Court File and Parties

COURT FILE NO.: CV-20-00652028 DATE: 20210824

ONTARIO SUPERIOR COURT OF JUSTICE

RE: EPCOR ELECTRICITY DISTRIBUTION ONTARIO INC. and EDWIN HOUGHTON, Applicants AND: MUNICIPAL ELECTRIC ASSOCIATION RECIPROCAL INSURANCE EXCHANGE, Respondent

BEFORE: Justice Mohan D. Sharma

COUNSEL: William G. Scott and Gabrielle Schachter, for the Applicants Alan H. Mark and Larissa Fulop, for the Respondent

HEARD: August 24, 2021 (in writing)

ENDORSEMENT

[1] This is my cost decision following my decision on the merits of this application, heard on April 29, 2021, and released on July 16, 2021: see EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric Association Reciprocal Insurance Exchange, 2021 ONSC 5033. In that decision, I found the applicants were entitled to indemnity under a policy of insurance and granted judgment accordingly in the amount of $690,000.

[2] In reviewing that decision to prepare this cost decision, I noted a typographical error in paragraph 144, which was not a complete sentence. It is hereby amended to read as follows (which correction does not alter the the judgment):

[144] Accordingly, I find that the amount paid by Liberty to EPCOR should not be deducted from the amount that MEARIE is found liable to pay to EPCOR.

Costs

[3] The applicants delivered costs submissions on July 30, 2021. The respondent delivered responding submissions on August 16, 2021. The applicants delivered reply submissions on August 20, 2021.

[4] Pursuant to s. 131(1) of the Courts of Justice Act, the Court has a broad discretion when determining the issue of costs. Rule 57.01(1) sets out the factors to be considered by the Court when fixing costs. The overall objective of fixing costs is to determine an amount that is fair and reasonable for the unsuccessful party to pay in the particular circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v Public Accountants Counsel for Ontario, 2004 CanLII 14579 (ON CA), [2004] OJ. No. 2634 (C.A.).

[5] The applicants submit that while costs on a partial indemnity basis for the successful party normally follow the event, the applicants seek full indemnity costs in the amount of $291,052.22.

[6] They cite authority for the proposition that where an insurer denies coverage and the insured is successful in its claim for indemnity under the insurance policy, then the insured is entitled to full indemnity costs: see Godonoaga (Litigation Guardian of) v. Khatambakhsh (Guardian of), 2000 CanLII 16891 (Ont. C.A.) at para 4; M.(E.) v. Reed, 2003 CanLII 52150 (Ont. C.A.) at paras 22 and 24 (“Reed”).

[7] They further cite and rely upon the following passage from Hoang v. The Personal Insurance Co., 2017 ONSC 4193 at para 6 (“Hoang”), where Justice Morgan (citing Reed, supra), found that when an insurance company wrongly denies coverage, the insured should be compensated on a full indemnity basis for the cost of enforcing its right to coverage:

This view is both authoritative and logical. One purchases an insurance policy for coverage in the event of liability, and it is the premium payable under the policy that is the cost of that coverage. Insurance companies are by their nature constantly involved in litigation, and it would be unfair and burdensome to make their customers pay a premium plus legal fees in order to obtain the coverage they bought. The premium is presumed to reflect the insurance company’s risk. If it chooses to attempt to reduce that risk by engaging in litigation over its obligation to provide coverage it should be made to fully compensate the successful party if it loses.

[8] The respondent seeks to distinguish the above-noted cases by arguing that the applicants were not seeking a real-time declaration that MEARIE had a duty to defend. At issue in this case were post facto coverage issues. Mr. Houghton did not bring an application against MEARIE for a declaration of a duty to defend. He first sought indemnification from EPCOR, and once (partially) indemnified by EPCOR, he and EPCOR pursued indemnification from MEARIE.

[9] I find that nothing turns on whether the applicants brought this application before or after legal expenses were incurred for which they were entitled to indemnity from MEARIE. The applicants, in this case, are entitled to the reasonable costs incurred in enforcing their right to coverage on a full indemnity basis.

[10] In addition, the respondent’s original reason for denying coverage was vague. Further reasons were not provided until days before the hearing. In my view, this was inconsistent with the obligations of an insurer to an insured. An insured should not be left in the unenviable position of not fully appreciating why an insurer is denying coverage, and only receiving a detailed and full rationale days before a court hearing. This impairs the potential for meaningful resolution outside the court process and, in this case, demanded a detailed, last-minute reply from the applicants. This further supports entitlement to full indemnity costs.

[11] I must still consider the reasonableness of the costs sought by the applicants. An insured is entitled to costs reasonably incurred where an insurer wrongfully repudiates responsibility under an insurance policy.

[12] The respondent argues the costs sought are excessive – representing 42% of the judgment for a 1-day hearing. It notes, as an example, that the applicants are claiming $84,000 for five lawyers to prepare the application record. The applicants’ reply submissions state that the application record consisted of 3500 pages, and that it was required to put forward a complete evidentiary record.

[13] I agree that the costs sought by the applicants are excessive. A significant portion of the application record repeats the same application record used in Mr. Houghton’s previous application against EPCOR. I also find that it would be unfair to pass on the costs associated with a sealing order on to MEARIE, given that the applicants were only partially successful on that issue and MEARIE took no position on it.

[14] The applicants’ Bill of Costs shows that one or more senior lawyers, with 18 plus years of experience and with very high hourly rates, were involved in all aspects of the case. A junior lawyer was also heavily involved in all aspects of the case with significant billings. While a party is entitled to select any lawyer or several lawyers they choose to work on a case, this can drive up costs to an unreasonable level. In my view, this has occurred in this case resulting in an unreasonable total Bill of Costs which would be unfair to pass on to the unsuccessful party.

[15] Having considered the above factors, I order the respondent to pay the applicants’ costs fixed in the amount of $140,000, inclusive of HST and disbursements.

Justice Mohan Sharma

Date: August 24, 2021