A Costly Change: Costs Challenges in Accident Benefits Cases

Written By: Nick Todorovic and William Harding, Student-at-Law

On June 1st 2016, significant changes were made to Ontario’s Statutory Accident Benefits Schedule (SABS). One of these changes was substituting the venue for arbitrations from the Financial Services Commission of Ontario (FSCO) to the License Appeal Tribunal (LAT). Since then, a number of significant LAT decisions have been released highlighting how the landscape of accident benefits has changed. One significant area of change is the issue of costs awards.

The traditional principle in litigation, including FSCO arbitrations, is that the loser pays the winner costs. If an insured individual has to fight for their benefits, then the insurer will pay costs to the insured. Unfortunately, under the new LAT rules, costs are almost never paid and when they are, it is for a nominal amount.

The cause of this important change is found in section 19.1 of the new LAT Rules of Practice.  Rule 19.1 of the LAT Rules of Practice reads:

“Where a party believes that another party in a proceeding has acted unreasonably, frivolously, vexatiously, or in bad faith, that party may make a request to the Tribunal for costs.”

This is a very high bar to meet, and the result has been very few cost awards so far.

This is much different from the previous language found in Section 75 of FSCO’s Dispute Resolution Practice Code. Among other things, arbitrators were allowed to consider each party’s degree of success in the outcome of the proceeding, and any written offers to settle. There was no requirement to show negative behavior from the opposing party in order to be awarded costs.

 “In a proceeding”

Complicating things even further is the usage of the term “in a proceeding” to outline the period for which behavior might trigger a costs award. This phrase has been interpreted very narrowly by the tribunal, meaning only behavior occurring after the commencement of a proceeding. This means that any bad behavior by an insurance company occurring prior to the commencement of a proceeding, no matter how unreasonable, frivolous or vexatious, cannot be considered in deciding on a costs award.

These changes have a serious impact on individuals who have been personally injured and created an access to justice problem.

Cost should be awarded when there is a legitimate and successful claim. Without costs, individuals in vulnerable situations may not have the funds necessary to pay their lawyer, which reduces their access to justice.

Additionally, the limiting of the period in which behavior can effect costs awards to only “during” the proceeding, could encourage insurers to act in bad faith right up until a LAT application has been commenced. This change has potentially overwritten the pre-existing duty of insurers to act in the utmost good faith in all circumstances.

On a positive note, it appears that the Courts are aware of the access to justice issues created by the LAT system and are taking steps to mitigate some of the negative consequences. In recent decisions, the Ontario Superior Court has allowed arbitration costs to be claimed as part of the costs of a tort claim.

In the case of Carr v Modi, Justice Lederer outlined the SABS-tort relationship as follows:

“For motor vehicle accident claims, Ontario has a mixed system: partly no-fault, partly tort. The arbitration was with respect to the plaintiff’s claim for income replacement under the Statutory Accident Benefits Schedule (“SABS”), the no-fault part of the scheme. To the extent that an injured party is successful in arbitration such as the one that took place here, it inures to the benefit of the tortfeasor because it lowers his or her liability, in this case for any claim for loss of income.”

This line of reasoning was also supported by Justice Wilson in her decision in Ananthamoorthy v. Ellison when she stated that the payment of accident benefits are “inextricably linked to the action against the driver because the defendant insurer can claim a deduction for amounts the Plaintiff receives from her own insurer.”

The result of these judgments is that lawyers may be able to get back some of the costs from their LAT arbitration through the tort system. It will be important for personal injury lawyers to consider this potential strategy moving forward when evaluating their client’s accident benefits claims.

Another immediate solution for any remaining FSCO proceedings that are being transferred to the LAT proceeding is to make an agreement with counsel for the insurer that the costs that would have been awarded in the FSCO proceeding be transferred to the LAT proceeding. This will allow counsel the ability to obtain costs in a system that prevents it. This is a rare circumstance and will only work on remaining FSCO matters.

Nick Todorovic


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