Equal or Proportional

The 2014 ruling by Ontario’s Superior Court of Justice, Ward v. Dingwall, addresses the allocation of the payment of plaintiffs’ costs between the insurers of the two defendants. Referring to the general principles of equity and good conscience that dictate the costs of litigation, Justice Douglas Shaw concluded that the costs should be equitably distributed and ordered an 80/20 apportionment of the partial indemnity costs between the defendants.

FACTS

The case arose out of a motor vehicle accident in 2004. Jennifer Ward was seriously injured while a passenger in a vehicle driven by the defendant, Michael Dingwall. In 2006, Ward and several Family Law Act claimants commenced an action against Dingwall, Woodlake Marine Ltd., the lessee of the vehicle, and Dingwall Ford Sales Ltd., the owner and lessor of the vehicle.

In 2013, the plaintiffs’ claims were settled in the amount of $10 million, resulting in payment of full policy limits by each insurer – $2 million from Intact on behalf of Dingwall and Woodlake, and $8 million from Zurich on behalf of Dingwall Ford. The partial indemnity costs were settled at $1.3 million, inclusive of HST.

Intact confirmed its policy limits early on in the litigation. Zurich, however, initially took the position that the available coverage was $3 million, subsequently opined that its policy limits were $5 million and, then, modified this to $6 million.

In January 2011, counsel for the plaintiffs retained an expert to provide an opinion on the insurance limits, with the expert concluding that the limits were $10 million in total between the two insurers.

It was not until February 2012 that Zurich confirmed its policy limits of $8 million. Zurich, however, still did not tender those limits and requested additional evidence from the plaintiffs with respect to future care costs.

INSURERS’ POSITIONS

Intact requested that the costs be apportioned in accordance with the insurers’ respective policy limits on the basis that Intact had made numerous attempts early in the litigation process to encourage settlement. Having offered its policy limits in July 2007, by October 2008, Intact had made approximately $396,000 in advance payments to the plaintiffs. The balance of its policy limits was placed in an interest-bearing account pending the outcome of the litigation.

For its part, Zurich requested that the insurers share costs equally since both parties had fully participated in every step of the proceedings. While Zurich acknowledged that Intact offered to pay its policy limits early on, it submitted that it was the plaintiffs’ subrogation issue involving Manitoba Public Insurance Corporation (MPIC) – Ward’s accident benefits carrier, which was seeking recovery of benefits it paid – that forced Zurich to decline to admit liability and allow Intact’s insured out of the action.

FACTORS CONSIDERED BY THE COURTS

Justice Shaw referred to statutes and regulations that provide the courts with a wide discretion when ordering cost awards, including section 131(1) of Ontario’s Courts of Justice Act.

The court’s discretion is further addressed by Rule 57.01 of the Rules of Civil Procedure, which allows the court to take into account “any other matter relevant to the question of costs.”

In addition, the judge reviewed the case law and observed that the major principles that should be considered when allocating costs awards are that of fairness and equity.

DECISION ON MOTION

Justice Shaw agreed with Intact that the “fairest, most reasonable and most equitable” allocation of costs would be to divide them according to the parties’ respective policy limits. In coming to this conclusion, he relied heavily on the positions taken by the respective insurers and their actions throughout the litigation. These included the following: Intact offered its limits at an early stage in the litigation; Zurich did not acknowledge its policy limits until the plaintiffs retained an expert to give an opinion on this point, even though it is reasonable to assume that Zurich would have knowledge of its own policy limits; once Zurich was aware of the policy limits, it still required the plaintiffs to further prove their case with respect to future care costs; Intact took all appropriate steps to encourage settlement; and any costs incurred by the plaintiffs with respect to the MPIC subrogation issue would not be recoverable from the defendants and MPIC’s position did not appear to affect the plaintiffs’ willingness to settle the tort claim within the policy limits.

Justice Shaw emphasized the importance of encouraging settlement as a fundamental factor in assessing costs. From as early as seven months after the issuance of the claim, Intact had encouraged settlement by offering its policy limits at an early stage. It did so by making advance payments, and by sending correspondence to Zurich in 2009, encouraging it to tender its policy limits.

In accordance with the principle of fairness, Justice Shaw was of the opinion that should the costs be split equally, it would set a precedent for allowing insurers to extend litigation by attempting to tactically limit their own exposures, without the disadvantage of incurring additional costs. In turn, an insurer would be disadvantaged if there was no incentive for encouraging settlement at an early stage. This would simply be unfair and against the fundamental principles of costs.

COMMENTARY

It may, in some circumstances, be equitable to allocate costs on an equal footing. With a view to achieving this, insurers should be prudent in their attempts to limit their potential exposure. If this goes awry, it may result in an allocation of costs on a proportionate basis.

Justice Shaw contrasts the case at bar from the 2001 ruling, Burns v. Hedge, in which the Court of Appeal for Ontario decided that the defendants should share the costs on an equal basis. The appeal court considered the following factors: all insurers participated in the litigation; all insurers were parties to the action; and all insurers opposed the plaintiff’s claim, with a view to limiting their potential exposure.

In the case at hand, Intact did not try to limit its exposure and, thereby, should not be at a disadvantage for attempting to comply with one of the basic principles of cost allocation, namely, encouraging settlement.

Insurers should take note their conduct may be closely scrutinized from the early stages of litigation. Their positions on liability exposure, as well as the conduct of the litigation, should be kept in mind as there may be significant cost consequences at the end of the day depending on how the court views what transpired.

Ultimately, as can be seen in this instance, the courts will award costs on what is considered to be fair and equitable in the circumstances.

Many thanks to Prab K. Dhami, student-at-law in Hughes Amys LLP’s Toronto office, for her excellent assistance in the preparation of this article.