Canada: An Overview Of The Statutory Obligations For Insurers To Participate In Mediation And To Attempt To Settle

You will recall that the Ontario Court of Appeal in Keam v Caddey, 2010 ONCA 565 awarded the plaintiff $40,000 in additional costs after an insurer refused (twice) to participate in mediation prior to trial. Aviva Canada took the position that the plaintiff would not be able to meet threshold and therefore Aviva did not believe it was obligated to attend mediation as there was nothing to negotiate.

The Court of Appeal found that the Insurance Act imposes two obligations on the insurer. First, according to sections 258.6(1) and 258.6(2) of the Insurance Act, the insurer is obligated to participate in mediation when requested. Second, according to section 258.5(1) and 258.5(5), the insurer is obligated to attempt to settle the claim as expeditiously as possible.

As a consequence for failing to satisfy one or both of these obligations, the court is required to consider the insurer's failure when awarding costs after trial.

Playing hardball with offers tosettle

In Lakew v Munro, 2014 ONSC 7316, the defendant insurer was playing "hardball" by offering only dismissal without costs at mediation. The plaintiff asked the court to impose a cost consequence on the defendant for failing to attempt to settle as expeditiously as possible. The court noted that the defendant "executed the mediation agreement, attended with full authority to settle, made an opening statement (consistent with the position maintained all along) and offered to settle the action by way of a dismissal not with, but rather without costs."

The Insurance Act does not mandate that any particular amount of money be offered at mediation in order to fulfil the insurer's obligations. The defendant was found to have fulfilled its obligations to mediate and to attempt to settle.

Obligation to meaningfully participate in mediation

The Ontario Court of Appeal, in Ross v Bacchus, 2015 ONCA 347, clarified the insurer's statutory obligations regarding early resolution and mandatory mediation. In this case, the respondent was stopped at a red light on his motorcycle when he was struck from behind by the appellant. A jury awarded the respondent $248,000 in damages; the judge awarded costs and disbursements to the respondent which included a $60,000 cost award to reflect the insurer's failure to comply with its obligations to participate in mediation and attempt to settle under the Insurance Act. The appellant sought leave to appeal this portion of the cost order. The Court of Appeal allowed the appeal and overturned the award.

The facts did not support the cost consequence since the insurer did satisfy its obligation.The Court of Appeal found that the clear purpose of the cost consequence provisions of the Insurance Act for an insurer's failure to satisfy its statutory obligations is to penalize insurers for non-compliance with their obligations and to encourage insurers to comply with their obligations in future cases. This purpose can only be achieved if the facts justify the imposition of a cost order.

A week prior to trial, the respondent asked the appellant to attend mediation. The respondent agreed to attend but advised that "[the insurers] are not interested in settling this case."

The court found that even strong, clear statements about the insurer's position on the eve of trial would not prevent the insurer from meaningfully participating in mediation. There is no evidence that the insurer did not participate meaningfully in the mediation.

Further, there was no evidence that the insurer failed to satisfy its obligation to attempt to settle the claim as expeditiously as possible. In fact, the evidence indicates that the insurer did satisfy the obligation. It made a settlement offer less than one year after the claim was issued and counter-offered the respondent's Rule 49 offer. The appellant's refusal to make a counteroffer to the respondent's last offer does not constitute a failure to attempt to settle. Insurers, like any other defendants are entitled to take cases to trial.

This case clarifies that an insurer's obligation to attend mediation when requested to do so is in fact an obligation to meaningfully participate in the mediation and attempt to settle as expeditiously as possible. Parties seeking a cost award against an insurer who allegedly failed to comply with its obligations will need to bring evidence to support their claim. Absent strong facts like the absolute refusal to attend mediation like Keam v Caddey, it may be difficult for a party to succeed in obtaining a cost order alleging failure to meaningfully participate.

Lifting the cloak of privilege

In the Ontario Court of Appeal case of Dimopoulos v Mustafa, 2016 ONSC 4119, the plaintiff argued that the defendant insurer had not meaningfully participated in the mediation and sought an Order imposing a cost penalty on the insurer. The plaintiff asked the court to lift the cloak of privilege over the mediation process and the defendant's mediation brief as it would be the only way in which the court could assess the insurer's participation in mediation.

Justice Tzimas highlighted the importance of lifting privilege only where the importance of considering the evidence outweighs the importance of preserving confidentiality. Because the plaintiff asked that privilege be lifted on the mediation brief and not the full contents of the mediation, the Court allowed privilege to be lifted.

After inspecting the mediation brief of the defendant, the Court noted that the defendant assessed the plaintiff's claims in substantial detail and explained why it believed that the plaintiff's evidence was weak; this constitutes meaningful participation. It is not the court's role to assess whether it agrees with the assessment made by the defendant. Rather, it must simply assess whether the defendant meaningfully participated in the mediation.

Accordingly, the court imposed no punitive cost sanctions against the defendant.

Absent a statutory obligation tomediate, still advisable to attend mediation

The Ontario Superior Court's decision in David v TransAmerica, 2016 ONSC 177 further clarifies the law surrounding mandatory mediation, an insurer's obligation to attend mediation, and the consequence for failing to attend a voluntary mediation in cases where each party has an arguable case.

Notably, the court found that a successful party's refusal to participate in mediation, in cases where there is no statutory obligation to mediate, will not automatically deprive the successful party from obtaining a cost order to which it would otherwise be entitled. However, in cases where each party has an arguable case, each faces a risk of loss by proceeding to trial. In such cases, mediation provides a real opportunity for settlement. It also provides the opportunity for all parties, including the handling claims representative from the defendant's insurance company to meet in-person, and to put forth their respective positions face-to-face.

If a party refuses to attend mediation in such cases, the court can consider this refusal when assessing whether the party has engaged in unreasonable conduct that has caused unnecessary costs. The court may impose a cost sanction to penalize this kind of unreasonable conduct.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.