• Formal Offers to Settle - A Potent Weapon in the Defence Arsenal
  • April 2, 2013 | Authors: Mitch Dermer; Robert A. Hodgins
  • Law Firm: Singleton Urquhart LLP - Vancouver Office
  • Plaintiffs and defendants in insurance litigation often make use of formal offers to settle in order to put the opposing party at risk with respect to costs awards. A considered and tactical approach to such offers can be particularly effective for the defence. If the judgment awarded to a plaintiff is less than the amount of a defendant’s formal offer to settle the claim, a court may award the defendant a portion of its costs (typically those involving steps taken in the proceeding since the offer to settle was delivered). If a reasonable offer to settle is made, the risk of having to pay the defendant’s legal costs out of an eventual award may help to push a recalcitrant plaintiff towards a settlement.

    Offers to settle are governed by Rule 9-1 of the Supreme Court Civil Rules, which outlines certain guidelines that rely on judicial discretion regarding costs. Under Rule 9-1, an offer to settle must:

    • be made in writing
    • be served on all parties of record
    • specifically state that the party making the offer reserves the right to bring the offer to the attention of the court for consideration in relation to costs.

    There is no prescribed form for the written offer other than the mandatory language found in the reservation clause of the Rules.

    Decisions on costs awards typically involve a combination of the factors listed in Rule 9-1(6), the most important being whether the offer to settle ought reasonably to be accepted, either on the date that the offer to settle was delivered or on any later date. In other words, the offer must be one that should reasonably be accepted: if, for example, the offer was accepted, and if it reserved the right of the party making the offer to claim special costs against the other party, it would not be considered an offer that reasonably should have been accepted. Certainty and finality would not have been achieved because it contained an outstanding condition.

    Even when an insurer defending a case is ordered to pay less than an offer to settle, it still faces challenges if it attempts to receive a costs award against individual plaintiffs. The court will, for example, often consider the relative financial circumstances of the parties. However, costs awards are still worth pursuing in appropriate circumstances. A judgment award for an amount less than a defendant’s offer to settle often outweighs other considerations.

    It’s worthy of attention that courts have, to some extent, described costs awards as punitive. The object of the Rule is to decrease the expense of parties who act reasonably in the prosecution and defence of claims and to reprimand those who do not.

    It should also be noted that Rule 9-1 does not extend to pre-litigation offers—a court proceeding must have been commenced. A court may consider revoked offers. Withdrawing an offer prior to judgment is also a relevant factor. A court may find that a party making an offer is only entitled to an award of costs under Rule 9-1 during the period the offer was open. Occasionally but rarely, a court may find that a party has disentitled itself altogether from an award because it withdrew an offer.

    An offer to waive costs if a plaintiff abandons its claim is also appropriate under Rule 9-1. Offers to settle for other than fixed or calculable sums have to be considered carefully as they must be clear, unambiguous, and unconditional while not depriving the party receiving the offer of its rights provided by Rule 9-1.

    Formal offers to settle can be a particularly effective tool for a defendant in insurance litigation. A reasonable formal offer may put a plaintiff at substantial risk of having its eventual award reduced. The court will likely apply Rule 9-1 strictly, however, when considering offers by insured defendants so it is imperative that formal offers to settle be drafted correctly and thoughtfully if they are to be most effective.