The Ontario government introduced a minor, but significant change to the language under s.267.5(9) of the Insurance Act. The change impacts how costs are to be calculated in auto tort matters and has significant consequences for the Plaintiff associated with Rule 49 Offers to Settle made before trial.
Prior to the changes, a party’s entitlement was made without regard to the statutory tort deductible. This meant that, if a party was served with a formal offer, the opposing party simply had to be awarded more than that offer by the court to successfully avoid adverse cost consequences.
Under the new wording, in “an action for loss or damage from bodily injury or death arising directly or indirectly from the use or operation of an automobile, the determination of a party’s entitlement to costs shall be made with regard to the effect of paragraph 3 of subsection (7) on the amount of damages.” This means that if a plaintiff is served with a formal offer, the opposing party’s award must be more than the formal offer after subtracting the statutory deductible.
Consider the simplified example below:
Formal Offer to Settle by the Defence – $40,000
Award by Court for the Plaintiff – $50,000
- Old wording – calculation made without regard to the statutory deductible: Award by court exceeds Formal Offer to Settle by 10,000. No adverse cost consequences for the Plaintiff.
- New wording – calculation made with regard to the statutory deductible: Award by court $50,000 less statutory deductible of $30,000 = $20,000. Net award does not exceed the formal offer, hence potential for adverse cost consequences for the Plaintiff.
To assess the reasonableness of a formal offer from an insurer Plaintiff counsel must now consider its value “net” of the statutory deductible. An insurer may now make an offer potentially lower than they would have previously, up to the deductible limit and still be protected against adverse costs awards.
After the Event insurance is an effective method of mitigating the risk of failing to meet a Rule 49 Offer.