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Civil Litigation - Costs - Deterrent. Baker v. Blue Cross Life Insurance Company of Canada
In Baker v. Blue Cross Life Insurance Company of Canada (Ont CA, 2023) the Court of Appeal considers a large costs award in favour of a successful insured plaintiff, here in the context of long-term disability litigation with large punitive damages:[7] The trial judge found that full indemnity costs were appropriate in this case and fixed those costs at $1,083,953.50, all-inclusive. She did so on the basis that, as a matter of public policy, Ms. Baker should not have her disability insurance benefits, of which she was wrongfully deprived, eroded by unrecoverable legal expenses.
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[13] Concerning the motion for leave to appeal the costs award, I am satisfied that the trial judge erred in finding entitlement to costs on a full indemnity scale on the basis that disability insurance policies as a class should automatically attract such an award. That error warrants the granting of leave to appeal. Given this incorrect approach, it falls to this court to determine the issue of costs. In my view, as a result of Blue Cross’ misconduct and the existence of the respondent’s generous offer to settle, an award of full indemnity costs is warranted. Thus, I reach the same result as the trial judge on the issue of costs, but my decision is made differently.
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(2) Costs
[38] The trial judge awarded the respondent costs of her action “on a full indemnity basis fixed in the sum of $850,000” plus HST and disbursements for a total amount awarded of $1,083,953.50. In so ruling, she relied on costs jurisprudence from duty to defend cases, where it has been held that an insured should be fully indemnified so as not to have that duty to defend benefit eroded by unrecoverable legal expenses.
[39] The trial judge eschewed any reliance on Blue Cross’ conduct, or the settlement offer made by the respondent as a basis for awarding full indemnity costs. It would appear that this was a deliberate decision by the trial judge to add a new exception to the usual costs principles on the basis that “the wrongful denial of long-term disability benefits by an insurer, given the unique character of long-term disability insurance policies, constitutes special circumstances justifying [an award of full indemnity costs].”
[40] Leave to appeal a costs order will not be granted except in obvious cases where the party seeking leave convinces the court there are “strong grounds upon which the appellate court could find that the judge erred in exercising his discretion”: Brad-Jay Investments Limited v. Village Developments Limited (2006), 2006 CanLII 42636 (ON CA), 218 O.A.C. 315 (C.A.), at para. 21, leave to appeal refused, [2007] S.C.C.A. No. 92; More v. 1362279 Ontario Ltd. (Seiko Homes), 2023 ONCA 527, at para. 32. This test is designed to impose a high threshold because appellate courts recognize that fixing costs is highly discretionary and that trial judges are best positioned to understand the dynamics of a case and to render a costs decision that is just and reflective of what actually happened on the ground: Algra v. Comrie Estate, 2023 ONCA 811, at para. 48.
[41] I agree with the submissions of the appellant and the intervener – who was granted status only on the issue of costs – that the trial judge erred in creating a new category of cases where full indemnity costs will automatically follow. While such a category exists for duty to defend cases, it is based on the contractual language of such policies: see e.g., E.M. v. Reed et al. (2003), 2003 CanLII 52150 (ON CA), 171 O.A.C. 145 (C.A.), at para. 22.
[42] It is unwise for courts to create new classes of cases where full indemnity costs are awarded in all circumstances. It is preferable that trial judges retain their discretion to award costs based on their assessment of the dynamics of the litigation. The intervener submits, and I agree, that broad and sweeping changes to the costs regime are better left to the legislature or the Civil Rules Committee.
[43] I conclude that leave to appeal the costs award should be granted and that the basis for the award cannot stand. Under s. 134 of the Courts of Justice Act, R.S.O 1990, c. C.43, this court has the authority to make any order the trial judge could have made. In the case at bar, I believe that the quantum of the costs awarded was correct, but I would make that order based on the conduct of Blue Cross and the settlement offer.
[44] There was undoubtedly misconduct by Blue Cross that was worthy of sanction by the court by awarding full indemnity costs. Without repeating the specific instances referenced above, it is fair to conclude that Blue Cross has markedly disregarded its good faith obligations to Ms. Baker. Although some of that conduct is addressed in the awards of damages, not all of it is. In addition to wrongfully denying the respondent coverage in the manner that it did, Blue Cross engaged in a litigation strategy wherein it shielded its employees from appearing at trial to explain themselves. This is one of those rare cases where there has been bad faith conduct that warrants costs on this scale: see e.g., Clarington (Municipality) v. Blue Circle Canada Inc., 2009 ONCA 722, 100 O.R. (3d) 66, at para. 40; Hunt v. TD Securities Inc. (2003), 2003 CanLII 3649 (ON CA), 66 O.R. (3d) 481 (C.A.), at para. 131.
[45] There is also the matter of the settlement offer made by the respondent. That offer provided for the payment of benefits owing up to October 1, 2018, in the total amount of $86,136.17, plus prejudgment interest, partial indemnity costs, and a monthly payment of $4,495 in benefits, less applicable collateral and/or CPP Disability Benefits. Counsel for Blue Cross submits that it is unclear whether this offer is more advantageous to his client than the judgment, given that the payment of benefits under the offer is indeterminate.
[46] It is hard to imagine a scenario where the proposed settlement would be more costly than what was awarded against Blue Cross at trial. In any event, in fixing costs, this court may have regard to any settlement offer, even if it does not technically meet the requirements of r. 49 of the Rules of Civil Procedure, R.R.O., Reg. 194: see Rules, r. 49.13; König v. Hobza, 2015 ONCA 885, 129 O.R. (3d) 57, at paras. 35, 37.
[47] The combination of Blue Cross’ conduct and its decision to turn down a generous offer to settle justifies an award of full indemnity costs. As a result, I would dismiss the costs appeal and not interfere with the costs awarded by the trial judge. . Apotex Inc. v. Eli Lilly Canada Inc.
In Apotex Inc. v. Eli Lilly Canada Inc. (Ont CA, 2022) the Court of Appeal considered the criteria for cost awards, here in the context of an appeal of a huge ($700k) award (on a motion alone). See para 74 for the court's comments on costs as a deterrent to unwanted behaviour::(a) General Principles
[59] The relevant principles to be applied in a court’s exercise of its discretion to award costs under s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 are well established. They include the myriad factors enumerated in rule 57.01(1) of the Rules of Civil Procedure, such as: the result achieved, the amounts claimed and recovered, the complexity and importance of the issues in the proceeding, as well as “any other matter relevant to the question of costs”. This is not a mechanical exercise or a rubber stamp.
[60] A proper costs assessment requires a court to undertake a critical examination of the relevant factors as applied to the costs claimed and then “step back and consider the result produced and question whether, in all the circumstances, the result is fair and reasonable”: Restoule v. Canada (Attorney General), 2021 ONCA 779, 466 D.L.R. (4th) 2, at para. 356, citing Boucher v. Public Accountants Council (Ontario) (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), at para. 24. However, as this court recently reiterated in Restoule, at para. 357, referencing Murano v. Bank of Montreal (1998), 1998 CanLII 5633 (ON CA), 163 D.L.R. (4th) 21 (Ont. C.A.), at para. 100, “this overall sense of what is reasonable ‘cannot be a properly informed one before the parts are critically examined’”.
[61] The overarching objective is to fix an amount of costs that is objectively reasonable, fair, and proportionate for the unsuccessful party to pay in the circumstances of the case, rather than to fix an amount based on the actual costs incurred by the successful litigant: Boucher, at para. 26.
[62] While the reasonable expectation of the parties concerning the amount of a costs award is a relevant factor that informs the determination of what is fair and reasonable, it is not the only, determinative factor and cannot be allowed to overwhelm the analysis of what is objectively reasonable in the circumstances of the case. To hold otherwise would result in the means of the parties artificially inflating costs with the concomitant chilling effect on access to justice for less wealthy parties. As this court cautioned in Boucher, at para. 37:The failure to refer, in assessing costs, to the overriding principle of reasonableness, can produce a result that is contrary to the fundamental objective of access to justice. The costs system is incorporated into the Rules of Civil Procedure, which exist to facilitate access to justice. There are obviously cases where the prospect of an award of costs against the losing party will operate as a reality check for the litigant and assist in discouraging frivolous or unnecessary litigation. However, in my view, the chilling effect of a costs award of the magnitude of the award in this case generally exceeds any fair and reasonable expectation of the parties. [63] Although each costs assessment is a fact-driven exercise related to a particular case, consistency with comparable awards in like cases is desirable and the reasonableness of costs that represent an outlier must be objectively and carefully scrutinized, taking into account the chilling effect on litigation that this kind of award could have: Boucher, at para. 37; Berry v. Scotia Capital Inc., 2010 ONSC 5489, 21 O.A.C. 229 (Div. Ct.), at para. 36.
[64] That said, the amount of the costs award by itself does not mean that the award is unreasonable or reflect an error in principle. As the Divisional Court noted in Andersen v. St. Jude Medical, Inc. (2006), 2006 CanLII 85158 (ON SCDC), 264 D.L.R. (4th) 557 (Ont. Div. Ct.), at para. 22 “[a]ppellate intervention based solely on quantum is problematic because there is no meaningful way to determine when a number is too high”. Again, the question is, as Boucher instructs, whether the costs are reasonable, fair, and proportionate for the losing party to pay in the particular circumstances of the case or whether the magnitude of the costs “generally exceeds any fair and reasonable expectation of the parties”.
[65] Costs that are reasonable, fair, and proportionate for a party to pay in the circumstances of the case should reflect what is reasonably predictable and warranted for the type of activity undertaken in the circumstances of the case, rather than the amount of time that a party’s lawyer is willing or permitted to expend. The party required to pay the successful party’s costs “must not be faced with an award that does not reasonably reflect the amount of time and effort that was warranted by the proceedings”: Gratton-Masuy Environmental Technologies Inc. v. Building Materials Evaluation Commission (2003), 2003 CanLII 8279 (ON SCDC), 170 O.A.C. 388 (Div. Ct.), at para. 17. As this court instructed in Moon v. Sher (2004), 2004 CanLII 39005 (ON CA), 246 D.L.R. (4th) 440 (Ont. C.A.), at para. 33:If a lawyer wants to spend four weeks in preparing for a motion when one week would be reasonable, this may be an issue between the client and his or her lawyer. However, the client, in whose favour a costs award is made, should not expect the court in fixing costs to require the losing party to pay for over-preparation, nor should the losing party reasonably expect to have to do so. [Emphasis added.] [66] The party seeking costs bears the burden of proving them to be reasonable, fair, and proportionate. The absence of dockets is not an automatic bar to proving or receiving an award of costs: Leonard v. Zychowicz, 2022 ONCA 212, at para. 33. However, absent dockets, a description of the activities for which fees and disbursements are claimed must be sufficient to permit for the kind of close scrutiny that the court is required to undertake. The material provided for the assessment must allow the court to come to a conclusion as to the amount of time reasonably required by the party seeking costs to deal with all aspects of the proceedings for which costs are claimed, including whether there was over-lawyering or unnecessary duplication of legal work: Restoule, at para. 355. Bald statements do not assist the court with this task but give rise to the kind of mechanical calculation of hours times rates that this court cautioned against in Boucher, at para. 26, and in McNaughton Automotive Limited v. Co-operators General Insurance Co., 2009 ONCA 598, 255 O.A.C. 362, at para. 17.
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[74] Referencing British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71 (CanLII), [2003] 3 S.C.R. 371, at paras. 25-26, the motion judge was well aware that costs can be employed “as a tool in the furtherance of the efficient and orderly administration of justice” to modify litigants’ behaviour. Indeed, rather than granting the parties licence to incur costs indiscriminately and excessively in their ongoing patent disputes, the motion judge viewed the unusually high costs award as a deterrent, concluding that the costs award “may have some of the effect on these parties that they are intended to have on other, less well-resourced, litigants. This includes a significant measure of indemnification, deterring claims which have a limited chance of success, and ensuring that litigation in our publicly-funded courts is ‘conducted in an efficient and just manner,’ which may further access to justice.”
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