Insurers denying coverage often find themselves the subject unwarranted of bad faith allegations. Recently, Ontario’s Superior Court of Justice awarded the defendant insurer substantial indemnity costs (totaling $616,843.27) following the successful defence of coverage proceedings in which the plaintiff-insureds failed to prove allegations of bad faith.
In January of this year, Ontario’s Superior Court of Justice issued additional reasons with respect to costs in Pinder v. Farmers' Mutual Insurance Company (Lindsay), 2019 ONSC 610, which followed the trial of coverage action arising from a fire loss that destroyed the plaintiff-insureds’ home. Throughout the proceedings, the plaintiff-insureds alleged the defendant insurer’s conduct in handling the claim was high-handed, spiteful, malicious or oppressive such that an award of aggravated damages was warranted. The jury disagreed, making several findings that overwhelmingly supported the defendant insurer’s coverage position. The coverage action was dismissed.
Notwithstanding the defendant insurer’s success, the plaintiff-insureds vigorously argued no costs were warranted (effectively attempting to re-litigate the issue of bad faith, Vallee J. observed). The defendant insurer argued it was entitled substantial indemnity costs, because the plaintiff-insureds alleged bad faith that they failed to prove.
The Court preferred the insurer’s position, examining several earlier Ontario decisions in which plaintiffs made unsubstantiated allegations of bad faith. Vallee J. quoted the following passage from Sagan v. Dominion of Canada General Insurance Co., 2014 ONSC 2245, which is instructive:
The jurisprudence has held that substantial indemnity costs may be appropriate where party makes empty bad faith allegations. The purpose of this consequence is to diminish frivolous and speculative litigation, to cause litigants to focus on the real issues, and to foster sober reflection above that of an emotional response.
For reasons particular to the proceedings in Pinder, the Court found that partial-indemnity costs were warranted up to an offer to settle. For costs thereafter, Vallee J. considered the plaintiff-insureds unfounded bad faith allegations and awarded substantial indemnity costs, explaining:
26 In his opening and closing statements, plaintiffs' counsel repeatedly stated that the defendant acted in bad faith because it engaged in delay tactics to try to wear down the plaintiffs, among other things. A review of the chronology shows that this allegation is unfounded.
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63 I agree with the defendant's submission that the plaintiffs took a very aggressive approach in their claim for punitive damages. They made hard-hitting allegations to attack the integrity of the defendant. The plaintiffs' position was that the defendant's investigation was a sham, that the defendant had called them liars and fraudsters, that they had to bring the defendant to the court kicking and screaming regarding the appraisal issue and that the defendant had dragged out the litigation in the hope that the plaintiffs would give up or that [the insured] would not last until the trial. … The plaintiffs made bad faith allegations which they could not substantiate.
Vallee J. ordered the plaintiffs to pay costs in the total amount of $616,843.27, which should give anyone pause.