Remedial Costs for Unreasonable Settlements by Insurers

In the threshold motion in Maxwell v. Luck, previously discussed here, Justice Howell pushed back against what is increasingly becoming a routine attempt by insurers to dismiss chronic pain on the basis of the lack of objective symptoms in personal injury claims.

The cost award, released shortly thereafter, may have significant effects on how insurers in Ontario approach threshold motions in the future.

Justice Howden awarded fixed costs of $150,400, and disbursements of $ 56,332, taking into account that the plaintiff was under a statutory obligation to pursue accident benefits as well. This approach was upheld in Moodie v. Estate of Delores Greenaway, [1997] O.J. No. 6525, where the court stated,

In my view such pursuits are part and parcel of the Plaintiff’s obligations in an action against the tortfeasor by reason of the releases available to the tortfeasor under the Insurance Act and only in any compelling circumstances should the unsuccessful tortfeasor escape responsibility to indemnify the Plaintiff for the costs of such pursuits…

However, Justice Howden also made note of the “hard nosed” approach adopted by the insurer, who had not made significant efforts to resolve the dispute. Insurers are required under ss. 258.6(1) and (2) of the Insurance Act to participate in mediation, and ss. 258.5(1) and (5) requires them to “attempt to settle the claim as expeditiously as possible.” Where they fail to do so, the court is required to consider this when awarding costs.

Justice Howden in applying this provisions awarded an unusual “remedial” penalty. This penalty was described by the Ontario Court of Appeal in Keam v. Caddey,

[28] Morden J.A. describes the costs sanction as a “remedial penalty”. It is remedial because it is intended not only to compel compliance by insurers with an important statutory purpose, but also to provide a remedy to the other party who was deprived of the opportunity for an early settlement of the claim. It is a penalty because it is not intended to be merely compensatory of costs unnecessarily incurred by the other party or parties, as that objective is already addressed by other costs provisions of the Rules of Civil Procedure, but to provide a meaningful consequence to an insurer that elects not to comply.

[29] The legislature chose not to provide a specific cost consequence for an insurer’s failure to participate in mediation, such as substantial indemnity costs against a losing defendant or deprivation of full costs of a winning defendant. Instead, the trial judge is accorded the discretion to determine the appropriate cost consequence in each case. In summary, where an insurer breaches s. 258.6(1), s. 258.6(2) requires the trial judge to ascertain the appropriate remedial costs penalty in the circumstances.
[emphasis added]

The purpose of these provisions has been described by Justice Ramsay in Ross v. Bacchus as follows,

 [6] …I infer that the insurance company conducted itself this way in the hopes of intimidating the plaintiff and deterring other plaintiffs who have meritorious cases…

The public policy rationale behind this is that there is inherent power imbalances between insurance companies and public litigants. Without a statutory obligation to settle a claim and explore mediation, insurance litigation would be characterized by an inherent unfairness to the opposite party.

Judges have refused to award remedial costs outside of the context of the Insurance Act. For example, Justice Ramsay rejected that these provisions should apply to the municipality in Williston v. City of Hamilton on the basis that the defendant was not an insurer by name or by subrogation.

However, the Ontario Court of Appeal overturned this decision, stating these provisions are not to be interpreted as applying strictly to insurers, especially where counsel are representing both the municipality and the insurance company.

In Maxwell, Justice Howden assessed the remedial penalty to be $50,000, for a total costs award of $256,732.

Both Ross and Maxwell are currently being appealed, but serve as an additional warning towards insurers. As the decision in Lakew v. Munro illustrates, insurers will not automatically be held liable for remedial costs simply because a file fails to settle. However, insurers should be more reluctant to dismiss subjective pain symptoms on the lack of physically observable objective mechanisms. The medical science itself illustrates that pain perception is far more complicated than that.

The additional warning in the costs decision is that the hard stance taken by insurers since the 2010 insurance reforms and following may have other financial implications. When an insurance company offers no settlement and refuses to mediate outright, courts are likely to express censure to this behaviour. The insurance system is under significant pressure, and legislative amendments were intended to streamline claims and pass on savings to consumers.

Instead, insurance companies have appeared to profit. Hard-line positions by some insurers who are known to largely refuse settlement can result in up to a dozen or more claims which are abandoned by plaintiffs, representing significant savings to the insurer. But neither benefits the clients of the insurer, or those involved in a tort claim benefit. More importantly, the refusal to settle imposes a cost burden on the justice system itself.

Bruce Cran, president of the Consumers’ Association of Canada, stated,

Insurance company margins have increased incredibly over the last decade. The companies are making a lot of money and people are getting less benefits … to be perfectly honest, I don’t know how you’re going to fix Ontario.




  1. RE: ” the “hard nosed” approach adopted by the insurer…”

    This will never end until the insurers’ rogue medico-legal experts upon whom they rely for their (too often) bogus accusations of malingering are purged from the system. But neither the insurer defence lawyers nor the plaintiff lawyers (OTLA) have the slightest interest in cleaning up the shoddy IME/IE system which drives the Ontario auto insurance adjudication system. Better to litigate (talk about) this stuff over and over (on the clock) than to expel the “hired guns” from the system. To do so would result in less work for the lawyers. So it doesn’t matter that “Calling an expert to say that no objective finding equals no pain is on longer acceptable (below)” – the lawyers keep on keeping. This I just one more reason why litigation costs keep escalating while access to justice keeps diminishing.
    Guerrero v. Fukuda, 2008 CanLII 49158 (ON SC)

    [4] A whole specialty in medicine now exists dealing with physical medicine and rehabilitation. This is sometimes referred to a s physiatry. Experts in this field are relied upon by litigants often. They do not rely upon the expert for treatment or rehab but rather to determine whether or not the expert believes pain exists.

    [5] Pain, and its degree of severity, are subjective and can exist without any objective finding. Calling an expert to say that no objective finding equals no pain is on longer acceptable. That same expert will often treat the pain that exists even though it is without objective findings.

    [7] Usually this matter, in jury cases, is left until all of the evidence has been heard. The threshold issue is then argued in the absence of the jury, often while they are deliberating.

    [8] This can easily result in conflicting decisions as effectively both judge and jury are separately determining the existence and severity of the alleged injuries. The trial judge may well find that the threshold “was not met” and then be confronted with a substantial jury award which would indicate that the jury believed otherwise.

    [9] I suspect this, in many cases, leads to the judge awaiting the verdict of the jury before rendering a decision on the threshold issue and thereby being unduly influenced by the jury findings.

    [10] Perhaps the threshold issue should be decided by the judge before the jury is permitted to retire to consider its answers to the questions. This could resolve the issue of the non-pecuniary loss and limit the questions to be answered by the jury to pecuniary damages.

    [11] This, however, would probably defeat the purpose of having a jury at all, as most often I suspect the purpose of selecting a jury relates directly to the assessment of general damages.

    [24] I reject Dr. Clark’s evidence outright. He was a physiatrist called by the defence. His evidence was a classic example of a highly qualified doctor with a pre-existing bias, appearing as a hired gun to discredit Ms. Montero.