Bustamante v. The Guarantee Company of North America, CITATION: 2015 ONSC 94

COURT FILE NO.: 12-38399

DATE: 2015-01-06

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Angela Bustamante, plaintiff

AND: The Guarantee Company of North America

BEFORE: Mr Justice Ramsay

COUNSEL: Mr Sean Oostdyk for the plaintiff; Ms Rose Bilash for the defendant

ENDORSEMENT

[1] The plaintiff sued her accident benefits insurer for denying non-earner benefits after having paid income replacement benefits. The defendant moved successfully for summary judgment [2014 ONSC 6978] and now asks for costs of the action.

[2] The defendant asks for costs on a substantial indemnity basis, fixed at $49,714.03, payable by her lawyer or in the alternative by the plaintiff and her lawyer jointly and severally. The plaintiff submits that costs on a partial indemnity basis against the plaintiff in the range of $10,000 to $15,000 would be appropriate.

Level of indemnity

[3] The defendant submits that substantial indemnity and a cost order against the lawyer are warranted on the basis that the lawyer caused costs to be incurred without reasonable cause.

[4] The defendant’s complaint is two-fold. First, the plaintiff continued the action in spite of binding case law that made it obvious that her claim was barred by the statutory limitation period. Second, the plaintiff made unfounded allegations of fraud and bad faith.

Unreasonable pursuit of the legal point

[5] Mr Ferro commenced the contentious phase of the parties’ dealings by writing to the insurer on September 25, 2009 complaining that the plaintiff’s election of income replacement benefits was not informed, in spite of the fact that she had counsel at or soon after the time of the election. In his letter he claimed that she would have been better off choosing the non-earner benefit because the insurer knew that the plaintiff would soon return to work. He concluded on this point:

There being no proper election process there can be no denial of any benefit and if there is no denial of any benefit there is no limitation period.

[6] The pleadings followed suit.

[7] The plaintiff’s point was decided conclusively against her in the case of another client of Ferro and Company on November 20, 2014 when the Supreme Court of Canada refused leave to appeal from the decision of the Court of Appeal in Sietzema v. Economical Mutual Insurance Company, 2014 ONCA 111 ([2014] SCCA No. 172). And yet the plaintiff continued to claim that the benefits had not properly been refused and that therefore the limitation period had not commenced. This was unreasonable. It caused the defendant to incur the costs of appearing to argue the motion on December 2, 2014.

Unfounded allegations of fraudulent conduct

[8] In the letter of September 25, 2009, Mr Ferro went on to write, “We say that the election process was fraudulent on your end.”

[9] To describe the conduct of the insurer, which included requiring some examinations and refusing others, he used the words “suspicious” and “aggressive” and said that the conduct betrayed “a full intention to defeat her claim and to commit fraud on the policyholder.” The pleadings made similar allegations.

[10] On the motion the only evidence from the plaintiff about the adjusting of the claim is contained in one page of her affidavit. She says that she was confused by the election form because she did not know that she might qualify for non-earner benefits upon no longer qualifying for income replacement benefits and that the defendant never explained that she might. The evidence of the defendant established that it had adjusted the claim in accordance with reasonable procedures and that it had based its decisions on reasonable considerations.

[11] There was no foundation whatsoever for the plaintiff’s allegations of fraud and bad faith.

[12] The defendant cites Sagan v. Dominion of Canada General Insurance Company, [2014] ONSC 2245, a decision of Lofchik J. I adopt his following observation:

The jurisprudence has held that substantial indemnity costs may be appropriate where a party makes empty bad faith allegations. The purpose of this consequence is to diminish frivolous and speculative litigation, to cause litigants to focus on the real issues, and to foster sober reflection above that of an emotional response: Lamie v. Belair Insurance Co., 2002 21768 (ON SC), [2002] O.J. No. 4732, paragraph 132; DiBattista v. Wawanesa Mutual Insurance Co., 2005 41985 (ON SC), [2005] O.J. No. 4865, paragraph 5; McNaughton Automotive Ltd. v. Cooperators General Insurance Co., 2005 1058 (ON SC), [2005] O.J. No. 179, paragraph 18.

[13] I would add that substantial indemnity may discourage parties from trying to intimidate the other party with exaggerated claims, which is what I think happened here.

[14] In the case at bar the allegations were both extreme and unfounded. The plaintiff, through her lawyer, alleged that honest people had committed fraud when at worst they had given her an answer that disappointed her. It was reprehensible for her to do so. I conclude that the defendant is entitled to substantial indemnity.

Costs against the lawyer

[15] I agree with Mr Oostdyk’s submission that his principal did not engage in improper conduct in pursuing the limitation argument, although it was unreasonable to push it after November 20, 2014.

[16] That is quite separate from whether Ferro & Company did anything wrong in advising the plaintiff to institute and pursue unfounded allegations of fraud.

[17] This is not the first time that this firm has participated in cases involving such unfounded allegations: see, for example, the Sagan case, Steele v. Intact Insurance Company, 2014 ONSC 6999, and, arguably, Blake v. Dominion of Canada General Insurance Co., 2013 ONSC 6069.

[18] Mr Oostdyk argues that the court should not punish a lawyer for good legal thinking. I think more to the point is whether it should punish bad legal thinking. Whatever I think of false accusations of fraud, I do not think that the lawyer’s conduct meets the threshold set in Young v. Young, 1993 34 (SCC), [1993] 4 SCR 3. I think that Rule 57.07 and the common law power discussed in Young v. Young have more in mind abuse of process, delay and default by lawyers and conduct of that nature. The defendant cites Standard Life Assurance Co. v. Elliott, 2007 18579 (ON SC), [2007] O.J. No. 2031, in which Molloy J. imposed costs on the lawyer. In that case the lawyer counterclaimed against an insurance company and added individual employees as defendants when the principal had already admitted that it was liable for their acts. The employees were added, therefore, for no other purpose than to vex them and their employer. That was an abuse of process. In the case at bar, the purpose of the action appears to have been to recover money for the plaintiff from the insurer with whom she had contracted. In the circumstances, a cost order against the unsuccessful party, augmented because of the unfounded allegation of fraud, is sufficient. I propose to follow the usual rule and impose costs against the party, not the lawyer.

Quantum of damages

[19] Mr Oostdyk argues that the amount claimed is too high on either scale of indemnity.

[20] I do not doubt that the amount charged to the defendant by its lawyers is reasonable. I think, however, that an amount that might reasonably have been contemplated as a cost order on a substantial indemnity basis is closer to $20,000.

[21] I order the plaintiff to pay the defendant’s costs of the action on a substantial indemnity basis, which I fix at $20,000 all inclusive.

J.A. Ramsay J.

Date: 2015-01-06