‘Hardball’ auto insurer hit with $40,000 ‘remedial costs penalty’
By Cristin Schmitz, Ottawa
September 17, 2010
Auto insurers in Ontario who refuse to participate in mandatory mediation — or who flout their companion statutory obligation to try to speedily settle a case — face “significant remedial costs penalties,” warns the Ontario Court of Appeal.
On Aug. 31, the appeal court slapped auto insurer Aviva Canada with paying an additional $40,000 of Glen and Heather Keam’s legal costs, on top of the partial indemnity costs of $110,000 the plaintiffs were awarded last year after an 11-day jury trial in 2008.
The Court of Appeal’s award of a $40,000 “remedial penalty” increases the plaintiffs’ costs recovery by a hefty 36 per cent, and sends a strong message to insurers that they risk serious financial consequences if they fail to meet their statutory duty to mediate under s. 258.6(1) of the Insurance Act, says the Keams’ counsel, Lawrence Hatfield of Flaherty Sloan Hatfield in Hamilton, Ont.
Hatfield told The Lawyers Weekly that, so far as he knows, the decision marks the first time that a court has imposed a costs penalty on an auto insurer for breaching its statutory duty to mediate.
Commenting that Aviva played “hard ball” with the plaintiffs, Justices Marc Rosenberg, Stephen Goudge and Kathryn Feldman held that “although the insurer’s conduct may not have risen to the level required for the imposition of substantial indemnity costs,…a significant remedial penalty was required in all the circumstances…to reflect the censure of the court and to provide an appropriately significant recovery for the appellants.”
Hatfield said some Ontario insurers have been refusing to mediate — or alternatively demanding that plaintiffs’ pay half of any mediation costs — in violation of the Act and its regulations.
He said the Court of Appeal’s decision makes it clear that insurers who flout their statutory obligation to participate in mediation — and their companion duty to “attempt to settle the claim as expeditiously as possible” under s. 258.5(1) of the Insurance Act — now face substantial costs sanctions, even if the defendant ultimately wins the case at trial.
As Justice Feldman put it “the cost consequences will follow whether the plaintiff or the defendant has been successful at trial, so that, for example, where a plaintiff’s claim is dismissed, the trial judge may deprive the winning defendant — represented by the insurer that refused to accept a request to mediate — of all or part of its costs that would normally follow the event.”
“There is no exit for the insurer,” Hatfield emphasized.
However, the statutory obligation to participate in mediation on request applies equally to plaintiffs. “In theory a cost sanction could be awarded against a plaintiff for failing to mediate when requested,” Hatfield acknowledged. “However, in reality, I must admit I have never heard of a plaintiff refusing to mediate a case.”
Matthew MacIsaac, counsel for the defendants along with lead counsel Robert Rogers of Hamilton’s Evans Philp, told The Lawyers Weekly no decision has yet been made on whether to apply for leave to appeal.
In the wake of Keam, he queried whether it remains open to an insurer as “a tenable position” to reasonably argue that a plaintiff’s injuries are not “serious and permanent” and thus do not meet the Insurance Act’s threshold for litigation. “Would you be considered to be mediating in bad faith, or wasting time, if you go to mediation with that position that the injury doesn’t meet threshold?” he asked. “If the injury doesn’t meet the threshold, the chances are you are not going to volunteer to pay anything on it. Could the plaintiff’s counsel then, at the end of the day, say: ‘Well they attended mediation, and mediated in bad faith because they had no intention of paying’ — and does that ultimately result in increased costs against the insurer?”
MacIsaac also queried how Keam jibes with the Court of Appeal’s ruling in McCombie v. Cadotte, (2001), 53 O.R. (3d) 70. McCombie seems to indicate that plaintiffs who fail to meet their s. 258.3(1) Insurance Act duty to attend a defence medical before suing should face cost sanctions only if their failure to attend prolongs the litigation, MacIsaac noted. “It seems what the Court of Appeal is saying with [Keam] is that there will be cost consequences [for failing to mediate] regardless, so it’s tough to reconcile the two decision from the same level.”
Hatfield’s client, Glen Keam, suffered chronic pain after receiving soft tissue injuries to his neck and back in a 2003 auto accident. The defendants’ insurer twice refused the plaintiffs’ request that the defendants participate in mediation. This violated s. 258.6(1) of the Insurance Act which requires the parties to participate in mediation at either party’s behest. Moreover, O.Reg. 461/96 requires the defendant’s insurer to pay the reasonable expenses and fees of the mediator (which typically range from $3,000 to $5,000, Hatfield said.)
The defendants maintained for more than four years after Keam sued, that the plaintiff’s injuries did not meet the s. 267.5(5) Insurance Act litigation threshold of a “serious and permanent” injury. In light of its position, the defence said mediation would be futile and it therefore refused two separate requests from the plaintiffs for mediation.
The plaintiffs ultimately won their case, but the trial judge rejected their request for substantial indemnity costs of $196,145. Instead he awarded partial indemnity costs of $110,000. He accepted the insurer’s position that it was entitled not to participate in mediation because of its belief that Keam’s injuries did not meet the “serious and permanent” threshold for litigation.
The plaintiffs based their request for a “remedial cost penalty” against the defendants on s. 258.6(2) of the Insurance Act which stipulates that a person’s failure to participate in a requested mediation “shall be considered by the court in awarding costs.” (Section 258.5(5) further stipulates that an insurer’s failure to attempt to settle a claim as expeditiously as possible “shall be considered by the court in awarding costs.”)
“In this case the respondents’ insurer took the position that the claim did not meet the threshold and therefore there was nothing to negotiate,” Justice Feldman observed. “However, it is this approach that the Legislature has disavowed by making mediation mandatory. Rather, the Legislature’s approach recognizes that participation in mediation could have a salutary effect on one or both sides, with input from an experienced and respected mediator.”
Justice Feldman said that in a case where the insurer has not fulfilled its obligation to mediate, the trial judge must consider the appropriate cost consequences.
She described the “costs sanction” as a “remedial penalty.” It is remedial in the sense that it is intended not only to compel insurers to comply with “an important statutory purpose” of promoting early out-of-court settlement, but also to give a remedy to the party who was deprived of an opportunity for early settlement of the claim.
“It is a penalty because it is not intended to be merely compensatory of costs unnecessarily incurred by the other party or parties, as that objective is already addressed by other costs provisions of the Rules of Civil Procedure, but to provide a meaningful consequence to an insurer that elects not to comply,” Justice Feldman explained.
She suggested such meaningful financial consequences could include substantial indemnity costs against a losing defendant, or depriving a winning defendant of its full, or partial, costs.
In this case Justice Feldman said the appeal court decided the size of the $40,000 costs penalty by taking into account: the fact that the insurer twice refused to mediate (the first time two years before trial, and the second time, more than a year before trial); the fact that the insurer “decided to ‘play hardball’ by taking the easy position that the claim did not meet the threshold”; the fact that shortly before trial, the insurer served an offer to settle which, while low, amounted to acceptance that there was a potential claim to litigate — and therefore to mediate; and the duration of the 11-day trial.
Keam v. Caddey,  O.J. No. 3650.
Original Article from: www.LawyersWeekly.ca/article-1251