Law Times

PAGE 12 FOCUS OcTOber 18, 2010 • Law Times Insurer 'playing hardball' scores hefty fine BY JUDY VAN RHIJN For Law Times penalty for refusing to mediate a dispute it considered to be under the statutory threshold for personal injury damages, a move that reinforces the notion that even private mediation is in fact mandatory. The dispute in Keam v. Cad- T dey arose out of a motor vehicle accident in which Glen Keam suffered personal injuries. The defendant's insurer defended the action. In the meantime, Keam's representatives sent two formal requests for private mediation that referred to cost consequences for refusal. The first request was completely ignored. The second elicited a response claiming the insurer didn't believe the injuries met the threshold test under s. 267.5(5) of the Insurance Act. The trial judge, Superior Court Justice Alan Whitten, found the claim met the statutory threshold but accepted the insurer's position as legitimate and declined the ap- pellant's request for substantial in- demnity costs. He referred to the he Ontario Court of Appeal has hit an in- surer with a $40,000 Supreme Court decision in Young v. Young, which said that the type of conduct necessary to attract substantial indemnity costs must be "reprehensible, scandalous or outrageous." He also differenti- ated between a refusal to mediate or settle based on an apparently reasonable assessment and high- handed behaviour. Both levels of court char- acterized the insurer's tactic as "hardball," but the trial judge found it wasn't malevolent. The appeal court decision, written by Justice Kathryn Feldman, took a different approach. She said there are two obligations on the parties: to participate in mediation and to attempt to settle as expeditiously as pos- sible. She also found there are no exceptions to the obliga- tions and no legitimate reason to refuse given that "it is this approach that the legislature has disavowed by making me- diation mandatory." As a result, Feldman found the insurer's non-compliance attracted a significant penalty by ordering a $40,000 increase in the costs to reflect the court's censure and provide a significant recovery for the appellants. Trust [ cheque. When a plaintiff loses, it's a financial disaster." Hatfield hopes the outcome 'I told them my personal opinion was that this insurer needed to be sent a message and not by a lower court,' says Lawrence Hatfield. Lawrence Hatfield, a part- ner at Flaherty Sloan Hatfield in Hamilton, Ont., who rep- resented the plaintiff, feels the court has enforced what the legislature intended. "Both par- ties are required to settle out of court, and insurers have an even higher onus to do it in a reason- able manner because of the in- equity between insurers and ac- cident victims," he says. "When insurers lose cases, they write a will now change the insurer's at- titude. "To meet the threshold to successfully bring a lawsuit, you need to show that an injury is permanent and serious. What happens is that when clients with soft-tissue injuries miss a minimal time from work, some insurers won't pay at all. My clients have bought an insur- ance policy and paid premiums. There is a fiduciary duty to assist, and when there is almost auto- matically an adverse attitude, it's exasperating." In addition, Hatfield has ob- served that when his clients have assets, they are more likely to have to go to court. "The approach is to go after what I call vulnerable clients to whom going to court represents a huge risk. There needs to be something to check that sort of behaviour." Hatfield conveyed this senti- ment to the appeal panel when it asked him whether it should send the matter back to the lower court. "I told them my personal opinion was that this insurer needed to be sent a message and not by a lower court," he says. "Now, if the insurer takes that approach and loses, it loses hard. That's a powerful message. I say, 'If you live by the sword, you die by the sword.'" Hatfield adds that while Every time you refer a client to our firm, you're putting your reputation on the line. It's all about trust well placed. the refusal to mediate was an important part of the appeal court's decision, it was the in- surer's denial on the threshold issue that swayed the ruling in favour of the plaintiff. Tom Ozere, regional leader of the insurance and tort liabil- ity group at the Ottawa office of Borden Ladner Gervais LLP, thinks the decision will have a limited effect in jurisdictions that have mandatory mediation. "The sanctions in the rules are dramatically different from what the Court of Appeal said," he notes. "In jurisdictions that don't have mandatory mediation, the effect will be that parties must participate if one of the parties requests it. It goes both ways. An insurer could request it, and I would expect the same result will follow." Brian Goldfinger, directing lawyer at Goldfinger Personal In- jury Law, is hopeful the decision could lead to more reasonable behaviour and quicker results but considers the $40,000 sum a mere slap on the wrist. "To an accident victim who was making $40,000 a year before the acci- dent and now making nothing, it's a hell of a lot of money, but you're talking about companies that report billions of dollars in profits every year." Goldfinger is also con- cerned that even though the court's intention in reinforcing the mandatory nature of me- diation is good, the practicality doesn't always work out. "Me- diation takes two to tango," he says. "There's such a thing as bad-faith bargaining, where they set up mediation just for the sake of fulfilling the statu- tory requirement. They hire the cheapest mediator and sit at the table but offer zero dollars the whole time." In that scenario, Goldfinger thinks the parties may be better off waiving mediation altogeth- er. "It's a waste of everybody's money if they are not taking it seriously." Ozere, meanwhile, points out that the appeal court didn't de- fine participation in mediation. "What happens at mediation is absolutely confidential," he says. "An insurer could take a posi- tion similar to this case. Even if it makes a zero offer, it could still be participating." In Ozere's view, such behav- iour might not amount to bad faith. "We have an adversarial system," he says. "The insurer may take a tough position and have a legitimate defence. It's a matter of risk analysis." 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