



COURT OF APPEAL FOR BRITISH COLUMBIA




Citation:



C.P. v. RBC Life Insurance Company,









2015 BCCA 30




Date: 20150126

Docket: CA041585

Between:

C.P.

Appellant

(Plaintiff)

And

RBC Life Insurance
Company

Respondent

(Defendant)






Before:



The Honourable Madam Justice MacKenzie

The Honourable Mr. Justice Willcock

The Honourable Mr. Justice Goepel




On appeal from:  An
order of the Supreme Court of British Columbia, dated
January 24, 2014 (
C.P. v. RBC Life Insurance Company
, 2014 BCSC 117,
Vancouver Docket S105106).




Counsel for the Appellant:



F.E. Hayman





Counsel for the Respondent:



J.A. Carmichael, Q.C.
  and
K.A. McGoldrick





Place and Date of Hearing:



Vancouver, British
  Columbia

October 23 & 24,
  2014





Place and Date of Judgment:



Vancouver, British
  Columbia

January 26, 2015









Written Reasons by:





The Honourable Mr. Justice Goepel





Concurred in by:





The Honourable Madam Justice
  MacKenzie





The Honourable Mr. Justice Willcock








Summary:

C.P. was insured under a
disability policy she obtained in 1999. She began receiving benefits under the
policy in 2006. Her benefits were discontinued between August 2009 and April
2010. After her benefits were reinstated, C.P. commenced an action alleging breach
of good faith causing her severe mental stress. Prior to the trial, the
defendant made an offer to settle for $50,000. At trial, she was awarded $10,000
in damages for mental distress but not punitive damages. The trial judge also
awarded double costs against her from the date of the offer. Held: Appeal
allowed in part. The trial judge did not err in determining the award of
damages. However, it was not open to the trial judge to award double costs to
the defendant; doing so was an error in principle. The judge could, however,
have awarded the defendant its costs from the date of the offer to settle had
he appreciated that double costs were not an available option. In the result, a
cost award for single costs is substituted for the double cost award.

Reasons for Judgment of the Honourable
Mr. Justice Goepel:

INTRODUCTION

[1]

The appellant, C.P., is insured under a disability policy she obtained in
1999. The respondent, RBC Life Insurance Company (RBC), ultimately became the
insurer under the policy. C.P. began receiving benefits under the policy in
2006. For a period of time between August 2009 and April 2010, there was a
disruption in the payment of benefits.

[2]

On July 14, 2010, after RBC had reinstated her benefits, C.P.
commenced this proceeding alleging that RBCs actions had caused her severe
mental stress and constituted a breach of its duty of good faith.

[3]

At trial, C.P. sought damages for mental distress. The quantum of
damages she sought varied depending on whether she received punitive damages: 
$50,000 to $100,000, if punitive damages were also awarded, and $100,000 to
$200,000, if punitive damages were not awarded. C.P. sought punitive damages in
the range of $1,300,000 to $1,600,000. The trial judge awarded $10,000 in damages
for mental distress. He dismissed the claim for punitive damages. The trial judges
reasons are indexed at 2014 BCSC 117.

[4]

In advance of the trial, on May 15, 2013, RBC made a formal offer
to settle all claims for $50,000. The trial judge awarded the plaintiff costs up
to June 30, 2013 and awarded the defendants double costs thereafter.

[5]

C.P. now appeals both the damage and costs awards. For the reasons that
follow, I would dismiss the appeal, save and except I would vary the cost award
and award RBC only single costs after June 30, 2013.

BACKGROUND

[6]

C.P. is a physician who practices part-time. She earned her medical
degree from the University of British Columbia and subsequently completed
fellowships in geriatrics and internal medicine. In 1999, not long after
completing her fellowships,  she purchased a disability policy from the Paul
Revere Life Insurance Company. On May 1, 2004, RBC became the insurer
under the policy.

[7]

The policy covered both long-term and residual disability. The residual
disability benefit arose when a claimant was not totally disabled, but was
unable, due to injury or sickness, to earn more than 80% of prior earnings. Residual
disability benefits were calculated on a monthly basis as a percentage of total
disability benefits and were proportionate to the drop in the plaintiffs
pre-disability income.

[8]

An insured claiming a residual disability benefit was required to
provide monthly income statements so that the benefit could be calculated. Premiums
were waived after a 90-day period of disability. Under the policy, RBC could
request from a claimant a Claimant Supplementary Statement (CSS), which set
out the claimants current conditions and activities. RBC could also request a
claimant attend at an independent medical examination (IME), to be assessed
by an RBC-selected physician.

[9]

Commencing in the spring of 2005, C.P. began to suffer from depression
and anxiety. In January 2006, C.P. first applied to RBC for long-term
disability benefits. RBC initially denied the claim but, after receiving
updated clinical records from her family physician, the claim was approved.

[10]

C.P. returned to work part-time in March 2006 and continued to work
part-time, with the exception of brief periods of total disability, through to 2009.
During this period, RBC paid C.P. either residual or total disability benefits.

[11]

Michelle Davidson was the RBC adjuster assigned to C.P.s file. From the
onset of the claim in 2006 until July 2009, Ms. Davidson and C.P. had a
cordial relationship. They corresponded and contacted each other by telephone
as required, usually when C.P. informed Ms. Davidson of brief periods when
she would be totally, rather than residually, disabled.

[12]

In May 2009, RBC requested that C.P. attend an IME in order to clarify
C.P.s actual level of function. Before the IME could be arranged, C.P., on
July 9, 2009, submitted a CSS to RBC indicating that her symptoms had
improved as a result of a change in medication and that she anticipated a
return to full-time duties by September 1, 2009.

[13]

In response, Ms. Davidson wrote to C.P. on July 15, 2009
advising her that she was paying the claim to September 1, 2009, without
the necessity of C.P. submitting any further medical or financial records, so
that C.P. could focus on her recovery (the July 15 Letter). Ms. Davidson
testified that her focus was solely on being of assistance to C.P. The
July 15 Letter read in part as follows:

Residual Disability benefits have currently been paid to
April 30, 2009. In an effort to assist you during this transition and to allow
you to focus on your continued recovery and return to work full time, we have
agreed to issue Residual Disability benefits from May 2009 to the end of August
2009 using your net income submitted for April 2009, $5914.56. Although we
realize that while you are attempting to increase your hours at work this
income will increase thus decreasing your Residual Disability benefit
entitlement, nonetheless, we will issue this payment, Without Prejudice.

In addition to issuing this payment we will also forgo your
requirement to submit any further Monthly Income Statements and Claimant
Supplementary Statements. Again, our intent is to allow you to focus on your
continued recovery. Benefits have been issued and sent under separate cover.
Your
Disability claim will now be closed.
Should you not return to work full
time by the end of August 2009 we will require the following information to be
submitted for consideration of continued benefits;

a)         Copy of your clinical file
(including office notes, consultation reports, referrals, labs, etc.) from Dr. [L.]
for the period of April 2009 to the end of August 2009

b)         Copy
of your clinical file (including office notes, consultation reports, referrals,
etc.) from Dr. [B.] for the period of April 2009 to the end of August 2009

c)         Copy
of your clinical file (including office notes, consultation reports, referrals,
etc.) from Dr. [S.] for the period of January 2009 to the end of August
2009

d)         Copy
of your clinical file (including office notes, consultation reports, referrals,
etc.) from Dr. [C.] for the period of April 2009 to the end of August 2009

Upon receipt and review of the aforementioned documentation
consideration will be given to rearranging the Independent Medical Assessment
and you will be contacted with the details, accordingly.

Submission of any additional information should be by the end
of September in order not to prejudice our position on the claim. RBC Life
Insurance does not accept liability for any cost(s) incurred for obtaining additional
documentation for the submission of an appeal.

[C.P.], we would like to take this opportunity to commend
your motivation for recovery and wish you continued success with your return to
work, full time.

Should you have any questions or concerns please do not
hesitate to contact our office.

[Emphasis added]

[14]

The July 15 Letter was intended to implement an internal RBC procedure
called Advance Pay and Close (AP&C). However, Ms. Davidson had not
reviewed the AP&C procedures outlined in the RBC claims manual prior to
writing the July 15 Letter.

[15]

The trial judge found that the July 15 Letter was contrary to the
defendants internal AP&C procedure in four key respects. First, Ms.
Davidson did not seek or otherwise obtain the plaintiffs consent to the
AP&C procedure. Second, she did not consult with any of the plaintiffs
doctors to determine whether the plaintiffs plan to return to work was
reasonable. Third, the letter states the plaintiffs claim will be closed but,
according to the claims manual, if the other AP&C requirements had been
met, the claim would have been considered as a pending claim if the disability
continued beyond the AP&C date. Finally, the letter indicated that if C.P.
did not return to work by the end of August 2009, in order to have continued
benefits, she would need to appeal. Defendants counsel conceded at trial
that the July 15 Letter should have stated, should you wish us to consider
further benefits past August 31, we will require the following documents ---.

[16]

The July 15 Letter set in motion a series of cascading events which
led to a disruption in benefits to C.P. when her condition deteriorated and she
was unable to return to full-time work in September 2009 as she had intended.

[17]

On August 27, 2009, C.P. faxed and mailed Ms. Davidson a
letter stating her symptoms were worsening and that rather than returning to
full-time work, she would need to reduce her work hours. Neither document came
to Ms. Davidsons immediate attention. On September 9, 2009, the
plaintiff telephoned Ms. Davidson, advised she had not returned to work
and agreed to refax the August 27, 2009 letter.

[18]

On September 10, 2009, Ms. Davidson prepared a response to
C.P.s August 27, 2009 letter. In her response, she referred C.P. to the
July 15 Letter and the itemized documents set out therein that were
required for consideration of additional benefits beyond August 2009. In her
letter, she advised that upon receipt of the itemized documents, C.P. would be
advised if an IME was still required.

[19]

Ms. Davidson attempted on three occasions to fax to C.P. her
September 10, 2009 response. The attempts were unsuccessful. On September 25,
2009 she wrote to C.P. and advised her that she had attempted on a number of
occasions to send a fax outlining the documentation required for consideration
of further benefits and indicating that those attempts had been unsuccessful. The
September 25, 2009 letter enclosed a copy of the July 15 Letter which
detailed the documents required to continue benefits beyond August 2009. The September 25,
2009 letter advised C.P. that should she had any questions or concerns, she
should contact RBC.

[20]

C.P. received the September 25, 2009 letter on October 1,
2009. On October 2, 2009, C.P. wrote to Ms. Davidson expressing
surprise that RBC had not requested medical information from her doctors. She
expressed the hope that the lack of information would not hinder RBC processing
her September claim for benefits.

[21]

On or about the beginning of October 2009, C.P.s file was transferred
to another adjuster, Lata Wadhwani. Ms. Wadhwani had recently returned to
full-time work with RBC. The file was transferred to her in order to build her
caseload.

[22]

When Ms. Wadhwani assumed conduct of the file, she mistakenly
thought, because of the last paragraph of the July 15 Letter, that C.P.s
claim was an appeal. In the case of an appeal the usual practice is that the
claimant, not RBC, gathers any required medical documentation.
Ms. Wadhwani thought her job was to await the medical records that Ms. Davidson
had asked C.P. to gather.

[23]

When Ms. Wadhwani received C.P.s October 2, 2009 letter, she believed
that C.P. had misunderstood the July 15 Letter. On October 29, 2009, Ms. Wadhwani
wrote to C.P. and advised that she was the individual handling C.P.s appeal
for disability benefits. She offered to obtain the needed medical records.

[24]

On November 3, 2009, Ms. Wadhwani sent letters to four of
C.P.s physicians. The letter sought the physicians assistance in reviewing
C.P.s claim and asked them to send to RBC their clinical records from
April 1, 2009 to August 31, 2009. Unfortunately, none of the
physicians responded.

[25]

On October 5, 2009, C.P. was voluntarily admitted to the
psychiatric ward of one of our provinces hospitals. She was discharged on
October 19, 2009. The treating psychiatrist, Dr. H., in the discharge
summary, stated (in part):

I have strongly recommended to
[C.P.] that she reduce her work hours and abide by a more realistic schedule
what would foster a healthier lifestyle and increase her changes of recovering
from depression and anxiety ... It actually takes her approximately 50 hours to
complete a 25 hour work week. This will usually come at a considerable expense
to herself as she uses up her evenings and weekends to perpetually catch up.
This maintains the cycle in which she feels demoralized, exhausted, has
difficulties with her concentration, begins to feel overwhelmed and cannot
manage her anxiety, which results in a deterioration of her sleep and mental
state, frequently feeling overwhelmed by her predicament.

[26]

On November 10, 2009, C.P. and Ms. Wadhwani spoke on the
telephone. During the conversation C.P. indicated that she understood that her
file had been closed as a result of administrative error. Ms. Wadhwani
brought C.P.s attention to the specific reference in the July 15 Letter that
the claim was being closed. This appeared to have come as a surprise to C.P. In
the conversation, Ms. Wadhwani advised C.P. that her policy remained
ongoing but that a claim would only be maintained if benefits were being paid. Ms. Wadhwani
confirmed that she had written to C.P.s doctors seeking information. C.P.
advised that she would fax to Ms. Wadhwani the discharge summary from her
October hospitalization which Ms. Wadhwani agreed to review. C.P. also
asked Ms. Wadhwani to release the September benefit payment. Ms. Wadhwani
advised that she could not promise that, but would review it as soon as
possible.

[27]

Later on November 10, 2009, C.P. faxed the discharge summary to
Ms. Wadhwani. This was the first that RBC knew of the details of C.P.s
October 2009 admission to hospital. RBC agrees that it should have reinstated
residual disability benefits on receipt of the discharge summary. This was not
done because Ms. Wadhwani continued to operate on the misunderstanding
that C.P.s file was closed and that appeal procedures should be followed. RBC
did, however, send to C.P., later in November, her benefits for September and
October 2009.

[28]

RBC continued to mishandle the plaintiffs claim through to April 29,
2010, when the plaintiffs file was re-opened. Much of the claims handling
problems arose as a result of Ms. Davidson initiating the AP&C
procedure in July 2009. As a result of that action, C.P.s file was no longer
an open claim which would be subject to the usual management oversight. It
was also not a closed claim, which would be handled by the defendants appeal
unit. The claim fell into a twilight zone best described as closed pending
evidence of reinstatement.

[29]

Subsequent to 2009, communication continued between C.P. and Ms. Wadhwani.
Ms. Wadhwani continued to seek medical information from the numerous
physicians from whom C.P. was receiving treatment. C.P. was becoming
increasingly upset at the failure of RBC to confirm coverage.

[30]

On April 26, 2010, C.P. was hospitalized overnight. She was
released on April 27 and then sought legal advice.

[31]

On April 27, 2010, C.P.s legal counsel faxed a letter to Ms. Wadhwani.
In the letter, counsel advised that C.P. had been discharged from hospital that
same day after a drug overdose, which counsel indicated occurred because of
profound stresses caused by RBCs conduct. The letter requested that RBC
immediately reinstate C.P.s benefits.

[32]

Also on April 28, 2009 Ms. Wadhwani spoke to, and received a
fax from the plaintiffs psychiatrist, Dr. C. Based upon the information
received from Dr. C., Ms. Wadhwani determined that C.P. was entitled
to ongoing residual disability benefits.

[33]

Despite of the manner in which RBC handled the claim, it did, with the
exception of the November 2009 benefit payment, pay C.P. residual benefits upon
receipt of her income statements. The timing of the payments for the relevant
months was:

(a)        September
2009  paid November 19, 2009, the monthly income statement was received
November 12, 2009;

(b)        October
2009  paid November 25, 2009, two days after the relevant monthly income
statement was received;

(c)        November
2009  paid April 30, 2010, even though the relevant monthly income statement
was received January 20, 2010;

(d)        December 2009  not applicable. Plaintiff reported
sufficient income;

(e)        January
and February 2010  paid June 18, 2010 after the relevant monthly income
statements were received on June 4, 2010;

(f)         March to June 2010  paid June
18, 2010, before the receipt of the relevant monthly statements on August 19,
2010.

[34]

At trial, RBC acknowledged that the claim had been mishandled and that
it  went off the rails in many places, commencing with the July 15 Letter
which had led to a premature closing of the file. Because the file had been
closed, it was then set up as an appeal as opposed to a regularly closed claim.
When Ms. Wadhwani took over conduct of the file, she was not aware of the
history and she did not appreciate how the file had come to be closed. As a
result, she continued to treat the matter as an appeal in which the onus was on
C.P. to establish her entitlement to further benefits.

[35]

C.P. continues to be covered under the policy. RBC has made payments to
her continuously since reinstating the claim in April 2010. C.P. commenced this
proceeding on July 14, 2010, after her claim had been reinstated.

THE TRIAL REASONS

[36]

In closing argument, RBCs counsel acknowledged that her clients
actions were sloppy, very sloppy. The trial judge agreed that the description
of sloppiness was apt. He found, however, that the evidence did not support the
plaintiff counsels general assertion of deft deflection and delay aligned with
RBCs financial interest. The trial judge found both Ms. Davidson and Ms. Wadhwani
to be conscientious and forthright, that neither had
animus
towards C.P.
and that they wished for her to succeed. Neither had a financial interest in
either closing or keeping closed C.P.s file.

[37]

That said, the trial judge found that C.P.s file should not have been
closed and after being closed, it should have been re-opened much earlier than
it was. He found that RBCs sloppiness may have flowed from Ms. Davidson
and Ms. Wadhwanis heavy caseloads.

[38]

In general, the trial judge found C.P.s testimony to be often
unsatisfactory and unreliable. He did find, however, that during the time that
RBC was mishandling the claim, C.P. suffered periods of full disability related
to her mental health. He also found that RBCs actions could reasonably be
contemplated to heighten the anxiety of the stress of C.P. beyond reasonable
norms. On a balance of probabilities, he found that RBCs actions were an
effective cause of, or gave rise to, mental distress unrelated to any other
mental health condition. However, the trial judge rejected the plaintiffs
submissions that any of RBCs actions were the effective cause of the
plaintiffs hospitalizations, suicidal ideations or overdoses.

[39]

As to damages, the trial judge noted that C.P. was seeking general damages
for mental distress in the range of $100,000 to $200,000 if punitive damages
were not awarded which were higher than the amount sought if punitive damages
were awarded. The trial judge made reference to the Supreme Court of Canada
decision in
Fidler v. Sun Life Assurance Co. of Canada
, [2006] 2 S.C.R.
3, in which the claims similar to those in this proceeding were brought. In
Fidler
,
the court awarded $20,000 as damages for mental distress. Using
Fidler
as
his guide, the trial judge awarded $10,000 in damages for mental distress.

[40]

The trial judge rejected the claim for punitive damages. He noted that
such awards are only made in exceptional cases and with restraint. While
acknowledging that RBCs actions were sloppy, he rejected the submission that they
showed an egregious level of stone-walling and dishonesty. The trial judge concluded
that the conduct of RBC was not such that warranted the punitive damages award.

[41]

Subsequent to the release of the reasons, the trial judge heard further
submissions in regards to costs. At that hearing, it was disclosed that the
defendant, on May 15, 2013, had made a formal offer to settle of $50,000.
The offer was not time limited. The defendant applied for double costs on Scale
B from June 1, 2013 onward. The trial commenced on September 9, 2013.

[42]

In brief unreported oral reasons, dated March 27, 2014, the trial
judge held that the $50,000 offer ought to have been accepted. He referenced
Hartshorne
v. Hartshorne
, 2011 BCCA 29, for the proposition that the
Supreme Court
Civil

Rules
(the 
Rules
)

encouraged parties to seek early
resolution by making reasonable settlement offers and discouraged parties from
refusing such offers. Without any analysis of the history of the R. 9-1, the
trial judge awarded the plaintiff her costs to June 30, 2013 and awarded
the defendant double costs thereafter. He noted that he had chosen the date of
June 30, 2013 because it was approximately two weeks after examinations
for discovery had taken place and gave the plaintiff a six week window to
accept the offer.

ISSUES ON APPEAL

[43]

The appeal focused on the assessment of damages and costs award. The
foundation of the appeal was that the trial judge erred and applied the wrong
legal test for assessing damages. In regards to mental distress, C.P. submits
that the proper test has two components:

(a)

on the issue of foreseeability, the test is not what damages a
reasonable person would reasonably foreseeably experience, but what damages a
mentally ill insured would experience in the circumstances facing the
plaintiff; and

(b)

in assessing damages, the test is not what a reasonable person would
reasonably experience but what mental distress the plaintiff actually
experienced.

[44]

In regards to the question of punitive damages, C.P. submits that the
test should be objective, based on:

(a)

the absence of a reasonable basis for denying benefits; and

(b)

the defendants knowledge or reckless disregard of the lack of a reasonable
basis for denying the claim.

[45]

In regards to the costs award, C.P. submits that the trial judge erred in
awarding the defendant double costs and failing to consider all the factors set
out in the offer to settle
Rule
.

[46]

RBC submits that the trial judge applied the correct legal tests in
regard to the assessment of damages and the cost award. It does not challenge
the finding that its conduct gave rise to mental distress.

DISCUSSION

A.
Damages for Mental Distress

[47]

Historically, the law did not recognize damages for mental distress
resulting from a breach of contract. In
Warrington v. Great-West Life Assurance
Co.
, (1996) 24 B.C.L.R. (3d) 1 (C.A.), Newbury J.A. traced the evolution of
the law at paras. 13-22. She concluded that a disability insurance policy
was one of the few contracts for which damages from mental distress were
recoverable when they are proven to result from a breach of contract. She noted
that the cases indicate that judges should exercise caution in their awards for
mental distress.

[48]

In
Fidler
, the Supreme Court of Canada confirmed that mental
distress is a consequence that parties to a disability insurance contract
reasonably contemplate may flow from a failure to pay the required benefits
under the contract. The intangible benefit provided by a disability insurance contract
is the prospect of continued financial security when a persons ability to earn
an income is disrupted. Damages for mental distress arising from the breach of
a peace of mind contract flow from the reasoning in
Hadley v. Baxendale
(1854), 9 Ex. 341, 156 E.R. 145. This is because such damages were within the
contemplation of both parties at the time they made the contract as the
probable result of a breach.

[49]

The facts
in

Fidler
are very similar to the case before
us. Ms. Fidler was insured under a disability policy. The insurer, having
paid benefits for a number of years, discontinued the benefits after an
investigation led them to conclude that Ms. Fidler was not disabled. The
denial of benefits continued for approximately five years. A week before the
trial was scheduled to start, the insurer re-instated Ms. Fidlers
benefits and paid all outstanding amounts. The trial, as did this trial, dealt
only with Ms. Fidlers entitlement to aggravated and punitive damages.

[50]

The trial judge, in reasons indexed at 2002 BCSC 1336, awarded Ms. Fidler
$20,000 in what he termed aggravated damages. In doing so, he applied the Court
of Appeals reasoning in
Warrington.
He denied the claim for punitive
damages, finding that the insurer had not acted in bad faith.

[51]

The Court of Appeal, in reasons indexed at 2004 BCCA 273, upheld the
award for aggravated damages. The Court divided, however, on whether the
insurers conduct dealing with Ms. Fidlers benefits rose to the level of
bad faith. The majority of the Court held that it did and awarded punitive
damages of $100,000.

[52]

In the Supreme Court of Canada, the insurer sought to set aside the
awards for both aggravated and punitive damages. The Court upheld the
aggravated damage award. It reviewed the history of awards dealing with damages
for mental distress and, as noted, found damages for mental distress for breach
of contract can be awarded in appropriate cases as an application of the
principles of
Hadley v. Baxendale
. To make such an award, the Court must
be satisfied:

1.

that an object of the contract was to secure a psychological benefit
that  brings mental distress upon breach within the reasonable contemplation of
the parties; and

2.

that the degree of mental suffering caused by the breach was of a degree
sufficient to warrant compensation (para. 47).

[53]

In this appeal, the entitlement to damages from mental distress is not
an issue. The sole question is one of quantum.

[54]

C.P. submits that, given that under the terms of the insurance contract
an insured might be entitled to claim disability benefits on the basis of
mental illness, it would be in the contemplation of the parties that a mentally
ill insured may be in greater need of peace of mind than an insured who is
not mentally ill, and that the wrongful termination of benefits and loss of
peace of mind may impact an insured who is mentally ill more intensely than
someone who is not mentally ill. C.P. cites
RBC Dominion Securities v.
Merrill Lynch Canada Inc.
, 2008 SCC 54 for the proposition of the need to
distinguish between the unforeseeability of the breach and the unforeseeability
of the consequences.

[55]

C.P. submits that the question to ask is whether the consequences would
have been foreseeable had the breach occurred. Applied to the instant case, she
submits the question is whether an insureds attempted suicide and
post-traumatic stress disorder would have been foreseeable had the insured, who
suffered from severe psychiatric illness with a history of suicidal ideation,
faced a wrongful closure of her file and ongoing delays that were clearly
inconsistent with the professed intention to act promptly.

[56]

The foundation of these submissions is that the principles that apply to
thin-skull plaintiffs in tort cases are applicable in contract cases.
Authorities suggest otherwise. This point was discussed in
Turczinski v. Dupont
Heating & Air Conditioning
(2004), 246 D.L.R. 4
th
95 (Ont.
C.A.). In rejecting the submission, the Court said, at para. 45:

[45]      I agree with the
appellant that the principles that apply to thin-skull plaintiffs in tort cases
are not applicable in contract cases. In tort cases the defendant wrongdoer
takes the plaintiff as found, but
in a contract case the parties make a
bargain with each other and are made aware of and agree to the obligations and
risks that they are undertaking
. Therefore both the type and extent of the
damages for breach of contract are based on what was within the reasonable
contemplation of the parties. [Emphasis added.]

[57]

This distinction derives from the fundamental difference between the
source of compensable obligations in tort and contract law. As the Ontario
Court of Appeal explains, the underlying question in determining liability in
contract is whether the loss at issue is of a type and extent for which the
party in breach assumed contractual responsibility as a matter of law, with the
ambit of the obligation determined on the basis of the parties bargain at
formation. It is for this reason that the question of whether a loss occasioned
by a particular infirmity is compensable must be understood in terms of the
parties bargain. The court looks to the interaction of the parties to
determine what obligations they intended to incur or, put another way, what risks
they intended to assume under the contract. It is up to the parties to
determine who will bear the risk of loss occasioned by any unexpected susceptibility
to a type of loss.

[58]

In tort, in principle, the parties have no such pre-existing
relationship (in the sense of defining the scope of their mutual obligation to
each other prior to a tortious wrong). The risk of loss due to unexpected
susceptibility has to be apportioned by a judicially devised mechanism
extrinsic to the parties interaction, regardless of its form. In our system, this
mechanism is the thin-skull principle. Such a mechanism must exist in tort, but
it cannot be incorporated into contract because in contract risk is apportioned
by the parties at formation.

[59]

The ability of a plaintiff to recover damages for a particular type of
loss in contract is subject to the principle of remoteness. The reasonable
contemplation of the parties does not include the possibility of events that
might only happen in a small minority of cases. This is because the mere fact
that a possibility could logically have been contemplated by the parties cannot
be enough, as a matter of law, to turn it into an enforceable obligation
compensable with damages. In
The Heron II,
[1969] 1 A.C. 350 (H.L.), Lord
Reid explained at 385:

[The Court in Hadley] clearly
meant that a result which will happen in the great majority of cases should
fairly and reasonably be regarded as having been in the contemplation of the
parties, but that a result which, though foreseeable as a substantial
possibility, would only happen in a small minority of cases should not be
regarded as having been in their contemplation.

[60]

As I explained above, the scope of liability under contract is defined
by the parties at contract formation. The inquiry into the expectation of the
parties must, therefore, be determined based on contract formation.
Mustapha
v. Culligan of Canada Ltd.
, 2008 SCC 27, concerned a case where the
plaintiff, while in the course of replacing an empty bottle of drinking water
with a full one, saw a dead fly and part of another dead fly in the unopened
replacement bottle. Obsessed with the event and its revolting implications for
the health of his family, he developed a major depressive disorder, phobia and
anxiety. He sued the supplier of the bottle for psychiatric injury. The trial
judge awarded him general and special damages. The Court of Appeal overturned
the judgment on the basis that the injury was not reasonably foreseeable and
did not give rise to a cause of action.

[61]

The Supreme Court of Canada held that the plaintiffs damages were too
remote to recover in tort. It also dismissed the contract claim. In that
regard, it said:

[19]
The
plaintiff also brought a claim for damages arising out of breach of contract,
although he appears not to have pursued it with vigour. This claim fails. With
regards to Mr. Mustaphas psychiatric injury, there is no inconsistency in
principle or in outcome between negligence law and contract law.
Damages
arising out of breach of contract are governed by the expectation of the
parties at the time the contract was made
(
Hadley
v. Baxendale
(1854), 9 Ex. 341, 156 E.R. 145, at p. 151, applied with
respect to mental distress in
Fidler v. Sun Life Assurance Co. of Canada
,
[2006] 2 S.C.R. 3, 2006 SCC 30)
, as distinguished
from the time of the tort, in the case of tort
.
I have concluded that personal injury to Mr. Mustapha was not
reasonably foreseeable by the defendant at the time of the alleged tort. The
same evidence suggests that Mr. Mustaphas damage could not be reasonably
supposed to have been within the contemplation of the parties when they entered
into their agreement. [Emphasis added]

[62]

Of import is the Courts emphasis that damages arising out of the breach
of contract are governed by the expectation of the parties at the time the
contract was made, as distinguished from the time of the tort, as in the case
of tort. In support of this principle the Court makes specific reference to
Fidler
.
Given that the legally enforceable obligation in contract arises at contract
formation rather than at the time of the breach, the nature of that legally
enforceable obligation is determined by the events occurring at the time the
contract is formed, not afterward. That the parties have an on-going
relationship does not mean that the nature of the obligation under the parties
contract has, somehow, been altered over that period of time unless the
parties contract specifically incorporated such an eventuality in its terms.

[63]

The question in this case is whether the potentially unique
susceptibility of C.P. to having her benefits denied could have been foreseen
under the contract at the time of formation. In this case, the contract was
made in 1999. It was, at least insofar as the evidence indicates, a typical
disability insurance contract. As of that date, C.P. was a practicing physician
with no history of mental illness. There was no basis to suspect she was
anything other than a typical person of ordinary fortitude. In view of these
circumstances, C.P.s reaction to the suspension of benefits was extreme. It would
not have been within the reasonable contemplation of the Paul Revere Life
insurance company at the time the disability insurance was purchased, in whose
position RBC now stands, that the risk of a loss occasioned by such an extreme
susceptibility formed part of the disability insurance contract.

[64]

The evidence at trial was that C.P. did not have typical reactions to
the stressors affecting her. There is no evidence that an indemnity for such
atypical reactions formed part of the parties bargain. There is no evidence
that the parties had intended for the insurer to assume liability for every
reaction, no matter how extreme, caused by the breach of the contract. In my
view, it was not within the reasonable contemplation of parties to this
contract for disability insurance that a suspension of benefits for a few
months, while the insured continued to practice medicine part-time, would lead
the insured to overdose and/or attempt suicide. This extreme level of
suffering was not reasonably foreseeable as being the probable result of or
arising naturally out of RBCs breach within the meaning of
Hadley v.
Baxendale
.

[65]

The awards for damages for mental stress in the context of a disability
policy have traditionally been modest. In
Warrington
, benefits were
suspended for 26 months. The award was $10,000. In
Fidler,
in which
benefits were suspended for five years, the award was $20,000. In the case at
bar, while the claim was closed for some eight months, benefit payments were suspended
less than four months, and re-instated before any litigation was commenced.
While the award in this case could properly be described as modest, and it may
well have been open to the trial judge to award more, the award cannot be
considered inordinately low or entirely disproportionate to similar awards in
other cases. I would not disturb the trial judges award of damages for mental
distress.

B.
Punitive Damages

[66]

In
Fidler
, the Supreme Court of Canada stated the principles that
are applicable to awards of punitive damages:

[61]
While compensatory damages are
awarded primarily for the purpose of compensating a plaintiff for pecuniary and
non-pecuniary losses suffered as a result of a defendants conduct, punitive
damages are designed to address the purposes of retribution, deterrence and
denunciation:
Whiten v. Pilot Insurance Co.
, [2002] 1 S.C.R. 595, 2002
SCC 18, at para. 43.

[62]      By their nature, contract breaches
will sometimes give rise to censure. But to attract punitive damages, the
impugned conduct must depart markedly from ordinary standards of decency  the
exceptional case that can be described as malicious, oppressive or high-handed
and that offends the courts sense of decency:
Hill v. Church of Scientology
of Toronto
, [1995] 2 S.C.R. 1130, at para. 196;
Whiten
, at para. 36.
The misconduct must be of a nature as to take it beyond the usual opprobrium
that surrounds breaking a contract. As stated in
Whiten
, at para. 36,
punitive damages straddle the frontier between civil law (compensation) and
criminal law (punishment). Criminal law and quasi-criminal regulatory schemes
are recognized as the primary vehicles for punishment. It is important that
punitive damages be resorted to only in exceptional cases, and with restraint.

[63]      In
Whiten
, this Court set out
the principles that govern the award of punitive damages and affirmed that in
breach of contract cases, in addition to the requirement that the conduct
constitute a marked departure from ordinary standards of decency, it must be
independently actionable. Where the breach in question is a denial of insurance
benefits, a breach by the insurer of the contractual duty to act in good faith
will meet this requirement. The threshold issue that arises, therefore, is
whether the appellant breached not only its contractual obligation to pay the
long-term disability benefit, but also the independent contractual obligation
to deal with the respondents claim in good faith. On this threshold issue, the
legal standard to which Sun Life and other insurers are held is correctly
described by OConnor J.A. in
702535 Ontario Inc. v. Lloyds London,
Non-Marine Underwriters
(2000), 184 D.L.R. (4th) 687 (Ont. C.A.), at para. 29:

The duty of good faith also requires an
insurer to deal with its insureds claim fairly. The duty to act fairly applies
both to the manner in which the insurer investigates and assesses the claim and
to the decision whether or not to pay the claim. In making a decision whether
to refuse payment of a claim from its insured, an insurer must assess the
merits of the claim in a balanced and reasonable manner. It must not deny
coverage or delay payment in order to take advantage of the insureds economic
vulnerability or to gain bargaining leverage in negotiating a settlement. A
decision by an insurer to refuse payment should be based on a reasonable
interpretation of its obligations under the policy. This duty of fairness, however,
does not require that an insurer necessarily be correct in making a decision to
dispute its obligation to pay a claim. Mere denial of a claim that ultimately
succeeds is not, in itself, an act of bad faith.

[67]

In this case, the trial judge rejected C.P.s submissions that RBCs
conduct departed remarkably from ordinary standards of decency. He accepted the
evidence of Ms. Davidson and Ms. Wadhwani that they were at all times
acting in good faith and attempting to properly serve C.P.s interest. It is to
be remembered that the catalyst to the initial closing of the file was C.P.s
advice to RBC that she was returning to full-time work.

[68]

The trial judges findings of fact are with respect a complete answer to
the punitive damage appeal. He found there was no improper purpose on the part
of RBC. While accepting that the claim handling procedure was sloppy, RBCs
actions could not be characterized as malicious, oppressive or high-handed. The
trial judge saw and heard the witnesses. It is for him to assess the evidence
and determine its weight and effect. Although he characterized the conduct as
sloppy, it clearly did not, in his view, depart from the ordinary standards of decency.
C.P. has not been able to demonstrate that the conclusions of the trial judge were
unreasonable or palpably wrong.

[69]

I would dismiss the claim for punitive damages.

C.
Costs

i.        Overview

[70]

Unless the court otherwise orders, costs in a proceeding must be awarded
to the successful party: R. 14-1(9). The successful party is the plaintiff who
establishes liability under a cause of action and obtains a remedy, or a
defendant who obtains a dismissal of the plaintiffs case:
Loft v. Nat
,
2014 BCCA 108 at para. 46.

[71]

One circumstance in which a court may order otherwise under R. 14-1(9) is
where the plaintiff fails to accept an offer to settle under R. 9-1. Rule
9-1(5) sets out the options that are open to a court in circumstances in which
an offer to settle has been made:

(a) deprive a party of any or all of the costs, including any
or all of the disbursements, to which the party would otherwise be entitled in
respect of all or some of the steps taken in the proceeding after the date of
delivery or service of the offer to settle;

(b) award double costs of all or some of the steps taken in
the proceeding after the date of delivery or service of the offer to settle;

(c) award to a party, in respect of all or some of the steps
taken in the proceeding after the date of delivery or service of the offer to
settle, costs to which the party would have been entitled had the offer not
been made;

(d) if the offer was made by a
defendant and the judgment awarded to the plaintiff was no greater than the
amount of the offer to settle, award to the defendant the defendant's costs in
respect of all or some of the steps taken in the proceeding after the date of
delivery or service of the offer to settle.

[72]

When making an order under R. 9-1(5) the Court may consider the
factors set out in R. 9-1(6):

(a) whether the offer to settle was one that ought reasonably
to have been accepted, either on the date that the offer to settle was
delivered or served or on any later date;

(b) the relationship between the terms of settlement offered
and the final judgment of the court;

(c) the relative financial circumstances of the parties;

(d)
any other factor the court considers appropriate

[73]

In this case, C.P. was the successful party. She established liability
and received an award of damages in her favour.  This success was recognized by
the trial judge who awarded C.P. her costs up to June 30, 2013.  RBC, in
recognition of its offer to settle, was awarded double costs for all steps in
the proceedings taken after June 30, 2013.

[74]

The main issue raised on the costs portion of the appeal is whether the
Rules
authorize a trial judge to award double costs to a defendant, in circumstances
in which the plaintiff was the erstwhile successful party. If an award for
double costs is not available, the question then is what cost award in light of
the offer to settle should be made.

ii.       Availability of Double
Costs

[75]

In most cases, an award of costs involves the discretion of the trial
judge. This Court should not interfere with that discretion unless the trial
judge made an error in principle or the costs award is plainly wrong:
Hamilton
v. Open Window Bakery Ltd.
, 2004 SCC 9 at para. 27. In this case,
the main issue on appeal is one of statutory interpretation, which attracts a
standard of review of correctness:
Canada (Information Commissioner) v.
Canada (Minister of National Defence)
, 2011 SCC 25, at para. 23.

[76]

The principles of statutory interpretation apply to the
Supreme Court
Civil Rules
:
A.E. (Litigation Guardian of) v. D.W.J.,
2011 BCCA

279
(
A.E. Appeal
).The legislative evolution of a provision or statute may be
relied on by the courts to assist the statutory interpretation:
Gravel v.
St-L
é
onard (City)
,
[1978] 1 S.C.R. 660 at 687;
Amos v. Insurance Corp. of British Columbia
,
[1995] 3 S.C.R. 405 at para. 13. Iacobucci J. summarized this interpretive
principle in
R. v. Ulybel Enterprises Ltd.
, 2001 SCC 56 at para. 3,
setting out the relationship between legislative evolution and legislative
intent:

2.
Legislative History and the Intention of
Parliament

[33]      To understand the scope of [a provision], it is
useful to consider its legislative evolution. Prior enactments may throw some
light on the intention of Parliament in repealing, amending, replacing or
adding to a statute

[Citations omitted.]

[77]

A.E. (Litigation Guardian of) v. D.W.J.
,

2009 BCSC 505 traces
the legislative and judicial history of pre-trial offers of settlement:
paras. 35-46. Until 1976, the
Rules
recognized only offers made by
defendants. The mechanism of the offer was by way of a payment into Court. If
the plaintiff obtained a judgment for the amount of that payment or in a lesser
amount, the plaintiff would be entitled to costs assessed to the date of the
offer, and the defendant to costs after that date.

[78]

In 1976, in the context of a complete revision of the
Rules
, the
Rules
made provision for the first time for plaintiffs to deliver offers to settle: R.
57(13)). If the plaintiff received an amount greater than the offer to settle,
the plaintiff would be entitled to costs to the date of the offer and double
costs thereafter: R. 57(18)).

[79]

The rationale for the double cost provision was explained by Fraser J.
in
Martel v. Peetoom
(1996), 27 B.C.L.R. (3d) 160 (S.C.) at para. 11:

The concept of double costs is
driven by the dynamics of the plaintiff's situation: given that it is
predicated on the plaintiff recovering judgment, and given that the  premise is
that the defendant made no offer or made an offer for less than the award, the
plaintiff would be entitled to costs of the action anyway. The only way to
reward a plaintiff is to augment the costs award. This is the genesis of the
concept of double           costs. The regime is even-handed between plaintiffs
and defendants because it rewards each with a set of costs they would not
otherwise receive.

[80]

In 1993, the provisions governing offers to settle by both plaintiffs
and defendants were consolidated in a new R. 37 (B.C. Reg. 55/93). Payments
into court were replaced by offers to settle. The costs consequences arising
from an offer to settle were set out in Rules 37(23) and (24). Those
consequences remained the same as before. A plaintiff who made an offer to
settle more favourable to the defendant than the result obtained at trial (i.e.,
the eventual damage award is greater than the offer) was entitled to double
costs from the time the offer was delivered. A defendant who made a more
favourable offer to settle (i.e., the eventual damage award is less than the
offer) became entitled to the costs of the action from the time the offer was
delivered.

[81]

A gap in the
Rules
soon became apparent. In situations where a
defendant made an offer to settle and the case was subsequently dismissed, the
plaintiff suffered no additional consequences because the defendant was already
entitled to costs. Several judges when faced with such a situation awarded
defendants double costs subsequent to the date of the offer notwithstanding the
lack of any rule authorizing same:
Jetha v. Shefield & Sons-Tobacconists
Inc.
,

[1997] B.C.J. No. 317 (S.C.);
32262 B.C. Ltd. v. Balmoro
Investments Ltd
., [1998] B.C.J. No. 23 (S.C.); and
Cook v. Bhanwath
(1999),
73 B.C.L.R. (3d) 305 (S.C.). Given the authorities in this Court that judges
are limited to the cost options set out in the
Rules
(
Kurtakis v.
Canadian Northern Shield Insurance Co.
(1995), 17 B.C.L.R. (3d) 197 (C.A.);
A.E. Appeal
at paras. 14, 39
; Gichuru v. Smith
2014 BCCA 414

at
para. 84
)
the correctness of those cases must be doubted. In any event,
those cases prompted a change to the
Rules
.

[82]

In 1999, R. 37(24)(b) was adopted to address the circumstances in which
an action was dismissed following an offer to settle. The new provision
entitled a defendant to double costs from the date of the offer. (B.C. Reg.
149/99). The
Rules
remained in that form until the introduction of R.
37B which became effective July 1, 2008.

[83]

Over time the cost provisions of R. 37 were determined to be a complete
code with respect to offers to settle, allowing for no judicial discretion:
Cridge
v. Harper Grey Easton & Co
.
, 2005 BCCA 33 at paras. 20-23. Rule
37B was adopted to restore discretion to trial judges in relation to offers to
settle. Rule 37B was a clear movement away from the narrowly formulated,
rigidly applied, approach to offers to settle which had applied under R. 37:
Roach
v. Dutra
, 2010 BCCA 264 at para. 50.

[84]

As initially written, R. 37B(5) gave the court the following options in
proceedings in which an offer to settle had been made:

(a)        deprive
a party, in whole or in part, of costs to which a party would otherwise be
entitled in respect of the steps taken in the proceedings after the date of
delivery of the offer to settle;

(b)        award double costs of all or
some of the steps taken in the proceeding after the date of delivery of the
offer to settle.

[85]

The
Rule
did not allow the court to order costs to a defendant
where the offer to settle was in an amount greater than the judgment. In
A.E.
,

the court held that there was no power to make such an order absent a
specific provision in the
Rules
. Shortly thereafter R. 37B(5) was
amended (am. B.C. Reg. 165/2009, s. 1(a), (b) and (c)). The amended wording
of R. 37B(5) was carried forward in essentially the same terms in R. 9-1(5) of
the
Supreme Court Civil Rules
, which took effect July 1, 2010.

[86]

It is against this historical background that the availability of double
costs to a defendant, in a case in which the plaintiff has obtained a judgment
in its favour, must be considered.

[87]

Double costs are a creature of statute unknown to the common law:
Vukelic
v. Canada
(1997), 37 B.C.L.R. (3d) 217 at para. 9 (C.A.). Their
introduction, in 1976, was to provide a remedy to plaintiffs who made offers to
obtain judgments better than their offers to settle. Double costs were intended
to augment the cost award to which a plaintiff would otherwise be entitled. A
similar intent was behind the 1999 amendment which provided double costs to
defendants when an action was dismissed. Such an award levelled the playing
field between the parties and put each party at risk of a double cost award in
circumstances in which they would ordinarily be entitled to an award of costs
in their favour.

[88]

There is no suggestion in any of the cases that an award of double costs
under R. 37 was unfair to plaintiffs or defendants. R. 37 was criticized for
its lack of flexibility, not for the inadequacy of its remedies.

[89]

The case at bar is the second decision in which an award of double costs
has been made to a defendant where the plaintiff has received a judgment. A
similar award was made in
Minhas v. Sartor
, 2014 BCSC 47. In
Danicek
v. Lee
, 2011 BCSC 444 the judge considered that he had jurisdiction to make
an award for double costs in a similar situation but refused to do so. In none
of the aforementioned cases did the judges make reference to the unequivocal comments
in
A.E. Appeal
at para. 44 that it is likely that double costs
would be awarded in favour of the defendant only where the plaintiffs action
was dismissed.

[90]

Neither the trial judge nor the judge at
Minhas
made reference to
the decision in
Gulbrandsen v. Mohr
, 2013 BCSC 1481. In
Gulbrandsen
the
trial judge, in reasons indexed at 2013 BCSC 959, initially awarded the
plaintiff costs up to the date of the defendants offer to settle, and double
costs to the defendant thereafter. He then reconsidered the double cost award.
After reviewing numerous authorities including
A.E.
,
A.E. Appeal
,
Ward v. Klaus
, 2011 BCSC 99 and
Currie v. McKinnon
, 2012 BCSC
1165, he concluded that it was not appropriate to make an award of double costs
to a defendant where the plaintiff had obtained a judgment.

[91]

I am of the same opinion. I do not believe that R. 37B intended to
change the long-standing practice concerning the circumstances when double
costs could be awarded. A plaintiff who obtains a judgment for less than an
offer to settle is already subject to sanctions: R. 9-1(6)(a) allows the court
to deprive the successful plaintiff of costs to which it would otherwise be
entitled. Rule 9-1(5)(d) provides an even more punishing outcome as the
plaintiff is not only deprived of costs he or she would otherwise receive, but
must also pay the defendants costs subsequent to the offer to settle. To also
allow a defendant double costs would skew the procedure in favour of defendants
and unfairly penalize and pressure plaintiffs. I would adopt in that regard the
comments of Madam Justice Adair in
Currie
:

[18]      I think it certainly can be argued that if a
defendant who has made an offer to settle in an amount higher than the amount
awarded to the plaintiff at trial (and that is what has been done in this case)
was then awarded double costs, this would skew the procedure in favour of
defendants and unfairly penalize and pressure plaintiffs.  This is because a
plaintiff who rejected an offer to settle would potentially risk a triple cost
penalty if he or she were to win at trial an amount less than the offer.  The
plaintiff would suffer loss of the costs that he or she would normally receive
on obtaining judgment at trial, and face double costs payable to the defendant.

[19]      In my view, there is a
good reason to apply Rule 9-1 in a way that is even-handed, or more
even-handed, as between plaintiffs and defendants.  I would say for this reason
one would expect to see double costs awarded to a defendant, using the offer to
settle procedure, in exceptional circumstances only, such as a situation where
the plaintiffs claim was dismissed all together after a plaintiff rejected an
offer to settle.

[92]

In the result, I find that it was not open for the trial judge to award
double costs to the defendant. It was an error in principle to do so. The
decision in
Minhas
which made a similar order was also wrongly decided
and should not be followed.

iii.       The Proper Cost Award

[93]

The issue to be determined is the appropriate cost order on the facts of
this case. Given the result at trial and the defendants offer to settle, the
trial judge had three options. He could deprive the plaintiff any or all costs
arising subsequent to the date of delivery of the offer to settle; he could
award the defendant the defendants costs in respect to matters taken after the
offer to settle; or he could, in the exercise of his discretion, give no effect
to the offer to settle.

[94]

The underlying purpose of the offer to settle rule was set out in
Hartshorne
:

[25]      An award of double costs is a punitive measure
against a litigant for that partys failure, in all of the circumstances, to
have accepted an offer to settle that should have been accepted. Litigants are
to be reminded that costs rules are in place to encourage the early settlement
of disputes by rewarding the party who makes a reasonable settlement offer and
penalizing the party who declines to accept such an offer (
A.E. v. D.W.J.,
2009 BCSC 505, 91 B.C.L.R. (4th) 372

at para. 61, citing
MacKenzie v.
Brooks,
1999 BCCA 623,
Skidmore v. Blackmore
(1995), 2 B.C.L.R. (3d)
201 (C.A.),
Radke v. Parry,
2008 BCSC 1397). In this regard, Mr. Justice
Frankels comments in
Giles
are apposite:

[74]      The
purposes for which costs rules exist must be kept in mind in determining
whether appellate intervention is warranted. In addition to indemnifying a
successful litigant, those purposes have been described as follows by this
Court:

·

[D]eterring
frivolous actions or defences:
Houweling Nurseries Ltd. v. Fisons
Western Corp.
(1988), 37 B.C.L.R. (2d) 2 at 25 (C.A.), leave refd, [1988]
1 S.C.R. ix;

·

[T]o
encourage conduct that reduces the duration and expense of litigation and to
discourage conduct that has the opposite effect:
Skidmore v.
Blackmore
(1995), 2 B.C.L.R. (3d) 201 at para. 28 (C.A.);

·

[E]ncouraging
litigants to settle whenever possible, thus freeing up judicial resources for
other cases:
Bedwell v. McGill
, 2008 BCCA 526, 86 B.C.L.R. (4th)
343 at para. 33;

·

[T]o
have a winnowing function in the litigation process by requir[ing] litigants
to make a careful assessment of the strength or lack thereof of their cases at
the commencement and throughout the course of the litigation, and by
discourag[ing] the continuance of doubtful cases or defences:
Catalyst
Paper Corporation v. Companhia de Navegação Norsul
, 2009 BCCA 16, 88
B.C.L.R. (4th) 17 at para. 16.


[95]

A plaintiff who rejects a reasonable offer to settle should usually face
some sanction in costs. To do otherwise would undermine the importance of
certainty and consequences in applying the Rule:
Wafler v. Trinh
, 2014
BCCA 95 at para. 81. The importance of those principles was emphasized by this
Court in
A.E. Appeal
at para. 41:

[41]      This conclusion is
consistent with the importance the Legislature has placed on the role of settlement
offers in encouraging the determination of disputes in a cost-efficient and
expeditious manner.  It has placed a premium on certainty of result as a key
factor which parties consider in determining whether to make or accept an offer
to settle.  If the parties know in advance the consequences of their decision
to make or accept an offer, whether by way of reward or punishment, they are in
a better position to make a reasoned decision.  If they think they may be
excused from the otherwise punitive effect of a costs rule in relation to an
offer to settle, they will be more inclined to take their chances in refusing
to accept an offer.  If they know they will have to live with the consequences
set forth in the Rule, they are more likely to avoid the risk.

[96]

As set out above when making an order under R. 9-1(5) the Court may
consider the factors set out in R. 9-1(6). I will consider those factors in
turn.

a.       Should the Offer have been Accepted

[97]

Whether an offer to settle is one that ought reasonably have been
accepted, is assessed not by reference to the award that was ultimately made,
but under the circumstances existing when an offer was open for acceptance:
Bailey
v. Jane
, 2008 BCSC 1372 at para. 24 and
Hartshorne
at
para. 27. This factor is considered from the perspective of the person
receiving the offer. It has both a subjective and objective component. The
court is entitled to take into account the reasons why a party declined to
accept an offer to settle. The court must consider whether those reasons are
objectively reasonable.

[98]

The trial judge found that the $50,000 offer ought to have been
accepted. I agree with that finding. $50,000 was well in excess of any prior
award in this jurisdiction for mental distress. While the amount may have been
considerably less than the plaintiff hoped to receive, an objective analysis of
the plaintiffs case should have led to the conclusion that the offer be
accepted.

b.       The Results at Trial

[99]

This factor is the mirror image of the first factor. It provides the
court with an objective measurement of the reasonableness of the offer that has
been made and the decision to reject it. In this case, the offer was five times
the award made at trial.

c.       Relative Financial
Circumstances

[100]

This factor
allows the court to consider the relevant financial circumstances of the parties.
In the early cases decided under R. 37B, most judges concluded the fact that an
insurer was involved should not be taken into account:
Bailey
at
paras. 32-34; and
Arnold v. Cartwright Estates
, 2008 BCSC 1575 at
para. 23. In
Smith v. Tedford
, 2010 BCCA 302 this Court held
otherwise. In that decision, the Court recognized that in certain circumstances
the existence of an insurer can be taken into account.

[101]

Subsequent
to
Tedford
, there has been some debate in the trial court as to how this
factor should be applied. In that regard, I follow the course charted by Humphries
J. in
Mazur v. Lucas
, 2011 BCSC 1685 in which she held that while insurance
coverage is not automatically a factor to be considered against the insured
party, the facts of the particular case will govern whether it should be
considered, and if so, what weight should be given to it (Para. 53).

[102]

In this
case, RBC is undoubtedly a company of financial substance. However, there is no
evidence that it used its financial strength in an untoward manner. In my view,
the parties financial discrepancy in this case is not relevant to the proper
cost award.

d.       Other Factors

[103]

The court
is also entitled to consider any other relative factors. In this case, C.P.
argued that given her ongoing contractual relationship with RBC she needed to
address RBCs conduct and her peace of mind required that she confront what
happened in 2009-2010. She argued that it was reasonable to not accept the
defendants offer because the issues in this action are not simply about
money. The trial judge rejected the plaintiffs submission. The judge rightly
noted that the offer ought not to have been dismissed for extraneous reasons.

e.       Analysis

[104]

As noted
in
Hartshorne
,

the offer to settle rule is a punitive measure
intended to encourage the early settlement of disputes by rewarding the party
who makes the reasonable settlement offer and penalizing the party who declines
to accept such an offer. The trial judge was clearly of the view that C.P.
should be punished for failing to accept RBCs offer and to that end awarded
RBC double costs.

[105]

For the
reasons set out above, double costs were not available to the trial judge. The
trial judge clearly, however, could have awarded RBC its costs from a date following
the offer to settle if he had appreciated that double costs were not available.
There is little doubt that he would have made such an award. Such an award
would have been within his discretion. In this case, it is not an award with which
this Court would interfere.

[106]

Thus, given
the circumstance of this case and the comments of the trial judge in the cost
reasons, I would vary the cost award and substitute for the award of double
costs an award of single costs to RBC from June 30, 2013 onward.

SUMMARY

[107]

In summary, I would dismiss the appeal save and except for the variation
of the cost award. Given C.P.s limited success on the appeal, I would award
RBC 80% of the costs of the appeal.

The
Honourable Mr. Justice Goepel

I agree:

The Honourable Madam Justice
MacKenzie

I agree:

The Honourable Mr. Justice
Willcock


