Solicitor for LTD Claimant Personally Liable for Costs of Third Party Proceedings Against Insurer’s Employees

In a ruling that is certain to send a chill through the plaintiffs’ bar, Madam Justice Anne Molloy has ordered a solicitor who was representing a disability insurance claimant to pay costs of an abortive third party proceeding against the insurer’s employees.

In The Standard Life Assurance Co. v. Elliott, Standard Life was suing its policyholder, Elliott, for repayment of LTD benefits that it said had mistakenly been paid to Ms. Elliott. A statement of defence and counterclaim was filed by Elliott. She also issued a third party claim against her employer and “against every individual past and present employee of Standard Life who had ever handled her file”, seeking contribution or indemnity from the third parties.

Because Standard Life had acknowledged, in its statement of defence (to the counterclaim, presumably), that it was vicariously liable for the acts of its employees, the third party claim was struck out as against all of its employees. Justice Molloy found that those third party claims were an abuse of process. She said in her endorsement (which preceded the ruling to which this post relates), that “there can be no situation in which the defendant could be unsuccessful against Standard Life but successful against the employees. It is logically impossible.”

Standard Life sought costs against Elliott’s solicitor personally. This necessitated a new hearing, with separate representation of Elliott and the solicitor and the filing of additional material.

The evidence placed before the Molloy J. for the costs hearing included an affidavit from Ms Elliott, who said that she had been aware of all steps that her solicitor had taken and that he had acted on her express instructions. It is also noteworthy that Ms. Elliott is a well-educated woman with an M.B.A.

Justice Molloy first considered what was the appropriate scale of costs. She viewed the suit against of Standard Life’s employees as “a tactic to put pressure on Standard Life to settle on terms advantageous to his client and to obtain the procedural advantage of multiple examinations for discovery of all employees of Standard Life”. She was also critical of Elliott’s lawyer for “repetitive and lengthy correspondence” and other steps in the case that, in her view, had unnecessarily added to the cost. In finding that costs should be awarded on a substantial indemnity basis, she said, “this kind of tactical litigation is not conducive to the legitimate settlement of disputes in our judicial system”.

Her Honour then turned to the issue of whether costs should be payable by the solicitor personally. Counsel for the solicitor argued that Standard Life had targeted him [the solicitor] “so that he may be made an example of what happens to aggressive plaintiff lawyers who take on insurance companies”. However, Justice Molloy said “there is no evidence whatsoever to support that accusation”.

Her Honour also rejected the submission, that before a lawyer can be required personally to pay costs, there must be a finding of bad faith or dereliction of duty. She acknowledged that the power, conferred by Rule 57.07, to award costs against solicitors personally, should be exercised “sparingly and only in exceptional circumstances”. In this case, she even conceded that the solicitor had cited some authority for the position that he had taken and that that position “was not totally devoid of merit”. But in the end, she ruled that the steps taken had been part of “a war of attrition” against Standard Life and that the solicitor “was using the Rules as a weapon in his war against the insurer, rather than as a mechanism for obtaining a fair and just result for his client.”

Molloy J. ordered that both Ms. Elliott and her lawyer be jointly and severally liable for Standard Life’s substantial indemnity costs. The quantum of those costs is to be fixed at a later hearing but it appears that the legal fees awarded will be in the neighbourhood of $40,000.

An appeal has been taken from the original order of Molloy J., dismissing the third party claim as against Standard Life’s employees. No word yet on an appeal of the costs decision.



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