Mandatory Mediation in Motor Vehicle Tort Claims

The Court of Appeal for Ontario has recently held that the refusal of an insurer to mediate a motor vehicle tort claim should attract cost consequences, per subsections 258.6(1) and (2) of the Insurance Act. See Keam v. Caddey, 2010 ONCA 565.

Significantly, the insurer had refused to mediate on the basis that it was of the opinion that the plaintiff's injuries did not meet the threshold test under the Insurance Act. Also significant was the fact that the Court of Appeal said that the offer to settle made by the insurer prior to trial, although a low offer of just $17,500, was an acceptance by the insurer that there was a potential claim to litigate - and therefore mediate.

The consequence of this decision might be to limit offers to settle in cases where insurers would otherwise make a low offer to settle in order to avoid the costs of a trial, especially where threshold is an issue. The other consequence, of course, is that insurers now will have to undertake the expense of mediation even where there is little or no chance of reaching a settlement.

The facts of the case are: After examinations for discovery, plaintiff's counsel wrote counsel for the insurer asking if they could mediate the claim pursuant to s. 258.6 of the Insurance Act. The insurer ignored the first letter. Plaintiff's counsel wrote again. In both letters plaintiff's counsel referred to costs consequences following trial if the insurer failed to participate. The insurer then responded that it would not mediate because it did not think the plaintiff's injuries met threshold. A year later, the insurer made an offer to settle for $17,500 plus interest and costs. The plaintiff won the trial and plaintiff's counsel sought substantial indemnity costs against the insurer for the failure to mediate, which the trial judge refused.

The Court of Appeal, however, found that the insurer had failed to comply with its statutory obligation to mediate per s. 258.6. The appropriate costs consequences were a "significant remedial penalty" in the amount of $40,000 in addition to the costs already awarded by the trial judge for the usual partial indemnity costs award.