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Civil Litigation - Costs - Insurance. 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. . Forest Hill Fine Homes Inc. v. Heartland Farm Mutual Insurance Co.
In Forest Hill Fine Homes Inc. v. Heartland Farm Mutual Insurance Co. (Ont CA, 2023) the Court of Appeal set out the costs principle where an insurer fails in their duty to defend an insured:[19] The parties agree that if full indemnity costs are ordered that they be fixed in the amount of $10,000. However, the appellant submits that full indemnity costs are not warranted. In the circumstances of this case, we see no reason to depart from the basic principle that, where an insurer breaches its duty to defend, it must pay the full indemnity costs incurred by the insured to enforce that duty: Godonoaga v. Khatambakhsh (2000), 2000 CanLII 16891 (ON CA), 50 O.R. (3d) 417 (C.A.); E.M. v. Reed (2003), 2003 CanLII 52150 (ON CA), 171 O.A.C. 145. Therefore, the appellant is to pay the respondents their costs of the appeal in the amount of $10,000, inclusive of disbursements and applicable tax. . Przyk v. Hamilton Retirement Group Ltd. (The Court at Rushdale)
In Przyk v. Hamilton Retirement Group Ltd. (The Court at Rushdale) (Ont CA, 2021) the Court of Appeal held that the fact of a well-funded insurer was not adequate alone to justify a denial of a costs award to a successful defendant (athough the appeal court ultimately supported the zero costs award against the successful defendant):(a) A David and Goliath Situation
[15] The trial judge said that:Modest complainants are always at the mercy of the economics of litigation. This is not a lucrative area for a personal litigator. It is not unexpected that a plaintiff such as Anna Przyk could end up against an insurer such as Aviva, an insurer of retirement homes with a head office in Kentucky. This could be characterized as a “David and Goliath" situation. Access to justice could be threatened by the resources of the opposing side. [16] The trial judge cited no authority for the proposition that the existence of insurance could be relied on in the way that he did.[3] In my view, the trial judge erred in principle in his reliance on the fact that Rushdale was insured by Aviva, and the implications he derived from that fact.
[17] There is no doubt that a party who is being defended by an insurer has resources to conduct the defence. But what is relevant to the question of costs is not the existence of defence-facilitating resources, but how the resources were used in the litigation. I draw this conclusion for three reasons.
[18] First, although the factors listed in r. 57.01 are non-exhaustive, they all relate to the nature of the issues in the litigation, the result, and to the way a party behaved in the litigation. None point to the identity or resources of the party. Nor do the provisions of r. 49.10, which set out cost consequences for failure to accept an offer to settle, support the view that the resources of the party making or refusing the offer is relevant.
[19] Second, it would be wrong to punish a successful party, or their insurer, by using the existence of insurance as a reason to deny an award of costs on the theory that insurance, by resourcing the defence, could threaten access to justice, without considering whether there was improper litigation conduct by the successful party that in fact did interfere with access to justice for the unsuccessful claimant.
[20] Third, it is wrong to leap to the conclusion that a plaintiff with a modest claim against an insured defendant is necessarily in a David and Goliath situation without examining the circumstances. Proceedings should not be stereotyped: Kerr v. Danier Leather Inc., 2007 SCC 44, [2007] 2 S.C.R. 331 at para. 69. An apparently tilted playing field might be levelled in a number of ways, such as through contingency fee arrangements, third party litigation funding, or adverse costs insurance.
[21] Ms. Pryzk was not denied access to justice. She took her case to trial, and although the arrangements through which this occurred were not explored, there is no doubt that Ms. Przyk was represented by experienced counsel at trial. The trial judge noted that “(t)he case for the plaintiff was well-presented”. Both sides called experts. Nothing in the trial judge’s reasons supports the view that Ms. Przyk’s case was prejudiced by a mis-match of resources.
[22] Moreover, the trial judge overlooked the fact that Ms. Przyk had obtained adverse costs insurance, and that Rushdale’s request was for costs only to the extent covered by the insurance available to Ms. Pryzk under that policy. Rushdale did not seek any amount from Ms. Przyk personally.
[23] The trial judge made no finding of conduct in the litigation that would justify depriving Rushdale of costs. He did not, for example, cite any conduct that unnecessarily lengthened the proceedings, any improper, vexatious or unnecessary steps taken on its behalf, or any refusal to admit something that it should have. On the contrary, he noted that “(b)oth sides treated this particular case seriously”, and that the parties had agreed before trial to the quantum of damages, allowing the trial to be confined to the issue of liability. In other words, neither any resource advantage due to the fact that Rushdale was insured by Aviva, nor Aviva’s conduct of the defence, resulted in anything other than responsibly conducted litigation.
[24] Accordingly, the trial judge erred in principle in relying on the fact of insurance as a reason to deny costs to Rushdale as the successful party.
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