaintiffs, reiterating that a valid settlement had been made at the August 7, 2024 mediation.