Keizer v. Portage LaPrairie Mutual Insurance Company, 2013 NSSC 321

SUPREME COURT OF NOVA SCOTIA Citation: Keizer v. Portage LaPrairie Mutual Insurance Company, 2013 NSSC 321 Date: 20131010 Docket: Hfx. No. 328506 Registry: Halifax Between: Paul Keizer and Barbara Keizer -and- The Portage LaPrairie Mutual Insurance Company and Founders Insurance Group Inc. LIBRARY HEADING Judge: The Honourable Justice Robert W. Wright Last Written Submissions: July 31, 2013 Written Decision: October 10, 2013 Subject: Costs - claim for solicitor-client costs - claim for Sanderson order - increase to tariff costs under Rule 10.09.

Summary: In September, 2009 the plaintiffs sustained fire damage to their residence and attached garage resulting in a loss of $81,102. Their fire loss claim was denied by their insurer, Portage, on the grounds of material change in risk (the plaintiffs having commenced operating a woodworking shop in their garage heated by a wood stove). The plaintiffs had placed their insurance through their insurance broker, Founders Insurance Group. Both the insurer and the broker were sued by the plaintiffs to recover their loss. At trial, the plaintiffs ’ claim against Portage was dismissed.

The plaintiffs succeeded, however, in their claim against Founders for negligence in failing to obtain the necessary insurance coverages. The parties were subsequently unable to reach agreement on the basis of which costs should be paid and in what amount. Issues: Costs are now in dispute in four respects, which can be summarized as follows:

(

a) Whether the costs of Portage as the successful defendant should be paid by the unsuccessful defendant Founders, rather than being borne by the plaintiffs; (

b) Whether costs should be paid on a solicitor-client basis; (

c) If party and party costs are to be awarded, under which Scale in Tariff A they should be fixed in the circumstances of the case; and (

d) Whether, or to what extent, tariff costs should be increased by reason of the refusal of Founders to accept settlement offers made by the plaintiffs and Portage respectively after the matter was set down for trial. Held:

(1) This was an appropriate case for the granting of a Sanderson order whereby the costs of the successful defendant Portage should be paid by the co-defendant Founders, rather than being borne by the plaintiffs;

(2) This was not an appropriate case for an award of solicitor-client costs. Rather, costs were to be payable under Tariff A in the Civil Procedure Rules;

(3) Because of impugned conduct on the part of Founders in the creation and authorship of certain documents which expanded the scope and the cost of the litigation, costs as between the plaintiffs and Founders were awarded under Scale 3 (an increase of 25%);

(4) Because both the plaintiffs and Portage had made settlement offers after the setting down of the case, and subsequently received a favourable judgment, costs for each party were increased by 50% under the provisions in Rule 10.09(2)(c). Accordingly, Founders was required to pay the plaintiffs ’ costs in the amount of $33,282 plus disbursements and the costs of Portage in the amount of $29,925 plus disbursements. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THE COVER SHEET. SUPREME COURT OF NOVA SCOTIA Citation: Keizer v.

Portage LaPrairie Mutual Insurance Company, 2013 NSSC 321 Date: 20131010 Docket: Hfx. No. 328506 Registry: Halifax Between: Paul Keizer and Barbara Keizer Plaintiffs -and- The Portage LaPrairie Mutual Insurance Company and Founders Insurance Group Inc. Defendants

Costs Decision Judge: The Honourable Justice Robert W. Wright Last Written Submissions: July 31, 2013 Written Decision: October 10, 2013 Counsel: Counsel for the Plaintiffs - Derrick Kimball and Nash Brogan Counsel for the Defendant Portage LaPrairie Mutual Insurance Group - James L. Chipman, Q.C. and Tipper McEwan Counsel for the Defendant Founders Insurance Group Inc. - Brian Awad Wright, J. INTRODUCTION [ 1 ] This is a costs decision following the release of my trial judgment on June 11, 2013 cited as 2013 NSSC 118 .

Counsel were subsequently unable to agree on costs to be paid, necessitating written submissions to be made to the court. [ 2 ] To briefly summarize the case, the plaintiffs sustained a fire loss to their residence and attached garage on September 17, 2009 in the agreed amount of $81,102. The likely origin of the fire was a wood stove located in the attached garage in which the plaintiff Paul Keizer was operating a woodworking shop.

The plaintiffs ’ insurer, The Portage LaPrairie Mutual Insurance Company ( “ Portage ” ) denied the fire loss claim on the basis that there had been a material change in risk by reason of the startup of the woodworking shop in the garage space heated by a wood stove. The plaintiffs thereupon sued Portage for indemnity under their insurance coverages. [ 3 ] During the discovery of documents and witnesses in that proceeding, it came to light that there might be relevant documents contained in the file of the plaintiffs ’ insurance agent, Founders Insurance Group Inc. ( “ Founders ” ).

When its file was produced for inspection, counsel discovered a brokers application form for insurance dated October 16, 2008 (completed but unsigned) that muddied the waters as to whether full disclosure about the woodworking business had been made by the plaintiffs and whether that disclosure had been communicated by Founders to Portage for its risk assessment. [ 4 ] Because of the uncertainty surrounding the creation, authorship and use of that application, as well as the circumstances surrounding Founders ’ completion of a renewal questionnaire in August of 2009, counsel for the plaintiffs added Founders as a second

defendant, advancing a cause of action in negligence. That potential liability, of course, would only come into play if it was determinedthat the plaintiffs could not recover their loss from Portage. [5] At trial, the court made the finding that the plaintiff Paul Keizer had made full disclosure to Founders when asking it to place thenecessary insurance coverages. The disclosure about the woodworking shop in the garage was not made known to Portage.

Bothdefendants contended at trial that the other was liable to pay the loss, (although the plaintiffs’ credibility on the extent of his disclosurewas challenged by Founders as well). [6] For the reasons set out in the trial judgment, the plaintiffs failed in their claim against Portage but succeeded in obtaining judgmentagainst Founders in negligence for their property damage of $81,102 plus pre-judgment interest. ISSUES [7] Costs are now in dispute in four respects, which can be summarized as follows: (

a) Whether the costs of Portage as the successful defendant should be paid by the unsuccessful defendant Founders, rather than beingborne by the plaintiffs; (

b) Whether costs should be paid on a solicitor-client basis; (

c) If party and party costs are to be awarded, under which Scale in Tariff A they should be fixed in the circumstances of the case; and (

d) Whether, or to what extent, tariff costs should be increased by reason of the refusal of Founders to accept settlement offers made bythe plaintiffs and Portage respectively after the matter was set down for trial. KEIZER vs. FOUNDERS COSTS [8] The first issue for determination is whether the plaintiffs should be awarded solicitor-client costs of their action against Founders. [9] Civil Procedure Rule 77.03(2) enables a judge to order a party to pay solicitor and client costs to another party in exceptionalcircumstances recognized by law.

Counsel for the plaintiffs argues that there are such exceptional circumstances in existence in thepresent case, namely, the two incidents of improper conduct on the part of employees of Founders that might be characterized as beingtantamount to fraud. [10] As alluded to earlier, those two incidents consist of the fabricated second application form which was dated October 16, 2008created under the direction of Mr. Abbey, and his self completion of the questionnaire form used for purposes of an impending policyrenewal without any verification from the plaintiffs.

Detailed accounts of the creation and authorship of those documents can be foundat paras. 40-43 and 48-56 respectively in my reasons for judgment and need not be repeated here. [11] The treatment of solicitor-client costs is well-established in our courts and were recently summarized by the Nova Scotia Court ofAppeal in Minas Basin Holdings Ltd. v. Paul Bryant Enterprises Ltd., 2010 NSCA 17. Justice Oland there wrote as follows (atparas. 40-41): 40. Costs on a solicitor-client basis are not the rule but the exception, and are awarded only in certain circumstances.

In Young v.Young, (SCC), [1993] 4 S.C.R. 3 (WL) at para. 66, McLachlin, J. wrote: The Court of Appeal's order was based on the following principles, with which I agree. Solicitor-client costs are generally awarded onlywhere there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties. Accordingly, the fact that anapplication has little merit is no basis for awarding solicitor-client costs; nor is the fact that part of the cost of the litigation may havebeen paid for by others.

The Court of Appeal meticulously considered all the proceedings in the light of these principles to arrive at itsconclusion that only partial solicitor-client costs were justified. [emphasis added]

41. In Brown v. Metropolitan Authority, 1996 NSCA 91 , [1996] N.S.J. No. 146 (C.A.) at para. 94-98, this courtemphasized that such awards are not routine: Solicitor and client costs may only be awarded in "rare and exceptional circumstances, to highlight the court's disapproval of the conductof one of the parties in the litigation." This is a high threshold to meet, and it does not contemplate an award of solicitor and client costsas a matter of routine. [12] My finding in the trial judgment was that the second broker’s application form for insurance was created after the fire in amisguided attempt by Mr.

Abbey to assist the plaintiffs with their claim against Portage, who he believed had wrongly denied itspayment. That application form was never at any time sent to Portage or acted upon, nor did it ever come into play either in theassessment of risk at the time the insurance coverage was placed or to be renewed, or in the assessment of the claim after the fire. [13] The problem with the August 1, 2009 questionnaire for purposes of policy renewal was, of course, that Mr. Abbey made up hisown answers to the questions asked by Portage without consulting with the plaintiffs as he should have.

However, there is no indicationthat he thereby deliberately supplied false information to Portage. Rather, he took a shortcut with the time demands he was under andused his own figures, based on his knowledge of the kind of work he thought Mr. Keizer was doing and his general experience with thebusiness of small trades. [14] Although this conduct warrants criticism from the court in both instances, and in the latter case constituted negligence, it falls shortof conduct that would constitute fraud.

I would add that once these two incidents came to light through pre-trial procedures, there wasnothing in the conduct of the litigation itself that was in any way improper. [15] In the result, I have concluded that the circumstances relied upon here fall short of the threshold required to justify an award ofsolicitor-client costs. Costs should therefore be awarded on a party and party basis in conformity with Civil Procedure Rule 77. [16] The following costs principles can be extracted from the relevant provisions of Civil Procedure Rule 77: (

a) An award of costs is in the discretion of the trial judge who may make any order about costs as the court is satisfied will do justicebetween the parties; (

b) Costs of a proceeding follow the result, unless a judge orders otherwise; (

c) Party and party costs must be fixed in accordance with tariffs of costs and fees incorporated into Rule 77, unless a judge ordersotherwise; (

d) A judge who fixes costs may increase or reduce tariff costs, for example, when a written offer of settlement, whether made formallyor otherwise, is not accepted or where the conduct of a party affects the speed or expense of the proceeding; (

e) An award of party and party costs includes necessary and reasonable disbursements pertaining to the subject of the award. [17] Tariff A sets out the tariff of fees allowable to a party entitled to costs on a decision or order in a proceeding. The amounts set outin the tariff are dependent upon the “Amount Involved” and which of the three Scales is adopted.

In the present case, where the“Amount Involved” falls within the range of $65,001 - $90,000, the tariff amounts are $7,313 under Scale 1, $9,750 under Scale 2(Basic) and $12,188 under Scale 3. [18] In addition, the length of trial is another factor to be included in calculating costs under the tariff, which is prescribed at the rate of$2,000 for each day of trial as determined by the trial judge.

[19] Counsel for the plaintiffs argues, in the alternative to solicitor-client costs, that the impugned conduct on the part of Foundersaforesaid should attract the increase of 25% reflected in Scale 3. It is argued that the impropriety surrounding those two documentsexpanded the scope and the cost of the litigation (with additional discovery examinations and Founders’ retention of a handwritingexpert) as to warrant that increase. [20] I agree with that submission and reject the argument made by counsel for Founders that Scale 1 be utilized which would reflect a25% reduction from the basic scale.

Accordingly, the plaintiffs are awarded Scale 3 costs of $12,188 plus an additional $10,000 toaccount for the five days of trial. [21] Counsel for the plaintiffs is also seeking a 50% increase of that amount under Civil Procedure Rule 10.09. That rule deals withcosts consequences if a settlement offer is not accepted and the plaintiff wins a “favourable judgment” at trial, as is the case here. Thespecific provision relied upon here is Rule 10.09(2)(

c) which allows for an increase of 50% of the tariff costs where the offer to settlewas made after setting down and before the finish date. [22] In the present case, the plaintiffs offered to settle their claim against Founders by letter to its counsel dated September 21, 2012. The offer was in the amount of $81,102 together with applicable disbursements, interest and costs.

It is acknowledged by counsel forFounders that the plaintiffs obtained a “favourable judgment” if that letter is considered to be a proper settlement offer, which I find thatit was. [23] I conclude that there is no sound reason for departing from this rule in the present case, especially with the acknowledgment bycounsel for Founders in closing submissions that the second application form fabricated by Founders after the fire had “bedevilled thelitigation”. That likely impeded the chances of settlement. Accordingly, the plaintiffs are awarded party and party costs in the totalamount of $33,282.

In addition, the plaintiffs are entitled to recover from Founders their disbursements (which have not been contested)in the amount of $5,758.66 (including HST). KEIZER vs. PORTAGE COSTS [24] The lead question for determination between these parties is whether the costs of Portage, as the successful defendant, should bepaid by Founders, rather than being borne by the plaintiffs.

Both Portage and the plaintiffs advocate an affirmative answer to thatquestion while Founders contends that the plaintiffs should bear the costs of their unsuccessful action as against Portage. [25] There are two variations of such a costs order which find their origins in the English Courts of Chancery. One is known as aBullock order (emanating from Bullock v. London General Omnibus Company & Others [1907] 1K.B. 264 (C.A.) and the other moremodern version is known as a Sanderson order (emanating from Sanderson v.

Blyth Theatre Company, [1903] 2 K.B. 533 (C.A.). [26] The difference between these two forms of order was recently reviewed by the Prince Edward Island Court of Appeal in Griffin v.Summerside (City), 2010 PECA 15. After reviewing the history and purpose of such orders from an earlier decision of that court inRayner v. Knickle (1992) (PE SCAD), 99 Nfld. & P.E.I.R. 35 (at para. 39), Chief Justice Jenkins wrote as follows(at para. 40): In Moore (Litigation Guardian of) v.

Wienecke, 2008 ONCA 162, at para. 37-50, the Ontario Court of Appeal discussed thedifference between Bullock and Sanderson orders and the test for determining which order should be made. The difference between thetwo types of order is that under a Bullock order the unsuccessful defendant reimburses the plaintiff for the successful defendant's costswhile under a Sanderson order the unsuccessful defendant pays the successful defendant's costs directly.

The usual test for determiningwhether a Sanderson order is appropriate has two steps: (1) the threshold question of whether it was reasonable to join the severaldefendants in one action; and if the threshold question is answered in the affirmative, then (2) whether a Sanderson order would be justand fair in the circumstances. The second step involves an exercise in discretion in which a number of factors may be relevant.

Thesefactors, which need not be applied mechanically in every case, include: (1) whether the defendants at trial tried to shift responsibility onto each other, as opposed to concentrating on meeting the plaintiff's case; (2) whether the unsuccessful defendant caused the successful defendant to be added as a party; (3) whether, where there are multiple causes of action, they were independent of each other; (4) in some cases, there is reference to ability to pay.

[ 27 ] The Nova Scotia Court of Appeal, on an earlier occasion, also reviewed the law in situations where an unsuccessful defendant may be ordered to pay the costs of a successful defendant. In Kelly v. Wawanasa Mutual Insurance Co., 1979 CarswellNS 143 , the Court of appeal (at paras. 49-51) adopted earlier jurisprudence and affirmed that such an order should only be made where:

(1) The plaintiff had good grounds for joining the successful defendant as a party;

(2) There is no good cause for depriving the successful defendant of his costs; and

(3) As between the co-defendants, the unsuccessful defendant was wholly responsible for the action. [ 28 ] In the circumstances of the present case, it was not only reasonable but compelling for the plaintiffs to join both defendants in the one action. That threshold question is easily answered in the affirmative in this case.

Also, complete responsibility for the action rests with Founders and there is no good cause for depriving Portage of its costs. [ 29 ] The court must therefore go on to the second step of deciding whether a Sanderson order would be just and fair in the circumstances in the exercise of its discretion. There are two additional factors here which support the granting of a Sanderson order:

(1) Although Founders also sought to defeat the action by challenging the credibility of the plaintiff Paul Keizer on the extent of the disclosure he made when placing the insurance, the two defendants largely at trial tried to shift responsibility to the other; and

(2) Although the causes of action advanced here were framed in contract and the tort of negligence respectively, it is fair to say that they were closely related in the pursuit of the action.

I do not accept the argument made on behalf of Founders that these causes of action should be viewed as being independent of each other. [ 30 ] All things considered, I have reached the conclusion that the granting of a Sanderson order in this case will, in the words of Civil Procedure Rule 77.02(1), do justice between the parties. [ 31 ] Although Portage also seeks to recover its costs on a solicitor-client basis, I conclude that it ought to be awarded costs on a party and party basis for the same reasons outlined earlier in this decision with respect to the plaintiffs. [ 32 ] Portage, in the alternative, seeks recovery of costs under Scale 2 (Basic) of Tariff A which produces the amount of $9,750.

With the addition of $10,000 generated by five days of trial, the tariff amount becomes $19,750. [ 33 ] Beyond that, Portage also seeks to invoke the costs benefit under Civil Procedure Rule 10.09, having made an offer to settle in December of 2012 on the basis of a dismissal without costs.

Since it has also received a “ favourable judgment ” , I conclude that it too is entitled to a 50% increase of the tariff costs under Rule 10.09(2)(c). [ 34 ] In the result, Portage shall be entitled to recover its costs from Founders in the total amount of $29,925 plus its disbursements of $3,161.98 for a grand total of $33,086.98. [ 35 ] I will await the appropriate order for this disposition of costs from counsel at their convenience. J.