Tort Defendants Responsible for Accident Benefit Arbitration Costs

Posted June 1, 2017
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Access to justice is being denied for injured Ontario motorists as a result of the mandated use of the Licence Appeal Tribunal (LAT) as the exclusive means to resolve all accident benefit disputes given that the LAT does not allow a claimant to recover any dispute costs. But, thankfully, the courts have found a back-door way to award arbitration costs to injured motorists as part of tort cost awards.

Effective April 1, 2016, the Ontario government controversially eliminated the option to advance accident benefit disputes in the courts, where equitable remedies such as punitive damage awards would be available to punish improper conduct and where cost provisions would require unsuccessful litigants to pay part of the successful litigant’s costs. Instead, the government introduced a “no-cost award” arbitration system through the LAT leaving injured motorists who feel mistreated by their accident benefit insurer to have to shell out unrecoverable funds to commence a dispute, including paying a mandatory filing fee.

While Rule 19.9 of the LAT rules of practice and procedure states that “where a party believes that another party in a proceeding has acted unreasonably, frivolously, vexatiously, or in bad faith, that party may make a request to the tribunal for costs.” In the one year since the LAT’s introduction, there have been only two cases where costs were awarded. The costs awarded in those two cases were a whopping $250 to the claimant (see M.M.S. v. Wawanesa Mutual Insurance Company 2017 CanLii 9818 ON LAT and B.F. v. Wawanesa Mutual Insurance Company 2017 CanLii 9821 ON LAT).

The extremely modest nature of the cost awards made in the LAT for unreasonable conduct by insurers is surprising in light of the comments by adjudicator Chloe Lester in M.M.S. that “the award should be set high enough to discourage the conduct from occurring again.” Can a $250 cost award against an insurer really be a deterrent?

Moreover, LAT arbitrators have highlighted the fact that the restrictive cost provision in Rule 19.9 references conduct “in a proceeding” (which is defined in s. 2.17 of the rules to mean “the entire tribunal process from the start of an appeal to the time a matter is finally resolved”) such that only conduct before the tribunal itself can be addressed through a cost award, rather than conduct by the insurer that gave rise to the dispute.

For example, arbitrator Chris Sewrattan in P.B. v. RBC Insurance 2017 CanLii 9816 (ON LAT) states that “Rule 19.1 only allows for costs where the impudent party’s conduct occurs in a proceeding before the tribunal.” Sewrattan decides not to award costs against the insurer noting that “assuming RBC’s conduct is improperly impugned, which is itself doubtful, it arose prior to the tribunal’s proceeding.”

In other words, conduct by the insurer that leads to the dispute, which would have previously been subject to a bad faith claim in court, is now completely immune from independent review and financial penalty.

The harsh reality of the LAT process is that injured claimants, already facing major financial crisis as a result of their injuries, must now bear their own costs to challenge controversial denials by enormous insurers. To the injured claimant, this means that they cannot practically and economically access the very system that was meant to help them resolve legitimate disputes.

The courts have, however, tried to creatively address this issue by making it clear that arbitration costs can legitimately be covered as part of tort cost claims (see Carr v. Modi 2016 ONSC 1300, as affirmed 2016 ONSC 7255).

In Carr v. Modi, plaintiff’s counsel requested costs from the tort defendant including legal fees associated with the accident benefit arbitration. Notably, plaintiff’s counsel had successfully claimed and had been awarded “expenses” of $15,435 for fees plus disbursements of $11,234.63 by the arbitrator as part of the accident benefit income replacement dispute under the then FSCO dispute process. As part of the tort cost claim, plaintiff’s counsel demanded additional arbitration costs arguing that the costs awarded in the arbitration were inadequate given the limitations of the dispute resolution practice code under the previous FSCO regime (which was much more generous than the current LAT system).

The court reviewed the legal basis for this claim and ruled that the plaintiff’s arbitration served to benefit the tort defendant such that the tort defendant should be responsible for the plaintiff’s legal fees. Accordingly, an additional arbitration fee of $24,218.25, plus disbursements of $6,296.27 was awarded as a top-up of the expenses previously awarded at the arbitration.

In Carr, Justice Anne Molloy, writing for the Divisional Court, states: “As a question of law, we agree with the conclusion of the motion judge that the recovery of SABS may be a benefit to a defendant and therefore the costs of obtaining same may be recoverable by the plaintiff against the defendant. We find this to be a correct statement of the law.”

As a result of Carr, plaintiff’s personal injury counsel will be holding tort defendants responsible for the costs of LAT disputes on the basis that the dispute serves to reduce the tort defendant’s financial exposure. For example, a dispute to have somebody qualified as “catastrophically impaired” is of significant benefit to a tort defendant and, while those significant arbitration costs cannot be recoverable in the LAT process, plaintiff’s counsel will make sure the tort defendant understand that they will be responsible for those costs. Unfortunately though, those without viable tort claims will have no ability to recover costs and will be denied access to justice.

Darcy Merkur is a partner at Thomson Rogers in Toronto practising plaintiff’s personal injury litigation, including plaintiff’s motor vehicle litigation. He has been certified as a specialist in civil litigation by the Law Society of Ontario and is the creator of the Ontario Personal Injury Damages Calculator.

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