In cases that involve a plaintiff delivering an offer to settle that is rejected by the defendant, the Courts rely on Rule 49.10(1) of the Rules of Civil Procedure in determining the amount of legal costs. Rule 49.10(1) states:
49.10 (1) Where an offer to settle,
(a) is made by a plaintiff at least seven days before the commencement of the hearing;
(b) is not withdrawn and does not expire before the commencement of the hearing; and
(c) is not accepted by the defendant,
and the plaintiff obtains a judgment as favourable as or more favourable than the terms of the offer to settle, the plaintiff is entitled to partial indemnity costs to the date the offer to settle was served and substantial indemnity costs from that date, unless the court orders otherwise.
A recent decision from the Superior Court of Justice outlined the importance of Rule 49 offers and the consequences that accompany such offers. In Persampieri v. Hobbs, the insurer, Aviva, made a tactical decision to reject a Rule 49 offer that the plaintiff ended up beating at trial.
Mrs. Persampieri was an 84-year old woman who was rear ended by a driver who was insured by Aviva. Even though liability was admitted, Aviva took a strong position on threshold under section 267.5(5) of the Insurance Act and refused to pay any damages to the plaintiff. On May 15, 2017, the plaintiff served Aviva with a Rule 49 offer to settle her claim for damages for only $10,000, without pre-judgment interest, plus partial indemnity costs. Trial was held from May 29, 2017 to June 15, 2017. Although the plaintiff was awarded only $20,414.83 for her damages, the court ordered costs of $237,000 against the insurer, payable to the plaintiff.
The main issue in regards to costs was whether the amount should reflect all reasonable costs of trial, as submitted by plaintiff’s counsel, or whether it should proportional to the ultimate verdict, as submitted by defence counsel.
Justice Sanderson held that insurers that take positions on modest claims that necessitate a trial should not be allowed to rely on a strict application of the proportionality principle in determining costs. Justice Sanderson stated that Aviva was a sophisticated insurer that made a tactical decision to reject the plaintiff's Rule 49 offer. Furthermore, Aviva knew or ought to have known that resolving issues at trial involved a lengthy hearing and costly evidence.
Justice Sanderson went on to note that when Insurers take such hardline positions on legitimate claims it can discourage plaintiffs from pursuing such actions, and that could seriously jeopardize overall access to justice. Justice Sanderson stated “even though Insurer’s are able to pursue whatever strategy option they deem fit, the use of such strategies should not be encouraged by the giving of cost breaks on foreseeable cost consequences”.
Justice Sanderson found the plaintiff's evidence to be reasonable and ordered the defendant’s to pay costs of $237,017.50 to the plaintiff.
The full decision of the Ontario Court of Justice can be read here.
An article on the decision in the Toronto Sun can be read here.