Strong Position at Mediation Does Not Result in Increased Costs After Trial

Sections 258.6 and 258.6 of the Insurance Act impose an obligation on insurers to settle claims as expeditiously as possible and to participate in mediation.  Failure to do so shall be taken into consideration when a court is awarding costs.

In Ross v. Bacchus, 2015 ONCA 347 (C.A.), the jury awarded the plaintiff $248,000.  The trial judge awarded the plaintiff $217,000 plus HST in costs, including an award of $60,000 on the basis that the insurer failed to comply with ss. 258.5 and 258.6. 

The action was commenced in 2010 and the defendant offered to settle the claim for $40,000 in 2011, although the offer was revoked in 2012.  Three weeks before the trial was scheduled to commence, the plaintiff offered to settle the action for $94,065 plus interest and costs, and requested mediation for the first time.  Defence counsel responded the next day with an offer of $30,001 plus interest and costs, and agreed to attend mediation, but advised that his clients were "not interested in settling this case".  The mediation took place four days before trial.  The trial judge described the insurer's participation in mediation as a "sham" based on counsel's statement.

The Court of Appeal allowed the costs appeal and held that the $60,000 award was not appropriate.  Justice Doherty held that a clear statement of the insurer's intent does not mean it has failed to settle expeditiously or participate in a mediation:

[46]      The costs sanctions in ss. 258.5 and 258.6 can only serve their intended purposes if the facts justify the imposition of those sanctions. An insurer’s statement on the eve of trial that it is not prepared to settle a claim cannot be equated with an insurer’s failure to “attempt to settle the claim as expeditiously as possible.” Nor can an insurer who actually participates in a mediation be declared to have failed to participate simply because the insurer indicated prior to the mediation that it was not prepared to settle the claim. A clear statement of the insurer’s position going into the mediation, even a strong statement, does not preclude meaningful participation in a mediation.

 Although ss. 258.5 and 258.6 make mediation mandatory, it is important to remember that the insurer is still entitled to take strong positions without being subjected to an additional costs penalty.

Full Costs Awarded to Defendant Where Plaintiff Abandoned Case at Trial

Plaintiffs who make unsubstantiated allegations of fraud may be liable for substantial costs if they later decide to abandon their claim.

In Sienna v. State Farm, 2015 ONSC 786 (S.C.J.), the plaintiff sued her own insurer for failing to pay non-earners benefits.  The Statement of Claim sought $900,000 for punitive and aggravated damages caused by the defendant's bad faith.  It made allegations of "unlawful claims practices" and a "conspiracy" aimed at the plaintiff and other policyholders.  The matter was set for trial commencing January 26, 2015.  On January 14th, the plaintiff advised she was abandoning her case and would call no evidence.

The issue then became costs.  The defendant sought costs on a substantial indemnity basis, arguing the claim was without merit, it made a reasonable offer to settle, and the allegations against it were akin to fraud.  The plaintiff argued the allegations in her Statement of Claim were not outrageous and are commonly plead in accident benefits cases, that the defendant should have brought a motion to strike the allegations, and that the defendant should have ceased its trial preparation after a similar case ruled favourably for another insurer.

Justice Arrell did not accept the plaintiff's arguments.  He did not agree the allegations are common, when there is no foundation or evidence to support them.  They were akin to fraud.  The defendant should not be put to the expense of striking allegations made in the Statement of Claim; on the contrary, the plaintiff should have withdrawn the offensive portions.  There was no merit to the argument the defendant should have ceased trial preparation as the favourable analogous decision was being appealed, and the plaintiff had not abandoned her claim.

Justice Arrell awarded the defendant the total amount of its bill of costs, plus $2,000 for the costs motion, for a total of $35,92.97.

No Costs Awarded to Either Party

A recent decision confirms the decision a court has to make no award of costs to either party.

In Swatridge v. Waters Estate (2014), ONSC 5333 (S.C.J.), the defendant in a motor vehicle action made an offer to settle of $5,000 all inclusive.  The plaintiff's offer was for $85,000 ($55,000 net of the deductible) plus costs and disbursements.

At trial, the jury awarded $10,000 gross for general damages, and $0 for loss of income, housekeeping/home maintenance and medical/rehabilitation expenses.  After the deductible was applied, the new result to the plaintiff was $0.

Justice Ferguson declined to award costs to either side, holding that "The court cannot be blinded by the somewhat artificial characterizations of both the offer to settle and the trial result."  The reality was that an offer to settle amounting to zero dollars was made and rejected, and a trial was held and the result was a judgment for zero dollars. 

The Importance of Clarity in Making Rule 49 Offers

The law with respect to r. 49 offers is increasingly complicated.  It is important for offers to be clear in order to benefit from the provisions of r. 49.  At the same time, even if an offer does not qualify as a r. 49 offer, it can be taken into consideration when a court is deciding costs.

In Elbakhiet v. Palmer, 2014 ONCA 544 (C.A.), the plaintiffs sought damages of almost $2 million dollars.  After a jury trial, they were awarded $144,013.07.  The plaintiffs made one offer of $600,000 plus costs.  The defendants made two offers, the second of which was $145,000 plus pre-judgment interest in accordance with the Courts of Justice Act plus costs.

One of the issues at the Court of Appeal was whether the defendants obtained a judgment as favourable or less favourable than their offer.  The defendants’ position was that the offer was intended to mean PJI of 5% on the entire offer (which would mean the offer exceeded the judgment).  The trial judge held that it was not clear that there was a uniform practice that 5% would be applied to the entire offer, and different rates of interest could apply to different heads of damages.  She held the defendants had not beat their offer and ordered the defendants to pay costs of almost $580,000.

The Court of Appeal held that there is no evidence of a general understanding that 5% would apply to the entire offer.  At the same time, the trial judge failed to give proper consideration to r. 49.13 which permits the court to exercise discretion and take into account any offers made.  Since the offer to settle was virtually the same as the judgment, the trial judge should have taken r. 49.13 into account.  She erred in failing to do so.

The Court of Appeal held that “it was not fair and reasonable to award the [plaintiffs] costs of almost $580,000 for a claim the jury valued at just under $145,000”.  It allowed the appeal and reduced the costs payable to the plaintiffs to $100,000. 

Plaintiffs Denied Costs of Jury Trial

A London judge recently denied costs to plaintiffs following a jury trial which saw them recover less than 10% of their claim.

In Mayer v. 1474479 Ontario Ltd., 2014 ONSC 2622 (S.C.J.), the defendant admitted liability for a 2008 motor vehicle accident.  The action proceeded to a jury trial on damages.  The Statement of Claim sought damages of $1.1 million, and mid-trial the prayer for relief was amended to $2 million.  The jury awarded the primary plaintiff $137,000 (reduced to $116,000 after the deductible and collateral benefits), her daughter $3,300 (reduced to $0 after the deductible) and her husband $0, for a total recover of $119,300.  The plaintiffs sought costs of $422,000.

Justice Leach went through the factors in r. 57.01.  Some of the factors considered were:

1.  The plaintiffs fell "drastically short" of the amounts claimed;
2.  The time and resources devoted by the plaintiffs were disproportionate to what the case was worth, as determined by the jury; 
3.  There were disbursements for experts who either did not add much to the proceeding or overlapped with other experts;
4.  The case was scheduled for 2 weeks and ran to 4 weeks, for which the plaintiffs were largely responsible; and
5.  Various disbursements were not permissible in any event, such as a "day in the life" video which was not used, the cost of a trial that was adjourned by the plaintiffs, and the cost of a voluntary mediation.

The defendants made several offers; however, they were not r. 49 offers as they failed to separate interest from damages, did not make it clear whether the offer was global for all plaintiffs or severable, and were not clear as to whether the plaintiffs could retain future collateral benefits.  But for the deficiencies in the offers, the defendants would have been entitled to partial indemnity costs in the amount of $181,000.  Even though they were not r. 49 offers, the defendants' offers were taken into account in exercising the Court's discretion.  Justice Leach held that each party should bear their own costs.

Mayer should be reviewed by counsel as guidance in making offers, as well as in deciding what resources should be put into a particular file.

Substantial Indemnity Costs for Unsubstantiated Bad Faith Claim

In Sagan v. Dominion of Canada General Insurance Company, 2014 CanLII 16478 (SC.J.), the defendant insurer successfully moved to dismiss the plaintiff's claim for non-earner benefits and mental distress.  The claim continued "a litany of unsupported allegations of bad faith, misconduct and incompetence against the defendant".  There was no evidence to support the allegations and they were maintained right up until the hearing of the motion.

Justice Lofchik awarded substantial indemnity costs for the motion itself, and partial indemnity costs for the remainder of the action.  He held that substantial indemnity costs may be appropriate where a party makes empty bad faith allegations.  The purpose is to diminish frivolous and speculative litigation, to cause litigants to focus on the real issues and to foster sober reflection above that of an emotional response.

Although brief, Sagan is a useful decision, especially where plaintiffs commonly throw in allegations of bad faith where an insurer denies a claim.

Costs on a Summary Judgment Motion

In Mo v. Johnson, the defendant successfully moved for summary judgment dismissing the plaintiff's claim.  Justice Morgan's decision on costs is reported at 2012 ONSC 6307 (CanLii). 

One of the arguments made by the plaintiff was that the defendant was only entitled to costs of the motion, not the entire action.  Justice Morgan disagreed, holding that:

[24]      I agree with Mr. Bizezinski that where summary judgment dismisses the action, it is the costs of the action in its entirety that are at issue. To hold otherwise would allow a party who brings spurious litigation to cause the opposing side to incur substantial costs with no means of compensation. 

The defendant was awarded costs of the entire action on a substantial indemnity basis due to the plaintiff's conduct, which was described as "aggressive and high-handed".  The decision is a nice synopsis of some of the basic principles relating to costs.