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Insurer ‘playing hardball’ scores hefty fine

|Written By Judy van Rhijn

The Ontario Court of Appeal has hit an insurer with a $40,000 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.

‘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.

The dispute in Keam v. Caddey 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 appellant’s request for substantial indemnity costs.

He referred to the 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 differentiated between a refusal to mediate or settle based on an apparently reasonable assessment and high-handed behaviour.

Both levels of court characterized 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 possible.

She also found there are no exceptions to the obligations and no legitimate reason to refuse given that “it is this approach that the legislature has disavowed by making mediation 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.

Lawrence Hatfield, a partner at Flaherty Sloan Hatfield in Hamilton, Ont., who represented the plaintiff, feels the court has enforced what the legislature intended.

“Both parties are required to settle out of court, and insurers have an even higher onus to do it in a reasonable manner because of the inequity between insurers and accident victims,” he says. “When insurers lose cases, they write a cheque. When a plaintiff loses, it’s a financial disaster.”

Hatfield hopes the outcome will now change the insurer’s attitude. “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 insurance policy and paid premiums.

There is a fiduciary duty to assist, and when there is almost automatically an adverse attitude, it’s exasperating.”

In addition, Hatfield has observed 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 sentiment 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 the refusal to mediate was an important part of the appeal court’s decision, it was the insurer’s denial on the threshold issue that swayed the ruling in favour of the plaintiff.

Tom Ozere, regional leader of the insurance and tort liability 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 Injury 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 accident 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 concerned that even though the court’s intention in reinforcing the mandatory nature of mediation is good, the practicality doesn’t always work out. “Mediation 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 statutory 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 altogether. “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 define participation in mediation. “What happens at mediation is absolutely confidential,” he says. “An insurer could take a position similar to this case. Even if it makes a zero offer, it could still be participating.”

In Ozere’s view, such behaviour 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.”

  • Guest
    40 large is not hefty, however: therapeutic jurisprudence 1... willful disregard 0.
  • \"hardball\" revisted

    If this brand of insurer "hardball" generates a fine of 40K - what sort of fine (in the form of a special award) will FSCO award for a finding of "brazen discriminatory" claims handling (below). Talk about hardball!

    "...State Farm put forward no evidence or rationale justifying its use of common race or ethnicity as a suspicious factor. Mr. Rosen accused both Mr. Elaiathamby and his passenger of lying and attempting to commit insurance fraud, without introducing evidence of similar past or current conduct. His admission that he considered common race and ethnicity suspicious during the initial investigation couples with his evidence State Farm would not accept the legitimacy of the accident absent a videotape of the actual incident..."

    "...State Farm's imposition of this extremely high burden of proof together with the unsubstantiated accusations and explicit racial consideration persuades me the adjustment of Mr. Elaiathamby's claim has been tainted by brazen discrimination since inception. These practices must not be condoned, and may be subject to further investigation, condemnation or penalty by other authorities..."

    10/01/2010 Elaiathamby and State Farm - Appeal
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