Court Ignores Past Collateral Benefits in Evaluating Rule 49 Offer

Bad news for insurers. In Ksiazek v. Newport Leasing Limited, Mr. Justice C. Raymond Harris extended the application of the Court of Appeal’s decision in Rider v. Dydyk and ruled that a defendant’s offer to settle should be compared with the gross damages awarded to the plaintiff, with no reduction for statutory accident benefits that were deductible from the award.

The action arose out of motor vehicle accident. At trial, the plaintiffs (the injured person and several FLA claimants) were awarded damages totalling $131,100. After subtracting the value of accident benefits that had been paid to the injured plaintiff (as required by the Insurance Act), the value of the claim dropped to $69,000.

The defendant had made two settlement offers, for $70,000 and $147,000. It argued that it was entitled to costs after the date of its first or its second offer. Instead, Justice Harris awarded partial indemnity costs to the plaintiff throughout.

He reached his conclusion based on the Court of Appeal’s decision in Rider, supra. There, the court held that for purposes of evaluating Rule 49 offers, the statutory amounts deductible from awards of non-pecuniary damages were not to be taken into account. The offer is to be compared with the gross award of damages, not the award net of the statutory deductible.

In the present case, the defendant the Regional Municipality of Halton was “unprotected” under the Insurance Act, so the statutory deductibles did not come into play. That defendant was vicariously liable to the plaintiffs as employer of the negligent driver. Income replacement benefits had been paid to the injured plaintiff prior to trial and the parties agreed that those payments wiped out the damages awarded for loss of income and future care. Justice Harris referred to the Court of Appeal’s decision in Vollick v. Sheard, where it had been held that “an owner qua employer does not have immunity under Bill 59 for the negligent operation of a motor vehicle by an employee in the course of her or his employment”.

Justice Harris said that Rider and Vollick “support the plaintiffs’ submissions that the costs determination should be made by considering the total judgment awarded and is not ‘net of deductions’ as the defendants claimed. Therefore, the Offers to Settle will be compared to the total damages awarded at the end of the trial.”

It is difficult to see how this can be correct. Rider was based on a specific provision in the Insurance Act, that says that “the determination of a party’s entitlement to costs shall be made without regard to the effect of [the statutory deductible] on the amount of damages, if any, awarded for non-pecuniary loss.” No corresponding provision exists for collateral benefits. Rather, s. 267.8 of the Insurance Act says that “[i]n an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the damages to which a plaintiff is entitled for income loss and loss of earning capacity shall be reduced by the following amounts” (and then goes on to list various types of collateral benefits, including statutory accident benefits).

(The decision is also difficult (well, impossible) to reconcile with the ruling of Justice Charles Hackland in Abel v. Hamelin, where His Honour evaluated a Rule 49 offer by deducting the present value of future collateral benefits.)

Rule 49.10, which deals with the costs consequences of offers to settle, says that where a defendant makes an offer “and the plaintiff obtains a judgment as favourable or less favourable than the terms of the offer, the plaintiff is entitled to partial indemnity costs to the date the offer was served and the defendant is entitled to partial indemnity costs from that date, unless the court orders otherwise”. [Emphasis added] Here, the global damages judgment that was obtained by the plaintiffs was less favourable than both defence offers. There is no justification, that we can see, for evaluating Rule 49 offers before deducting the collateral benefits received by the plaintiffs, when the plaintiffs are only entitled to judgment for the net amount.

This ruling will make it very difficult for defendants in MVA cases to serve effective offers to settle. In this case, for example, for the defendant to have made an offer that might have triggered costs consequences under Rule 49.01, it would have had to add $62,000 (the value of the accident benefits already paid) to its offer. In serious cases, that number could be much higher, sometimes in the hundreds of thousands of dollars. It would then be open to the plaintiffs to accept the offer; they would not then have to give back the double compensation received. That doesn’t make sense.

There were some other noteworthy aspects of Justice Harris’ decision.

  • He observed that the defence offer had provided for the payment of prejudgment interest to the date of the offer instead of to the date of trial. He compared the damages and interest to the date of the offer with the gross damages and interest to the date of trial. The amount of the offer was still greater, but by only $4,612.65.
  • He also observed that the judgment at trial had been “considerably more favourable” for the FLA plaintiffs than the offer had been.
  • The defence offer was “non-severable”, meaning that it was not open to the plaintiffs to accept some parts without accepting all. Justice Harris referred to a decision of Justice Sachs in Lumsden v. Delpeche, in which a non-severable offer was found not to engage the costs consequences of Rule 49.10, even though the overall recovery by the plaintiffs was less than the amount of the defence offer. Because the FLA plaintiffs in the present case did better at trial than the amount offered to them, the defence offer was held to be ineffective.

Justice Harris went on to find, in the alternative, that even if the defence offer was better than the plaintiffs’ recovery at trial, he would exercise his discretion and deprive the defendants of the costs that would otherwise be payable under Rule 49.10. He gave the following reasons for exercising his discretion in that way:

[T]he decision to depart from the normal application of the rule is arrived at on the basis of:

a)  The Family Law Act claimants obtained a more favourable result than the defendants offer.

b)  The plaintiffs were successful on their motion at the outset of trial to have the defendant Regional Municipality of Halton declared an unprotected defendant. Costs of that motion were reserved to the trial.

c)  The difference between the Offer and Judgment is not large.

d)  The difficult nature of the case.

e)  The great expense to which the plaintiffs had been put in their efforts to get to trial.

f)  The financial loss suffered by the plaintiffs as a result of the accident.

g)  The plaintiffs were successful in obtaining considerable damages.

h)  The plaintiff, Margaret Ksiazek, has suffered very serious damage.

i)  The plaintiffs are of limited means in contrast to the insured defendant. The plaintiff, Margaret Ksiazek, does not work as she looks after her young children. The family’s only source of income is her husband’s seasonal income as a bricklayer. A costs award against them would be devastating.

j)  The plaintiffs have incurred onerous costs in amassing the evidence required to prove the case.

k)  Although the Offer of the defendant was backdated to February 10, 2005 on consent, it was not made until August 11, 2005, after the motion determining that the employer was not a protected defendant was heard. At this point in time, the trial had already begun. Therefore, the main reason behind rule 49.10, the avoidance of costly litigation, is not defeated by “ordering otherwise”.

l)  The difference between the offers is $4,612.00, or 2.7 percent of the $170,053.00 judgment.

Accordingly, the plaintiffs were awarded partial indemnity costs throughout.

It seems to us that it would have been virtually impossible for counsel for the defence in this case to have made a settlement offer that would have attracted favourable costs consequences under Rule 49.10. If this ruling represents the law, the likelihood is that insurers simply won’t make offers to settle in the future.

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2 Responses to Court Ignores Past Collateral Benefits in Evaluating Rule 49 Offer

  1. David Cheifetz says:

    Off hand, one solution, for the moment, for those caes where the combination of judicial decisons makes it impossible to trigger the costs provisions of the RULES without offering more than the case is worth

    seems to be

    to make an appropriate amount offer and specifically say it is NOT an offer under any of the RULES of the Civil Procedure, but an offer made under
    s. 131 of the Courts of Justice Act, with a provision set out how you want the costs to be assessed if the offer is not accepted and the plaintiff’s judgment amount isnt’ better than the offer, or state the amount.

    I think it’s a chicken soup solution. It may not help but it can’t hurt. If it’s accepted you get what you want. If it’s not, you’re no worse off and you can mention it under s. 131, if you beat the offer but don’t get the action dismissed completely.

    It’ll force the trial judge to decide how to balance the Court’s inherent jurisdiction under s. 131 of the CJA with the Rules provisions; forcing the judge to decide the meaning of “subject to” in s. 131(1) which is “Subject to the provisions of an Act or rules of court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.”

    In short, to what extent do the Rules costs provisions regarding offers fetter the judges discretion to refuse to award costs to a party, and award costs to the other party, where the former refused to accept an offer that was, in fact, a fair offer.

    Ultimately, what we call the “English” costs rule – the loser pays rule is, in most aspects of civil litigation – judge created.

    Once again, we have a mess that the judiciary has created and that lawyers, not surprisingly, are attempting to take advantage of for the benefit of their clients. (Beats being sued for not, no?) The judiciary needs to clean it up.


  2. marc binavince says:

    The fact is that at the time the Rule 49 offer is made the value of past IRBs (to use a common example of a collateral benefit) as of the end of trial is usually not known and can’t be known. IRBs are constantly being cut off by insurers for good or bad reasons. The pl can’t always afford a second lawsuit to challenge the termination, or such lawsuit is still pending when the tort action gets decided. In no event can the outcome of such lawsuit be predicted, which is what would be asked of pls if Hamelin were to be extended to past IRBs.

    Taking past IRBs out of the equation for Rule 49 purposes makes perfect sense given the complexity of trying to guess the deduction that def may eventually be entitled to after trial when evaluating a Rule 49 offer that comes in, say, 18 months into the lawsuit.

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