Fleet v. Federated Life Insurance Company of Canada

Fleet v. Federated Life Insurance Company of Canada Court Supreme Court Date 2008-11-25 Citation 2008 NSSC 352 Docket SH 247663 Judge/Registrar/Adjudicator Moir, Gerald R. P. (Honourable Justice) Document Type Decision Relations Library Sheet - Fleet v. Federated Life Insurance Company of Canada - 2008 NSSC 352 - 2008-11-25 - Library Sheet Decision Content SUPREME COURT OF NOVA SCOTIA Citation: Fleet v. Federated Life Insurance Company of Canada, 2008 NSSC 352 Date: 20081125 Docket: SH 247663 Registry: Halifax Between: David Richard K. Fleet Plaintiff v. Federated Life Insurance Company of Canada and Paul Bellefontaine Defendants __________________________________________________________________ DECISION on COSTS and INTEREST __________________________________________________________________ Judge: The Honourable Justice Gerald R P Moir Heard: 21, 22, 23 January 2008 at Halifax Last Submissions: October 1, 2008 Counsel: Mr. David A Grant for the plaintiff Mr. Scott Norton, QC and Ms. Amy Higgins for the defendant Federated Life Insurance Company of Canada Mr. Alexander S Beveridge, QC and Ms. Erin Cain for the defendant Paul Bellefontaine Moir J: [1] Mr. Fleet claimed against Federated Life for the proceeds of a policy on the life of his spouse, Ms. Lowe, and he also claimed against Federated’s agent, Mr. Bellefontaine. Federated defended on the basis of misrepresentation and it cross claimed against Bellefontaine. [2] I found that the defence of material misrepresentation was not proved and allowed the claim against Federated. I dismissed the claim against the agent on the basis that his actions caused loss to Federated only. I allowed the crossclaim on the basis that the agent wrote Ms. Lowe’s signature on the underlying application, and Federated would not have offered the policy had it received a proper application. [3] Costs and prejudgment interest remain to be determined. [4] Costs. The last paragraph of the main decision reads: I must say that Mr. Bellefontaine appears to have put the other parties to a great deal of unnecessary expense by not revealing, until the last minute, that he probably signed Ms. Lowe’s name to the application. I am open to a submission for costs additional to the usual party and party costs. [5] On behalf of the plaintiff, Mr. Grant advises that an offer of settlement for $105,000 was made by Mr. Fleet two years before trial. He also advises that he had difficulty in obtaining production from Federated of the original application and of documents that would have shown the electronic trail the application followed. On the basis of the offer, the difficulties with production, and the late disclosure by the agent, Mr. Grant submits for an increase from tariff costs. [6] Mr. Grant estimates his services cost $40,000 plus another $6,000 caused by his client changing lawyers, then returning to Mr. Grant. The $40,000 is based on $200 an hour for 200 hours. The rate and the time required seem reasonable to me. Mr. Grant submits for a full indemnification of $40,000. [7] Mr. Norton points out, correctly, that “the trial was short and the evidence and the issues were straight-forward”. The case was tried over three days, but we adjourned at noon on the second day and only required the morning of the next. The expert evidence on handwriting was uncomplicated and uncontested. Mr. Norton submits costs should be set at Scale 1 of Tariff A, with an allowance for two days of trial, under the “Tariffs of Costs and Fees” under the Costs and Fees Act. [8] Mr. Norton submits for costs in the amount of $16,563 payable to the insurer by the agent on the crossclaim. He also submits that, on principles similar to those which lead to a Sanderson or Bullock order, costs that would otherwise be ordered against the insurer in favour of the plaintiff should be ordered against the agent directly. [9] For the agent, Mr. Beveridge says that the insurer’s requests are not unreasonable. [10] If I were to restrict the award to tariff costs, I would allow costs at the basic scale, Scale 3. The case was more complex in the preparation than in its being tried. Mr. Grant was required to pursue production. He engaged two experts. The trial was simplified by the consent to an expert’s report, the agent’s choice not to testify after his discovery transcript was introduced in total, and the agent’s admission at the end. Also, I would not be inclined to split days down into half-days in the circumstances of this case. The amount would be $22,750. [11] The offer of settlement would incline me to modestly increase costs over the tariff amount. [12] Mr. Beveridge refers to this passage from para. 28 of the main decision: His position on who signed the names of Mr. Fleet and Ms. Lowe to the Federated Life applications changed during the course of Mr. Fleet’s claim and suit. When the truth finally came out, Mr. Bellefontaine was shown to be a life insurance agent willing to make an application appear as though it was signed by the insureds, to their possible detriment and contrary to the requirements of his principal. He was also shown to be a person who dodged responsibility for that act until his counsel had no choice but to make an admission. He makes these submissions: It is respectfully submitted that there has been a miscategorization of the timing of admissions and motivation of either Mr. Bellefontaine or his counsel. Mr. Bellefontaine testified at discovery examination that he believed that he had faxed the applications for the late Shirleen Lowe and Mr. Fleet’s signature. Mr. Bellefontaine’s discovery evidence, tendered at trial by the Plaintiff, makes it clear that his reason for believing that had to do with the nature of the faxed materials that were in the productions. If a witness gives incorrect testimony on discovery, it is only at trial that an opportunity is provided for that testimony to be corrected. Subsequent to Mr. Bellefontaine’s discovery examinations, as explained in the Defendant Bellefontaine’s Pre-Trial Memorandum, he determined from his records that he could find no faxes as he originally thought had been done, and could only conclude that he in fact had affixed the late Shirleen Lowe and Mr. Fleet’s signatures to the policies. This was admitted in the Defendant Bellefontaine’s Pre-Trial Memorandum, not necessarily for the first time at trial. With respect, there is no indication that Mr. Bellefontaine did not instruct counsel to make those admissions or that admissions by counsel were something “counsel had not choice but to make an admission” or that Bellefontaine dodged any responsibility at all. The entire legal proceeding and the trial and its duration was completely unaffected by any “admissions” made by Bellefontaine or his counsel, nor does Federated Life take the position to that effect. [13] As I said at para. 76 of the main decision, I was concerned that Mr. Bellefontaine had caused “a great deal of unnecessary expense”. I now find that he did so. As I said at para. 28, this encompasses the whole course of Mr. Fleet’s claim and suit. [14] Federated Life denied coverage on the basis of a material misrepresentation in an application prepared by Mr. Bellefontaine. Paragraph 8 of the statement of claim alleges “the application was forwarded by the defendant Bellefontaine to the defendant Federated after the defendant and the deceased’s signature were illegally affixed to the application.” Paragraph 12 says “the application was not signed by Shirleen B. Lowe and it was filled out by the agent of the insurer without reference to Ms. Lowe.” Mr. Bellefontaine’s defence generally denied these averments in paragraph 1 and specifically denied paragraph 8 of the statement of claim in paragraph 3 of the defence. [15] So, the issue of Ms. Lowe’s signature was clearly material. Apparently, all Mr. Bellefontaine had to do to answer that material issue was to consult his records. Instead, he filed a misleading defence and gave misleading evidence at discovery. [16] The admission made at trial, “that he may well have signed that application on their behalf”, is something Mr. Bellefontaine is said to have concluded “subsequent to discovery”. If that were so, Mr. Bellefontaine then had an obligation to put a stop to the investigations made by Mr. Grant, the retention of experts, and other work before trial caused by his misleading pleading and misleading discovery evidence. [17] I do not agree that “it is only at trial that an opportunity is provided for that testimony to be corrected.” It can be corrected, and a stop put to the expense, by making an admission formally or informally at any time. And, the misleading pleading can be amended by consent or with permission of a judge. Instead of doing any of those things, Mr. Bellefontaine let Mr. Grant get on with disproving Ms. Lowe’s signature, and proving what we now know Mr. Bellefontaine actually did. [18] Little turns on it, but I do not regard the statement in the brief, which is similar to the admission made at the end of the trial, to be an admission. It comes in the brief under the title “Anticipated Evidence”. We had to wait for Mr. Bellefontaine’s testimony. And, when he chose not to take the stand the admission became necessary to avoid the court being misled. [19] My decision should not be taken to imply that “Mr. Bellefontaine did not instruct counsel to make those admissions”. One assumes he did, but that is not a proper subject for inquiry. The point is that the admission had to be made, as experienced and ethical counsel would see. [20] Finally, the issue of Ms. Lowe’s signature was very important. It was material to the defence of misrepresentation, and it was relevant to assessing Mr. Bellefontaine’s credibility. [21] A civil justice system that is often beyond the financial reach of many people cannot tolerate unnecessary expense. Rule 63.04(2) recognizes as factors for fixing costs “(d) the manner in which the proceeding was conducted” and “(g) the neglect or refusal of any party to make an admission that should have been made”. [22] In my assessment, Mr. Bellefontaine’s conduct of his defence and his failure to admit, from the beginning until the last moment, that he was the source of Ms. Lowe’s apparent signature on the application caused significant and needless expense to Mr. Fleet. [23] The main reason for the enhanced costs is Mr. Bellefontaine’s conduct. Otherwise, it seems to me that costs should be awarded in the usual way against the unsuccessful defendant. Mr. Fleet will have costs of $25,000 plus disbursements against Federated and an additional $10,000 against Mr. Bellefontaine, although he was technically successful on his defence. Mr. Bellefontaine will be ordered to indemnify Federated. [24] Federated will have costs against Mr. Bellefontaine, in the requested amount, for the successful crossclaim. [25] Prejudgment Interest. Mr. Fleet suggests he should be awarded interest that would be higher than usual, Federated suggests it should be lower than usual. [26] I find that Mr. Fleet’s financial circumstances forced him to live on credit card debt before and since his wife’s death. I find he had a plan for consolidating his debts and overcoming the excessive credit card interest, which involved making improvements to his home and re-mortgaging it at a conventional rate. I am satisfied that the emotional impact of losing Ms. Lowe, and the burden of becoming a single parent, interfered with that plan. I find that, had the insurer paid the proceeds to Mr. Fleet when the policy came due, Mr. Fleet would have paid off his credit card debts. Mr. Grant submits that prejudgment interest should be set at 18.49%, an average of Mr. Fleet’s borrowing rates. [27] The policy provides for interest: Interest will be paid on the proceeds from the date of death until the date of payment. The rate will be consistent with the rate of interest paid on policy proceeds left on deposit with the company. Mr. Norton has provided an affidavit showing that the deposit rate is 2.5%. He submits that that is the appropriate rate for prejudgment interest. [28] Section 41 of the Judicature Act includes: (i) in any proceeding for the recovery of any debt or damages, the Court shall include in the sum for which judgment is to be given interest thereon at such rate as it thinks fit for the period between the date when the cause of action arose and the date of judgment after trial or after any subsequent appeal; (k) the Court in its discretion may decline to award interest under clause (i) or may reduce the rate of interest or the period for which it is awarded if (i) interest is payable as of right by virtue of an agreement or otherwise by law, (ii) the claimant has not during the whole of the pre-judgment period been deprived of the use of money now being awarded, or (iii) the claimant has been responsible for undue delay in the litigation. [29] These provisions were commented upon by Justice Hallett in K.W. Robb & Associates Limited v. Wilson, [1998] N.S.J. 249 (CA), to which Mr. Grant referred. At para. 40 Justice Hallett said that s. 41(i) was “an express direction from the Legislature to the courts to award interest”. Justice Hallett pointed out that “this mandatory direction to award interest is subject to the discretion conferred on the court by s. 41(k)” and, later, he points out that the rate is broadly discretionary. [30] At para. 44, Justice Hallett commented on the possibility of setting a rate based on interest paid by the successful party to the party’s bank or other credit granter. He began by pointing out that s. 41(i) gives the court “an extremely broad discretion to set the rate as it thinks fit.” One considers prevailing rates ... and most importantly whether the rates should be the rate a party would have to pay to borrow money for the relevant period or the investment rate that the creditor could obtain in the period in question had the claim been paid when it arose. He referred to Practice Memorandum 7 as showing that this court considers that a reasonable rate of return on investment is the norm, but he concluded by saying: However, if it were shown that the creditor had indebtedness to a bank or a [credit granter] on which he was paying interest and which indebtedness was, in part, due to the failure of the debtor to have paid his account in such circumstances the rate of interest being paid by the creditor in the period for which pre-judgment interest was to be calculated might be an appropriate rate. [31] In White v. E.B.F. Manufacturing Limited, [2005] N.S.J. 122 (SC), Justice McDougall was persuaded to modify his earlier decision, which had provided for interest based at a borrowing rate, and to allow interest based on deposit rates instead. He said at para. 7: Counsel for the defendant quite correctly pointed out that if a court exercises its discretion to award prejudgment interest then the rate should be based on a reasonable rate of return on the investment of the money awarded rather than a rate charged on borrowed funds. Justice McDougall then referred to K.W. Robb and Practice Memorandum 7. [32] I do not take White to suggest that the court must always choose an investment rate. K.W. Robb does not say that and, as I read it, the Practice Memorandum does not go that far. If it did, I would say it went too far. A Practice Memorandum is an exercise of the court’s inherent jurisdiction to regulate practice before it. It is not an opportunity to narrow a statutory discretion. [33] In conclusion, the court has “an extremely broad discretion to set a rate” for prejudgment interest. It would, therefore, be unfaithful to the statute for the court, through case law or practice direction, to start placing restrictions on the kinds of rate that may be considered. Ultimately, the judge must be satisfied that the rate is one that does justice between the parties. Usually, that is accomplished by looking at rates that reflect a reasonable return on investment. However, when there is a close nexus between the judgment creditor having been deprived of the principal and the judgment creditor having to borrow money justice may better be done by using the judgment creditor’s borrowing rate. And, for the first reason, other possibilities cannot be ignored. [34] Subject to determining the issue of contractual interest, I would award interest in this case that is based in part on Mr. Fleet’s credit card rates. [35] In the absence of proof of investment rates, I would go with the rate for default judgments under the Rules, which is 4%. I am satisfied that that rate would not be just in this case. There is a close connection between Ms. Lowe’s death, without which Mr. Fleet would have consolidated his high interest debts at a reasonable rate, the benefits Mr. Fleet should have received on her death, and his continuing inability to pay off the high interest debts. [36] In my view, it would be unjust to fix a borrowing rate for calculation on the whole of the award. The close connection is with the credit card debts, not all of Mr. Fleet’s debt load. I would fix a rate based on 4% for most of the principal and the difference between Mr. Fleet’s reasonable borrowing rates and his credit card rates for the amount that equals his credit card debts. [37] In my opinion, the rate of interest referred to in the policy does not apply after the claim is properly substantiated and coverage is wrongly denied. [38] Section 4 of the policy reads Any amount payable at the time of the life insured’s death will be paid in one sum. Interest will be paid on the proceeds from the date of death until the date of payment. The rate will be consistent with the rate of interest paid on policy proceeds left on deposit with the company. Taken out of context, this could mean that the 2.5% rate is paid from the date of death until whatever day the insurer actually pays the benefit. However, the context reveals a different meaning. [39] The main promise is on the cover page of the policy. It reads: This policy is a legal contract between the owner and or, Federated Life Insurance Company of Canada. We agree to pay the proceeds of this policy to the beneficiary upon receipt of due proof of the insured’s death ... . Section 6 also promises payment on receipt of the proof of claim. However, it also describes the proceeds as “payable” on death. Section 3.1 includes “The proceeds payable at the time of the insured’s death ...”. And, obviously, the benefit of the policy is compensation arising from the death of the owner. [40] So, we see there are two important dates: the date of death, when the benefit is “payable”, and the date proof is received, when the benefit is actually paid. To allow for the delay, to give meaning to the benefit being payable on a death, the policy provides for interest between these two days. [41] I do not see Section 4.1, when it is read in context, as contemplating breach of the policy by the insurer. Its purpose is to compensate the beneficiary for the delay between when the benefit is “payable” and when payment is actually compellable. [42] In that context, I interpret “date of payment” in Section 4.1 to mean the day when the insurer becomes liable to pay the benefits, not a day that could be years after breach by the insurer. [43] I will set prejudgment interest at 9%. [44] Conclusion. Mr. Fleet will have costs of $35,000 and taxable disbursements. Federated will be ordered to pay $25,000 of the $35,000, with an indemnity against Mr. Bellefontaine. Mr. Bellefontaine will be ordered to pay $10,000 of the enhanced costs directly to Mr. Fleet. Federated will have costs of $16,563 and taxable disbursements against Mr. Bellefontaine. [45] Mr. Fleet will have judgment against Federated for $150,000 plus interest at the rate of 2.5% from the date of death until the day Mr. Fleet submitted proof of death, and at 9% after that day. The interest is to be calculated simply. J.