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Refusing to mediate in motor vehicle accident cases means punitive costs

In motor vehicle accident claims involving personal injuries, parties often agree to sit down to a mediation.  I like to think that the parties agree to do so because of the obvious benefits of mediation: maintaining control over the process and saving time and money by preventing drawn out litigation. 

But many may not realize that section 258.6 of Ontario's Insurance Act requires participation in mediation whenever it is requested in motor vehicle accident claims. The section reads:

Mediation

258.6 (1) A person making a claim for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile and an insurer that is defending an action in respect of the claim on behalf of an insured or that receives a notice under clause 258.3 (1) (b) in respect of the claim shall, on the request of either of them, participate in a mediation of the claim in accordance with the procedures prescribed by the regulations.

The regulations set out the following procedure for participation in mediation:

3. (1) If a request for mediation is made under subsection 258.6 (1) of the Act, the plaintiff and the defendant’s insurer shall, within 10 days after the request is made, agree on and appoint a person to be the mediator. 

(2) If the plaintiff and the defendant’s insurer are unable to agree on the appointment of a mediator, each of them shall, within 10 days after the request is made, name a person to participate in the mediator’s appointment, and the two persons named shall together appoint a person to be the mediator. 

(3) The mediation shall begin on a date agreed to by the plaintiff and the defendant’s insurer or, if they are unable to agree on a date, within 14 days after the mediator is appointed.

(4) The mediator may adjourn the mediation, with or without conditions,

(a) if the plaintiff or the defendant’s insurer is represented in the mediation and the representative is not authorized to bind the person he or she represents; or

(b) the plaintiff or defendant is not present at the mediation. 

(5) The mediator shall give the plaintiff and the defendant’s insurer a written report identifying the issues that were settled and the issues that remain in dispute. 

(6) The defendant’s insurer shall pay all reasonable fees and expenses of the mediator.

Section 258.6 of the Insurance Act goes on to say that where a lawsuit has been commenced over the claim, a failure by either party to attend at mediation when requested may result in increased costs following trial:

Failure to comply

(2) In an action in respect of the claim, a person’s failure to comply with this section shall be considered by the court in awarding costs.

Courts in Ontario have not held back in enforcing these provisions and have issued increased costs awards against the party who refused to mediate.  Some lessons may be learned from these cases.

Keam v. Caddey, 2010 ONCA 565

In Keam v. Caddey, the plaintiff made two formal requests for private mediation. The defendants' insurer did not respond to the first request and responded to the second request by taking the position that they were not required to participate in mediation as the plaintiff's injuries did not meet the threshold under the Insurance Act. The plaintiff was successful at trial and sought substantial indemnity costs as a remedy for the insurer's failure to participate in mediation. While the trial judge found that the refusal to mediate was a "genuine available position" and did not attract cost consequences under s. 258.6(2) of the Act, the plaintiff was successful on appeal to the Court of Appeal who awarded the plaintiff an additional $40,000 in costs as a "significant remedial penalty". 

Justice Feldman described the rationale for s. 258.6 as follows:

[20] Sections 258.5(1) and 258.6(1) are directed at an insurer that is defending a claim for personal injuries arising out of an automobile accident. The sections impose two obligations on the insurer. Section 258.6(1) makes participating in mediation mandatory when requested, while s. 258.5(1) requires the insurer to attempt to settle the claim as expeditiously as possible. Sections 258.6(2) and s. 258.5(2) provide the sanction for non-compliance with the statutory duties: the court is required to consider the insurer's failure to comply when awarding costs following trial.

[21] The legislature has clearly determined that in every case where one party is willing, mediation is the best way to try to promote the settlement of claims and to avoid the expense of a possibly lengthy and certainly costly trial. The legislature has provided no exceptions to this policy or to the obligation to mediate that it has imposed to implement the policy.

[22] Because there are no exceptions to the obligation, the insurer has no option whether or not to participate. There can be no legitimate reason to refuse to participate because to elect not to participate constitutes a breach of the insurer's statutory obligation.

[23] In this case, the respondents' insurer took the position that the claim did not meet the threshold and therefore there was nothing to negotiate. However, it is this approach that the legislature has disavowed by making mediation mandatory. Rather, the legislature's approach recognizes that participation in mediation could have a salutary effect on one or both sides, with input from an experienced and respected mediator.

The court went on to consider what costs should be awarded as a result of the insurer's failure to attend a mediation. Rather than award substantial indemnity costs for the breach of the Insurance Act, the court determined that an award of a "remedial penalty" should be awarded instead, even if the offending party is successful at trial: 

[26] The cost consequences will follow whether the plaintiff or the defendant has been successful at trial, so that, for example, where a plaintiff's claim is dismissed, the trial judge may deprive the winning defendant -- represented by the insurer that refused to accept a request to mediate -- of all or part of its costs that would normally follow the event.

[27] The reason a costs sanction for failure to comply with provisions intended to facilitate early settlement is an appropriate legislative choice was explained by Morden J.A. in McCombie v. Cadotte, at para. 18:

[F]ailure to comply with a request in s. 258.3(1) [plaintiff required to attend a defence medical before commencing an action] can lead only, in some cases, to a claim not being settled as soon as it might otherwise have been settled if there had been compliance. In these circumstances, the consequence is [page632] that more time and expense would have been spent on the claim than, possibly, should have been spent. It seems to me that the possible costs sanctions provided for in ss. 258.3(9), 258.5(5), and 258.6(2) are responses logically tailored to remedy the effect of non- compliance. The failure to settle sooner results in increased costs; accordingly, the remedial penalty is to be incorporated in the costs order in the proceeding. (Emphasis added)

[28] Morden J.A. describes the costs sanction as a "remedial penalty". It is remedial because it is intended not only to compel compliance by insurers with an important statutory purpose, but also to provide a remedy to the other party who was deprived of the opportunity for an early settlement of the claim. It is a penalty because it is not intended to be merely compensatory of costs unnecessarily incurred by the other party or parties, as that objective is already addressed by other costs provisions of the Rules of Civil Procedure, but to provide a meaningful consequence to an insurer that elects not to comply.

[29] The legislature chose not to provide a specific cost consequence for an insurer's failure to participate in mediation, such as substantial indemnity costs against a losing defendant or deprivation of full costs of a winning defendant. Instead, the trial judge is accorded the discretion to determine the appropriate cost consequence in each case. In summary, where an insurer breaches s. 258.6(1), s. 258.6(2) requires the trial judge to ascertain the appropriate remedial costs penalty in the circumstances.

While the Court of Appeal has spoken loudly and clearly that a refusal to participate in mediation results in remedial costs penalties following a trial, it has also made it clear that s. 258.6 does not necessarily require the court to delve into the substance of the mediation.

Ross v. Bacchus, 2015 ONCA 347

In Ross v. Bacchus, about three weeks before the trial was to commence, counsel for the plaintiff offered to settle the claim for $94,065, plus prejudgment interest and costs and requested mediation for the first time. Counsel for the defendant replied to the offer the next day with an offer to settle for $30,001, plus prejudgment interest and costs and agreed to a half-day mediation, but advised “[the insurers] are not interested in settling this case.”

A half-day mediation was held four days before the trial commenced and ultimately failed in resolving the dispute.  After a six-day trial, the jury awarded the plaintiff damages of $248,000. The trial judge reprimanded the conduct of the defendant by awarding $60,000 in costs to the plaintiff for the insurer's failure to comply with the Insurance Act.  The Court of Appeal allowed the insurer's appeal on the issue of the costs penalty, acknowledging that the evidence showed that the insurer had made offers to settle the claim and had attended the mediation requested by the plaintiff and therefore had met its obligations under the Insurance Act.  Writing for the Court, Justice Doherty stated:

[46]      The costs sanctions in ss. 258.5 and 258.6 can only serve their intended purposes if the facts justify the imposition of those sanctions. An insurer’s statement on the eve of trial that it is not prepared to settle a claim cannot be equated with an insurer’s failure to “attempt to settle the claim as expeditiously as possible.” Nor can an insurer who actually participates in a mediation be declared to have failed to participate simply because the insurer indicated prior to the mediation that it was not prepared to settle the claim. A clear statement of the insurer’s position going into the mediation, even a strong statement, does not preclude meaningful participation in a mediation.

[47]      There is no evidence that the appellant’s insurer failed to attempt to settle this claim as expeditiously as possible. The appellant made an “all-in” offer to settle for $40,000 in August 2011, less than one year after the action was commenced.  The respondent’s Rule 49 offer, his request for mediation and the mediation itself all occurred less than three weeks before the commencement of the trial.  The appellant counter offered during that same period and attended the mediation.

[48]      There is also no evidence that the insurer did not participate in the mediation in a meaningful way. The trial judge assumed that because the insurer’s counsel advised that his client was “not interested” in settling the case, the insurer’s subsequent participation in the mediation was “a sham.” The assumption was unwarranted. A firm position strongly put going into mediation does not preclude meaningful participation in the mediation.  In any event, the insurer had made a settlement offer which was not revoked before trial.

The Court of Appeal refused to address in the decision whether or not the insurer's participation in the mediation was meaningful since there was no evidence adduced as to the manner in which the mediation proceeded.  The issue of how deeply a court will delve into the nitty-gritty of the conduct of a mediation protected by settlement privilege and whether or not it was meaningful is therefore left for another day (and another blog post).

Commentary

The law of the land in Ontario appears to be that there is an obligation on insurers (and plaintiffs for that matter) to participate in mediation when requested in the MVA litigation context.  Failure to do so will result in a discretionary punitive costs award or "remedial penalty".  The courts, however, seem unwilling to prescribe the extent by which parties must participate in the mediation.  It is acknowledged that parties still have a right to trial and that a hard-line approach at mediation may still be considered meaningful participation.  If a hard-line approach is taken, mediation may yet still be productive as the parties may discuss openly why the position is what it is.  Even if mediation is ultimately unsuccessful the parties may be able to narrow the issues for trial and know that they are going to trial having explored all settlement avenues and not face a punitive costs awards.

Eckart Mediation is available for mediating motor vehicle accident injury claims including statutory accident benefit disputes.  Consult my schedule and e-mail me to book a date.