The Court ordered the underinsurer to pay the Insured’s costs once the primary insurer’s policy limits were exhausted because to do otherwise would mean the underinsurer could have a free ride of a trial at the expense of the primary insurer

Weppler v. Messner, [2005] A.J. No. 877, Alberta Court of Queen’s Bench

The issue on this application was whether Lombard General Insurance Company of Canada (“Lombard”), the Plaintiff’s SEF 44 motor vehicle insurer, should be responsible for some of the court costs in the tort action between the Plaintiffs and the Defendants as a result of Lombard being added as a Defendant.

The tort action was brought by the Plaintiffs Weppler and Hart who were travelling in Weppler’s vehicle when it was struck by a vehicle operated by the Defendant Messner who maintained that he had been cut off in traffic by an unidentified small red car. Because the red motor vehicle was unidentified, the Administrator for the Motor Vehicle Claims Fund (the “Fund”) was also named as a Defendant. Weppler had an SEF 44 family protection endorsement on her automobile policy with the insurer, Lombard. Weppler commenced a separate action on her SEF 44 endorsement against Lombard. By consent, Lombard was added as a Defendant to the tort action and thereafter filed a statement of defence in that action as well. The tort and SEF 44 actions however, were never consolidated.

Before trial, a Consent Judgment confirmed that the sole cause of the collision was the negligence of the operator of the unidentified red vehicle, for whose negligence the Administrator of the Fund was liable and that the judgment was determinative of the issue of liability in both the tort and SEF 44 action.

After determining that the damages of the Plaintiffs in the tort action would exceed the statutory limit of $200,000 plus costs, the Fund offered Wepler its statutory limit plus costs. The Defendant Lombard agreed to settle the tort claim with Weppler for $475,000 plus costs.

The issue in this application was which Defendant should pay the Plaintiffs’ costs from the date the Fund offered to pay the statutory limit to the date of the commencement of trial.

The Motor Vehicle Claims Act allows a plaintiff to accept “partial judgment” from the Administrator, being the maximum of $200,000 payable under the Act, and to continue the action against the defendant against whom the partial judgment was obtained and any other defendant. The Administrator therefore submitted that upon partial judgment being entered, the Administrator’s involvement and responsibility for damages and costs was at an end and that Lombard should be responsible for any costs beyond that date. The Administrator submitted that because Lombard participated as a full Defendant and contested quantum in the tort action, Lombard was at risk for costs.

Lombard submitted that nothing in the Act relieves the Administrator of its responsibility for cost after it pays its statutory limit. Lombard also submitted that the Consent Order adding Lombard as a party to the tort action did not justify an award of costs against Lombard because the Order was procedural, not substantive and did not create substantive rights that did not exist prior to the Order. Accordingly, there was no justification for judgment against it in the tort action.

The court rejected the Administrator’s submission that the effect of the Act is to allow the Administrator to extricate the Fund from an action and further exposure to costs and that upon partial judgment being entered, the Administrator’s involvement and responsibility for damages and costs is at an end. Costs are always in the discretion of the court and to accept the Administrator’s position is to find that by statute, the court’s discretion as to costs is removed. However, the Court stated that the principle that can be drawn from the case law is that while interested parties such as Lombard, whose rights and obligations may be affected by the outcome of an action, have every right to participate in an action, the right to such participation carries with it certain responsibilities. One of those responsibilities is the payment of costs incurred by the successful party as a result of the intervening party’s conduct. The primary insurer should not pay the Plaintiff’s costs once it is clear that its policy limits are exhausted as it would mean the underinsurer could have a free ride of a trial at the expense of the primary insurer.

The Court therefore held that Lombard should pay the costs for steps taken in the tort action after the Fund offered its limits.

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