Failing to make a settlement offer can be a costly mistake—just ask the insurer ordered to pay $300,000 in costs on a $15,000 judgement. The recent Court of Appeal decision in Barry v Anantharajah reinforces a key principle: confidence in your case should never replace strategic risk management—especially when it comes to settlement offers.
In the case of Barry v Anantharajah, 2025 ONCA 603, the Plaintiff, Jacqueline Barry, was struck by a vehicle driven by the Defendant, Punithavathi Anantharajah, while crossing the street. She commenced an action against the driver, seeking over $1,000,000 in damages.
Before trial, the Defendant's insurer made an offer to settle for a dismissal without costs. The Plaintiff made an offer to settle for $500,000 in damages plus costs and disbursements. In response, the defence repeated its offer of a dismissal without costs. Alternatively, the defence offered to admit liability if the Plaintiff limited her claim to the policy limits.
The Defendant's decision to forgo a monetary settlement offer ahead of trial proved to be a critical misstep.
The Trial Decision
At trial, the Plaintiff was awarded $24,166 in general damages, $26,000 in special damages for past income loss, and nothing on the remaining claims. The Plaintiff was found to be 15% contributorily negligent. After accounting for contributory negligence and the statutory deductible, the net award totaled $16,160.50.
Despite the modest damages, the trial judge awarded the Plaintiff $300,000.00 in costs. In reaching this decision, the judge considered the factors set out in Rule 57.01(1) of the Rules of Civil Procedure, including:
- the result in the proceeding;
- any offers to settle made;
- the principle of indemnity;
- the amount that the unsuccessful party could reasonably expect to pay;
- the complexity and importance of the matter;
- the conduct of any party during the litigation;
- any unnecessary steps; and
- any other relevant matter.
The trial judge found the Plaintiff to be the more successful party, particularly since the Defendant asked the jury to award nothing for past income loss, yet the jury awarded damages under this head. The judge emphasized that the Defendant had drawn a "line in the sand" by taking this position, which could be used to identify success or failure in the action. As the judge explained:
"where a defendant insurer plays 'hardball' by offering zero prior to trial rather than even a modest sum, it leaves the plaintiff in a bind: Either she has to abandon her claim entirely and face a claim for costs, or take the case to trial at great cost."
While the damages award was modest, the trial judge concluded that proportionality is not determinative of the quantum of a costs award. Instead, it was the Defendant's unreasonable refusal to make a monetary offer before trial that effectively compelled the matter to proceed. The judge further cautioned that substantially reducing the costs award would risk endorsing "bully tactics," and criticized the defence strategy as a waste of public resources.
The Appeal
On appeal, the Defendant argued that the trial judge had misapplied the test for determining success at trial by focusing on whether the judgement exceeded the Defendant's offer, rather than on the overall result. The Defendant also argued that the costs award was wholly disproportionate to the outcome.
The Court of Appeal took a highly deferential approach, noting that trial judges are best positioned to assess costs.
The Court rejected the argument that the trial judge misapplied the legal test for success by solely considering whether the judgement exceeded the offer. Instead, the Plaintiff was found to be more successful because, despite the Defendant's position that no damages should be awarded for past income loss, the jury nevertheless awarded damages under this head.
Importantly, the Court clarified that it would be an error of principle if the trial judge did find the Plaintiff was entitled to costs solely because the Defendant failed to make a monetary settlement offer. However, even if that were the case, the decision would nonetheless stand provided there was an independent basis to support the costs order. The Court found such independent bases existed, including that the Plaintiff was ultimately successful, that the Defendant refused to admit liability prior to trial, and that the case raised issues concerning outdated stereotypes relating to mental health injuries.
On the issue of proportionality, the Court of Appeal rejected the argument that the costs award should be overturned as it is wholly disproportionate to the judgement. Rule 1.04(1.1) of the Rules of Civil Procedure requires courts to ensure that orders are proportionate to the importance, complexity, and monetary value of the proceeding. The Court found that, although the costs order substantially exceeded the damages recovered, it remained proportionate in light of the importance and complexity of the issues, and the amount involved in the litigation. It noted that there was some recovery by the Plaintiff and the trial judge found that the respondent's unreasonable refusal to make a monetary offer forced this complex and important matter proceed to trial, resulting in voluminous records and extensive evidence.
The Court of Appeal warned against an overreliance on proportionality, as it would not invariably serve to reduce a discretionary costs award. While proportionality plays an important role in preventing excessive costs awards and should be considered, it should not necessarily trump all other considerations in a costs assessment. A pattern of reducing costs on this basis would result in a denial of access to justice and encourage those defending modest but legitimate claims to take unreasonable positions.
Although not expressly referenced in the trial judge's reasons, the Court of Appeal referred to section 258.5 of the Insurance Act, which requires insurers to attempt to settle claims as expeditiously as possible and provides that a failure to do so shall be considered by the court in awarding costs.The Court noted that this provision, read together with the Rules of Civil Procedure, supports that an insurer should not be permitted to invoke the principle of proportionality to escape costs in the face of a modest award. In concluding its reasons, the Court stated:
"The principle of proportionality is not a perpetual umbrella that protects against a shower of costs legitimately incurred by a plaintiff and reasonably expected by a defending insurer."
The Court of Appeal ultimately upheld the trial judge's costs award and ordered the Defendant to pay additional costs to the Plaintiff for the appeal in the amount of $15,000.00.
Takeaways
The Barry decision serves as a cautionary reminder to insurers and defence counsel of the risks associated with refusing to make a monetary offer before trial. Even where a Plaintiff receives only a modest damages award, an insurer may still be liable for significant costs.
The decision highlights that, regardless of whether an insurer prevails on most issues, a Plaintiff may still be determined to be the more successful party at trial where an insurer has taken an overly aggressive or uncompromising position. The Court also confirmed that while proportionality remains an important factor, it does not automatically shield Defendants from large costs awards that are otherwise justified.
To reduce the risk of a significant costs award, insurers should ensure that a monetary offer – even a modest one – is made in advance of trial.
See Barry v. Anantharajah, 2025 ONCA 603 (CanLII), https://canlii.ca/t/kf4dk
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