It’s not easy being an insurance company in Ontario these days.   In several recent cases, insurance companies, and in particular auto insurers, have been subject to a fair amount of negative press and judicial criticism, not to mention adverse costs awards, for denying payment to seemingly deserving Plaintiffs in tort claims arising from motor vehicles.   This article will discuss several recent cases and provide some thoughts on how individual defence counsel and claims examiners might avoid finding themselves the subject of unflattering social media posts by the Plaintiff’s bar.

Auto insurers have to walk a very fine line.   Every defence lawyer reading this article, and probably every auto claims examiner as well, has dealt with auto claims where the Plaintiff is not what he or she seems.   Many of us have “war stories” about seemingly disabled Plaintiffs being caught on surveillance moving spectacular amounts of earth in their gardens when they thought no-one was watching, or about Plaintiffs being less than forthright while under oath at discovery about prior accidents, illnesses and injuries.   Nowhere is this more true than in claims involving no objective injuries – the “chronic pain” claims where Plaintiff’s counsel cannot point to a potential source of a particular Plaintiff’s pain and discomfort on an x-ray, MRI or CT scan, and where the outcome of the case depends on that Plaintiff’s credibility.   While chronic pain is certainly a recognized medical phenomenon, defence counsel (and claims examiners) often have to bring a healthy degree of skepticism to many files in their filing cabinet in order to properly assess each matter and to advocate effectively for their client or insured.

However, superimposed on this is the duty of every insurer to approach every motor vehicle tort claim in good faith and in a fair and reasonable manner.   The source of this duty is found in s.258.5(1), as follows:

Duty of Insurer re Settlement of Claim – An insurer that is defending an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile on behalf of an insured or that receives a notice under clause 258.3(1)b from an insured shall attempt to settle the claim as expeditiously as possible.

S.258.5 goes on to state, in subsections (2) through (5) that this duty includes the obligation to make advance payments to cover income loss if liability is not at issue in a particular claim, and that an insurer’s failure to comply with this section can be taken into account by a Court in awarding costs at the conclusion of an action.   In the past year, there have been several cases where auto insurers have faced adverse costs awards due to their conduct in defending tort claims.

Much has already been written on the case Persampieri v. Hobbs [2018] O.J. No. 314.   In this case, the Plaintiff was an 84-year-old woman who was a passenger in a car rear-ended by Mr. Hobbs.   She had a lengthy and complex pre-accident medical history including pre-accident complaints of neck, back and shoulder pain.  Although there was scant medical evidence that the Plaintiff had sustained any objective injuries in this accident, she claimed that it had caused an exacerbation of her pre-existing complaints.   The insurer for the Defendant motorist, Mr. Hobbs, took the position that the Plaintiff’s general damages would not meet the legislative definition of a “serious and permanent impairment of an important physical, mental and psychological function” and that as such, the Plaintiff had no entitlement to non-pecuniary damages for pain and suffering.   On this basis, Mr. Hobbs’ insurer declined to make any settlement offer other than to permit the Plaintiff to dismiss her claim without seeking its defence costs against her.   The Plaintiff made an offer to settle shortly before trial of $10,000 plus costs which the Defendant’s insurer rejected.

The matter proceeded to trial and the Plaintiff was successful.   The trial judge dismissed the Defendant’s “threshold motion”, and the jury awarded the Plaintiff damages in the aggregate of $20,414.83.  In other words, the Plaintiff realized a more favourable result in this action by proceeding to trial than she would have had the Defendant accepted her offer to settle of $10,000 plus costs.  Pursuant to Rule 49 of the Ontario Rules of Civil Procedure, “beating an offer” in this way entitled the Plaintiff to substantial indemnity costs from the date upon which this offer was made until the conclusion of the proceeding.

On this basis, the Plaintiff sought recovery of her legal costs in the sum of $268,070 – over ten times the amount of the judgment she had recovered at trial.   The Defendant opposed this costs demand, stating that the costs awarded had to, in the interests of justice, be proportional to the judgment recovered in the action.  In its submissions on the quantum of costs, the Defendant cited a number of cases where the Plaintiff’s costs awards had been reduced because they were far in excess of the amount of the judgment the Plaintiff had been awarded.

The trial judge, however, was not receptive to this argument, and awarded Ms. Persampieri costs in the sum of $237,017.50.  She distinguished the cases on “proportionality” relied upon by the Defendant, stating that none of them dealt with a situation where the Plaintiff had “beaten its offer” in the way the Plaintiff did in this case.   However, implicit in the trial judge’s reasoning appears to be the fact that the Defendant was represented by an insurer, whereas the Plaintiff was an 84-year-old widow, and that this insurer chose to “play hardball”.

The trial judge noted that as a sophisticated litigant, the Defendant’s insurer knew that by rejecting the Plaintiff’s $10,000 offer to settle it may find itself in a situation where it has to pay a substantial adverse costs award, and accepted these risks.   In other word, an insurer that “lives by the sword” may also risk “dying by the sword”.    However, it appears that the trial judge felt that this particular insurer have gone beyond this insofar as rather than assessing each case on its individual merits as the evidence came in through the discovery process, it had “pre-judged” the merits of the Plaintiff’s claim from the outset, and made a decision early on in the proceedings to put the Plaintiff to the strict proof of her claim at trial.

Specifically, reference is made in the reasons on costs to an exchange between Plaintiff’s counsel and  the lawyer then representing the Defendant which took place shortly after the close of pleadings.   In this exchange, counsel for the Defendant apparently advised Plaintiff’s counsel that the Defendant’s insurer had an “internal system for assessing motor vehicle accident claims” and that pursuant to its assessment of the case “would not be willing to offer even $1.00 [and that] once this internal decision had been made, nothing could be done to alter it”.     The trial judge’s censure of this insurer’s program is apparent in the following excerpts from her decision on costs, in which she rejects the Defendant’s “proportionality” argument:

“Sanctioning insurer’s litigation strategies involving:

1. discouraging Plaintiffs from pursuing legitimate but modest claims by refusing to make any meaningful offers to pay damages and forcing these Plaintiffs to trial in circumstances where, because of deficiencies that insurers have asserted, they cannot possibly be successful unless then call expensive medical and other evidence;

2. then, raising the spectre of very serious adverse costs consequences of such trials;

3. then, even after the Plaintiffs have chosen to take the serious adverse costs risks of such trials, and even after they have been successful at trial and have received costs awards under Rule 49.01(1) on a substantial indemnity scale;

4. attempting to unduly minimize the quantum of otherwise usual amounts of costs including substantial indemnity costs on the basis of proportionality

would be, in my view, to sanction the under-compensation of Plaintiffs for costs legitimately incurred to make many lawsuits uneconomic and could generally discourage Plaintiffs with modest claims, even if valid from pursuing them.

…

Insurers can, of course, pursue whatever strategy options they deem fit, but especially where such strategies may have wide ranging and adverse implications involving widespread denial of access to justice, the use of such strategies should not be encouraged by the giving of costs breaks on foreseeable costs consequences.

…

Adoption of such an unalterable decision-making process would render meaningless and make a mockery of the pretrial resolution process, aimed as it is, at encouraging and effecting settlement to avoid unnecessary trials

To sanction such a process would be to undermine those policy objectives.”

In short, it appears that part of the reason for the high award of costs in the Plaintiff’s favour was that the trial judge wished to censure the Defendant’s insurer for apparently having a program pursuant to which it assessed the Plaintiff’s claim as being one where he did not deserve on any compensation in tort.   Curiously, the trial judge did not cite the duty of good faith imposed on auto insurers in s.258.5(1) Insurance Act.

While it is one thing to make an adverse costs award against a Defendant’s insurer as a result of it unsuccessfully taking a hard line at trial as was the case in Persampieri, in a recent decision the courts have gone further, awarding costs against a Defendant’s insurer for taking a similarly hard line at pretrial.

Rososhansky v. Williams (2018) ONSC 1964 is a decision on costs made by a pretrial judge arising from the Defendant insurer’s conduct at pretrial.   In this case, the Plaintiff alleged that after being rear-ended in a motor vehicle accident and striking his head against the rear-view mirror of his car, he had sustained neck injuries and was experiencing post-concussion syndrome.   In support of this position, the Plaintiff’s pretrial brief included several assessments from his no-fault file describing ongoing headaches, neck pain and post-concussive symptoms.  The Defendant’s insurer, despite not having carried out any defence IME’s on the Plaintiff, took an extremely hard line at pre-trial.  Specifically, the lawyer appointed by the Defendant’s insurer is described as stating that there was “zero chance” of a judgment in the Plaintiff’s favour at trial on the basis that the Plaintiff’s injuries would not meet the threshold of a “serious and permanent impairment”.   Accordingly, the Defendant refused to make any offer at settlement, despite an apparent “substantial willingness” on the part of the Plaintiff to compromise his claim.   In support of its position, the Defendant’s insurer relied upon surveillance footage and certain excerpts from other medical reports in the Plaintiff’s no-fault file that suggested that the Plaintiff’s injuries were minor in nature.    Defence counsel also stated that although the Defendant did not have an expert’s medical report in support of its position as of the date of pretrial, that he was confident that he would be able to obtain one at some future date.   The pretrial judge seemed particularly unimpressed with this comment, stating rather pointedly that “it is disturbing that the defendants have such certainty about the outcome of what is supposed to be an independent medical examination before they have even commissioned it”.

The pretrial judge went on to award $5,090 in costs payable to the Plaintiff within thirty days in respect of his costs thrown away at the pretrial, on the basis of the Defendant’s insurer taking what he felt to be an unreasonably hard line.   In support of this costs award, the judge stated, to some extent echoing the trial judge in Persampieri:

“There is nothing wrong with a defendant taking a position at a pretrial or elsewhere that there is no risk of liability.   That position should have some rational foundation either in law or on the evidence.  If a Defendant takes a position contrary to an objective view of the evidentiary record, relies on evidence that has not yet been obtained, and refuses any compromise other than to dismiss without costs, they are wasting the Plaintiff’s time and needlessly running up costs for him.

This is a defence strategy that courts should not encourage.”

It is hard to say whether the pre-trial judge’s conclusion that the Defendant was improperly taking a hard line on this case was reasonable or justified without knowing more about the Plaintiff’s case and the specific medical evidence for and against the existence of a serious and permanent impairment.   However, this case has the potential to be problematic.   A pre-trial is supposed to be, in part, a confidential and without prejudice settlement meeting where each party can set its cards on the table.   Both Plaintiff and Defendant should be able to advocate for their client’s position without fear of an adverse costs award, and this decision may have a “chilling” effect on defence counsel’s ability to do so.   Certainly, it seems that the Defendant did have some evidence in support of its position, in the form of surveillance and at least some medical assessments from the Plaintiff’s no-fault file.  Although the Defendant did not have a defence medical opinion as of the date of pretrial, it should be noted that the onus rests with the Plaintiff, pursuant to automobile tort legislation, to establish the existence of a serious and permanent impairment, and with it an entitlement to non-pecuniary damages, not with the Defendant to disprove the existence of one.   Certainly, a Defendant in an auto tort claim is entitled to take the position that the Plaintiff has not discharged this onus, and take a firm stance on threshold on this basis.  It could be that the Defendant’s representatives at this pretrial might not have properly articulated this point.

One possibility is that the pre-trial judge preferred the Plaintiff’s evidence to that of the Defendant.   This raises the question of whether the pre-trial judge was “pre-judging” this matter at pre-trial.  Another possibility, based on the pre-trial judge’s reasons, is that he took umbrage at defence counsel’s suggestion that he would retain a defence medical expert to support his position, thus undermining the proposition that experts should be impartial.   A third possibility is that the Defendant’s insurer is one that is generally known to take a very principled stance on auto tort cases which it does not believe meet the threshold, and wished to send a message that this insurer’s “threshold program” was inappropriate and did not apply in this case.   Again, it is curious that the pre-trial judge did not specifically make reference to s.258.5(1) Insurance Act.

It is also instructive to compare the Rososhansky v. Williams case with Thomson v. Portelance [2018] OJ No. 971.   This decision arises from a Toronto chambers appointment in a motor vehicle tort claim, which was requested by Plaintiff’s counsel due to a disagreement between counsel in scheduling mediation pursuant to Toronto’s mandatory mediation practice direction.   While Plaintiff’s counsel wished to schedule mediation prior to discoveries taking place, so that a trial date could be scheduled sooner (NB, completing mediation is a precondition for a trial date being assigned in Toronto), the Defendant’s lawyer balked at scheduling an early mediation, and instead wished to schedule mediation until after examinations for discovery were concluded.  Defence counsel’s rationale was presumably that it would be easier to assess and potentially resolve the claim once disclosure of the Plaintiff’s damage documents was complete and the Plaintiff’s discovery evidence had been obtained.

The judge presiding at this chambers appointment noted that separate and apart from the Toronto mediation practice direction, s.258.1(6) Insurance Act placed an onus on the Defendant’s insurer to mediate the claim upon the request of Plaintiff’s counsel, in accordance with time-lines set forth in the regulations to the Act.   Accordingly, he concluded that the Defendant’s obligation was under a positive obligation to mediate immediately upon being request to do so by the Plaintiff.

Since the decision in Thomson v. Portelance, the writer has been inundated with requests from various Plaintiffs’ lawyers requesting that their claims be mediated at an early stage, with this decision being cited in support of that request.   It would seem that insurers are now in a position where they cannot refuse such requests in auto claims.   However, it is often not clear early on in a motor vehicle tort claim –  particularly a case involving chronic pain or non-objective injuries – whether a particular Plaintiff will be able to discharge his or her onus of establishing the existence of a serious and permanent impairment.   In the writer’s experience, it is often not possible to determine this until after discoveries are complete and expert medical reports have been exchanged.    Many insurers will take a “hard line” on damages at an early mediation requested by Plaintiff’s counsel on the basis of Thomson v. Portelance simply because it is not possible to determine whether the Plaintiff has a compensable general damages claim at that stage in the proceeding.   One can easily envision a situation where an insurer is exposed to increased costs as a result of taking a hard line at the mediation under these circumstances.

However, insurers and their counsel can avoid the fate that befell the Defendants in Rososhansky and Persampieri by keeping a few relatively straightforward points in mind.   The first and most important of these points is that every case has to be approached based on its own facts and the evidence that exists at that particular point in time.   While this seems self-evident, the fact that some insurers have “threshold programs” appears to have given rise to a perception amongst the Plaintiff’s bar, and the bench, that auto insurers are unwilling to approach each claim on its individual merits.   Certainly, in both of these cases, the courts have made it quite clear that an approach whereby an insurer has a systemic method for denying tort claims on the basis of certain criteria will be frowned upon.   If an insurer wishes to take a “hard line” on a claim, it must be able to point to specific evidence in support of its position, whether it be the opinion of a well-respected expert, a large and consistent body of surveillance, the anticipated evidence of a number of lay witnesses, or a complete disconnect between the Plaintiff’s discovery evidence and medical records (or even better:  more than one of the above).

Moreover, defence counsel would be well-advised to not speak to opposing counsel or the court of any “programs” of their insurance client, even at a “without prejudice” proceeding like a pretrial or a mediation.   The adverse costs award in Persampieri appears to have been made because, based on the Plaintiff’s costs submissions, the Defendant’s insurer had “an internal system of assessing motor vehicle accident claims” whereby it was concluded at an early stage that this was a claim to be defended.   Had defence counsel not advised Plaintiff’s counsel of this “system”, this would not have been part of Plaintiff’s counsel’s costs submissions.   By the same token, insurance adjusters at mediation would be well-advised not to speak of “threshold programs”, “committees” and other such things, for the same reason.  While most Plaintiff’s counsel know that these systems and programs exist, it is not likely to make much of an impact if they are told that a particular file has been pre-destined for a vigorous defence at an early stage in the claim, as opposed to defence counsel or insurers pointing to specific evidence in a particular case in support of this position.

An insurer, or for that matter any defendant, is (or at least should be) entitled to take a hard line in the defence of any particular matter.   An insurer, as a sophisticated entity, is well aware that if it is unsuccessful in defending a matter vigorously, it faces an adverse award of costs.   These are all things that go into an insurer’s risk analysis of every claim.   However, when an insurer is criticized by the courts for taking a firm stance in a motor vehicle claim despite the existence of evidence potentially contrary to this position, it faces something more damaging than costs, in the form of negative publicity.  The best antidote to this is for auto insurers to clearly articulate to the court that as a matter of law the Plaintiff has the onus, pursuant to the regulations under the Insurance Act, to establish the existence of a serious and permanent impairment, through medical evidence and the corroborating testimony of lay witness, and to be sure to take the court carefully and thoroughly through any such evidence (or the absence thereof) in each particular case.