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The action was commenced in 2010 and the defendant offered to settle the claim for $40,000 in 2011, although the offer was revoked in 2012.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.

Contracting out of the Insurance Act

Section 263 of the Insurance Act provides that in cases of property damages involving two insured automobiles, the insured is entitled to recover from his or her own insurer.

A recent appeal decision held that although s. 263 precludes tort claims, it permits claims based in contract.

In Hafeez v. Sunaric, 2015 ONSC 4065 (S.C.J.), after a collision in a parking lot, the defendant agreed to pay the plaintiff $15,000 "minus insurance payment".  The vehicle was appraised at $13,500.  The plaintiff was paid $6,500 by his insurer and sought to recover the rest from the defendant pursuant to their contract.  The Small Claims Court judge held the agreement was unenforceable due to s. 263.  The plaintiff appealed.

Justice Perrell allowed the appeal.  The property loss compensation scheme introduced by s. 263 precludes tort claims but does not preclude claims based in contract.