NEWMARKET COURT FILE NO.: CV-14-117935-00

DATE: 2021-10-21

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: SUSAN MURRAY, Plaintiffs

AND:

TD LIFE INSURANCE COMPANY AND THE CANADA LIFE ASSURANCE COMPANY, Defendants

BEFORE: THE HON. MADAM JUSTICE S.E. HEALEY

COUNSEL: R. Watt and K. O’Malley, for the Plaintiff B. Marta and A. Cottreau, for the Defendants

HEARD: BY WRITTEN SUBMISSIONS

COSTS ENDORSEMENT

Overview

[1] This is a ruling on costs following a 6-day trial. The plaintiff Susan Murray sought coverage under two creditor protection insurance policies applied for by her deceased husband, Robert Murray, at the time that mortgages were arranged with the Toronto-Dominion Bank. The policies in question were issued under Certificate 9944093 for the “Beaverton” property”, and under Certificate 5906997 for the “Commanda property”.

[2] The defendants denied coverage for the Commanda property because of their allegation that Robert Murray fraudulently failed to disclose his health history. Although the defendants initially honoured and paid out the policy on the Beaverton property, in the course of the litigation they amended their pleading to seek return of the money paid out to Susan Murray on the basis of, inter alia, the doctrine of mistake. With respect to the Beaverton policy, the defendants were also required to prove fraud to succeed on their counterclaim.

[3] The defendants failed to prove fraud in relation to either policy. The medical evidence on which they relied to attempt to do so was less than compelling. That evidence has been reviewed in my Reasons for Judgment and I will not repeat it here. Any comments made by the defendants in their costs submissions that attempt to excuse their litigation conduct by virtue of the fact that they did not have the records necessary to fully assess their position on the issues in this file is inaccurate and I reject it.

[4] The trial result was entirely in the plaintiff’s favour. This court awarded the following to the plaintiff:

(a) Coverage under both Certificate 5906997 and Certificate 9944093;

(b) Judgment against the defendants in the amount of $121,150.16 under Certificate 5906997;

(c) Damages for mental distress in the amount of $10,000;

(d) Punitive damages in the amount of $150,000;

(e) Pre-judgement interest on all amounts awarded except for the amount of $112,606.34 under Certificate 5906997; and

(f) Dismissal of the defendants’ counterclaim, which sought repayment of $130,691.41.

[5] The parties have been unable to reach an agreement on costs. Submissions have been made in writing. I have reviewed and considered all the material filed by both parties.

[6] For the purposes of this decision on costs, I rely on the same facts and findings set out in my Reasons for Judgment.

Position of the Parties

[7] The plaintiff seeks costs on a partial indemnity basis up until the date that the defendants gave notice of their intention to amend their counterclaim, which was July 7, 2015, in the sum of $23,728.31. She seeks costs from that date on a substantial indemnity basis in the amount of $263,022.19, for a total of $286,750.50 plus disbursements of $17,822.52. Her counsel’s submissions for costs on this higher scale are based on the defendants’ conduct in the proceeding. Alternatively, counsel submits that substantial indemnity costs are triggered by plaintiff’s offer to settle dated May 17, 2021.

[8] The defendants resist an award of substantial indemnity costs. They argue that the cost consequences of r. 49. 10 are not triggered by the plaintiff’s offer, that their conduct in the proceeding does not warrant costs on a higher scale, and that it would be duplicative to award substantial indemnity costs from the date of notice of the draft counterclaim because punitive damages have already been awarded for the same conduct. They argue that the costs sought by the plaintiff are excessive, that costs already considered on motions have been duplicated, and that the amount overall is not within the reasonable expectations of the defendants.

[9] During the process of making cost submissions, the defendants’ counsel sought copies of the dockets from the other side. These were ordered to be produced on September 7, 2021, and the defendants’ counsel has now had an opportunity to examine them prior to making final submissions.

The Law

[10] The court has broad discretion in deciding whether to award costs, to whom, and in what amount: s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. However, that discretion is to be exercised in accordance with the provisions of an act or the Rules of Civil Procedure: 1465778 Ontario Inc. v. 1122077 Ontario Ltd. (2006), 2006 35819 (ON CA), 82 O.R. (3d) 757 (C.A.), at para. 25; Andersen v. St. Jude Medical Inc. (2006), 2006 85158 (ON SCDC), 264 D.L.R. (4th) 557 (Div. Ct.) at para. 20; leave to appeal refused, 2006 CarswellOnt 7749 (Ont. C.A.).

[11] Rule 57.01 of the Rules sets out the factors a court may consider when deciding costs, and the court must adhere to the principle of proportionality set out in Rule 1.04(1.1). Despite those factors, the court’s authority under r. 57.01(1) remains discretionary: Ontario v. Rothmans Inc., 2013 ONCA 353, 115 O.R. (3d) 561, at para. 134.

[12] The overarching principle when fixing costs is that the amount of costs awarded be reasonable in the circumstances: Davies v. Clarington (Municipality), 2009 ONCA 722, at para. 52.

[13] In determining the appropriate amount of costs to which the plaintiff is entitled, the principles that guide my decision are those articulated in Andersen, at para. 22:

(1) 1. The discretion of the court must be exercised in light of the specific facts and circumstances of the case in relation to the factors set out in Rule 57.01(1): [Boucher Boucher v. Public Accountants Council for the Province of Ontario (2004), 2004 14579 (ON CA), 71 O.R. (3d) 291 (C.A.)], [Moon Moon v. Sher (2004), 2004 39005 (ON CA), 246 D.L.R. (4th) 440 (Ont. C.A.)] and [Coldmatic Coldmatic Refrigeration of Canada Ltd. v. Leveltek Processing LLC (2005), 2005 1042 (ON CA), 75 O.R. (3d) 638 (C.A.)].

(2) A consideration of experience, rates charged and hours spent (formerly a costs grid calculation) is appropriate, but is subject to the overriding principle of reasonableness as applied to the factual matrix of the particular case: Boucher. The quantum should reflect an amount the court considers to be fair and reasonable rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Zesta Engineering Ltd. v. Cloutier (2002), [2002 25577 (ON CA)](https://www.canlii.org/en/on/onca/doc/2002/2002canlii25577/2002canlii25577.html), 21 C.C.E.L. (3d) 161 (Ont. C.A.), at para. [4].

(3) The reasonable expectation of the unsuccessful party is one of the factors to be considered in determining an amount that is fair and reasonable: Rule 57.01(1)(0.b).

(4) The court should seek to avoid inconsistency with comparable awards in other cases. “Like cases, [if they can be found], should conclude with like substantive results”: [Murano Murano v. Bank of Montreal (1998), 1998 5633 (ON CA), 41 O.R. (3d) 222 (C.A.)] at p. 249.

(5) The court should seek to balance the indemnity principle with the fundamental objective of access to justice: Boucher.

Offers to Settle

[14] The plaintiff’s offer did not comply with r. 49.10 because it was not made seven days before the commencement of the trial: r. 49.03. It was served on May 17, 2021. The application of rules 1.03(1) and 3.01(1)(a) and (b) results in the offer having been made only five days prior to trial. The automatic cost consequences of r. 49.10 are not triggered.

[15] This does not bar an award of costs on the higher scale. As r. 57.01(4) makes clear, this court may still award all or part of the costs on a substantial indemnity basis. In exercising that discretion, the court may also take into account any written offer to settle, its date and its terms. Even in the absence of an offer that attracts the provisions of r. 49.10, the court must not ignore offers that demonstrate a genuine and continuing effort to settle the action, and pre-trial efforts by counsel to expedite the conduct of the trial, when deciding the appropriate order as to costs: Bifolchi v. Sherar (Litigation Administrator of) (1998), 1998 7122 (ON CA), 38 O.R. (3d) 772 (C.A.), at para. 20.

[16] That said, I recognize that the law is as set out in Net Connect Installation Inc. v. Mobile Zone Inc. 2017 ONCA 766, at para. 8

….An award of costs on an elevated scale is justified in only very narrow circumstances — where an offer to settle is engaged or where the losing party has engaged in behaviour worthy of sanction: Davies v. Clarington (Municipality) (2009), 2009 ONCA 722, 100 O.R. (3d) 66 (Ont. C.A.) at para. 28. Substantial indemnity costs is the elevated scale of costs normally resorted to when the court wishes to express its disapproval of the conduct of a party to the litigation…..

[17] Enhanced costs should be awarded only on a clear finding of reprehensible conduct on the part of the party against whom the costs order is being made: Smith v. Inco Ltd., 2013 ONCA 724 at para. 61; Davies, at paras. 28-31.

[18] The plaintiff’s offer of May 17, 2021 would have allowed the defendants, had it been accepted, to pay the plaintiff $110,000 inclusive of all claims in the action, plus costs on a partial indemnity basis up until the date of the acceptance of the offer. She obtained a higher judgment at trial. It was a reasonable attempt at compromise that, had it been accepted in the week prior to the trial starting, would have saved substantial time and costs. By contrast, the defendants’ offer made on May 14, 2021 offered to dismiss the action and counterclaim without costs, required the plaintiff to sign a release with confidentiality, non-disparagement and liquidated damage terms, and withdrew previous offers. It was not a reasonable attempt at compromise and provided no realistic means of avoiding a trial.

[19] The defendants made a previous offer in August 2019, in which they offered to pay $34,000 plus interest toward the outstanding principal on the Commanda property, and the plaintiff’s assessed costs and disbursements or $5,431.50 plus assessable disbursements, whichever was higher. At that point the defendants had all of the medical records of Robert Murray and other evidence necessary to realistically assess their risk exposure in this action; their offer was unrealistic given the weakness of any evidence of fraud.

Partial Indemnity Costs

[20] At issue between counsel is the rate to be used for the plaintiff’s lawyers on a partial indemnity scale. I agree with the submission that it is no longer relevant or fair to use the partial indemnity rates recommended by the Costs Subcommittee of the Civil Rules Committee that were implemented as a guideline on July 1, 2005. In support of their submission, plaintiff’s counsel cites Stetson Oil & Gas Ltd. v. Stifel Nicolaus Canada Inc., 2013 ONSC 5213, at paras. 22-23.

[21] The Court of Appeal in Inter-Leasing Inc. v. Ontario (Revenue), 2014 ONCA 683 recognized the same economic reality at para. 5, stating that the “the cost rates set out in the Information for the Profession set out in the preamble to Rule 57 of the Rules of Civil Procedure are now out of date, and that amounts calculated at 55%-60% of a reasonable actual rate might more appropriately reflect partial indemnity, particularly in the context of two sophisticated litigants well aware of the stakes”.

[22] That the rates in the grid are out of date was affirmed again in Bain v. UBS Securities Canada Inc., 2018 ONCA 190, at para. 32. However neither of these cases from the Court of Appeal reject an approach to partial indemnity costs based on 60% of the actual rate charged. In this case, I will use 60% of the actual rate charged for the purpose of any costs awarded on a partial indemnity scale.

Substantial Indemnity Costs and Punitive Damages

[23] Punitive damages were awarded against the defendants because of their decision to proceed with a counterclaim despite a glaring lack of cogent evidence supporting their claim, the reasons motivating the counterclaim, their treatment of the plaintiff in so proceeding, an unproven and egregious allegation in that pleading regarding the plaintiff’s personal conduct, and the finding that their conduct amounted to bad faith: at paras. 234-241of the Reasons for Judgment. The findings of reprehensible conduct in the litigation that would justify an award of substantial indemnity costs have been made.

[24] An award of punitive damages is not a bar to substantial indemnity costs. Although the defendants rely on Plester v. Wawanesa Mutual Insurance Co. , 2006 17918 (ON CA) in support of their submission that this would be a duplication of sanctions, the court did not confirm such a proposition in Plester. The court noted that there are some cases in which an award of punitive damages will militate against an award of substantial indemnity costs: at para. 109. However, the court did not disagree with the passage cited at para.108 from Mark Orkin, The Law of Costs, looseleaf (Aurora: Canada Law Book, 2005) at s. 219.1.2, in which the author makes a legal distinction between the purpose of each: punitive damages to punish a defendant for misconduct and substantial indemnity costs to indemnify a plaintiff for legal costs.

[25] In addition to the findings related to the defendants’ reprehensible conduct, which is enough for an award of substantial indemnity costs, there are other reasons for considering increased costs in this case. With respect to the Commanda property, the defendants myopic view of the medical evidence did not rise to the level of warranting punitive damages, but was unreasonable and led to untenable positions being taken in the litigation. Similarly, the defendants’ unproven allegation of fraud on the part of Robert Murray should also attract elevated costs. These matters were summarized in the following paragraphs of my Reasons:

[231] With respect to the Commanda policy, I find that there is no behaviour on the part of the defendants in their handling of that claim that is egregious enough to warrant punitive damages. The position that they have taken in this litigation – insisting on relying on Dr. Laudanski’s letter to assert that a diagnosis of fatty liver was communicated to Robert at earlier appointments, even after receiving the clinical note of April 19, 2017, and their reliance on consultation reports that were generated years after the applications instead of accepting Dr. Laudanski’s remarks about the effect of the accident on Robert’s drinking – was unreasonable but not deserving of sanction. It is a matter best addressed in costs.

[232] The same applies to the unproven allegation of fraud for Commanda. Karan Neil admitted that although she did not use the word fraud in the decision letter dated July 10, 2013 for the Commanda policy, she referenced the legislation in order to indicate that Robert had fraudulently misrepresented on his application. That is a matter to be addressed in costs.

[26] The defendants submit that another reason for denying the plaintiff substantial indemnity costs is because the plaintiff’s counsel’s refusal to consent to the amendment of the counterclaim resulted in a delay of the action from July 2015 until March 2019, when the amended claim was issued by the court. Even a cursory review of the dockets shows that this is not entirely the case – in some of that intervening period the plaintiff was also pursuing outstanding undertakings and refusals from the defendant (and perhaps vice versa), which resulted in a motion heard by Justice Minden on December 5, 2017 and an order for the defendants’ witness to reattend to complete the examination.

[27] Justice Minden also heard the defendants’ pleadings motion, and released a ruling on November 28, 2017 permitting the amendment and also permitting the plaintiff to examine the defendants’ representative on the issues raised by “amendments to the statement of defence and counterclaim”.

[28] The defendants’ submissions on this topic miss the point. The counterclaim did not succeed. A review of the dockets of the plaintiff’s counsel shows that significant resources and time went into considering and preparing to meet the defendants’ counterclaim. Subject to ensuring that there is no duplication for the costs already awarded on the motions, the plaintiff is entitled to be indemnified for the action and defending the counterclaim.

The R. 57.01 Factors

[29] The first factor under r. 57.01(1) is the principle of indemnity, including the rates charged.

[30] The plaintiff’s lawyers have had carriage of this brief since October 2013, now a period of eight years. The claim was issued over seven years ago. Over the course of those seven years, the following individuals have worked on the file: Senior lawyer Raymond Watt, whose year of call is 1985, associate lawyer Kate O’Malley, whose year of call is 2015, two senior law clerks with 33 and 28 years’ experience respectively, a “junior” law clerk with 12 years’ experience, and various articling students. The dockets indicate their full hourly billing rate: Mr. Watt $630, Ms. O’Malley $260 to $290, and all law clerks $230. These rates are within the usual and expected rates for a Toronto-based firm. The substantial experience of the law clerks merits the rate charged.

[31] The plaintiff submits that it would be fair and reasonable to use partial indemnity rates of $375 for Mr. Watt, $190 for Ms. O’Malley and $80 for the law clerks. The appropriate 60% calculation is $378, $156-$174 and $138. Close enough. As Boucher emphasizes, the goal is not to carry out a precise mathematical calculation of the costs incurred, but rather to fix costs in a reasonable amount.

[32] I agree with the defendants’ submission that the costs of the motions involved in this file have already been asked for and awarded. For the undertakings motion, $1,500 was awarded to the plaintiff. This does not come close to indemnifying her for the hours and fees involved. Costs were awarded against the plaintiff on the pleadings motion in the amount of $2,500. My approach to this is that, as costs have already been dealt with for the motions, most if not all of the hours claimed must be disregarded. However, on a substantial indemnity basis, this only amounts to $9,337 in the Bill of Costs provided to the court by the plaintiff.

[33] The second factor that I am required to consider is the amount of costs that an unsuccessful party could reasonably expect to pay. To address the expectations of the defendants, their counsel has attached a draft Bill of Costs. It shows that the total amount for fees in the action is $71,498 on a partial indemnity basis, plus HST. Of this amount, trial preparation time is approximately $26,136. The defendants’ counsel argues that the trial time consumed for each side’s evidence was much the same and each party called an equal number of witnesses. Documents were filed on consent. Significantly, the defendants bore the burden of proving fraud in the action, so counsel argues that their costs should be higher than the plaintiff’s costs.

[34] As Mr. Marta points out, both he and Mr. Watt have been members of the bar for approximately the same amount of time and both specialize in insurance litigation. Further, both had associate lawyers and law clerks assisting them throughout the entire trial. There is, however, a significant discrepancy between the actual rates charged to the defendants and those charged by plaintiff’s counsel. Mr. Marta’s actual rate is $340, Mr. Cottreau, who is a 2017 year of call, has an hourly rate of $175, and $145 for the law clerk. This significant difference in billing rates accounts for a good deal of the difference between final sums shown in the respective Bill of Costs of the parties.

[35] This court has no information about the fee arrangements made between the defendants and their lawyers, so comparisons are of little value. What is more important is that the defendants are sophisticated clients who would be well aware of the costs of litigation, the billing rates charged by law firms in the Toronto area, and the relative cost of litigating for seven years and conducting a six-day trial. I do not accept that the amount set out in either of the plaintiff’s Bill of Costs are outside of the defendants’ reasonable expectations.

[36] Another factor to consider is the amount claimed and the amount recovered in the proceeding. At stake here for the plaintiff was the total sum of $251,841.57 between the two policies, plus aggravated and punitive damages and prejudgment interest on part of those amounts. Her award totals $281,150.16, plus she retains the amount paid out on the Beaverton property of $130,691.41, all of which totals $411,841.57, plus prejudgment interest on part of that amount.

[37] The issues were not particularly complex, but there was a significant amount of evidence. The matter took six days to try; both counsel used the trial time efficiently and presented their cases concisely.

[38] Another factor is the importance of the issues. Part of my findings at trial were that the denial of the Commanda claim and the counterclaim regarding the Beaverton policy were substantial stressors for the plaintiff. Her late husband was the larger wage earner and his death left her reliant on the mortgage protection insurance. The financial insecurity that resulted was significant. In the face of the positions taken by the defendants, and the formal offers made by them, she had little choice but to see this litigation through to the end.

[39] Another factor is the conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding. As I have already commented, the entire counterclaim had no merit and added complexity and additional cost to this proceeding. As I have already commented, the defendants alleged in their counterclaim that the plaintiff withheld documentation from the defendants that she was obligated to produce. The paragraph in their counterclaim reads:

On June 16, 2013, in spite of her duty of utmost good faith, the Plaintiff provided only a portion of the clinical notes of the family physician from July 9, 2003 to April 17, 2007 to TD Life [“disclosure by the Plaintiff”].

[40] This allegation was part of an amended, amended statement of defence and counterclaim that was served approximately three weeks before the first day of trial. Part of my findings at trial were that that the clinical notes that were delivered by the plaintiff covering the period from July 9, 2003 to April 17, 2007 covered a period even greater than the period being requested by TD Life. I made a further finding that there was not a shred of evidence that the plaintiff breached a duty of utmost good faith in relation to the medical records. Nonetheless, it was advanced by the defendants and the plaintiff had to respond to the allegation.

Decision on Costs

[41] Taking all the above into account, I award costs to the plaintiff on a partial indemnity basis up to the date when Justice Minden ordered that the amended pleading could issue. Thereafter, it is appropriate to award costs on a substantial indemnity basis because of: the finding of reprehensible litigation conduct of the defendants in relation to the counterclaim, the unproven allegations of fraud, the timing and content of the plaintiff’s offer, and the defendants’ failure to accept the plaintiff’s reasonable offer.

[42] With regard to the two Bills of Costs that have been filed by the plaintiffs (which used different time periods for dividing when the different scales of costs might take effect) along with the dockets, and having regard to the issue of duplication for the motions, I find that a fair and reasonable amount to award for this action is the sum of $50,000 up to November 28, 2017, and $210,00 from that date, inclusive of HST and disbursements. This amount includes the time for cost submissions and production of the dockets.

[43] The defendant submits that some of the disbursements were incurred for the motions or are not recoverable under Tariff A. Also, the witness fee for Dr. Laudanski of $2,750 is not allowable as he is no longer a medical doctor even though he was the family’s treating physician. I agree with both of these submissions and have taken them into account in reducing the disbursements. However, these amounts are less than $4,000.

[44] Having considered the facts and the law and each of the factors set out in r. 57.01, and “stepping back” to consider the appropriateness of the costs overall, I find that an amount that is fair and reasonable to award to the plaintiff is $260,000 inclusive. Order to issue accordingly.

HEALEY J.

Date: October 21, 2021