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Cost award could drain Class Proceedings Fund

|Written By Daryl-Lynn Carlson

Amid several pending class action motions and decisions that stand to make an impact is one that lawyers say could drain the Class Proceedings Fund.

Ian Leach says the judge affirmed substantial indemnity costs were appropriate where the plaintiffs had advanced allegations of fraud.

The fund, run by the Law Foundation of Ontario to assist plaintiffs with their claims, is seeking leave from the Court of Appeal to reverse cost awards decided in favour of auto insurers that at one time faced upwards of 35 national class proceedings in what’s become known as the “salvage litigation.”

The flurry of actions was filed on the heels of a preliminary ruling in the first case, McNaughton Automotive v. Co-operators General Insurance Co., wherein the Court of Appeal held that the pleadings disclosed a cause of action. (McNaughton remained successful, but as a stand-alone case, not a class action.)

Under case management, the actions were all assigned to Justice Roland Haines in London, Ont., where much of the first litigation was started.

The actions challenged an auto insurer’s right to apply a deductible in situations where insured vehicles had been rendered total write-offs in crashes and where the insurer had reclaimed the vehicles as salvage after paying out the cash value of the damaged vehicles.

Ian Leach, a partner at Lerners LLP in London, which acted for many of the insurance companies, says in substantive terms the various class proceedings and related appeals are now “on life support” pending the fund’s effort to have the Court of Appeal reverse the cost determinations made in favour of the successful insured persons.

“Justice Haines decided that the successful insurers should be entitled to costs of these actions, many of which were dismissed for reasons entirely unrelated to the underlying cause of action,” says Leach.

He adds that the judge affirmed substantial indemnity costs were appropriate where the plaintiffs had advanced allegations of fraud.

“The fund chose to back all of these actions right across the board, even after a number had been dismissed at first instance,” Leach says.

“And, of course, they are now all going down the tube. So the Class Proceedings Fund is on the hook for any adverse cost awards to the insurance companies.

“You can just imagine five to seven years of litigation by 20-plus law firms, including many of the premier law firms in Ontario, defending these actions,” says Leach. “There are many, many millions of dollars at stake.”

A law foundation director declined to comment on the matter while it is before the courts.

The Class Proceedings Fund supports plaintiffs with some costs and disbursements to facilitate access to justice, and in return gleans 10 per cent of successful class settlements.

Reflecting on the litigation, Leach says in the wake of the initial, successful Court of Appeal ruling, “A lot got missed in the rush to start these actions. People were so anxious to stake their claims that they didn’t always select proper representative plaintiffs, and insurance companies called them on that.”

He says insurers were particularly troubled by allegations of fraud and deliberate misconduct made in many of the actions, which at the time garnered coverage by the press.

Michael Eizenga, whose firm Siskinds in London represented the Co-operators in McNaughton, adds that the original motion for certification was made by application rather than statement of claim.

“The actual merits of the case were decided at the same time as certification,” he observes. “The Co-operators, my client, won on merits of the case. But certification was also granted.”

When certification was overturned, the case moved through the appeals courts, at one time making a failed application to the Supreme Court of Canada.

“The net result is, in a case where the plaintiff chooses to bring a case in such a fashion as to have a substantive determination in advance of certification, that determination cannot be binding on the rest of the class unless or until there is a certification, it will not mean res judicata for the rest of the class,” says Eizenga.

As a significant case law development, McNaughton and the slew of salvage litigation “probably will reinforce, for the most part, the traditional way of brining class proceedings,” Eizenga suggests.

“If you bring your class proceedings, there may be some preliminary motions, but there should be a certification order before you get a decision on the underlying merits of the case.”

Says Eizenga: “I think it’s the first time this sort of thing has happened and it’s a significant statement of what should be the common sense position of the law.”

Another case winding its way towards resolution is the native residential school class action, in which final approval of the settlement was granted March 8.

The settlement was reached following a meeting by a panel of nine provincial and territorial judges in Calgary in January and an unprecedented joint sitting of all their courts to render final approval.

At least $1.9 billion will be paid out under this part of the settlement. Russell Raikes of Cohen Highley LLP - with counsel at Koskie Minsky LLP - launched the action for former students of the Mohawk Institute Residential School in Brantford, Ont.

Greg Monforton, of Greg Monforton and Partners in Windsor, Ont. and president of the Ontario Trial Lawyers’ Association, says class actions in Canada can be increasingly effective, “So long as plaintiffs’ class counsel in the various provinces team up and present a common front.”

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